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Perma-Pipe, Inc. v. Liberty Surplus Ins. Corp.

United States District Court, N.D. Illinois, Eastern Division

April 21, 2014

PERMA-PIPE, INC., Plaintiff,
v.
LIBERTY SURPLUS INSURANCE CORPORATION, Defendant

Page 891

For Perma-Pipe, Inc., Plaintiff: Craig G. Penrose, LEAD ATTORNEY, Laurie & Brennan LLP, Chicago, IL.

For Liberty Surplus Insurance Corporation, Defendant: Chad Anthony Westfall, LEAD ATTORNEY, PRO HAC VICE, Musick Peeler & Garrett, San Francisco, CA; Michael Raymond Gregg, Rachel H Krayer, Merlo Kanofsky Brinkmeier & Gregg, Ltd., Chicago, IL; Susan J. Field, PRO HAC VICE, Musick, Peeler & Garrett Llp, Los Angeles, CA.

Page 892

MEMORANDUM OPINION AND ORDER

HON. RONALD A. GUZMAN, United States District Judge.

Perma-Pipe, Inc. has sued Liberty Surplus Insurance Company for breaching the parties' insurance contract (Count I) and for doing so in bad faith in violation of the Illinois Insurance Code (Count II). Perma-Pipe has filed a Federal Rule of Civil Procedure (" Rule" ) 56 motion for summary judgment on the contract claim. For the reasons set forth below, the Court grants the motion.

Facts

Perma-Pipe purchased a commercial general liability policy from Liberty with a per occurrence limit of $1 million and an aggregate limit of $2 million for the period November 1, 2008 through March 31, 2010. (Pl.'s LR 56.1(a) Stmt. ¶ ¶ 4-5.)[1] The policy states that Liberty " will pay those sums that [Perma-Pipe] becomes legally obligated to pay as damages because of . . . 'property damage'" to which the policy applies, and " will have the right and duty to defend [Perma-Pipe] against any 'suit'" seeking such damages. ( Id. ¶ ¶ 6-7.)

On October 26, 2010, the University of California told Perma-Pipe that pipes it had manufactured had suffered a " catastrophic failure" and the University would seek to hold Perma-Pipe liable for the resulting damage. ( Id. ¶ 18.) Liberty agreed to defend Perma-Pipe against the University's claims but reserved its right to contest coverage. ( See Pl.'s LR 56.1 Stmt., Ex. 2, Moore Aff., Ex. C, Letter from Liberty to Perma-Pipe (Oct. 8, 2012).) Because the reservation created a conflict of interest between the parties, Perma-Pipe selected independent counsel to defend it. ( Id. )

In February 2012, Perma-Pipe was named as a defendant in two lawsuits arising out of the pipe failure, one filed by the University seeking more than $35 million and the other filed by a subrogated insurance carrier, seeking more than $5 million. (Pl.'s LR 56.1 Stmt. ¶ 20.)

On October 8, 2012, Liberty sent Perma-Pipe a letter saying:

. . . . [Liberty] immediately withdraws all bases on which it previously reserved its right to decline to continue to defend or provide insurance coverage to Perma-Pipe in the [University's] lawsuit. Henceforth, [Liberty] will defend Perma-Pipe in [that] lawsuit without reservation and provide it with insurance coverage up to [the] policy . . . limits of liability. . . . [A]s a result of [Liberty's] withdrawal of all of its reservations of

Page 893

right, [it] will hereafter exercise its right to defend Perma-Pipe through [Liberty's] ...

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