Carl Hooper was injured on January 27, 1989, while he was working on a dye casting and injection molding machine which had been manufactured by Lester Engineering Corporation. The latter had secured a comprehensive liability and product liability coverage policy from Home Insurance for a period of one year from February 14, 1988. It had a limit of $1 million per occurrence. However, that policy also provided for a self-insured retention (SIR) of $250,000 per occurrence and $750,000 total limit.
The reduction provision was as follows: "With regard to such insurance as is afforded by this policy, it shall be a condition precedent to the company's liability . . . that the Named Insured make actual payment, by way of settlement or judgment of damages, of the amounts stated . . . as the Named Insured's Self-Insured Retentions . . . . "
On May 4, 1990, Mr. and Mrs. Hooper filed a complaint against various defendants, including Lester, based on the theory of strict product liability and negligence. Shortly thereafter, Lester filed for bankruptcy. Thereafter, Home sought permission to file a declaratory judgment action as to its obligation to indemnify Lester unless and until Lester paid the full amount of $250,000 per occurrence self-insured retention. In November 1994, Home filed suit for declaratory judgment. In that action, Home also sought a declaration that it had no drop-down obligation to pay Lester's SIR of $250,000 even though it might be liable for the balance over and above that amount.
The trial court decided that Lester's SIR obligation was a condition precedent and entered judgment in favor of Home. The Hoopers appealed.
The higher court pointed out that the Illinois Insurance Code (215 ILCS 5/388 West l944) provides that the insolvency or bankruptcy of the insured will not release the insurance company from payment of damages for injuries or loss occurring during the term of the policy. The court decided that the language of the policy conflicted with the statute. Furthermore, an endorsement which had been attached to the policy in this case obligated Home to indemnify that portion of any judgment or settlement exceeding $250,000, regardless of Lester's inability to pay the SIR amount.
Finally, the court determined that Home was obligated to pay any judgment in excess of $250,000 but was not obligated for the first $250,000.
The judgment of the trial court in favor of Home was reversed in part, affirmed in part, and remanded with instructions.
Home Insurance Company of Illinois v. Carl Hooper et al.--No.
1-95-3056--Appellate Court of Illinois, First District, Sixth
Division--January 23, 1998--691 North Eastern Reporter 2d 65.