Sentry Insurance v. Continental Casualty Co.
2017 IL App (1st) 161785
| Ill. App. Ct. | 2017Background
- Foundation operated cryogenic storage for patients’ semen/testicular tissue; tank failure in 2012 allegedly rendered specimens unusable and produced ~65 consolidated lawsuits naming the Foundation and Northwestern Memorial Hospital.
- Sentry (primary insurer) filed a declaratory-judgment action denying duty to defend/indemnify; Sentry defended under a reservation of rights. Continental (excess insurer) counterclaimed seeking a like declaration that it owed no coverage.
- Both Sentry’s and Continental’s policies included a “care, custody, or control” exclusion and a “professional services” exclusion (phrasing differed between policies); issues centered on whether the exclusions applied and whether claims implicated “property damage” or “bodily injury.”
- Foundation moved to dismiss or stay the coverage actions under Peppers doctrine, arguing resolution of exclusions would decide ultimate facts in the underlying suits; trial court stayed consideration of the exclusions but allowed litigation on duty-to-defend (coverage vs. exclusions) to proceed.
- Continental appealed the stay; Sentry later settled and dropped its appeal, leaving Continental’s interlocutory appeal of the stay as the only issue.
Issues
| Issue | Plaintiff's Argument (Continental) | Defendant's Argument (Foundation) | Held |
|---|---|---|---|
| Whether trial court erred by staying litigation of the “care, custody, or control” exclusion | Exclusion can be decided now from pleadings; no ultimate facts required; Foundation already admitted control | Deciding exclusive control at time of loss would resolve an ultimate fact and could bind underlying plaintiffs (Peppers) | Stay affirmed: deciding exclusive possessory control would determine an ultimate fact and could prejudice underlying suits |
| Whether trial court erred by staying litigation of the “professional services” exclusion | Nature of cryogenic work plainly involves specialized/mental skill; exclusion ripe for adjudication | Determination requires extrinsic evidence and would resolve issues central to underlying negligence/malpractice claims | Stay affirmed: trial court properly declined to decide because resolution could determine issues crucial to underlying litigation |
| Whether duty-to-defend analysis should also have been stayed | If exclusions can’t be decided now, court should stay duty-to-defend too | Duty-to-defend can be assessed from underlying pleadings (whether claims potentially allege "property damage" or "bodily injury") | Court did not abuse discretion in proceeding with duty-to-defend review based on pleadings; exclusions stay does not mandate staying duty-to-defend |
| Whether coverage adjudication should proceed for two already-settled underlying suits | Coverage for settled suits should proceed now; no prejudice to plaintiffs | Adjudication could have collateral-estoppel effects on remaining plaintiffs and impact third-party claims | Stay as to settled suits affirmed: trial court reasonably declined to decide coverage for settled suits to avoid collateral estoppel and preserve orderly administration |
Key Cases Cited
- Maryland Casualty Co. v. Peppers, 64 Ill.2d 187 (1976) (a declaratory action should not decide ultimate facts that would bind parties in underlying litigation)
- Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90 (1992) (insurer’s duty to defend is measured by underlying complaint; broader than duty to indemnify)
- Pekin Insurance Co. v. Wilson, 237 Ill.2d 446 (2010) (insurer in declaratory action may offer extrinsic evidence to show exclusions, unless it would determine an issue crucial to the underlying suit)
- Envirodyne Engineers, Inc. v. Fidelity & Casualty Co. of New York, 122 Ill. App.3d 301 (1984) (distinguishes issues that are not "ultimate facts" and may be decided without precluding underlying claims)
- Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384 (1993) (no duty to indemnify if no duty to defend where allegations cannot potentially fall within coverage)
- Savickas v. American Family Mutual Insurance Co., 193 Ill.2d 378 (2000) (reaffirms that declaratory judgments should not bind parties on issues in pending underlying litigation)