Insured Must Prove Exhaustion of Primary Limits Required to Collect from Excess Insurers
Plaintiff, John Crane Inc. (JCI), appealed from various pretrial judgments of the circuit court, as well as its order finding that JCI had not proved exhaustion of its primary insurance policies. On appeal, JCI contends (1) the trial court erred in determining as a matter of law that the first primary umbrella policy had a $60 million per occurrence limit instead of a $20 million limit, (2) the trial court’s finding that JCI did not prove exhaustion was against the manifest weight of the evidence, and (3) the trial court erred in denying JCI’s motion for a new trial.
In John Crane Inc. v. Allianz Underwriters Insurance Company; et al, 2020 IL App (1st) 180223, No. 1-18-0223, Appellate Court of Illinois First District Sixth Division (June 12, 2020) the Illinois Court of Appeal resolved the dispute on its Second trial and Appeal.
JCI used asbestos fiber in manufacturing gaskets, mechanical sealing, and packing products. As of February 2017, JCI has been named a defendant in over 325,000 cases claiming exposure to its asbestos-containing products. JCI obtained primary insurance coverage from Lumbermens Mutual Insurance Company and American Motorists Insurance Company (hereinafter referred to collectively by their trade name, Kemper), as well as umbrella and excess coverage from multiple defendant insurance companies. In May 2004 JCI filed a claim for declaratory judgment that Kemper’s primary coverage was exhausted and also sought a declaration of the obligations of its umbrella and excess insurance carriers.
Prior to the secibd exhaustion trial the trial court considered numerous pretrial motions.
The trial court conducted a 23-day bench trial on whether the 141 claims JCI had paid in underlying asbestos personal injury cases exhausted the Kemper primary policies. The parties stipulated that the Kemper primary policies have a total limit of $41,075,000. JCI presented Ross Mishkin as an expert in claim analysis and allocation. Mishkin concluded that the primary policies were exhausted in February 2008 as a result of JCI’s payment on claim number 76 of the 141 claims. Although the court qualified Mishkin as an expert, Mishkin did not always follow his own allocation rules, and he improperly “banked” claims.
Mishkin testified at trial that, if even one claim were removed from his analysis, his allocation “would no longer demonstrate that the primary policies were exhausted.” By Mr. Mishkin’s own admission, the Court’s conclusion that six of the claims were misallocated means his allocation no longer demonstrates that the primary policies were exhausted.
A court’s primary objective in construing an insurance policy is to give effect to the parties’ intent as expressed by the language of the policy. As with any contract, an insurance policy must be construed as a whole, giving effect to every provision if possible. If the policy’s words are clear and unambiguous, they must be given their plain, ordinary, and popular meaning. However, if the policy language is susceptible to more than one reasonable meaning, it is considered ambiguous and will be construed against the insurer.
JCI acknowledged that the aggregate limit of the first Kemper umbrella policy is $20 million per year, where the limits of liability section refers to the aggregate limit during each annual period while this policy is in force. However, JCI contends that the trial court erred in finding that the occurrence limit in the policy was also $20 million per year.
However, the fact remains that nowhere in endorsement 3 is there a reference to aggregate limits or any other specific limit. Endorsement 3 makes no distinction between the two types of limits. For this reason, other courts have construed this same language to mean that ” ‘the limits of the company’s liability’ may be applied separately” to each period of coverage and that both aggregate and occurrence limits are implicated.
The trial court, in its 140-page order, thoroughly addressed Mishkin’s allocation testimony. A trial court is not required to accept an expert’s conclusion if it finds his methodologies are unsound. The court found Mishkin’s methodology problematic and, as a result, determined that Mishkin erred in allocating these claims to the primary policies. Since an appellate court may not say that the opposite conclusion is clearly evident it concluded the trial court’s determination was not against the manifest weight of the evidence.
The trial court not only found Mishkin’s allocations on six claims erroneous, it also found Mishkin’s overall methodology “problematic” for a number of reasons. First, neither Mishkin nor anyone at his group reviewed all the documents in the claim files. Mishkin initially received one million documents pertaining to the 141 claims at issue. Later, he was provided with two million additional documents pertaining to claims 68 through 141. Rather than review all two million additional documents, Mishkin testified that he fully reviewed the additional documents for eight of the claims to determine whether the documents would impact his trigger dates. Mishkin found that the additional documents were duplicative and did not affect his trigger dates. Therefore, he concluded that a complete review of the two million documents was unnecessary.
The trial court found that Mishkin’s failure to look at approximately two-thirds of the documents in the case greatly harms the reliability and credibility of his allocation. The court noted that Mishkin only reviewed 8 of the 74 claims for which additional documents were provided and, since each claim is unique, the trial court properly found Mishkin’s decision to use a small percentage of claims to make a conclusion as to all 74 claims unjustified.
Statistical analysis may be used in allocating asbestos claims. Given the wealth of information provided to Mishkin, the trial court concluded logically that a case-by-case analysis using all the documents would produce more accurate determinations. The trial court expressly rejected Mishkin’s method of ignoring more than two million documents.
On the other hand, Defendants’ expert witness, Dr. Denise Martin testified that the practice of banking does not comport with the standards in the insurance allocation field. At trial, the testimony on the banking issue became a classic battle of the experts. The trial court, as factfinder, listened to the conflicting testimony and used its judgment to make a determination. In this situation, the fact finder is in a better position to assess the credibility of the witnesses and give weight to each expert’s opinion, as measured by the reasons given for the conclusion along with the supporting facts.
The trial court found that “Mr. Mishkin’s methodology and allocation is [sic] not credible and cannot be given weight. *** Due to Mr. Mishkin’s frequent failures to follow his own protocol, decision to ‘bank’ claims, reliance on the general ‘Navy ID,’ and failure to review two-thirds of the documents concerning the underlying claims, the Court cannot rely on Mr. Mishkin’s allocation.”
Since the appellate court determined that the trial court did not err in the rulings challenged by JCI. JCI has already had two lengthy exhaustion trials and now requests a third one to prove exhaustion “once and for all” with the remaining claims not analyzed by Mishkin.
A motion for a new trial cannot be used by JCI to get a third bite of the apple, to try again with the knowledge of strategies that did not succeed at trial. The trial court’s denial of JCI’s motion for a new trial was not an abuse of discretion.
When a liability policy is exhausted sufficiently to cause excess insurers to step in is often confusing to those not experienced in insurance claims. In this case two qualified experts reached decisions completely different: one stating the primary policies were exhausted and the other explaining why the primary limits were not exhausted. The trial and appellate court refused to rely upon an expert who contradicted his own conclusion and refused to follow his own system and admitted his conclusions were unreliable. The trial court sat through more than three weeks of trial testimony, weighed the credibility of the witnesses and ruled there was no exhaustion. JCI got nothing and was not entitled to a third trial to get its expert to do the work he was retained to do.
© 2020 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts
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