TKK USA, Inc. v. Safety National Casualty Corp.
2013 U.S. App. LEXIS 17606
| 7th Cir. | 2013Background
- TKK USA (insured) purchased an excess liability policy from Safety National that covered “Loss sustained by the EMPLOYER because of liability imposed upon the EMPLOYER by the Workers’ Compensation or Employers’ Liability Laws” of Illinois; “Loss” included settlements and Claim Expenses (reasonable costs of investigation, adjustment, defense) even if claims were “wholly groundless.”
- Juanita Perkins sued (state court) on behalf of her deceased husband for mesothelioma, alleging negligence against TKK (common-law claim); TKK defended, incurred > $400,000 in fees, and settled for $15,000.
- Illinois law (Workers’ Occupational Diseases Act and Workers’ Compensation Act) generally provides exclusive statutory remedies for occupational disease/injury and can bar common-law negligence claims as an affirmative defense.
- Safety National denied coverage for TKK’s excess defense/settlement costs, arguing the Perkins suit was not a claim “by the Workers’ Compensation or Employers’ Liability Laws” because it pleaded common-law relief and the ODA’s exclusivity made such claims nonviable.
- District court granted summary judgment to TKK for coverage of excess claim expenses and settlement, denied most §155 (Ill. Ins. Code) fee claims except awarding fees for defending Safety National’s motion to reconsider; both parties appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether “Workers’ Compensation or Employers’ Liability Laws” includes common-law negligence claims by employees | The Perkins suit sought to impose employer liability for a workplace disease; the phrase covers any employee suit seeking such liability (statutory or common law), and policy covers even “wholly groundless” claims | Phrase refers only to statutory regimes (ODA/WCA); common-law claims barred by ODA are not within “Employers’ Liability Laws” and thus not covered | Court affirmed: phrase is broad enough to include common-law employee claims (even groundless ones); alternatively, any ambiguity is construed for the insured |
| Whether insurer’s denial was vexatious under §155 (attorney fees for coverage litigation) | TKK: denial and litigation conduct were unreasonable, entitling it to §155 fees for coverage suit | Safety Nat’l: raised a bona fide, reasonable, unsettled legal defense (scope of policy term), so denial was not vexatious | Court affirmed denial of §155 fees for main litigation—insurer had a reasonable legal position on an unsettled issue; awarded only fees for defending the motion to reconsider as that filing was unreasonable |
| Reasonableness of the amount of defense costs TKK incurred | TKK submitted costs; district court allowed challenge but Safety Nat’l did not timely contest reasonableness | Safety Nat’l suggested fees may be excessive and requested evidentiary hearing | Court declined to decide substantive reasonableness on appeal because Safety Nat’l waived timely challenge in district court |
| Applicability of policy’s “rejection” exclusion (rejection of Workers’ Compensation law) | TKK: exclusion not raised below and does not apply; insurer bears burden to plead/raise it | Safety Nat’l: TKK’s alleged failure to promptly move to dismiss could be a “rejection” barring coverage | Court: insurer never raised this defense in district court; cannot raise new theory on appeal, so exclusion not considered |
Key Cases Cited
- Hayes Lemmerz Int’l, Inc. v. Ace Am. Ins. Co., 619 F.3d 777 (7th Cir.) (employers’ liability coverage can cover defense of common-law claims that attempt to avoid workers’ compensation exclusivity)
- Doyle v. Rhodes, 101 Ill.2d 1 (Ill.) (an employer’s tort liability remains until the workers’ compensation exclusivity defense is raised and established)
- Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384 (Ill.) (insurance-policy interpretation is a question of law suitable for summary judgment)
- Employers Ins. of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127 (Ill.) (standards for reviewing §155 fee awards and motions on the pleadings)
- Gillen v. State Farm Mut. Auto. Ins. Co., 215 Ill.2d 381 (Ill.) (ambiguities in insurance policies construed against insurer)