2016 IL App (3d) 150418
Ill. App. Ct.2016Background
- Old Sprinkmann was an asbestos-using insulation contractor owned by Arthur and Rhonda Kremers; it was dissolved on February 7, 2003 after the owners retired.
- A successor, New Sprinkmann, purchased certain assets but expressly did not assume Old Sprinkmann’s liabilities or liability insurance; Old Sprinkmann was not sued within the five-year wind-up period.
- Numerous plaintiffs later diagnosed with mesothelioma/lung cancer sued (2011) seeking a declaratory judgment that New Sprinkmann or the Kremerses could be named nominal defendants so liability could be established and that certain insurers owed defense/indemnity obligations.
- Defendants (insurers) moved to dismiss under Ill. Sup. Ct. Rules 2-615/2-619, arguing the suit is barred by 805 ILCS 5/12.80 (the five-year wind-up/statute-of-repose for dissolved corporations) and that plaintiffs’ claims effectively amount to impermissible direct actions against insurers.
- The circuit court granted dismissal, finding section 12.80 barred plaintiffs’ effort to obtain a liability determination against the dissolved corporation and that the indemnity/coverage claims were not ripe and commingled liability and coverage.
- Plaintiffs appealed; the appellate court affirmed, holding plaintiffs’ theories (vested rights, transfer of policies, equitable remedy) insufficient to overcome section 12.80 and the bar on direct actions against insurers.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs retain "vested" rights in Old Sprinkmann’s liability policies despite dissolution and the 5-year wind-up bar | Plaintiffs: their vested rights in policies cannot be extinguished by dissolution/statute | Defendants: section 12.80 acts as a statutory repose that extinguishes post-wind-up claims | Court: Section 12.80 divests such post-wind-up claims; plaintiffs’ asserted vested rights are time-barred |
| Whether Old Sprinkmann’s liability policies transferred to New Sprinkmann or to the Kremerses so plaintiffs can reach coverage | Plaintiffs: policies either transferred via asset purchase to New Sprinkmann or passed by operation of law to the Kremerses | Defendants: asset purchase omitted assumption of liabilities; even if policies passed, section 12.80 bars actions against shareholders | Court: No transfer by the asset purchase; even if policies passed to shareholders, section 12.80 bars suits against them |
| Whether court equity can fashion a new remedy to reach insurance proceeds despite the statute | Plaintiffs: courts have inherent equitable power to create a remedy; legislative inaction is not dispositive | Defendants: legislature enacted a clear statutory scheme limiting liability post-dissolution; courts cannot override statute | Court: Equity cannot override a clear statutory rule; creation of such a remedy is for the legislature, not the court |
| Whether the declaratory action is a permissible coverage action severable from liability or an impermissible direct action against insurers | Plaintiffs: action seeks only declaratory coverage and nominal defendants, not a direct suit on policies | Defendants: plaintiffs’ claims necessarily commingle liability and coverage and seek to establish insured’s fault | Court: The action commingles liability and coverage and amounts to a prohibited direct action against insurers; indemnity declaratory relief is premature |
Key Cases Cited
- King v. First Capital Financial Services Corp., 215 Ill. 2d 1 (2005) (standard of review for dismissals under sections 2-615 and 2-619)
- Blankenship v. Demmler Mfg. Co., 89 Ill. App. 3d 569 (1980) (section 12.80 serves as a statutory cutoff for dissolved-corporation liabilities)
- Pielet v. Pielet, 407 Ill. App. 3d 474 (2010) (discussing purposes of post-dissolution statutory limitations)
- Koepke v. First Nat. Bank of De Kalb, 5 Ill. App. 3d 799 (1972) (construction of earlier version of statute limiting suits after dissolution)
- Zegar v. Sears Roebuck & Co., 211 Ill. App. 3d 1025 (1991) (Illinois public policy bars direct actions against insurers)
- State Farm Fire & Casualty Co. v. Perez, 387 Ill. App. 3d 549 (2008) (coverage action may proceed only if coverage issues are effectively severable from insured liability)
- Lyons v. State Farm Fire & Casualty Co., 349 Ill. App. 3d 404 (2004) (declaratory judgment on indemnification is premature before insured liability is determined)
- Czapski v. Maher, 385 Ill. App. 3d 861 (2008) (indemnity controversy arises only after insured is legally obligated to pay damages)