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Motorola Solutions, Inc. v. Zurich Insurance Co.

Court of Appeals of Illinois, First District, Fifth Division

June 30, 2017

MOTOROLA SOLUTIONS, INC., Plaintiff-Appellant,
v.
ZURICH INSURANCE COMPANY; ASSOCIATED INDEMNITY CORPORATION; CONTINENTAL CASUALTY COMPANY; NATIONAL FIRE INSURANCE COMPANY OF HARTFORD; TRANSPORTATION INSURANCE COMPANY; AMERICAN CASUALTY INSURANCE COMPANY OF READING, PENNSYLVANIA; LIBERTY MUTUAL FIRE INSURANCE COMPANY; and LIBERTY INSURANCE COMPANY, Defendants Zurich Insurance Company and Associated Indemnity Corporation, Defendants-Appellees.

          Rehearing denied July 26, 2017

          Modified opinion filed August 4, 2017

         Appeal from the Circuit Court of Cook County, No. 11-L-001902; the Hon. Margaret A. Brennan, Judge, presiding.

          Jones Day, of Chicago (James A. White and Brian J. Murray, of counsel), and Jones Day, of Pittsburgh, Pennsylvania (Peter D. Laun and Matthew R. Divelbiss, of counsel), for appellant.

         Joshua G. Vincent, Michael M. Marick, and Karen M. Dixon, of Hinshaw & Culbertson LLP, of Chicago, for appellee Zurich Insurance Company.

          No brief filed for other appellee.

          Panel PRESIDING JUSTICE GORDON delivered the judgment of the court, with opinion. Justice Hall concurred in the judgment and opinion. Justice Lampkin dissented, with opinion.

          OPINION

          GORDON PRESIDING JUSTICE.

         ¶ 1 The instant appeal arises from a discovery dispute between plaintiff Motorola Solutions, Inc., and defendants Zurich Insurance Company (Zurich) and Associated Indemnity Corporation (Associated) concerning the production of documents that plaintiff claims are privileged. The parties are engaged in insurance coverage litigation, stemming from several underlying personal injury actions in which claims were asserted against plaintiff. Plaintiff filed a motion for summary judgment with respect to Zurich's duty to defend one of the actions and the trial court stayed briefing on the motion to permit limited discovery concerning a late notice defense asserted by defendants. As part of discovery, defendants sought the production of several documents that plaintiff claimed were privileged. The trial court ordered plaintiff to turn over the documents, and plaintiff refused. The trial court then held plaintiff in friendly civil contempt to permit plaintiff to appeal. For the reasons that follow, we reverse the trial court's order requiring production of the documents and vacate the friendly contempt order.

         ¶ 2 BACKGROUND

         ¶ 3 We note that the parties' briefs and portions of the record on appeal were permitted to be filed under seal. While we respect the parties' wishes to keep confidential material private, our consideration of the issues on appeal necessarily requires us to discuss details of some of these documents. However, we include only those details necessary to our resolution of the issues on appeal.

         ¶ 4 The instant appeal is the third time the parties have been before this court with respect to the insurance coverage litigation: we considered the scope of releases executed by the parties in Motorola Solutions, Inc. v. Zurich Insurance Co., 2015 IL App (1st) 131529, and considered underlying plaintiffs' requests to intervene in Motorola Solutions, Inc. v. Continental Casualty Co., 2015 IL App (1st) 131724-U. To the extent that these earlier decisions discuss facts that are helpful to our understanding of the issues in the instant appeal, we repeat them here.

         ¶ 5 On February 18, 2011, plaintiff filed a complaint for declaratory judgment and breach of contract against a number of insurance companies, including Zurich and Associated; the complaint was amended on July 1, 2011, and again on February 22, 2013. Plaintiff sought for the insurers to provide it legal representation to defend plaintiff and/or coverage for defense costs under insurance policies issued by each of the insurers for four underlying personal injury actions in which claims were asserted against plaintiff.

         ¶ 6 The four underlying actions (the clean room cases) alleged that plaintiff was liable for injuries that children of plaintiff's former employees and contractors allegedly sustained as a result of exposure to various chemicals in "clean rooms" in plaintiff's manufacturing facilities. According to plaintiff's complaint, from the 1960s through 2003, plaintiff operated facilities that manufactured, among other things, semiconductor products. These facilities included certain rooms that were designated as "clean rooms" in which the semiconductor products were manufactured, which "were designed to prevent dust and other similar materials from contacting semiconductor components during the manufacturing process." The clean room cases all involved substantially similar allegations, in general alleging that hazardous or toxic materials were present in the "clean rooms" and that "either the father, the mother, or both worked in [plaintiff's] clean room facility for some period of time before, and in a number of cases after, the [underlying] plaintiff child was born; often the period of employment [was] alleged to have continued through the in utero period. The [underlying] plaintiffs generally claim[ed] that the children were injured as a result of parents working in clean rooms" as a result of toxic exposure.

         ¶ 7 Plaintiff's complaint alleges that one or more of the insurer defendants had a duty to defend and/or pay defense costs in the clean room cases and that, by failing to do so, the insurers had breached their obligations to plaintiff under the insurance policies.

         ¶ 8 Both of the defendants in the instant appeal filed answers and affirmative defenses and included counterclaims in which they alleged that plaintiff had released all of its claims for coverage for the clean room cases in settlement agreements and releases that the parties had executed in 2003. The parties then engaged in litigation concerning the scope of the releases, which culminated in a bench trial on the issue in December 2012 and defendants' first appeal before this court in 2015, in which we affirmed the trial court's finding that the releases did not encompass the claims in the clean room cases. See Motorola Solutions, Inc. v. Zurich Insurance Co., 2015 IL App (1st) 131529. During the pendency of the appeal, the trial court stayed all action in the coverage litigation. However, the underlying plaintiffs in one of the clean room cases sought to intervene in the coverage litigation in order to seek a modification of a protective order covering discovery that had been conducted concerning the scope of the releases. The trial court declined to assert jurisdiction on the motion to intervene in light of the order staying the proceedings, and the appeal of that order was the basis for our second decision in this matter. See Motorola Solutions, Inc. v. Continental Casualty Co., 2015 IL App (1st) 131724-U.

         ¶ 9 According to plaintiff's brief, while the issue concerning the scope of the releases was being litigated, plaintiff was "effectively denied a defense" of the clean room cases "for several years." During that time, the underlying clean room cases were proceeding, and on September 3, 2015, plaintiff filed a motion for summary judgment against Zurich, seeking a declaratory judgment regarding Zurich's duty to defend one of those underlying claims.[1] In response, Zurich filed a motion pursuant to Illinois Supreme Court Rule 191(b) (eff. Jan. 4, 2013), seeking leave to take discovery concerning the timeliness of plaintiff's notice to Zurich prior to responding to plaintiff's summary judgment motion. The trial court granted Zurich's motion on November 12, 2015, but ordered the parties to meet and confer about the scope of discovery and the entry of a protective order. The parties negotiated an agreed protective order, which the trial court entered on January 12, 2016.

         ¶ 10 The discovery sought by Zurich, later joined by Associated, included two categories of documents at issue on appeal. One consisted of documents pertaining to plaintiff's clean room safety program (CRSP documents). In the 1990s, a number of lawsuits had been filed against IBM, a competitor of plaintiff's, concerning alleged birth defects found in children whose parents worked in the manufacturing process in creating semiconductors in IBM's clean room facilities. According to plaintiff, "[plaintiff], as a prudent company also operating in that manufacturing sector, engaged counsel and formed a working group to conduct an analysis of [plaintiff's] practices in and risks arising from its clean rooms." This was known as plaintiff's "Clean Room Safety Program." The efforts of the program resulted in the creation of the CRSP documents in 1996, reports prepared by, or at the direction of, plaintiff's outside counsel. These CRSP documents had been sought by defendants since discovery began in the coverage litigation, with plaintiff withholding the documents on the basis of both the attorney-client privilege and the work product doctrine. Production of these documents has also previously been considered by this court on appeal, where we affirmed the trial court's finding that the CRSP documents were not relevant to the issue of determining the scope of the releases in the first appeal. See Motorola Solutions, 2015 IL App (1st) 131529, ¶¶ 135-42. Documents concerning plaintiff's knowledge of the clean room risks are also of great interest to the underlying clean room plaintiffs, who sought to intervene during the pendency of the first appeal in order to obtain access to documents covered by a protective order.[2] See Motorola Solutions, 2015 IL App (1st) 131724-U, ¶ 3.

          ¶ 11 The second category of documents sought by defendants concerned plaintiff's 2003 sale of its semiconductor manufacturing business to a new entity, Freescale Semiconductor, Inc. In the course of that sale, plaintiff was required to file a United States Securities and Exchange Commission Form S-1 Registration Statement (S-1 documents). The form contains a section entitled "Risk Factors, " which informs potential investors about "significant risk factors currently known and unique to" the seller of the securities. In this disclosure, plaintiff stated:

"In the last few years, there has been increased media scrutiny and associated reports focusing on a potential link between working in semiconductor manufacturing clean room environments and certain illnesses, primarily different types of cancers *** Because we utilize these clean rooms, we may become subject to liability claims."

         Defendants sought access to the documents related to the S-1 securities filing.

         ¶ 12 In response to defendants' discovery requests, plaintiff declined to produce the CRSP documents or the S-1 documents and, on January 20, 2016, defendants filed a motion to compel production of the documents. In the motion, defendants claimed that these documents were material evidence showing that plaintiff had been aware of the facts underlying the clean room actions since at least 1996 and that defendants intended to rely on this evidence to support their late notice defense. Defendants argued that under the Illinois Supreme Court case of Waste Management, Inc. v. International Surplus Lines Insurance Co., 144 Ill.2d 178 (1991), the attorney-client privilege and work product doctrines did not apply to shield production of such documents from plaintiff's insurers. In its response, plaintiff contended that the CRSP documents were not prepared in connection with the defense of the clean room actions and that plaintiff did not learn until December 2007 that any individuals were considering pursuing any action against plaintiff, information which plaintiff promptly forwarded to its insurers.

         ¶ 13 On March 8, 2016, the trial court granted defendants' motion to compel, ordering plaintiff to produce:

"All documents comprising the CRSP Notebook, as identified on the privilege logs attached as Exhibits 2 and 17 to the Affidavit of Karen M. Dixon.
All communications to or from [plaintiff's] legal and/or risk management departments concerning the Clean Room Safety Program or any other assessments of [plaintiff's] potential liability for bodily injury claims arising out of the Clean Rooms and/or the Clean Room Chemicals, Substances and Radiation.
All documents in the possession of [plaintiff's] Corporate Insurance Department (a/k/a risk management) that refer in any way to the Clean Rooms.
All documents, including all communications with [plaintiff's] risk management or legal department, concerning the disclosure of potential clean room related liabilities to investors in *** December 2003 (the SEC S-1 Filing).
All documents/communications that refer in any way to potential clean room related claims and/or liabilities that were received, sent, or created by [plaintiff's] legal and/or risk management departments prior to [plaintiff's] first notice to Associated/Zurich."

         ¶ 14 On March 29, 2016, plaintiff filed a motion for reconsideration or, in the alternative, for a finding of friendly contempt in order for plaintiff to appeal. On May 4, 2016, the trial court denied plaintiff's motion for reconsideration and found plaintiff in friendly contempt for ...


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