In a significant victory for policyholders, the Illinois Appellate Court reversed a trial court decision that John Crane, Inc. (“Crane”) had no excess coverage for asbestos bodily injury claims. By so ruling, the appeals court clarified Illinois law on the key issues of exhaustion, trigger and allocation. John Crane v. Admiral Ins. Co., 2013 IL App. (1st) 093240 (Ill. App. Ct. March 5, 2013) (“Crane”).
In the only holding that did not favor the policyholder, the appellate court, noting Illinois’ horizontal exhaustion doctrine, ruled that the policyholder and primary carrier could not retroactively reduce the available limits of primary coverage through an agreement between them. Id. at ¶ 42. Rather, the policy limits as written must be exhausted before the policyholder may turn to its umbrella or excess carriers for coverage. Id.
But in a decision that will be more broadly applicable to other policyholders, the appeals court rejected the suggestion by one of the excess carriers that it revisit the Illinois Supreme Court’s landmark triple-trigger holding in Zurich v. Raymark, 118 Ill.2d 23 (1987). It concluded that the trial court had rightly determined that developments in medical science since that opinion had not undermined the basis for the Zurich court’s ruling that bodily injury, sickness, and disease each separately trigger coverage. Id. at ¶¶ 57-58 (citing Zurich at 45-47). However, it reversed the lower court’s conclusion that Zurich requires the insured to establish proof that injury occurred at the time of each trigger for each claim, holding that “it is clear from the wording in Zurich that the court did not intend such a result,” and “Zurich does not require an insured to prove all three triggers for coverage and that coverage is triggered upon proof of exposure, sickness or disease.” Id. at ¶ 59. The court also rejected the argument that the question of whether exposure to asbestos results in bodily injury “is a determination that must be made on a case-by-case basis.” Crane at ¶ 62. Recognizing that position as transparent end run around Zurich’s ruling that “asbestos-related diseases ‘originate with the inhalation of asbestos fibers, and, the continued inhalation of asbestos causes additional injuries which eventually culminate in a disease,’” Crane at ¶ 64 (quoting Zurich, 118 Ill.2d at 47), the court explicitly affirmed its continued adherence to “Zurich’s holding that bodily injury occurs upon exposure to asbestos.” Id.
Finally, the appellate court held that the “all sums” language in the underlying policies to which Crane’s excess policies followed form made the excess carriers jointly and severally liable for bodily injury claims where exposure, injury-in-residence, diagnosis or death occurred during their policy period. Id. at 55. It reversed the trial court’s finding that a pro rata, time-on-the-risk approach was appropriate in determining allocation, noting that Crane’s excess policies “provide for the payment of the amount of loss in excess of the loss payable by the underlying policies based on the language in the underlying policies,” which contain the same “all sums” language that the Zurich court had considered. Id.
The Illinois Appellate Court’s trigger ruling, including its refusal to allow the excess carriers to relitigate underlying claims by questioning the sufficiency of the evidence of underlying injury, suggests an impatience by the appeals court with arguments advanced by excess insurers to attempt to delay the onset of their liability to pay claims by quibbling with the manner in which the insured and/or the primary carrier has exhausted the primary layer. The court relies instead on the language of the primary and excess policies and the unambiguous precedent of Zurich. That emphasis on policy language and applicable law bodes well for policyholders in similar disputes with their excess carriers in which Illinois law governs. Similarly, the holding that Zurich’s “all sums” allocation correctly applies to excess policies that contain or follow form to that language strengthens the hand of policyholders in their efforts to encourage their excess carriers to live up to their obligations.