United States District Court, N.D. Illinois, Eastern Division
SOKOL AND COMPANY, Plaintiff,
ATLANTIC MUTUAL INSURANCE COMPANY, Defendant.
The opinion of the court was delivered by: JOAN H. LEFKOW, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff, Sokol and Company ("Sokol"), filed this action in
the Circuit Court of Cook County, Illinois, Law Division, Case
No. 03 L 002240, seeking a judgment against defendant, Atlantic
Mutual Insurance Company ("Atlantic Mutual"), for expenses it
incurred as a result of its delivery of inedible peanut butter
paste to its customer. After complying with Local Rule 81.2,
Atlantic Mutual removed the case to this court on diversity of
citizenship grounds on March 24, 2003. Before the court are the
parties' cross motions for summary judgment. Sokol is an Illinois
corporation. Atlantic Mutual is a New York corporation with its
principal place of business in New York. The amount in
controversy exceeds $75,000. The court, therefore, has
jurisdiction over the claims pursuant to 28 U.S.C. § 1332(a)(1).
For the reasons set forth below, Sokol's motion is denied while
Atlantic Mutual's motion is granted. BACKGROUND*fn1
Sokol is a food products manufacturer that supplied peanut
butter paste to Continental Mills for inclusion in cookie mix
packages. After distributing cookie mix packages containing
Sokol's peanut butter paste to its customers, Continental Mills
discovered that the peanut butter paste was not fit for human
consumption. Sokol confirmed that the peanut butter paste had
become unfit for human consumption and agreed that the cookie mix
packages containing its peanut butter paste had to be retrieved.
The cookie mix packages were retrieved and unsealed in order to
remove the peanut butter paste and other ingredients. Packets of
peanut butter paste from a different supplier were then included
in new cookie mix packages along with the other ingredients and
distributed to Continental Mills' customers. Continental Mills
subsequently sought reimbursement from Sokol totaling $75,441.20
for its expenses associated with the loss and damage caused by
Sokol's peanut butter paste.
In December of 2001, Sokol's insurance broker provided notice
of Continental Mills' claim against Sokol to Atlantic Mutual,
Sokol's insurer. Sokol maintained general liability coverage and
product recall expense coverage with Atlantic Mutual. Atlantic
Mutual responded by letter on April 5, 2002, denying coverage
based on the policy's exclusions for damage to "your product" and
for damage to "impaired property." (Pl. App. II, P. 8). The claim
denial letter reserved the right to rely on other policy
provisions and reasons to disclaim coverage. The letter also
noted that "[t]he position stated in this letter shall not
constitute a waiver of rights or obligations under the policy,
nor is our investigation of this matter or the coverage
determination made to be considered an admission of any obligation under policy number 763 00 62 01." (Pl. App.
II, P. 11). Recognizing that allegations, claims, and theories
are subject to change, the letter requested that Sokol forward a
copy of any suit papers to Atlantic Mutual's office for its
consideration if the matter escalated into a lawsuit. (Pl. App.
II, P. 12). In a subsequent letter to Atlantic Mutual, Sokol's
insurance broker challenged the denial letter. Atlantic Mutual
again denied coverage for Sokol's claim in a letter dated June
10, 2002. Sokol paid Continental Mills' claim in full in June of
2002 and demanded reimbursement of $75,441.20 from Atlantic
SUMMARY JUDGMENT STANDARDS
Summary judgment obviates the need for a trial where there is
no genuine issue as to any material fact and the moving party is
entitled to judgment as a matter of law. Fed.R. Civ. P. 56(c).
To determine whether any genuine fact exists, the court must
pierce the pleadings and assess the proof as presented in
depositions, answers to interrogatories, admissions, and
affidavits that are part of the record. Fed R. Civ. P. 56(c)
Advisory Committee's notes. The party seeking summary judgment
bears the initial burden of proving there is no genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323,
106 S. Ct. 2548, 2553 (1986). In response, the non-moving party
cannot rest on bare pleadings alone but must use the evidentiary
tools listed above to designate specific material facts showing
that there is a genuine issue for trial. Id., 477 U.S. at 324,
106 S. Ct. at 2553; Insolia v. Philip Morris Inc.,
216 F.3d 596, 598 (7th Cir. 2000). A material fact must be outcome
determinative under the governing law. Insolia,
216 F.3d at 598-599. Although a bare contention that an issue of fact exists
is insufficient to create a factual dispute, Bellaver v.
Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the court must
construe all facts in a light most favorable to the non-moving
party as well as view all reasonable inferences in that party's
favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505,
2513 (1986). On cross-motions for summary judgment, the court
must consider the merits of each motion and assess the burden of
proof that each party would bear on an issue at trial.
Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th
Sokol seeks a judgment against Atlantic Mutual for $75,441.20
plus interest, the amount Sokol paid to Continental Mills. Sokol
argues that summary judgment should be granted in its favor
because Atlantic Mutual was required to defend and indemnify
Sokol against Continental Mills' claim. To the contrary, Atlantic
Mutual contends that summary judgment should be granted in its
favor because it had no duty to defend or indemnify Sokol because
Sokol was never sued and, instead, made a "voluntary payment" to
Under Illinois law,*fn2 the construction of an insurance
policy and its provisions is a question of law. Outboard Marine
Corp. v. Liberty Mutual Ins. Corp., 154 Ill. 2d 90,
607 N.E.2d 1204, 1212 (1992). A court must construe the policy with concern
for the intent of the parties upon contracting.
154 Ill. 2d at 108, 607 N.E.2d at 1212.
To establish the meaning of the policy's language and the parties'
intent, the court looks to the policy as a whole "with due regard
to the risk undertaken, the subject matter that is insured, and
the purposes of the entire contract." Id. Where the words
of a policy are unambiguous, the court gives them their "plain,
ordinary, and popular meaning." Id. Language that is subject to
more than one interpretation is ambiguous and must be interpreted
in favor of the insured. Id. Atlantic Mutual argues that it is not obligated to defend or
indemnify Sokol for the expenses Sokol incurred in reimbursing
Continental Mills because there was no "suit" against Sokol.
Sokol argues, however, that Atlantic Mutual was obligated to
defend it against Continental Mills' claim and that Atlantic
Mutual's claim denial letters amounted to an anticipatory breach
of the insurance contract, thereby relieving Sokol of its
obligation to settle Continental Mills' claim with Atlantic
With regard to Atlantic Mutual's obligations under the
insurance policy, the policy provided:
We will pay those sums that the insured becomes
legally obligated to pay as damages because of
"bodily injury" or "property damage" to which this
insurance applies. We will have the right and duty to
defend the insured against any "suit" seeking those
damages. However, we will have no duty to defend the
insured against any "suit" seeking damages for
"bodily injury" or "property damage" to which this
insurance does not apply. We may, at our discretion,
investigate any "occurrence" and settle any claim or
"suit" that may result.
(Pl. App. I, P. 14). The policy defined "suit" as "a civil
proceeding in which damages because of "bodily injury," "property
damage," "personal injury" or "advertising injury" to which this
insurance applies are alleged."*fn3
(Pl. App. I, P. 26).
The Illinois Supreme Court addressed the issue of when a "suit"
exists in Lapham-Hickey Steel Corp. v. Protection Mut. Ins.
Co., 166 Ill. 2d 520, 655 N.E.2d 842 (1995). In Lapham-Hickey,
the plaintiff-insured sought insurance coverage from the
defendant-insurer to recover defense costs associated with the
investigation of environmental contamination at one of its
facilities under an "all risks" insurance policy.
166 Ill. 2d at 522, 655 N.E.2d at 843.
The insurer argued that it was not liable for such costs because
no suit had been filed against the insured, while the insured contended that the state environmental agency's consent order had triggered
the insurer's duty to defend and indemnify the insured for its
defense costs. 166 Ill. 2d at 529, 655 N.E.2d at 846.
With regard to the insurer's duty to defend, the insurance
policy stated that the insurer
. . . agrees to defend any suit against the Insured
alleging liability for such damage, destruction, or
loss and seeking damages on account thereof, even if
such suit is groundless, false, or fraudulent; but
this company may without prejudice, make such an
investigation, negotiation and settlement of any
claim or suit as the Company deems expedient.
166 Ill. 2d at 528, 655 N.E.2d at 845. Since the policy did not
define "suit" and the definition of "suit" in the environmental
context was a matter of first impression, the Illinois Supreme
Court looked to the decisions of federal and state courts that
interpreted the meaning of "suit" within the context of a
comprehensive general liability policy. 166 Ill. 2d at 530-531,
655 N.E.2d at 846-847. Rejecting the interpretation of some
courts that "suit" includes the receipt of a potentially
responsible person (PRP) letter from federal and state
environmental agencies, the Illinois Supreme Court agreed with
analyses of courts finding that "the word `suit' is unambiguous"
and "requires the commencement of some action in a court of law
before an insurer's duty to defend is triggered."
166 Ill. 2d at 531, 655 N.E.2d at 847. In accordance with this rule, the
Illinois Supreme Court held that neither the initial letter from
the Environmental Protection Agency, the draft consent order or
the "no-action" letter initiated a suit. 166 Ill. 2d at 533,
655 N.E.2d at 848. Because none of these letters initiated a suit,
the insurer's duty to defend was not triggered.
166 Ill. 2d at 532, 655 N.E.2d at 847.
The insurance policy at issue in the instant matter contains
duty to defend language that is similar to that in
Lapham-Hickey. As in Lapham-Hickey, the Atlantic Mutual
policy reserves the duty to defend to instances in which a "suit"
has been brought against Sokol. Importantly, the insurance policy in this matter clearly defined "suit" as
requiring a civil proceeding, arbitration proceeding, or other
alternative dispute resolution proceeding. The parties do not
dispute that Continental Mills has not undertaken a lawsuit,
civil proceeding, arbitration proceeding, or other dispute
resolution proceeding against Sokol. Continental Mills did not
file an action against Sokol in a court of law. As a consequence,
Atlantic Mutual's duty to defend Sokol against Continental Mills'
claim was not implicated.
Sokol, however, argues that Lapham-Hickey does not assist the
court with the resolution of this case because the Illinois
Supreme Court did not consider whether an anticipatory breach of
the insurer's duty to defend results in the waiver of the
requirement that a suit be filed before the duty to defend is
triggered. While Sokol is correct in that Lapham-Hickey did not
address the effect of an anticipatory breach, Sokol has failed to
establish that Atlantic Mutual breached its insurance contract
with Sokol in anticipation of its obligation to defend Sokol
against a potential suit filed by Continental Mills.
In support of its argument that Atlantic Mutual anticipatorily
breached its insurance agreement, Sokol points to the claim
denial letters from Atlantic Mutual as "a definite statement to
Sokol that the Insurer will not perform its contractual duties
arising under the policy even if a suit is brought against Sokol
for damages covered under the policy." (Pl. Reply Br., P. 11).
This contention is unfounded. The claim denial letters reflected
Atlantic Mutual's position that Sokol's expenses associated with
the peanut butter paste were not covered under the terms of the
insurance policy and provided an explanation for this conclusion.
Nowhere in the letters did Atlantic Mutual state that it would
not defend or indemnify Sokol in the event of a lawsuit. While
the June 10, 2002 letter stated that Atlantic Mutual "is unable
to indemnify or defend Sokol & Company in this matter," the letter also explicitly informed Sokol that the
letter did "not constitute a waiver of rights or obligations
under the policy." (Def. Ex. L, P. 29). Like the April 5, 2002
claim denial letter, the June 10, 2002 letter also requested that
any suit papers be sent to Atlantic Mutual's office for its
review and consideration in the event that a lawsuit was filed.
(Def. Ex. L, P. 29). These statements were a recognition by
Atlantic Mutual of its continuing rights and obligations under
the insurance policy. They did not constitute an anticipatory
breach of the insurance contract.
Since Continental Mills has not filed a lawsuit or initiated
any other dispute resolution proceeding against Sokol as required
by the insurance policy at issue, Atlantic Mutual's contractual
obligations to defend and indemnify Sokol have not been
triggered. See Crum & Forster Managers Corp. v. Resolution Trust
Corp., 620 N.E.2d 1073 at 1081 (Ill. 1993) (". . . where there
is no duty to defend, there will be no duty to indemnify . . .").
Consequently, Atlantic Mutual is not obligated to indemnify Sokol
for its payment to Continental Mills.
For the reasons stated above, Sokol's motion for summary
judgment is denied while Atlantic Mutual's motion for summary
judgment is granted. The clerk is directed to enter judgment in
favor of the defendant. This case is terminated.