Corporate executives wondering just how valuable a duty to defend is under a standard commercial general liability (CGL) insurance policy should pay attention to an eye-opening case — involving $91.5 million in defense costs.
Picture this scenario: companies of all sizes invest in CGL insurance to shield themselves from claims for bodily injury, property damage, and personal and advertising injury. These policies typically include a duty to defend the policyholder from claims and lawsuits, along with a duty to indemnify the policyholder for settlements and judgments.
Here’s where it gets interesting: the duty to defend is even broader than the duty to indemnify. Courts often use a rule called the “eight corners rule” to determine whether the duty to defend is owed. This means they compare the language in the policy to the language in the complaint seeking coverage. If the allegations of the complaint fall within, or have the potential to fall within, the policy coverage, then the duty to defend is triggered. And guess what? Courts lean towards interpreting these policies in favor of the policyholder.
Let’s dive into a real-life case that illustrates the immense value of the duty to defend. It all unfolded in the Willowbrook Ethylene Oxide Litigation, where plaintiffs sued several defendants claiming they suffered bodily and personal injuries due to exposure to ethylene oxide (EtO) from sterilization facilities in Willowbrook, Illinois.
Now, the CGL policy in question named Griffith Laboratories U.S.A., Inc., now known as Griffith Foods, International, Inc., as the “Named Insured.” Sterigenics, U.S., LLC, was the successor in interest to a Griffith Labs subsidiary that ran the facilities. Sterigenics also claimed to be a “Named Insured” under the policy.
Initially, Griffith Foods and Sterigenics asked their insurer, National Union Fire Insurance Company of Pittsburgh, P.A., to defend and indemnify them from the lawsuits. However, National Union refused, citing reasons such as claims being excluded under the policy’s pollution exclusion. Here comes the twist, the court rejected National Union’s pollution exclusion argument. The reason was that the Illinois Environmental Protection Agency had issued a permit to the facility allowing the EtO discharges, even though at times the permit levels were exceeded, and the exclusion itself had an exception for “sudden and accidental” releases, which Illinois courts interpreted as unexpected or unintended. Result? The court granted the policyholders’ motion for judgment on the duty to defend.
And that’s not all. On July 25, 2023, the court granted the policyholders’ motion for past defense costs. The court applied a couple of general rules here: First, if an insurer breaches the duty to defend, and there are market incentives for the party seeking fees to economize defense costs, painstaking judicial review isn’t necessary. Second, under Illinois law, if a lawsuit pleads several theories of recovery, even if only one theory falls within the insurance policy’s coverages, the insurer owes a duty to defend the entire lawsuit.
The policyholders’ general counsel submitted sworn declarations with detailed invoices, payment proofs, and summaries of billed, written-off, paid, and owing amounts. Griffith Foods was awarded $16,017,702.62 in defense costs, and Sterigenics received $75,529,938.25. Combined, these defense costs exceeded $91.5 million.
Here is a vital lesson from this case. Don’t ever underestimate the value of a CGL policy’s duty to defend. In this instance, it proved to be a game-changer, saving the policyholders from a hefty financial burden.
Corporate executives wondering whether to hire a law firm to review insurance coverage should take this case as a compelling example of how crucial it is to have an unlimited duty to defend in an insurance policy.