Sentry Insurance v. Continental Casualty Co.
2017 IL App (1st) 161785
| Ill. App. Ct. | 2017Background
- Foundation operated a cryopreservation tank that stored patients’ semen/testicular tissue; a tank failure in 2012 allegedly destroyed many specimens and spawned ~65 consolidated lawsuits against the Foundation and Northwestern Memorial Hospital.
- Sentry (primary insurer) sued for a declaration it owed no duty to defend/indemnify; Continental (excess insurer) counterclaimed similarly.
- Both policies contained a care/custody-or-control exclusion and a professional-services exclusion; the central coverage question was whether those exclusions barred coverage and whether the underlying claims sought "bodily injury" or "property damage."
- The Foundation moved to dismiss or stay coverage litigation, arguing deciding exclusions would require resolving ultimate facts in the underlying actions (invoking the Peppers doctrine); insurers argued coverage issues could be decided now.
- Trial court: stayed adjudication of the two exclusions (care/custody and professional services) as premature under Peppers, but allowed a duty-to-defend analysis (whether allegations potentially allege "bodily injury" or "property damage"). The court also declined to decide coverage for two settled underlying suits.
- Continental appealed the stay; appellate court affirmed, applying abuse-of-discretion review and reasoning that deciding the exclusions could bind underlying litigants and impede their claims.
Issues
| Issue | Plaintiff's Argument (Continental) | Defendant's Argument (Foundation) | Held |
|---|---|---|---|
| Whether the trial court erred by staying determination of the care/custody-or-control exclusion | Exclusion can be decided now because pleadings/answers and partial summary judgment establish Foundation had possessory control; no ultimate-fact resolution needed | Adjudication would require deciding exclusive possession at time of loss and would bind facts in underlying suits (Peppers) | Affirmed stay: deciding exclusivity would resolve ultimate facts and could preclude hospital liability; stay proper under Peppers |
| Whether the trial court erred by staying determination of the professional-services exclusion | The cryogenic preservation plainly involves specialized knowledge and can be decided now from pleadings/extrinsic evidence | Resolution would require factual inquiry into how services were performed and could determine issues central to underlying negligence/malpractice claims | Affirmed stay: trial court reasonably concluded resolving the issue would risk deciding crucial facts; discretion to defer was not abused |
| Whether the duty-to-defend analysis should also have been stayed | If exclusions cannot be resolved now, duty-to-defend should be stayed too | Duty to defend depends initially on whether underlying complaints potentially allege covered "bodily injury" or "property damage," which can be assessed from pleadings without resolving ultimate facts | Trial court properly proceeded with duty-to-defend analysis — it may determine potential coverage from the complaints without deciding ultimate facts |
| Whether coverage litigation could proceed for two underlying suits already settled | Coverage for settled suits should be litigated despite other pending cases to avoid undue insurer prejudice | Deciding those settled suits could have collateral-estoppel effects on remaining plaintiffs and third-party claims; trial court may defer for judicial economy | Affirmed: trial court did not abuse discretion in withholding adjudication for settled suits to avoid prejudicing remaining litigants and third-party actions |
Key Cases Cited
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90 (establishes that duty to defend is determined from underlying complaint and is broader than duty to indemnify)
- Maryland Cas. Co. v. Peppers, 64 Ill. 2d 187 (Peppers doctrine: declaratory courts should not decide ultimate facts that would bind underlying litigation)
- Pekin Ins. Co. v. Wilson, 237 Ill. 2d 446 (insurer in declaratory action may use extrinsic evidence to challenge duty to defend unless it would determine an issue crucial to the underlying suit)
- Envirodyne Engineers, Inc. v. Fidelity & Cas. Co. of N.Y., 122 Ill. App. 3d 301 (clarifies when declaratory proceedings may decide nature of services without estopping underlying claims)
- Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384 (where no duty to defend exists, indemnity will not arise)
- Int'l Minerals & Chem. Corp. v. Liberty Mut. Ins. Co., 168 Ill. App. 3d 361 (ambiguities in exclusionary clauses resolved in favor of insured)