Appeal from the Circuit Court of Du Page County. No. 94--MR--0198. Honorable Bonnie M. Wheaton, Judge, Presiding.
Rehearing Denied March 6, 1997. Released for Publication March 6, 1997.
The Honorable Justice Colwell delivered the opinion of the court. Geiger, P.j., and Bowman, J., concur.
The opinion of the court was delivered by: Colwell
JUSTICE COLWELL delivered the opinion of the court:
Plaintiff, Missouri Pacific Railroad Company (Missouri Pacific), appeals from the trial court's order granting partial summary judgment. The trial court determined as a matter of law that as of February 27, 1973, Missouri Pacific was aware of the substantial likelihood that its employees would file numerous claims for noise-induced hearing loss (NIHL). Consequently, the trial court held under the "known loss" doctrine that the defendant insurance companies (insurers) were not legally obligated to pay Missouri Pacific's losses arising from any NIHL claims occurring after February 27, 1973. We reverse and remand with directions.
The record shows that between 1973 and 1985 Missouri Pacific purchased comprehensive general liability (CGL) policies from the insurers to cover its liabilities for third-party personal injury claims. By May 1972 Missouri Pacific had received its first NIHL claim. NIHL is hearing loss that is caused from the continuous and repeated exposure to workplace noise. Between 1972 and 1987, approximately 75 employees filed claims against Missouri Pacific for NIHL. After January 1, 1987, Missouri Pacific faced about 7,425 employee NIHL claims, which totals 99% of all NIHL claims filed against Missouri Pacific.
In April 1994, Missouri Pacific filed a declaratory judgment action, arguing that the defendants were legally obligated to insure the NIHL claims. On November 6, 1995, the insurers filed a motion for partial summary judgment. The insurers contended that the NIHL losses were "uninsurable known loss[es]" as of February 27, 1973.
The insurers argued that a letter dated February 27, 1973, from John Godfrey, Missouri Pacific's general attorney, to three other Missouri Pacific officers showed that on that date Missouri Pacific knew that there was a substantial probability that it would face a large number of hearing loss claims in the future. Specifically, the insurers relied on one sentence in Godfrey's letter, which states:
"From what I have been able to read and learn from discussion with other claim people, the industrial hearing loss is definitely going to be one of the big claim areas in the future."
The insurers contended that this statement demonstrates that NIHL became an uninsurable known loss as of February 27, 1973, and that the insurers were not legally obligated to provide coverage for any losses due to NIHL occurring after this date.
The trial court granted the insurers' motion for partial summary judgment. The court stated that the Illinois Supreme Court explained the known loss doctrine in Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 180 Ill. Dec. 691, 607 N.E.2d 1204 (1992). The trial court said that Outboard instructed lower courts to determine only whether the insured had knowledge of a known loss and that it was therefore irrelevant whether the insurers knew or had reason to know in 1973 that Missouri Pacific would face numerous NIHL claims in the future. Accordingly, the trial court determined, the only question was whether Missouri Pacific knew that NIHL would become a loss.
Next, the trial court stated that under Outboard a loss becomes an uninsurable known loss when the insured knew or had reason to know that a "probable loss or liability would occur." In applying this legal standard to the facts before it, the trial court found that the February 27, 1973, letter showed that Missouri Pacific "had reason to believe that there was a substantial likelihood of many induced hearing loss claims." Consequently, the trial court granted the insurers' motion for partial summary judgment, finding that the insurers were not liable for the NIHL claims.
On appeal, Missouri Pacific contends that the trial court erred in determining that NIHL was an uninsurable known loss as of February 27, 1973. Further, Missouri Pacific argues that the trial court incorrectly found that the insurers' knowledge of NIHL at the time they issued the policies is irrelevant. Indeed, Missouri Pacific contends that the record shows that the insurers knew about the problem of NIHL, but chose not to exclude coverage for NIHL when they issued the CGL policies to Missouri Pacific.
Summary judgment is appropriate when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Outboard, 154 Ill. 2d at 102. Summary judgment is a drastic measure and should only be granted if the movant's right to judgment is clear and free from doubt. Outboard, 154 Ill. 2d at 102. Therefore, where a reasonable person can draw divergent inferences from undisputed facts, summary judgment should be denied. Outboard, 154 Ill. 2d at 102. Finally, our review of the trial court's entry of summary judgment is de novo. Monticello Insurance Co. v. Wil-Freds Construction, Inc., 277 Ill. App. 3d 697, 701, 214 Ill. Dec. 597, 661 N.E.2d 451 (1996).
First, Missouri Pacific argues that the known loss doctrine does not apply in this case because the doctrine can only be used in cases of property damage, not personal injury, and because the doctrine applies only to duty-to-defend insurance policies, not indemnity-only policies. We agree with Missouri Pacific that the majority of courts that have applied the known loss doctrine have applied it to property damage claims. Moreover, we agree with Missouri Pacific that in the cases it cites in its brief the insurance policies at issue were duty-to-defend policies, not indemnity-only policies. There is nothing in any of these opinions, or in Outboard, however, that mandates, or even suggests, that the known loss doctrine cannot be applied to personal injury claims or to indemnity-only policies. On the contrary, the Outboard court stated that the insurer in that case "had no duty to defend or indemnify" the insured against the ...