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Aetna Casualty and Surety Co. v. Allsteel Inc.

March 26, 1999

THE AETNA CASUALTY AND SURETY COMPANY OF ILLINOIS, PLAINTIFF-APPELLEE,
v.
ALLSTEEL, INC., BTR NYLEX, LTD., BTR, PLC, ABC INSURANCE COMPANY, FEDERAL INSURANCE COMPANY, CHARLES JOHNSON, EUGENE KIPPER, BRUCE PENNY, WILLARD WHITNEY, ARTHUR R. NAVARRO, RAYMOND PERRY, LARRY CHRISTIAN, BILLY D. ROBBINS, RONALD NILGES, FRANK VERA, MARION BRAMEL, THOMAS GRAHAM, THOMAS UTLEY, HORACE SNITCHLER, JACK AHNG, ROBERT JOHNSON, ALBERTO BARBOSA, CHARLES R. JONES, BOBBIE BARKER, GERALD LOESCHER, JAMES R. CHIONE, LARRY D. MATTHEWS, ALEXANDER G. FULE, DEAN NEUENKIRCHEN, JAMES H. GILCHRIST, SR., PHILIP NUNALLY, RAYMOND G. HALL, WAYNE ROHR, HAROLD HOFFMAN, GLENN D. SHELTON, RENFROW HOLDER, LEROY TUNE, DUANE VICKERY, MONTY WAGNER, RAYMOND WATTS, ELMERY WILCOX, JAMES BLENCOE, AND RICHARD REYNOLDS, DEFENDANTS-APPELLANTS.



The opinion of the court was delivered by: Justice Buckley

Appeal from the Circuit Court of Cook County, The Honorable Lester D. Foreman, Judge Presiding.

The Aetna Casualty and Surety Company (Aetna) brought a declaratory judgment action to resolve a coverage dispute with Federal Insurance Company (Federal) concerning defense costs and settlements paid on behalf of Allsteel, Incorporated (Allsteel). On cross-motions for summary judgment, the Cook County circuit courtdenied Federal's motion, granted Aetna's motion, and entered judgment in favor of Aetna in the amount of $960,000.

Federal filed this timely appeal and contends that the circuit court erred in granting Aetna's motion for summary judgment because Allsteel's tender of a complaint to Aetna during Aetna's policy period constituted written notice of a "wrongful act," thereby obligating Aetna to provide coverage for Allsteel in three lawsuits filed after expiration of the Aetna policy. For the following reasons, we affirm the judgment of the circuit court.

I. BACKGROUND

In 1991, Aetna issued a "claims made" pension and welfare fund fiduciary responsibility insurance policy to the Allsteel retirement income plan for the period December 31, 1991, to December 31, 1992. Under the policy, only claims made during the policy period were covered. The Aetna policy contained a claims made extension clause which stated:

"If, during the policy period hereof, the Insured shall first become aware of any Wrongful Act which may subsequently give rise to a claim against any Insured and shall during the policy period hereof give written notice to the Company of such Wrongful Act, then any such claim which is subsequently made against the Insured arising out of such Wrongful Act shall for the purposes of this policy be deemed to have been first made against the Insured during the policy period." At the expiration of the policy period, Allsteel did not renew the Aetna policy.

Federal's fiduciary liability policy was in effect from June 30, 1994, to June 30, 1996. As part of its underwriting process, Federal asked Allsteel to complete an application before it would offer coverage. On the application, Allsteel stated that there were no "facts or circumstances which [it had] reason to suppose might afford valid grounds for any future claims that would fall within the scope of the proposed coverage." Allsteel also chose not to respond to a question concerning whether it had "given written notice under the provisions of any prior or current fiduciary liability insurance of specific facts or circumstances which might give rise to a claim being made against any insured." Federal offered coverage to Allsteel, and its policy included the following exclusion:

"5. The Company shall not be liable for Loss on account of any Claim made against the Insured:

(a) based upon, arising from, or in consequence of any circumstance if written notice of such circumstance has been given under any policy or coverage section of which this coverage is a renewal or replacement and if such prior policy or coverage section affords coverage *** for such Loss in whole or in part, as a result of such notice ***."

In 1974, Allsteel adopted a pension plan that provided retirement benefits for its employees. Under the terms of the plan, retirees received benefits as of their retirement date. In 1988 and 1991, Allsteel and its employees negotiated new collective bargaining agreements. The new agreements offered incentives for employees to take early retirement by March 31, 1991. Some Allsteel employees believed they had taken early retirement during early 1991 but learned that Allsteel had determined them ineligible for early retirement benefits.

In March of 1992, Meredith v. Allsteel, Inc., No. 92 C 1856 (N.D. Ill.), was filed in the United States District Court for the Northern District of Illinois. The plaintiffs were retired Allsteel employees who claimed they had been wrongly denied retirement benefits. The plaintiffs alleged that Allsteel had violated section 204(g) of the Employee Retirement Income Security Act (ERISA) (29 U.S.C. §1054(g) (1994)) by unlawfully amending the pension plan, wrongfully refusing to pay supplemental retirement benefits, breaching its fiduciary duty under section 104(b) of ERISA (29 U.S.C. §1024(b) (1994)) and also violating the Labor Management Relations Act (LMRA) (29 U.S.C. §141 et seq. (1994). The district court granted Allsteel's motion for summary judgment and, in particular, held that the 1991 collective bargaining agreement did not violate federal law by reducing an accrued benefit. Meredith v. Allsteel, Inc., 814 F. Supp. 657 (N.D. Ill. 1992). The plain-tiffs appealed and the United States Court of Appeals for the seventh circuit affirmed in part, reversed in part and remanded. Meredith v. Allsteel, Inc., 11 F.3d 1354 (7th Cir. 1993)(holding in part that the district court erred in defining "retire," but there was no impermissible reduction of an accrued benefit under ERISA).On remand, plaintiffs sought leave to file an amended complaint so 13 new plaintiffs could join the case. The district court denied this request since the potential plaintiffs had not exhausted their administrative remedies. The action proceeded to trial, where Aetna provided the defense for Allsteel under the terms of its policy.

On January 12, 1995, former Allsteel employees filed Ahng v. Allsteel, Inc., No. 95 C 0214 (N.D. Ill.). The Ahng plaintiffs alleged that even though they satisfied the pre-1991 eligibility requirements for higher pension benefits, Allsteel had refused to pay them these supplemental benefits in violation of section 204(g) of ERISA. 29 U.S.C. §1054(g) (1994). These plaintiffs had not retired in 1992 when the Meredith complaint was filed.

In April of 1995, Allsteel filed a motion for summary judgment, which the trial court granted in June of 1995. The plaintiffs appealed, and the seventh circuit reversed and remanded. Ahng v. Allsteel, Inc., 96 F.3d 1033 (7th Cir. 1996). Even though the Ahng plaintiffs raised an issue similar to that in Meredith, the court of appeals made clear that "none of the [Ahng] employees retired before March 31, 1991," and "they therefore stand in a different position *** from the Meredith plaintiffs." Ahng, 96 F.3d at 1035. To be sure, the court of appeals stated that an "identity of interest" with Meredith was lacking because "[t]he Meredith plaintiffs had no need to press the point that the 1991 change in the plan harmed people who retired after March 31, 1991, for the simple reason that none of them fell within that group." (Emphasis in original.) Ahng, 96 F.3d at 1037.

In 1997, Ahng was settled. The case had been tendered to Federal, which defended the case, and even though Aetna denied coverage on the basis of policy language, it advanced money toward settlement ...


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