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Westfield Insurance Co. v. Indemnity Insurance Co. of North America

United States District Court, C.D. Illinois, Springfield Division

October 25, 2019

WESTFIELD INSURANCE COMPANY, Plaintiff,
v.
INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, et al., Defendants. INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, Plaintiff,
v.
HOLLIS SHAFER et al., Defendants.

          OPINION

          SUE E. MYERSCOUGH, UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on Westfield Insurance Company's (Westfield) Motion for Summary Judgment (Case No. 14-3040 d/e 100, Case No. 16-3298 d/e 90) (Westfield Motion), Indemnity Insurance Company of North America's (Indemnity or IINA) Motion for Summary Judgment (Case No. 14-3040 d/e 92, Case No. 16-3298 d/e 102) (Indemnity Motion), and Star Insurance Company's (Star) Motion for Summary Judgment (Case No. 14-3040 d/e 94, Case No. 16-3298 d/e 104) (Star Motion) (collectively the Motions). These two cases, Case No. 14-3040 (2014 Declaratory Action) and Case No. 16-3298 (2016 Declaratory Action) have been consolidated through discovery and resolution of dispositive motions. Opinion entered March 7, 2017 (Case No. 16-3298 d/e 39), at 7-8. This Court enters this Opinion to be filed in both cases.

         Indemnity, Westfield, and Star (collectively the Insurance Companies) at various points in time provided commercial general liability insurance to Sandstone North, LLC (North) and Sandstone South, LLC (South) (collectively Sandstone). North and South merged into a single entity in 2010. Sandstone operated hog confined area feeding operations (Hog Facilities or CAFOs) in Scott County, Illinois. Brian Bradshaw, Eric Bradshaw, and Hollis Shafer had ownership interests in Sandstone.

         On June 1, 2010, the neighbors of the Sandstone Hog Facilities brought a nuisance action against Sandstone in Scott County, Illinois, Circuit Court. Alvin Marsh, et al. v. Brian R. Bradshaw, et al., Scott County, Illinois Case No. 2010-L-3 (Underlying Action). Westfield and Star each agreed to pay the defense costs in the Underlying Action under a reservation of rights. Indemnity initially agreed to defend Sandstone in the Underlying Action under a reservation of rights, and Indemnity also filed a declaratory judgment action challenging whether Indemnity had a duty to defend Sandstone. Sandstone withdrew its tender of the defense to Indemnity in November 2010, and Indemnity voluntarily dismissed the declaratory judgment action. Sandstone re-tendered the defense to Indemnity in December 2013. Indemnity filed the 2014 Declaratory Action in response. In 2016, Sandstone prevailed at trial in the Underlying Action, and the matter is on appeal. Westfield then filed the 2016 Declaratory Action in this Court. Westfield and Star ask the Court to declare that Indemnity must reimburse them for part or all of the defense costs. Indemnity asks the Court to declare that Indemnity is not obligated to pay any defense costs for the Underlying Action.

         For the reasons set forth below, the Westfield and Star Motions are GRANTED in part, and the Indemnity Motion is DENIED. The Court finds that Sandstone withdrew the tender of the defense to Indemnity in November 2010, and thereby relieved Indemnity of a duty to defend the Underlying Action at that time. The Court further finds that Sandstone's December 2013 re-tender was effective because it was reasonable under the circumstances. Indemnity must pay Westfield and Star a pro rata share of the defense costs incurred for the Underlying Action. Westfield and Star are also entitled to prejudgment interest from the date of the re-tender, December 17, 2013. However, Indemnity is not required to reimburse Westfield and Star for all defense costs of the Underlying Action.

         Star has also filed an original and corrected Motion to Strike Certain [Indemnity] Reply Brief Arguments on Grounds of Improper Sandbagging or, in the Alternative, for Leave to File a Sur-Reply to Those Arguments (Case No. 14-3040 d/e 118, Case No. 16-3298 d/e 107 and 108) (collectively Motion to Strike). In reaching this decision, the Court did not consider the arguments Star seeks to strike. As such, the Motion to Strike is DENIED as moot.

         STATEMENT OF FACTS

         Sandstone began operating its Hog Facilities in 2007. At various times, Sandstone bought insurance policies from Westfield and Indemnity. Sandstone also was a named additional insured in policies issued by Star. All of the insurance policies issued by the Insurance Companies (collectively the Policies) had one-year terms. Sandstone, however, cancelled some of the Policies before the one-year terms expired.

         On April 24, 2007, Westfield issued two insurance policies to Sandstone, one to North and one to South (07-08 Westfield Policies). On April 24, 2008, Westfield issued a second set of insurance policies to Sandstone, one to North and one to South (08-09 Westfield Policies) (collectively the Westfield Policies). Sandstone cancelled the 08-09 Westfield Policies on November 12, 2008. Indemnity Motion, Exhibits C-1, C-2, C-3, and C-4, Westfield Policies.

         On November 12, 2008, Indemnity issued its first set of policies to Sandstone, one for North and one for South (08-09 Indemnity Policies). On November 12, 2009, Indemnity issued a second set of policies to Sandstone (09-10 Indemnity Policies). On February 10, 2010, Sandstone canceled the 09-10 Indemnity Policy issued to South when South merged into North. On November 12, 2010, Indemnity issued a single policy to the now-merged Sandstone (10-11 Indemnity Policy). Thereafter, Indemnity issued policies to Sandstone on November 12, 2011 (11-12 Indemnity Policy), and November 12, 2012 (12-13 Indemnity Policy) (collectively the Indemnity Policies). 2016 Declaratory Action Complaint, Exhibits 1 through 8, Indemnity Policies.

         One of the owners of Sandstone, Brian Bradshaw, also owned a business called Red Oak Hills, LLC (Red Oak Hills). Star issued insurance policies to Red Oak Hills. On March 30, 2008, Star and Sandstone amended a Star policy issued to Red Oak Hills (08 Star Policy). The amendment added the Sandstone Hog Facilities as insured locations under the Livestock Care, Custody, and Control Coverage in the 08 Star Policy. Indemnity Motion, Exhibits D-1, Policy Changes Endorsement No. 2. The Livestock Care, Custody, and Control Coverage covered losses for injuries to covered animals. Id.

         On December 21, 2008, Star issued another policy to Red Oak Hills (08-09 Star Policy). Star Motion, Exhibit H, 08-09 Star Policy. On August 2, 2009, Sandstone was named an additional insured generally on the Star 08-09 Policy. 08-09 Star Policy, Policy Change Endorsement No. 3. Star issued a third policy on December 21, 2009 (09-10 Star Policy), which also listed Sandstone as an additional insured (collectively the Star Policies). Star Motion, Exhibit I, 09-10 Star Policy.

         The Indemnity Policies covered bodily injury and property damage from an occurrence:

COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement (a) 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. . . .
. . . .
(b) This insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an “occurrence” . . . .
(2) The "bodily injury" or "property damage" occurs during the policy period; . . . .

E.g., 2016 Action Complaint, Exhibit 1, 08-09 Indemnity Policy issued to South (Example Indemnity Policy), Commercial General Liability Coverage Form, § I ¶¶1(a) and (b).

         The Indemnity Policies contained exclusions for injuries that were expected or intended by the insured and for injuries from pollutants:

2. Exclusions
This insurance does not apply to:
a. Expected Or Intended Injury "Bodily injury" or "property damage" expected or intended from the standpoint of the insured. . . .
. . . .
f. Pollution
(1) "Bodily injury” or "property damage” arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants":
(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured. . . .
(b) At or from any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste;
(c) Which are or were at any time transported, handled, stored, treated, disposed of, or processed as waste by or for:
(i) Any insured; . . . .

Example Indemnity Policy, Commercial General Liability Coverage Form, § I ¶¶ 2(a), (b), and (f).

         The Indemnity Policies defined “bodily injury, ” “property damage, ” “occurrence, ” and “pollutants” as follows:

SECTION V - DEFINITIONS
. . . .
3. “Bodily injury” means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.
. . . .
13. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same harmful conditions.
. . . .
15. “Pollutants” mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.
. . . .
17. “Property damage” means:
a. Physical injury to tangible property, including all resulting loss of use of that property. . . .
b. Loss of use of tangible property that is not physically injured. . . .

Example Indemnity Policy, Commercial General Liability Coverage Form, § V ¶¶ 3, 13, 15, 17.

         The Indemnity Policies required Sandstone to notify Indemnity of an occurrence, claim, or suit as soon as practicable:

SECTION IV - COMMERCIAL GENERAL LIABILITY CONDITIONS
. . . .
2. Duties in the Event of an Occurrence, Offense, Claim Or Suit a. You must see to it that we are notified as soon as practicable of an “occurrence” or an offense which may result in a claim. . . .
b. If a claim is made or “suit” is brought against any insured, you must:
. . . .
(2) Notify us as soon as practicable.
You must see to it that we receive notice of the claim or “suit” as soon as practicable.

Example Indemnity Policy, Commercial General Liability Coverage Form, § IV ¶¶ 2(a) and (b). The comparable provisions of the Westfield and Star Policies were substantially similar.

         The Indemnity Policies also contained an “Other Insurance” provision regarding the existence of other insurance coverage:

4. Other Insurance
If other valid and collectible insurance is available to the insured for a loss we cover under Coverages A or B of this Coverage Part, our obligations are limited as follows:
a. Primary Insurance
This insurance is primary except when Paragraph b. below applies. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method of described in Paragraph c. below.
b. Excess Insurance
(1) This insurance is excess over: ...

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