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08/30/96 KEITH KERR v. ILLINOIS CENTRAL RAILROAD

August 30, 1996

KEITH KERR, INDIVIDUALLY AND ON BEHALF OF THOSE CERTAIN UNDERWRITERS AT LLOYDS' LONDON, CERTAIN LONDON MARKET INSURANCE COMPANIES, SIGNATORY TO POLICIES 881/UGR0798, 881/UHR0652, 81/UJR0594, 881/UKR0831, CE5504866FR, CE5505687FR, CE5503461FR, 5501765FR, 614/NC1672, 614/NC5592, AND 614/NC3930, PLAINTIFFS/APPELLEES,
v.
ILLINOIS CENTRAL RAILROAD COMPANY, DEFENDANT/THIRD-PARTY PLAINTIFF-APPELLANT, V. BELLAFONTE (U.S.) INSURANCE COMPANY, CALIFORNIA UNION INSURANCE COMPANY, THIRD-PARTY DEFENDANTS-APPELLEES, AND HARBOR INSURANCE COMPANY, LEXINGTON INSURANCE COMPANY, AND STONEWALL INSURANCE COMPANY, THIRD-PARTY DEFENDANTS.



Appeal from the Circuit Court of Cook County. No. 91 CH 12009. The Honorable Dorothy Kirie Kinnaird, Judge Presiding.

Rehearing Denied October 17, 1996. Released for Publication October 22, 1996.

The Honorable Justice Hourihane delivered the opinion of the Court: Justices Gordon and Cousins concur.

The opinion of the court was delivered by: Hourihane

JUSTICE HOURIHANE delivered the opinion of the Court:

Plaintiffs, certain underwriters at Lloyd's, London and certain London Market Insurance Companies (hereafter London Insurers) sought a declaratory judgment that they were not obligated to indemnify defendant, Illinois Central Railroad Company (IC), for amounts IC expended in defense and settlement of an employment discrimination class action suit. IC counterclaimed and filed a third-party action against several other of its insurers. The circuit court found that IC failed to give timely notice to its insurers and granted the London Insurers' motion for summary judgment.

On appeal, IC argues that the circuit court improperly construed the notice provision in the policies and applied its own "reasonable attorney" standard in determining whether IC's notice was timely; that the circuit court improperly drew all inferences in favor of the movants and against IC; and that the circuit court's finding that plaintiffs demonstrated prejudice by the timing of IC's notice is not supported by the record.

We affirm.

BACKGROUND

I. The Underlying Litigation

The underlying suit in this insurance coverage dispute involves a claim of racial discrimination lodged by a group of approximately 150 black workers who, in 1979, unsuccessfully sought employment as laborers at IC's St. Louis, Missouri Division. One of the applicants, Robert Mister, filed a charge with the Equal Employment Opportunity Commission, and upon issuance of a right to sue letter in 1981, filed a class action lawsuit against IC in the United States District Court for the Southern District of Illinois alleging discriminatory hiring practices (hereafter the Mister case). The complaint sought compensatory damages of $5 million and punitive damages of $10 million in each of three counts.

On February 22, 1982, the district court granted, in part, IC's motion to dismiss. During the pendency of this motion, IC learned that plaintiff intended to seek certification of a much broader class than the original group of job applicants, and on August 6, 1981, Robert Serpe, IC's in-house counsel, prepared a memo which states in relevant part:

"Recently I have had several opportunities to discuss this case with Dick Boyle and Dick Nash, our local attorneys. Both have expressed great concern, and I feel justifiably so, about this case. The plaintiff's attorney, Jerome S. Schlicter, not only has had special training in the area of civil rights, class action litigation but has successfully prosecuted a number of such cases.

Schlicter's intention is to expand his class beyond the 150 "rejected" applicants which were the original focus of this suit to include a class of past and present employees and applicants in the states of Illinois and Kentucky. We, of course, are resisting his efforts. However, if the plaintiff is successful the verdict potential of this case will easily exceed several million dollars."

On November 3, 1982, the district court certified a class consisting of all black applicants at IC's St. Louis Division from 1976 through 1980.

In 1983, IC hired a statistical expert, Dr. David Peterson. During the summer of 1983, Peterson performed a number of analyses of the St. Louis Division's hiring records and concluded that, after taking "proximity to the workplace" into account (which IC advised was a factor in its hiring decisions), IC had not discriminated. Peterson advised IC against settling the case for more than the anticipated cost of defending.

In August 1984, Peterson was asked to analyze IC's maximum exposure if plaintiffs prevailed at trial. Two analyses were produced. The first showed a high-end verdict of $870,000; the second showed a maximum potential exposure of approximately $2 million.

On September 14, 1984, following receipt of the first analysis, Jim Garrison wrote a memo to Dick Nash, both of whom were outside litigation counsel on the Mister case. The memo states in relevant part:

"In Professor Peterson's opinion, we should take this worst possible scenario analysis with no more than a few grains of salt. Based upon his distance from the job site hiring pattern analysis, he believes that we can win this case."

On August 6, 1986, the district court decided in favor of IC, finding that although a prima facie case of disparate treatment and disparate impact had been established, IC had successfully rebutted this prima facie case by demonstrating that distance from the workplace and its practice of local hiring accounted for the differences indicated by the plaintiffs' analysis of the ...


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