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TKK USA, Inc. v. Safety National Casualty Corp.

United States Court of Appeals, Seventh Circuit

August 21, 2013

TKK USA, Inc., formerly known as The Thermos Company, Plaintiff- Appellee, Cross- Appellant,
v.
Safety National Casualty Corp., Defendant-Appellant, Cross- Appellee.

Argued February 13, 2013

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 10 C 8146 — James B. Zagel, Judge.

Before Bauer, Sykes, and Hamilton, Circuit Judges.

Hamilton, Circuit Judge.

Defendant-appellant Safety National Casualty Corporation ("Safety National") sold an excess liability insurance coverage policy to plaintiff-appellee TKK USA, Inc., which was formerly known as The Thermos Company. The policy covered excess losses resulting from liability imposed on TKK "by the Workers' Compensation or Employers' Liability Laws" of Illinois. The central issue in these appeals is whether the policy covers TKK's costs to defend and settle a lawsuit brought under Illinois common law by the widow of a former TKK employee. The lawsuit alleged that TKK's negligence caused the employee to become ill with and eventually die from mesothelioma. The common law negligence claim was subject to a rock-solid affirmative defense. The Illinois Workers ' Occupational Diseases Act bars common law claims by or on behalf of an employee against a covered employer "on account of damage, disability or death caused or contributed to by any disease contracted or sustained in the course of the employment." 820 Ill. Comp. Stat. 310/11.

After Safety National denied TKK's claim for coverage of losses above the policy floor, TKK filed this suit. The district court granted summary judgment in favor of TKK for its costs in defending and settling the widow's suit. TKK USA Inc. v. Safety Nat'l Cas. Corp., No. 10 C 8146, 2011 WL 2600585 (N.D. Ill. June 29, 2011); TKK USA Inc. v. Safety Nat'l Cas. Corp., No. 10 C 8146, 2011 WL 7138875 (N.D. Ill.Dec. 2, 2011). The district court found that the policy's reference to "Employers' Liability Laws" included the widow's common law claim against the employer for negligence even if the claim ultimately could not prevail because of the statutory bar. The policy applies to claims under "Employers' Liability Laws" even if the claims are "wholly groundless, false, or fraudulent." The district court denied, however, TKK's claim for attorney fees and costs in the coverage lawsuit itself, with the exception of a modest fee award for what the district court considered a vexatious motion to reconsider the merits of its decision. Both sides have appealed.

We affirm the district court's decisions in all respects. The key policy term—"Employers' Liability Laws"—is broad enough to include claims brought under the common law, even "groundless" claims for which the employer appears to have a solid affirmative defense. We also find no error in the district court's treatment of the fee claims.

I. Undisputed Facts and Procedural Background

The district court had jurisdiction under 28 U.S.C. § 1332(a) because the parties have different citizenship. We have jurisdiction under 28 U.S.C. § 1291. We apply Illinois substantive law, the law of the forum, since the parties do not dispute the choice of law. Santa's Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 345–46 (7th Cir. 2010). We review de novo the district court's grant of summary judgment. There are no disputed issues of material fact, and the interpretation of an insurance policy is well-suited to resolution as a matter of law on summary judgment. Id.; Crum and Forster Managers Corp. v. Resolution Tr u s t Corp., 620 N.E.2d 1073, 1077 (Ill. 1993).

A. The Insurance Policy

TKK purchased from Safety National an excess liability insurance coverage policy for injury and illness claims by employees. The policy coverage "applies only to Loss sustained by the EMPLOYER because of liability imposed upon the EMPLOYER by the Workers' Compensation or Employers' Liability Laws" of Illinois, and Safety National "agrees to indemnify" TKK for "Loss." App. 19. "Loss" is defined broadly and in pertinent part as follows:

"Loss"—shall mean actual payments legally made by the EMPLOYER to Employees and their dependents in satisfaction of: (a) statutory benefits, (b) settlements of suits and claims, and (c) awards and judgments. "Loss" shall also include Claim Expenses, paid by the EMPLOYER, as defined in Paragraph (2) of this section."

Id. "Claim Expenses" are central to this case, and the policy defines the term in pertinent part as:

interest upon awards and judgments and the reasonable costs of investigation, adjustment, defense, and appeal … of claims, suits or other proceedings brought against the EMPLOYER under the Workers' Compensation or Employers' Liability Laws [of Illinois] … for bodily injury or occupational disease … even though such claims, suits, proceedings or demands are wholly groundless, false, or fraudulent … .

Id. The policy does not include a definition for the other term that is critical to this case: "Workers' Compensation or Employers' Liability Laws."

The policy is an excess liability policy. TKK retained primary responsibility for defending, settling, or paying claims up to $275, 000 per occurrence, at which point the excess coverage began. Safety National did not undertake any duty to defend TKK in any covered claims, though it had the right to intervene in the defense if it chose to do so to protect its interests. Instead, Safety National agreed to pay covered ...


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