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ILLINOIS TOOL WORKS v. HOME INDEM. CO.

September 28, 1998

ILLINOIS TOOL WORKS INC., et al., Plaintiff,
v.
THE HOME INDEMNITY COMPANY, et al., Defendants.



The opinion of the court was delivered by: MAROVICH

MEMORANDUM OPINION AND ORDER

 Plaintiff, Illinois Tool Works Inc. ("ITW"), filed this insurance coverage action against Defendant, American Alliance Insurance Co. ("American"), alleging that American breached its duty to defend and indemnify its insureds, RBK Furniture, Inc. ("RBK") and Robert B. Kaplan ("Kaplan"). *fn1" ITW now moves for summary judgment in its favor and against American for damages in the amount of $ 1,952,688.37. For the reasons set forth below, the motion is granted in part and denied in part.

 BACKGROUND

 ITW's present motion for summary judgment signals the commencement of Round Two of the parties' ongoing insurance coverage dispute. Round One -- considering ITW's motion for judgment on the pleadings -- has already been decided in ITW's favor by this Court in its February 28, 1998 Memorandum Opinion and Order. Illinois Tool Works, Inc. v. Home Indem. Co., 998 F. Supp. 868 (N.D. Ill. 1998). The casual reader is referred to that opinion for a more comprehensive discussion of the relevant background to this insurance coverage dispute.

 In brief, this action arises out of a lawsuit filed on December 7, 1994 by ITW against RBK in the United States District Court for the Northern District of Illinois. The suit, Illinois Tool Works v. RBK Furniture, No. 94 C 7301, alleged that hazardous waste products deposited at the RBK property contaminated the soil and groundwater underlying ITW's adjacent property. ITW's suit requested damages and other relief from RBK pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. ยงยง 9601, 9607 et seq. ("CERCLA"). The suit also sought damages and other relief from RBK for trespass and nuisance as a result of the contamination from the RBK property entering the ITW property. On January 20, 1995, ITW amended its Complaint adding Kaplan, the owner of the property, as a defendant.

 Counsel for RBK and Kaplan requested -- on several occasions -- that American defend them against ITW's Complaint and indemnify them for any liability pursuant to the terms of American's insurance policy. American, however, denied that it had any duty to defend or indemnify RBK or Kaplan under the provisions of its policy.

 On September 20, 1996, RBK and Kaplan entered into a settlement agreement and mutual release with ITW in which RBK and Kaplan assigned their causes of action against Home and American under the policies to ITW. As assignee of RBK and Kaplan, ITW filed an insurance coverage action against American on March 25, 1997. The Complaint alleged that American breached its duty to defend and indemnify RBK and Kaplan against ITW's lawsuit under the personal injury provisions of American's policy. Subsequently, ITW moved for judgment on the pleadings requesting that this Court determine the issue of liability for American's breach of its duty to defend and indemnify RBK and Kaplan.

 On February 28, 1998, this Court concluded that American had breached its duty to defend RBK and Kaplan against ITW's lawsuit. Illinois Tool Works, 998 F. Supp. at 874. As a result of its breach, the Court found that American was "liable for the attorneys' fees RBK and Kaplan incurred defending themselves against the ITW lawsuit and for the settlement entered into by RBK and Kaplan." Id. However, the Court did not enter a judgment for the attorneys' fees or the settlement amount because it "recognized that there may be additional questions left to be resolved with respect to the propriety or authenticity of the settlement agreement." Id. at 874 n.7. Those questions are the subject of ITW's current motion for summary judgment.

 In particular, the issues before the Court concern: (1) the propriety of the September 20, 1996 settlement agreement entered into between ITW and RBK/Kaplan; (2) the amount, if any, owed by American -- as the insurer for RBK/Kaplan -- under the settlement agreement; (3) the amount, if any, of attorneys' fees owed by American -- as the insurer for RBK/Kaplan -- by virtue of ITW's CERCLA lawsuit; and (4) the amount, if any, of prejudgment interest owed by American -- as the insurer for RBK/Kaplan -- under the settlement agreement.

 DISCUSSION

 I. Standards for Summary Judgment

 Summary judgment is appropriate where the pleadings, answers to interrogatories, affidavits, and other materials show that there exists "no genuine issue as to any material fact" and that the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). Only genuine disputes over "material facts" can prevent a grant of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). "Material facts" are those that might affect the outcome of the suit under governing law. Id. A "genuine issue" exists only if there is "sufficient evidence favoring the non-moving party for a jury to return a verdict for that party." Id. at 249. When considering a motion for summary judgment, a court must view the facts, and all reasonable inferences drawn therefrom, in a light most favorable to the non-movant. Griffin v. Thomas, 929 F.2d 1210, 1212 (7th Cir. 1991).

 II. Settlement Was Entered in Reasonable Anticipation of Liability

 In order to recover the full amount of the settlement from American, under Illinois law, ITW must demonstrate that the settlement was made in reasonable anticipation of liability and the settled amount was reasonable. WestAmerica Mortgage Co. v. Tri-County Reports, Inc., 670 F. Supp. 819, 821 (N.D. Ill. 1987); United States Gypsum Co. v. Admiral Ins. Co., 268 Ill. App. 3d 598, 625, 643 N.E.2d 1226, 1244, 205 Ill. Dec. 619 (1st Dist. 1994). This rule originated from the concern that a settlement may be entered into in order to obtain insurance coverage for an otherwise uninsurable claim. United States Gypsum Co., 268 Ill. App. 3d at 625, 643 N.E.2d at 1244. There is an additional concern that insureds would be deterred from entering into a settlement agreement if they had to offer full proof of liability when proof has not yet been established in the underlying action. Id. Thus, if an insured settles an underlying claim prior to verdict, the insured does not need to establish actual liability to the party with whom it settled "'so long as a potential liability on the facts known to the [insured is] shown to exist....'" Id. (quoting Luria Bros. & Co. v. Alliance Assurance Co., 780 F.2d 1082, 1091 (2d Cir. 1986)). The insured also does not need to prove that it is more likely than not liable to the party with whom it settled. WestAmerica v. ...


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