Phillips Electronics v. New Hampshire Insurance Co.
Annotate this Case
1-97-0331
March 20, 1998
PHILIPS ELECTRONICS, N.V., and PHILIPS )
ELECTRONICS NORTH AMERICA CORPORATION, )
d/b/a Advance Transformer Company, ) Appeal from the
) Circuit Court of
Plaintiffs-Appellees/Cross-Appellants, ) Cook County
)
v. )
)
NEW HAMPSHIRE INSURANCE COMPANY, )
RELIANCE NATIONAL INSURANCE COMPANY )
(U.K.) LTD., COMMERCIAL UNION ASSURANCE )
PLC, ROYAL INSURANCE PLC, SOREMA (U.K.) )
LTD., ASSICURAZIONI GENERALI S.P.A., )
RIVER THAMES INSURANCE COMPANY LTD., )
CHIYODA FIRE & MARINE INSURANCE COMPANY )
(EUROPE) LTD., CONTINENTAL CASUALTY )
COMPANY, ARIG INSURANCE COMPANY LTD., )
THE AETNA CASUALTY & SURETY COMPANY, )
CHUBB INSURANCE COMPANY OF EUROPE S.A. )
and A. SHARP (On His Own Behalf and On )
Behalf of Each Member of Syndicate )
839), )
)
Defendants-Appellants/Cross-Appellees, )
)
and )
) Honorable
NATIONAL UNION FIRE INSURANCE COMPANY ) John Gustafson,
OF PITTSBURGH, PA., ) Judge Presiding.
)
Defendant. )
JUSTICE HARTMAN delivered the opinion of the court:
Defendants, collectively referred to as Insurers, brought an action in the
Commercial Court of the High Court of Justice, Queen's Bench Division, in London,
England (Commercial Court), seeking a declaration that they owe no coverage under
their fidelity insurance policies for losses claimed by their insured, plaintiff
Philips Electronics North America Corporation (PENAC). PENAC unsuccessfully
challenged the Commercial Court's jurisdiction over the declaratory judgment
proceedings.
While a preliminary appeal in the Commercial Court action was pending in
the English Court of Appeal, PENAC and its parent corporation, Philips
Electronics, N.V. (Philips) (sometimes collectively plaintiffs) brought this suit
in the circuit court. Insurers moved to dismiss or stay pursuant to section 2-
619(a)(3) of the Code of Civil Procedure (735 ILCS 5/2-619(a)(3) (West 1994))
(section 2-619(a)(3)), pending the outcome of the Commercial Court case.
Philips is a Netherlands corporation with its principal place of business
in Eindhoven, Netherlands. PENAC, a wholly-owned subsidiary of Philips, is a
Delaware corporation with its principal place of business in New York. PENAC is
authorized to do business in Illinois, where it operates under the name of
Advance Transformer Company (Advance), an unincorporated division of PENAC.
Advance manufactures electronic equipment, including magnetic and electronic
ballasts.
Philips contracted with Insurers to purchase a Comprehensive Crime Policy
consisting of primary, excess, and deductible policies (fidelity policies), which
would provide plaintiffs with coverage for the period between December 31, 1993
and December 31, 1994. An English broker negotiated the contract on behalf of
Philips and PENAC. Two Insurers entered into the contract in the United States,
where they are domiciled; the eleven remaining Insurers entered into the contract
in London.
Most of the 13 Insurers have limited ties to Illinois. Only one,
Continental Casualty Company, is incorporated in Illinois and has its principal
place of business in Chicago. Seven others are incorporated in England; the
remainder are incorporated elsewhere in the United States, or in Italy or
Belgium. The principal place of business for five Insurers is in England; the
others keep their principal place of business in Connecticut, New York,
Pennsylvania, Belgium, Italy, Netherlands, and Pakistan. Defendant A. Sharp is
an underwriter for Lloyd's of London, who participated in the policies on behalf
of the members of Lloyd's Syndicate No. 839. Eleven of the 13 Insurers operate
in the London insurance market. A large portion of the fidelity policies were
written by Insurers who were based in the United States, or were English
subsidiaries of American insurers, who also provided most of the coverage for the
fidelity policies.
The fidelity policies indemnified plaintiffs for losses resulting from
fraudulent or dishonest acts committed by an employee. To qualify for coverage,
the employee must have possessed,
"the manifest intent:
(a) to cause the Insured to sustain such loss; and
(b) to obtain financial benefit for the Employee, or for
any other person or organisation intended by the
Employee to receive such benefit, other than salaries,
commissions, fees, bonuses, promotions, awards, profit
sharing, pensions or other employee benefits earned in
the normal course of employment."
A choice of law provision stated that the "construction, interpretation and the
meaning of the terms, exclusions, limitations and conditions of this Policy shall
be determined in accordance with" English[fn1] law.
In November and December of 1994, plaintiffs notified Insurers of two
potential losses, for which it planned to seek coverage, stemming from activities
occurring at Advance. In their proof of loss, plaintiffs stated that Theodore
A. Filson joined Advance in 1986 as Vice President of Operations, and became
president in 1989. Plaintiffs claimed that in February 1992 Filson, his wife,
and other Advance employees and their wives formed a fraudulent travel agency,
through which they embezzled funds from Advance. By April 1992, Filson knew that
the design of the electronic ballasts Advance manufactured contained an inherent
flaw, and all of the ballasts were defective, yet he continued to ship the
ballasts. Plaintiffs believe Filson wanted to preserve or increase the
division's performance, so that he could retain his position and earn his bonus,
and continue to embezzle money without PENAC or Philips investigating Advance's
operations.
Plaintiffs asked Filson to resign in November 1993, and in May 1994 they
hired outside investigators to determine the losses suffered at Advance. After
notifying the London office of one Insurer of its losses, Philips arranged a
meeting in London with a claims manager to discuss its claims for coverage. On
March 21, 1995, PENAC sued several former Advance employees and their wives in
federal court in the Northern District of Illinois, stating claims for fraud and
deceit, constructive fraud, conversion, theft and embezzlement, civil conspiracy,
breach of fiduciary duty and aiding and abetting.
The fidelity policies required the insured to submit a claim for coverage
(proof of loss) within six months after discovering the loss unless the parties
agreed to extend the period. An insured may not sue on the policies until 90
days after filing a proof of loss, but must file suit within two years of
discovering the loss. Insurers granted plaintiffs several extensions in filing
the proof of loss, which initially was due in May 1995.
Philips submitted its proof of loss on behalf of PENAC to the London
offices of Insurers on August 31, 1995, claiming losses for at least $28 million
as of December 31, 1994, resulting from the embezzlement, replacement of the
defective ballasts, bonuses paid to Filson, and investigation fees. Philips also
claimed a total potential loss of more than $100 million, which included the
projected future costs of replacing all the defective ballasts shipped by Filson.
The proof of loss consisted of more than 200 exhibits, a lengthy narrative
prepared by Philips explaining the results of its investigation, and a preprinted
loss form stating that the loss was a direct result of employee dishonesty.
Philips agreed to make other documents available to Insurers, but did not include
it with the Proof of Loss because the size of the documentation was "too
voluminous" to attach.
Philips reserved the right to amend or supplement the proof of loss as it
continued to investigate and as its losses continued to mount. Philips further
stated that "The information contained herein is confidential and is not to be
used *** for any other purpose. The release of this Information to others
without our express consent will be considered a breach of your fiduciary and
contractual obligations under the policy." (Emphasis in original)
Insurers hired Edward Davies, who was based in London, to serve as a claims
adjuster. At a June 1995 meeting, Davies informed plaintiffs that the fidelity
policies did not appear to cover losses resulting from the bonuses and defective
products. Plaintiffs' attorney asked Insurers to attempt to find a business
solution as an alternative to initiating litigation over the claim, expressing
concern that Insurers "will go straight to litigation on this matter."
Davies met with plaintiffs' investigators in Chicago in October 1995.
Davies also interviewed former Advance employees, including those being sued by
Philips in federal court, and who would not permit plaintiffs to be present at
the interviews. He had scheduled interviews with some of Advance's current
employees for December 1995.
On November 29, 1995, one day before the end of the 90-day limitations
period, after which plaintiffs could sue on the policies, Insurers initiated
declaratory proceedings against PENAC in the Commercial Court. Insurers obtained
leave of the court to serve PENAC with a writ of summons outside the English
jurisdiction. The writ contained a written statement of Insurers' claim against
plaintiffs, in which they sought a declaration that they owed no duty to
indemnify PENAC under the policies for losses resulting from the bonus fraud,
defective ballasts, and investigation fees.
In response, PENAC sought to have a summons issue, requesting that the
Commercial Court discharge its previous order and set aside the writ of summons.
PENAC argued that Insurers failed to "disclose a reasonable cause of action;"
another forum possessed competent jurisdiction and was the appropriate forum for
litigation of the dispute; and Insurers had engaged in inappropriate forum
shopping, or its claim was otherwise an inappropriate action for declaratory
relief. PENAC also accused Insurers of acting in bad faith, but subsequently
indicated to the Commercial Court that its bad faith claims were not material to
the jurisdictional issue before the court.
On April 27, 1996, the Commercial Court issued a written opinion denying
PENAC's summons, in which it presumed the truth of the allegations contained in
the proof of loss, stating that the issue was whether those allegations supported
a claim for coverage under the fidelity policies. The court explained that if
these underlying facts needed to be litigated, England would not be the
appropriate forum because the facts and witnesses were located in Illinois. In
deciding that it possessed jurisdiction over the action, the court found that
"England is clearly the appropriate forum where this claim, to the trial of
threshold issues of law or assumed facts, can be heard suitably for the interests
of the parties and the end of justice."
PENAC sought interlocutory leave to appeal the Commercial Court's decision,
which the Court of Appeal granted on June 19, 1996. On May 17, 1996, after the
Commercial Court issued its opinion, but before the Court of Appeal granted leave
to appeal, plaintiffs filed the instant action in the circuit court. Count I of
plaintiffs' five-count amended complaint asserted a claim for breach of contract.
Counts II and III alleged that Insurers breached the duty of good faith and fair
dealing by providing plaintiffs' former employees at Advance with copies of its
proof of loss, despite plaintiffs' repeated requests that the information
contained in the proof of loss be kept confidential; and filing a peremptory
claim against PENAC in England. Both counts alleged the same measure of damages
as in count I. Count IV asserted a violation of the Illinois Insurance Code (215
ILCS 5/155 (West 1994)), alleging that Insurers unreasonably refused to indemnify
plaintiffs for their losses. The fifth count is directed against National Union
Fire Insurance Company of Pittsburgh, PA (National Union), pursuant to a general
liability policy. National Union is not involved in the English proceeding and
is not a party to this appeal.
Insurers moved to dismiss counts I through IV pursuant to Rule 2-619(a)(3),
arguing that the English action constituted "another action pending between the
same parties for the same cause." Alternatively, Insurers moved to stay the
adjudication of those counts pending the resolution of the English proceeding.
The circuit court denied the motion to dismiss any of the counts and to stay
counts II and III of the amended complaint, but granted the motion to stay counts
I and IV of the amended complaint. Both plaintiffs and Insurers appeal.[fn2]
The circuit court may stay proceedings as part of its inherent authority
to control the disposition of cases before it. Disciplined Investment Advisors
v. Schweihs, 272 Ill. App. 3d 681, 692, 650 N.E.2d 578 (1995). The court may
consider factors such as the orderly administration of justice and judicial
economy in determining whether to stay proceedings.
The standard of review of the circuit court's decision granting a motion
to stay is limited to a determination of whether the court abused its discretion.
Disciplined, 272 Ill. App. 3d at 692. For reasons which follow, we affirm.
I
Initially, plaintiffs argue that section 2-619(a)(3) does not apply to
pending actions in foreign courts. Section 2-619(a)(3) allows a defendant to
move for dismissal or "other appropriate relief" if "there is another action
pending between the same parties for the same cause." 735 ILCS 5/2-619(a)(3)
(West 1994). This provision grants a right to dismiss regardless of the
jurisdiction in which the other action was pending. Skolnick v. Martin, 32 Ill. 2d 55, 59, 203 N.E.2d 428 (1964). Application of section 2-619(a)(3) also
encourages "the elimination of repetitious suits and the relief of courts and
litigants alike from the unnecessary burden of trying the same issues pending in
another action." Skolnick, 32 Ill. 2d at 59.
Three Illinois cases have held that the mere existence of a pending action
in a foreign court does not require dismissal of litigation of identical causes
of action in Illinois courts. Dayan v. McDonald's Corp., 64 Ill. App. 3d 984,
987, 382 N.E.2d 55 (1978); Goldberg v. Goldberg, 27 Ill. App. 3d 94, 98, 327 N.E.2d 299 (1975); Farah v. Farah, 25 Ill. App. 3d 481, 493, 323 N.E.2d 361
(1975). In Goldberg and Farah, the courts affirmed the denial of defendants'
motions to dismiss their divorce proceedings on the basis of pending divorce
actions in foreign countries. Goldberg, 27 Ill. App. 3d at 98; Farah, 25 Ill.
App. 3d at 493. Relying on Goldberg and Farah, the Dayan court affirmed the
grant of a preliminary injunction in plaintiff's favor, despite the existence of
a pending breach of contract suit filed by defendant in France. Dayan, 64 Ill.
App. 3d at 987.
Two federal decisions recently questioned the continued vitality of
Goldberg, Farah, and Dayan. Ball v. Deere & Co., 684 F. Supp. 1455, 1457 (C.D.
Ill. 1988); Northbrook Property and Casualty Insurance Co. v. Allendale Mutual
Insurance Co., 887 F. Supp. 173, 175 (N.D. Ill. 1995). In Ball, the court stated
that those decisions preceded the enactment of the Uniform Foreign Money-
Judgments Recognition Act (735 ILCS 5/12-618 et seq. (West 1994)) (UFMJRA), which
provides that with certain exceptions, a foreign judgment is conclusive and
enforceable "in the same manner as the judgment of a sister state which is
entitled to full faith and credit." 735 ILCS 5/12-620 (West 1994). Plaintiffs
in the present case correctly point out that, contrary to the Ball court's
assertion, UFMJRA was enacted long before Farah was decided. 1963 Ill. Laws 1506
(sec. 1). After the court issued its decision in Farah, the statute was
recodified, but its language was not significantly amended. See Ill Rev. Stat.
1983, ch. 110, par. 12-618 et seq.
An exception set forth in UFMJRA distinguishes Farah and Goldberg from the
present case on different grounds, specifically excluding "a judgment for support
in matrimonial or family matters" from its definition of the term "foreign
judgment." That portion of the statute remains unchanged. See 735 ILCS 5/12-618
(West 1994). A judgment by a foreign court entered in conjunction with a
divorce decree, then, is not enforceable in Illinois courts. Nardi v. Segal, 90
Ill. App. 2d 432, 437, 234 N.E.2d 805 (1967).
The courts in Goldberg and Farah were not required to recognize any
judgment entered in divorce proceedings by a foreign court, and therefore did not
err in refusing to dismiss cases based upon pending proceedings in foreign
jurisdictions. This element differentiates those two cases from the present
case, as well as from Dayan, which was not a divorce action.
The Dayan decision relied for its holding on Pesquera del Pacifico S. de
R.L. v. Superior Court in and for San Diego County, 89 Cal. App. 2d 738, 201 P.2d 553 (1949), also cited in Farah and Goldberg, which upheld the denial of a stay
pending the resolution of a foreign action. The Pesquera case was decided before
the 1967 California enactment of UFMJRA. Cal. Civ. Proc. Code sec. 1713-1713.8
(West 1994). The concerns expressed by the Pesquera court were addressed in
UFMJRA, which contains language protecting parties from the recognition of unjust
judgments by providing that a foreign judgment will be considered inconclusive
if the tribunal issuing the judgment was not impartial; the procedures of the
tribunal were incompatible with principles of due process of law; or the foreign
court lacked jurisdiction over the subject matter or the parties (735 ILCS 5/12-
621(a) (West 1994)), in addition to a list of defenses to the recognition of a
foreign judgment. See 735 ILCS 5/12-621(b)(1)-(6) (West 1994).
Plaintiffs argue that UFMJRA does not apply here because the judgment being
sought in the English court is not a "foreign judgment" as it is defined in the
statute. UFMJRA defines a "foreign judgment" as "any judgment of a foreign State
granting or denying recovery of a sum of money," with some exceptions that do not
apply here. 735 ILCS 5/12-618(b) (West 1994). Here, Insurers are seeking to
prevent plaintiffs from recovering a sum of money, namely the proceeds of the
fidelity policies; if they succeed, the judgment would deny them such a recovery.
A future judgment of the English court involving these parties therefore would
qualify as a foreign judgment under UFMJRA, and would be enforceable in the
circuit court. Where the language of a statute is certain and unambiguous,
courts must enforce the laws as enacted by the legislature. We may not depart
from the statute by reading into it exceptions, limitations, or conditions that
conflict with the expressed legislative intent. In re Marriage of DeRossett, 173 Ill. 2d 416, 420, 671 N.E.2d 654 (1996).
Even if UFMJRA did not apply to a judgment entered by the English court,
in this case, the Act's savings provision would allow recognition of the decree
under principles of comity. See Basic v. Fitzroy Engineering, Ltd., 949 F. Supp. 1333, 1340 (N.D. Ill. 1996); Banco de Vizcaya, S.A. v. First National Bank of
Chicago, 514 F. Supp. 1280, 1286 (N.D. Ill. 1981). Comity is not a rule of law,
but one of practice, convenience, and expediency. Mayekawa Manufacturing Co.,
Ltd. v. Sasaki, 76 Wash. App. 791, 799, 888 P.2d 183, 188 (Wash. App. 1995),
citing Somportex Ltd. v. Philadelphia Chewing Co., 453 F.2d 435, 440 (11th Cir.
1971), cert. denied, 405 U.S. 1017, 31 L. Ed. 2d 479, 92 S. Ct. 1294 (1972).
"Comity should be only when its acceptance would be contrary or prejudicial to
the interest of the nation called upon to give it effect." Basic, 949 F. Supp.
at 1340, quoting Somportex, 453 F.2d at 440.
The judgment of a foreign court is recognizable under UFMJRA or principles
of comity, as shown above, and the circuit court properly considered whether to
stay or dismiss plaintiffs' complaint because of the pending action in the
English court.
II
Section 2-619(a)(3) allows for dismissal or other appropriate relief only
if the other pending action involves the "same parties" and the "same cause".
735 ILCS 5/2-619(a)(3) (West 1994). Plaintiffs claim the "same parties"
requirement was not met here because Insurers failed to name Philips as a party
to the English action, choosing to file suit against PENAC, Philips' subsidiary,
and because National Union, a defendant in the instant action, is not a party to
the English action. Plaintiffs further contend that the "same cause"
prerequisite was not satisfied because the English action is based solely upon
the proof of loss, but the instant action involves facts and allegations outside
the proof of loss. Alternatively, plaintiffs argue that even if the two suits
meet the basic requirements for section 2-619(a)(3), the connection between the
underlying facts and the state of Illinois nonetheless operate in favor of
allowing the parties to proceed in an Illinois court on all four counts.
A
Section 2-619(a)(3) does not require that parties be identical in both
actions; a substantial similarity is sufficient. People ex rel. Phillips
Petroleum Co. v. Gitchoff, 65 Ill. 2d 249, 255, 357 N.E.2d 534 (1976) (Gitchoff);
Cummings v. Iron Hustler Corp., 118 Ill. App. 3d 327, 332, 454 N.E.2d 1078 (1983)
(Cummings). Privity between the parties in both actions may be result in
sufficient similarity in interest to be considered the "same parties." Cummings,
118 Ill. App. 3d at 333. In Aetna Casualty & Surety Co. v. Kerr-McGee Chemical
Corp., 875 F.2d 1252, 1256 (7th Cir. 1989), for example, the same parties
requirement was satisfied, although in one of the actions the subsidiaries, not
their corporate parent, were named as parties. The court found that the
interests of these parties were "sufficiently congruent" to satisfy section 2-
619(a)(3). Aetna, 875 F.2d at 1257.
In the instant action, Philips and its subsidiary, PENAC, brought suit to
recover damages suffered by PENAC. Insurers named only PENAC as a defendant in
the English proceedings. Because of the relationship between Philips and PENAC,
and their corresponding interests in the two cases, the named parties to the two
actions are substantially similar and qualify as the same parties under section
2-619(a)(3).
The fact that National Union was not named in the English proceedings does
not render the parties different for purposes of section 2-619(a)(3). To that
end, the case cited by plaintiffs, Zurich Insurance Co. v. Baxter International,
Inc., 173 Ill. 2d 235, 670 N.E.2d 664 (1996), is distinguishable from the present
case. There, the parties to the pending foreign action consisted of a
corporation and two of its insurers, notwithstanding the facts that the Illinois
action named more than 100 of the corporation's excess insurers and dozens of
tort claimants from the underlying tort actions. Zurich, 173 Ill. 2d at 246.
In this case, only one of fourteen insurers, National Union, was not named in the
England proceeding. Plaintiffs' claim against National Union involves different
legal and factual issues, is separate from the claims against Insurers, and is
not even part of this appeal. The remaining parties to the two actions are
substantially similar and qualify as the "same parties" under section 2-
619(a)(3).
B
The same cause requirement similarly mandates only substantially similar,
not necessarily identical, causes of action. Gitchoff, 65 Ill. 2d at 255;
Cummings, 118 Ill. App. 3d at 332. To be considered is whether the two actions
arose out of the same transaction or occurrence, rather than whether the legal
theory, issues, burden of proof, or relief sought materially differ between the
two actions. Quantum Chemical Corp. v. Hartford Steam Boiler Inspection &
Insurance Co., 246 Ill. App. 3d 557, 560, 616 N.E.2d 686 (1993); Catalano v.
Aetna Casualty & Insurance Co. of Illinois, 105 Ill. App. 3d 195, 198, 434 N.E.2d 31 (1982). The central inquiry, then, is whether the relief requested rests on
substantially the same facts. Bank of Northern Illinois v. Nugent, 223 Ill. App.
3d 1, 14, 584 N.E.2d 948 (1991); Continental Grain Co. v. FMC Corp., 27 Ill. App.
3d 819, 825, 327 N.E.2d 371 (1975).
In the present case, Insurers filed suit in the English Commercial Court,
postulating that the fidelity policies did not cover the losses PENAC suffered
from the defective ballasts, travel agency fraud, and investigation fees.
Plaintiffs filed the instant action, of which four counts are directed against
Insurers. Counts I and IV raise the same core issues as the Commercial Court
action: essentially, whether Insurers must indemnify plaintiffs pursuant to the
fidelity policies. In addition, both the Commercial Court action, and counts I
and IV in the instant action, arose out of the same transaction or occurrence,
namely, the losses incurred by plaintiffs as a result of the alleged commission
of fraudulent activities by Advance employees.
Counts II and III, however, involve facts different from those in the
Commercial Court action, are not part of the policy coverage issue, and do not
arise from the same transaction or occurrence. For instance, count II alleges
that Insurers breached a fiduciary duty to plaintiffs by revealing confidential
information about them to former Advance employees being sued by plaintiffs.
Count III alleges that a similar breach occurred when Insurers filed the
Commercial Court action. These allegations do not require proof of facts that
involve interpretation of the terms and scope of the fidelity policies, which is
the essence of the English action; instead, they focus on the relationship
between Insurers and plaintiffs, and scope of the duty that Insurers owed
plaintiffs. The alleged injuries suffered by plaintiffs, as claimed in counts
II and III, do not stem from the coverage dispute, but instead occurred later as
a result of actions subsequently taken by Insurers. Accordingly, they did not
arise from the same transaction or occurrence as the Commercial Court action and
cannot be considered the same cause.
Insurers assert that any claim against them for bad faith cannot be
resolved until the coverage issue is decided and an insured cannot recover on
such a claim under the Insurance Code where the insurer rightfully denies
coverage. McDaniel v. Glens Falls Indemnity Co., 333 Ill. App. 596, 602, 78 N.E.2d 111 (1948); Hermitage Insurance Co. v. Action Marine, Inc., 816 F. Supp. 1280, 1286 (N.D. Ill. 1993). Counts II and III do not allege bad faith in
denying coverage, however. Plaintiffs instead claim in those counts that
Insurers breached their fiduciary duty by allowing confidential information to
become a matter of public record during their investigation of plaintiff's claim
for coverage, and by filing a preemptive lawsuit. These claims are not dependent
upon the coverage issue and do not require interpretation of the terms of the
fidelity policies.
C
Plaintiffs argue that even if the "same parties" and "same cause"
requirements of section 2-619(a)(3) were met, the circuit court should have
refused to stay all four counts because of the substantial connections between
this litigation and the State. Multiple actions brought in different
jurisdictions, but arising out of the same operative facts, may be maintained if
the circuit court, in exercising its discretion, determines that both suits
should proceed. Kellerman v. MCI Telecommunications Corp., 112 Ill. 2d 428, 447,
493 N.E.2d 1045 (1986); A.E. Staley Manufacturing Co. v. Swift & Co., 84 Ill. 2d 245, 253, 419 N.E.2d 23 (1980). The following factors should be considered in
deciding whether a stay is warranted under section 2-619(a)(3): comity; the
prevention of multiplicity, vexation, and harassment; the likelihood of obtaining
complete relief in the foreign jurisdiction; and the res judicata effect of a
foreign judgment in the local forum. Zurich, 173 Ill. 2d at 244; Kellerman, 112 Ill. 2d at 447-48.
In the instant case, only one of the 13 Insurers, and none of the
plaintiffs, are either headquartered or have their principal place of business
in Illinois. Further, the parties had minimal contact with Illinois during the
preparation of the fidelity policies, choosing to use American and English
brokers and underwriters who were located in other states and in London. All but
two Insurers executed the policy agreement in London. Although the underlying
claim on which coverage is asserted involves events that took place in Illinois,
most of the events leading to the execution of the fidelity policies, and to the
coverage dispute after Philips filed notice of its claim, took place in other
parts of the United States and England.
Plaintiffs emphasize the American and, specifically, Illinois connections
to this litigation, but evidence in the record reveals that plaintiffs themselves
submitted both their notice of a claim for coverage and the proof of loss to the
London offices of one of the Insurers; an English claims adjuster, Davies, who
was based in London, was hired by Insurers; and most of the discussions between
plaintiffs and Insurers over their claim took place at various locations in
England, with the exception of Davies' October 1995 visit to Chicago.
Most importantly, the terms of the policies expressly provided that English
law would govern interpretation of the agreement. Choice of law provisions may
be enforced in this state. Swanberg v. Mutual Benefit Life Insurance Co., 79
Ill. App. 3d 81, 85, 398 N.E.2d 299 (1979). Plaintiffs argue that the circuit
court could interpret and apply relevant English laws just as capably as the
Commercial Court. The cases cited by plaintiff in support of this argument,
however, do not involve section 2-619(a)(3) motions. In re Estate of Janussek,
281 Ill. App. 3d 233, 666 N.E.2d 774 (1996); Atwood Vacuum Machine Co. v.
Continental Casualty Co. of Chicago, 107 Ill. App. 2d 248, 246 N.E.2d 882 (1969).
Several factors here make it more appropriate for an English court to
adjudicate the coverage claim and interpret its own laws. One potential issue
relating to coverage is whether the acts allegedly committed by Filson evidenced
"manifest intent" as the term is used in the fidelity policies. The parties
acknowledge that the question of how to construe the term is an issue of first
impression in England; that issue remains the subject of intense debate among
courts in our own country. See First National Bank of Louisville v. Lustig, 96 F.3d 1554, 1566 (5th Cir. 1996); Susquehema BancShores v. National Union Fire
Insurance Co., 442 Pa. Super. 281, 287-94, 659 A.2d 991, 994-97 (1995). In light
of these circumstances, it would be difficult to predict how an English court
would decide that issue as a matter of English law.
Plaintiffs claim that they wish to assert an additional basis for coverage
that was not discussed in the proof of loss, and therefore will not be considered
by the English court, preventing them from obtaining complete relief; however,
plaintiffs specifically reserved the right to amend their proof of loss at any
time when they first submitted it to Insurers. No reason appears as to why the
Commercial Court would not allow them to submit additional information and
evidence, or assert additional bases for coverage, during litigation of the
declaratory judgment action.
Plaintiffs further contend that their amended complaint in the circuit
court raises additional allegations relating to the issue of whether Filson
possessed the requisite "manifest intent" when he committed the dishonest acts.
Plaintiffs argue that these allegations are supported by evidence located in
Illinois, and must be resolved in an Illinois court. For purposes of the
Commercial Court action, however, plaintiffs' allegations will be presumed to be
true. The issue in the Commercial Court is whether the allegations in the proof
of loss state a claim for coverage under the fidelity policies. Plaintiffs would
not be required to prove those allegations in the Commercial Court.
To allow multiple litigation of the same issue in two different courts
would place an unnecessary judicial burden on our system. Plaintiffs did not
show that they would be unable to introduce additional allegations in the
Commercial Court action, so as to be deprived of the opportunity to fully
litigate the coverage issue.
For the foregoing reasons, the circuit court's order granting a stay with
respect to counts I and IV of plaintiffs' amended complaint, and denying the stay
with respect to counts II and III, is affirmed.
Affirmed.
HOFFMAN and HOURIHANE, JJ., concur.
[fn1]Although one of the policies mentions "United Kingdom" law, the
parties agree that this is a reference to English law. The Commercial Court also
recognized that the reference to United Kingdom law should be interpreted as a
reference to English law.
[fn2]On May 1, 1997, plaintiffs filed a motion in this court to supplement
the record with the "Skeleton Argument to the English Court of Appeal." This
court agreed to take the motion with the case. In its objection to this motion,
the Fidelity Insurers pointed out that the English Court of Appeal has since
affirmed the Commercial Court's decision and dismissed the appeal. The parties
chose not to supplement the record with the appellate court's decision, however.
March 20, 1998
PHILIPS ELECTRONICS, N.V., and PHILIPS )
ELECTRONICS NORTH AMERICA CORPORATION, )
d/b/a Advance Transformer Company, ) Appeal from the
) Circuit Court of
Plaintiffs-Appellees/Cross-Appellants, ) Cook County
)
v. )
)
NEW HAMPSHIRE INSURANCE COMPANY, )
RELIANCE NATIONAL INSURANCE COMPANY )
(U.K.) LTD., COMMERCIAL UNION ASSURANCE )
PLC, ROYAL INSURANCE PLC, SOREMA (U.K.) )
LTD., ASSICURAZIONI GENERALI S.P.A., )
RIVER THAMES INSURANCE COMPANY LTD., )
CHIYODA FIRE & MARINE INSURANCE COMPANY )
(EUROPE) LTD., CONTINENTAL CASUALTY )
COMPANY, ARIG INSURANCE COMPANY LTD., )
THE AETNA CASUALTY & SURETY COMPANY, )
CHUBB INSURANCE COMPANY OF EUROPE S.A. )
and A. SHARP (On His Own Behalf and On )
Behalf of Each Member of Syndicate )
839), )
)
Defendants-Appellants/Cross-Appellees, )
)
and )
) Honorable
NATIONAL UNION FIRE INSURANCE COMPANY ) John Gustafson,
OF PITTSBURGH, PA., ) Judge Presiding.
)
Defendant. )
JUSTICE HARTMAN delivered the opinion of the court:
Defendants, collectively referred to as Insurers, brought an action in the
Commercial Court of the High Court of Justice, Queen's Bench Division, in London,
England (Commercial Court), seeking a declaration that they owe no coverage under
their fidelity insurance policies for losses claimed by their insured, plaintiff
Philips Electronics North America Corporation (PENAC). PENAC unsuccessfully
challenged the Commercial Court's jurisdiction over the declaratory judgment
proceedings.
While a preliminary appeal in the Commercial Court action was pending in
the English Court of Appeal, PENAC and its parent corporation, Philips
Electronics, N.V. (Philips) (sometimes collectively plaintiffs) brought this suit
in the circuit court. Insurers moved to dismiss or stay pursuant to section 2-
619(a)(3) of the Code of Civil Procedure (735 ILCS 5/2-619(a)(3) (West 1994))
(section 2-619(a)(3)), pending the outcome of the Commercial Court case.
Philips is a Netherlands corporation with its principal place of business
in Eindhoven, Netherlands. PENAC, a wholly-owned subsidiary of Philips, is a
Delaware corporation with its principal place of business in New York. PENAC is
authorized to do business in Illinois, where it operates under the name of
Advance Transformer Company (Advance), an unincorporated division of PENAC.
Advance manufactures electronic equipment, including magnetic and electronic
ballasts.
Philips contracted with Insurers to purchase a Comprehensive Crime Policy
consisting of primary, excess, and deductible policies (fidelity policies), which
would provide plaintiffs with coverage for the period between December 31, 1993
and December 31, 1994. An English broker negotiated the contract on behalf of
Philips and PENAC. Two Insurers entered into the contract in the United States,
where they are domiciled; the eleven remaining Insurers entered into the contract
in London.
Most of the 13 Insurers have limited ties to Illinois. Only one,
Continental Casualty Company, is incorporated in Illinois and has its principal
place of business in Chicago. Seven others are incorporated in England; the
remainder are incorporated elsewhere in the United States, or in Italy or
Belgium. The principal place of business for five Insurers is in England; the
others keep their principal place of business in Connecticut, New York,
Pennsylvania, Belgium, Italy, Netherlands, and Pakistan. Defendant A. Sharp is
an underwriter for Lloyd's of London, who participated in the policies on behalf
of the members of Lloyd's Syndicate No. 839. Eleven of the 13 Insurers operate
in the London insurance market. A large portion of the fidelity policies were
written by Insurers who were based in the United States, or were English
subsidiaries of American insurers, who also provided most of the coverage for the
fidelity policies.
The fidelity policies indemnified plaintiffs for losses resulting from
fraudulent or dishonest acts committed by an employee. To qualify for coverage,
the employee must have possessed,
"the manifest intent:
(a) to cause the Insured to sustain such loss; and
(b) to obtain financial benefit for the Employee, or for
any other person or organisation intended by the
Employee to receive such benefit, other than salaries,
commissions, fees, bonuses, promotions, awards, profit
sharing, pensions or other employee benefits earned in
the normal course of employment."
A choice of law provision stated that the "construction, interpretation and the
meaning of the terms, exclusions, limitations and conditions of this Policy shall
be determined in accordance with" English[fn1] law.
In November and December of 1994, plaintiffs notified Insurers of two
potential losses, for which it planned to seek coverage, stemming from activities
occurring at Advance. In their proof of loss, plaintiffs stated that Theodore
A. Filson joined Advance in 1986 as Vice President of Operations, and became
president in 1989. Plaintiffs claimed that in February 1992 Filson, his wife,
and other Advance employees and their wives formed a fraudulent travel agency,
through which they embezzled funds from Advance. By April 1992, Filson knew that
the design of the electronic ballasts Advance manufactured contained an inherent
flaw, and all of the ballasts were defective, yet he continued to ship the
ballasts. Plaintiffs believe Filson wanted to preserve or increase the
division's performance, so that he could retain his position and earn his bonus,
and continue to embezzle money without PENAC or Philips investigating Advance's
operations.
Plaintiffs asked Filson to resign in November 1993, and in May 1994 they
hired outside investigators to determine the losses suffered at Advance. After
notifying the London office of one Insurer of its losses, Philips arranged a
meeting in London with a claims manager to discuss its claims for coverage. On
March 21, 1995, PENAC sued several former Advance employees and their wives in
federal court in the Northern District of Illinois, stating claims for fraud and
deceit, constructive fraud, conversion, theft and embezzlement, civil conspiracy,
breach of fiduciary duty and aiding and abetting.
The fidelity policies required the insured to submit a claim for coverage
(proof of loss) within six months after discovering the loss unless the parties
agreed to extend the period. An insured may not sue on the policies until 90
days after filing a proof of loss, but must file suit within two years of
discovering the loss. Insurers granted plaintiffs several extensions in filing
the proof of loss, which initially was due in May 1995.
Philips submitted its proof of loss on behalf of PENAC to the London
offices of Insurers on August 31, 1995, claiming losses for at least $28 million
as of December 31, 1994, resulting from the embezzlement, replacement of the
defective ballasts, bonuses paid to Filson, and investigation fees. Philips also
claimed a total potential loss of more than $100 million, which included the
projected future costs of replacing all the defective ballasts shipped by Filson.
The proof of loss consisted of more than 200 exhibits, a lengthy narrative
prepared by Philips explaining the results of its investigation, and a preprinted
loss form stating that the loss was a direct result of employee dishonesty.
Philips agreed to make other documents available to Insurers, but did not include
it with the Proof of Loss because the size of the documentation was "too
voluminous" to attach.
Philips reserved the right to amend or supplement the proof of loss as it
continued to investigate and as its losses continued to mount. Philips further
stated that "The information contained herein is confidential and is not to be
used *** for any other purpose. The release of this Information to others
without our express consent will be considered a breach of your fiduciary and
contractual obligations under the policy." (Emphasis in original)
Insurers hired Edward Davies, who was based in London, to serve as a claims
adjuster. At a June 1995 meeting, Davies informed plaintiffs that the fidelity
policies did not appear to cover losses resulting from the bonuses and defective
products. Plaintiffs' attorney asked Insurers to attempt to find a business
solution as an alternative to initiating litigation over the claim, expressing
concern that Insurers "will go straight to litigation on this matter."
Davies met with plaintiffs' investigators in Chicago in October 1995.
Davies also interviewed former Advance employees, including those being sued by
Philips in federal court, and who would not permit plaintiffs to be present at
the interviews. He had scheduled interviews with some of Advance's current
employees for December 1995.
On November 29, 1995, one day before the end of the 90-day limitations
period, after which plaintiffs could sue on the policies, Insurers initiated
declaratory proceedings against PENAC in the Commercial Court. Insurers obtained
leave of the court to serve PENAC with a writ of summons outside the English
jurisdiction. The writ contained a written statement of Insurers' claim against
plaintiffs, in which they sought a declaration that they owed no duty to
indemnify PENAC under the policies for losses resulting from the bonus fraud,
defective ballasts, and investigation fees.
In response, PENAC sought to have a summons issue, requesting that the
Commercial Court discharge its previous order and set aside the writ of summons.
PENAC argued that Insurers failed to "disclose a reasonable cause of action;"
another forum possessed competent jurisdiction and was the appropriate forum for
litigation of the dispute; and Insurers had engaged in inappropriate forum
shopping, or its claim was otherwise an inappropriate action for declaratory
relief. PENAC also accused Insurers of acting in bad faith, but subsequently
indicated to the Commercial Court that its bad faith claims were not material to
the jurisdictional issue before the court.
On April 27, 1996, the Commercial Court issued a written opinion denying
PENAC's summons, in which it presumed the truth of the allegations contained in
the proof of loss, stating that the issue was whether those allegations supported
a claim for coverage under the fidelity policies. The court explained that if
these underlying facts needed to be litigated, England would not be the
appropriate forum because the facts and witnesses were located in Illinois. In
deciding that it possessed jurisdiction over the action, the court found that
"England is clearly the appropriate forum where this claim, to the trial of
threshold issues of law or assumed facts, can be heard suitably for the interests
of the parties and the end of justice."
PENAC sought interlocutory leave to appeal the Commercial Court's decision,
which the Court of Appeal granted on June 19, 1996. On May 17, 1996, after the
Commercial Court issued its opinion, but before the Court of Appeal granted leave
to appeal, plaintiffs filed the instant action in the circuit court. Count I of
plaintiffs' five-count amended complaint asserted a claim for breach of contract.
Counts II and III alleged that Insurers breached the duty of good faith and fair
dealing by providing plaintiffs' former employees at Advance with copies of its
proof of loss, despite plaintiffs' repeated requests that the information
contained in the proof of loss be kept confidential; and filing a peremptory
claim against PENAC in England. Both counts alleged the same measure of damages
as in count I. Count IV asserted a violation of the Illinois Insurance Code (215
ILCS 5/155 (West 1994)), alleging that Insurers unreasonably refused to indemnify
plaintiffs for their losses. The fifth count is directed against National Union
Fire Insurance Company of Pittsburgh, PA (National Union), pursuant to a general
liability policy. National Union is not involved in the English proceeding and
is not a party to this appeal.
Insurers moved to dismiss counts I through IV pursuant to Rule 2-619(a)(3),
arguing that the English action constituted "another action pending between the
same parties for the same cause." Alternatively, Insurers moved to stay the
adjudication of those counts pending the resolution of the English proceeding.
The circuit court denied the motion to dismiss any of the counts and to stay
counts II and III of the amended complaint, but granted the motion to stay counts
I and IV of the amended complaint. Both plaintiffs and Insurers appeal.[fn2]
The circuit court may stay proceedings as part of its inherent authority
to control the disposition of cases before it. Disciplined Investment Advisors
v. Schweihs, 272 Ill. App. 3d 681, 692, 650 N.E.2d 578 (1995). The court may
consider factors such as the orderly administration of justice and judicial
economy in determining whether to stay proceedings.
The standard of review of the circuit court's decision granting a motion
to stay is limited to a determination of whether the court abused its discretion.
Disciplined, 272 Ill. App. 3d at 692. For reasons which follow, we affirm.
I
Initially, plaintiffs argue that section 2-619(a)(3) does not apply to
pending actions in foreign courts. Section 2-619(a)(3) allows a defendant to
move for dismissal or "other appropriate relief" if "there is another action
pending between the same parties for the same cause." 735 ILCS 5/2-619(a)(3)
(West 1994). This provision grants a right to dismiss regardless of the
jurisdiction in which the other action was pending. Skolnick v. Martin, 32 Ill. 2d 55, 59, 203 N.E.2d 428 (1964). Application of section 2-619(a)(3) also
encourages "the elimination of repetitious suits and the relief of courts and
litigants alike from the unnecessary burden of trying the same issues pending in
another action." Skolnick, 32 Ill. 2d at 59.
Three Illinois cases have held that the mere existence of a pending action
in a foreign court does not require dismissal of litigation of identical causes
of action in Illinois courts. Dayan v. McDonald's Corp., 64 Ill. App. 3d 984,
987, 382 N.E.2d 55 (1978); Goldberg v. Goldberg, 27 Ill. App. 3d 94, 98, 327 N.E.2d 299 (1975); Farah v. Farah, 25 Ill. App. 3d 481, 493, 323 N.E.2d 361
(1975). In Goldberg and Farah, the courts affirmed the denial of defendants'
motions to dismiss their divorce proceedings on the basis of pending divorce
actions in foreign countries. Goldberg, 27 Ill. App. 3d at 98; Farah, 25 Ill.
App. 3d at 493. Relying on Goldberg and Farah, the Dayan court affirmed the
grant of a preliminary injunction in plaintiff's favor, despite the existence of
a pending breach of contract suit filed by defendant in France. Dayan, 64 Ill.
App. 3d at 987.
Two federal decisions recently questioned the continued vitality of
Goldberg, Farah, and Dayan. Ball v. Deere & Co., 684 F. Supp. 1455, 1457 (C.D.
Ill. 1988); Northbrook Property and Casualty Insurance Co. v. Allendale Mutual
Insurance Co., 887 F. Supp. 173, 175 (N.D. Ill. 1995). In Ball, the court stated
that those decisions preceded the enactment of the Uniform Foreign Money-
Judgments Recognition Act (735 ILCS 5/12-618 et seq. (West 1994)) (UFMJRA), which
provides that with certain exceptions, a foreign judgment is conclusive and
enforceable "in the same manner as the judgment of a sister state which is
entitled to full faith and credit." 735 ILCS 5/12-620 (West 1994). Plaintiffs
in the present case correctly point out that, contrary to the Ball court's
assertion, UFMJRA was enacted long before Farah was decided. 1963 Ill. Laws 1506
(sec. 1). After the court issued its decision in Farah, the statute was
recodified, but its language was not significantly amended. See Ill Rev. Stat.
1983, ch. 110, par. 12-618 et seq.
An exception set forth in UFMJRA distinguishes Farah and Goldberg from the
present case on different grounds, specifically excluding "a judgment for support
in matrimonial or family matters" from its definition of the term "foreign
judgment." That portion of the statute remains unchanged. See 735 ILCS 5/12-618
(West 1994). A judgment by a foreign court entered in conjunction with a
divorce decree, then, is not enforceable in Illinois courts. Nardi v. Segal, 90
Ill. App. 2d 432, 437, 234 N.E.2d 805 (1967).
The courts in Goldberg and Farah were not required to recognize any
judgment entered in divorce proceedings by a foreign court, and therefore did not
err in refusing to dismiss cases based upon pending proceedings in foreign
jurisdictions. This element differentiates those two cases from the present
case, as well as from Dayan, which was not a divorce action.
The Dayan decision relied for its holding on Pesquera del Pacifico S. de
R.L. v. Superior Court in and for San Diego County, 89 Cal. App. 2d 738, 201 P.2d 553 (1949), also cited in Farah and Goldberg, which upheld the denial of a stay
pending the resolution of a foreign action. The Pesquera case was decided before
the 1967 California enactment of UFMJRA. Cal. Civ. Proc. Code sec. 1713-1713.8
(West 1994). The concerns expressed by the Pesquera court were addressed in
UFMJRA, which contains language protecting parties from the recognition of unjust
judgments by providing that a foreign judgment will be considered inconclusive
if the tribunal issuing the judgment was not impartial; the procedures of the
tribunal were incompatible with principles of due process of law; or the foreign
court lacked jurisdiction over the subject matter or the parties (735 ILCS 5/12-
621(a) (West 1994)), in addition to a list of defenses to the recognition of a
foreign judgment. See 735 ILCS 5/12-621(b)(1)-(6) (West 1994).
Plaintiffs argue that UFMJRA does not apply here because the judgment being
sought in the English court is not a "foreign judgment" as it is defined in the
statute. UFMJRA defines a "foreign judgment" as "any judgment of a foreign State
granting or denying recovery of a sum of money," with some exceptions that do not
apply here. 735 ILCS 5/12-618(b) (West 1994). Here, Insurers are seeking to
prevent plaintiffs from recovering a sum of money, namely the proceeds of the
fidelity policies; if they succeed, the judgment would deny them such a recovery.
A future judgment of the English court involving these parties therefore would
qualify as a foreign judgment under UFMJRA, and would be enforceable in the
circuit court. Where the language of a statute is certain and unambiguous,
courts must enforce the laws as enacted by the legislature. We may not depart
from the statute by reading into it exceptions, limitations, or conditions that
conflict with the expressed legislative intent. In re Marriage of DeRossett, 173 Ill. 2d 416, 420, 671 N.E.2d 654 (1996).
Even if UFMJRA did not apply to a judgment entered by the English court,
in this case, the Act's savings provision would allow recognition of the decree
under principles of comity. See Basic v. Fitzroy Engineering, Ltd., 949 F. Supp. 1333, 1340 (N.D. Ill. 1996); Banco de Vizcaya, S.A. v. First National Bank of
Chicago, 514 F. Supp. 1280, 1286 (N.D. Ill. 1981). Comity is not a rule of law,
but one of practice, convenience, and expediency. Mayekawa Manufacturing Co.,
Ltd. v. Sasaki, 76 Wash. App. 791, 799, 888 P.2d 183, 188 (Wash. App. 1995),
citing Somportex Ltd. v. Philadelphia Chewing Co., 453 F.2d 435, 440 (11th Cir.
1971), cert. denied, 405 U.S. 1017, 31 L. Ed. 2d 479, 92 S. Ct. 1294 (1972).
"Comity should be only when its acceptance would be contrary or prejudicial to
the interest of the nation called upon to give it effect." Basic, 949 F. Supp.
at 1340, quoting Somportex, 453 F.2d at 440.
The judgment of a foreign court is recognizable under UFMJRA or principles
of comity, as shown above, and the circuit court properly considered whether to
stay or dismiss plaintiffs' complaint because of the pending action in the
English court.
II
Section 2-619(a)(3) allows for dismissal or other appropriate relief only
if the other pending action involves the "same parties" and the "same cause".
735 ILCS 5/2-619(a)(3) (West 1994). Plaintiffs claim the "same parties"
requirement was not met here because Insurers failed to name Philips as a party
to the English action, choosing to file suit against PENAC, Philips' subsidiary,
and because National Union, a defendant in the instant action, is not a party to
the English action. Plaintiffs further contend that the "same cause"
prerequisite was not satisfied because the English action is based solely upon
the proof of loss, but the instant action involves facts and allegations outside
the proof of loss. Alternatively, plaintiffs argue that even if the two suits
meet the basic requirements for section 2-619(a)(3), the connection between the
underlying facts and the state of Illinois nonetheless operate in favor of
allowing the parties to proceed in an Illinois court on all four counts.
A
Section 2-619(a)(3) does not require that parties be identical in both
actions; a substantial similarity is sufficient. People ex rel. Phillips
Petroleum Co. v. Gitchoff, 65 Ill. 2d 249, 255, 357 N.E.2d 534 (1976) (Gitchoff);
Cummings v. Iron Hustler Corp., 118 Ill. App. 3d 327, 332, 454 N.E.2d 1078 (1983)
(Cummings). Privity between the parties in both actions may be result in
sufficient similarity in interest to be considered the "same parties." Cummings,
118 Ill. App. 3d at 333. In Aetna Casualty & Surety Co. v. Kerr-McGee Chemical
Corp., 875 F.2d 1252, 1256 (7th Cir. 1989), for example, the same parties
requirement was satisfied, although in one of the actions the subsidiaries, not
their corporate parent, were named as parties. The court found that the
interests of these parties were "sufficiently congruent" to satisfy section 2-
619(a)(3). Aetna, 875 F.2d at 1257.
In the instant action, Philips and its subsidiary, PENAC, brought suit to
recover damages suffered by PENAC. Insurers named only PENAC as a defendant in
the English proceedings. Because of the relationship between Philips and PENAC,
and their corresponding interests in the two cases, the named parties to the two
actions are substantially similar and qualify as the same parties under section
2-619(a)(3).
The fact that National Union was not named in the English proceedings does
not render the parties different for purposes of section 2-619(a)(3). To that
end, the case cited by plaintiffs, Zurich Insurance Co. v. Baxter International,
Inc., 173 Ill. 2d 235, 670 N.E.2d 664 (1996), is distinguishable from the present
case. There, the parties to the pending foreign action consisted of a
corporation and two of its insurers, notwithstanding the facts that the Illinois
action named more than 100 of the corporation's excess insurers and dozens of
tort claimants from the underlying tort actions. Zurich, 173 Ill. 2d at 246.
In this case, only one of fourteen insurers, National Union, was not named in the
England proceeding. Plaintiffs' claim against National Union involves different
legal and factual issues, is separate from the claims against Insurers, and is
not even part of this appeal. The remaining parties to the two actions are
substantially similar and qualify as the "same parties" under section 2-
619(a)(3).
B
The same cause requirement similarly mandates only substantially similar,
not necessarily identical, causes of action. Gitchoff, 65 Ill. 2d at 255;
Cummings, 118 Ill. App. 3d at 332. To be considered is whether the two actions
arose out of the same transaction or occurrence, rather than whether the legal
theory, issues, burden of proof, or relief sought materially differ between the
two actions. Quantum Chemical Corp. v. Hartford Steam Boiler Inspection &
Insurance Co., 246 Ill. App. 3d 557, 560, 616 N.E.2d 686 (1993); Catalano v.
Aetna Casualty & Insurance Co. of Illinois, 105 Ill. App. 3d 195, 198, 434 N.E.2d 31 (1982). The central inquiry, then, is whether the relief requested rests on
substantially the same facts. Bank of Northern Illinois v. Nugent, 223 Ill. App.
3d 1, 14, 584 N.E.2d 948 (1991); Continental Grain Co. v. FMC Corp., 27 Ill. App.
3d 819, 825, 327 N.E.2d 371 (1975).
In the present case, Insurers filed suit in the English Commercial Court,
postulating that the fidelity policies did not cover the losses PENAC suffered
from the defective ballasts, travel agency fraud, and investigation fees.
Plaintiffs filed the instant action, of which four counts are directed against
Insurers. Counts I and IV raise the same core issues as the Commercial Court
action: essentially, whether Insurers must indemnify plaintiffs pursuant to the
fidelity policies. In addition, both the Commercial Court action, and counts I
and IV in the instant action, arose out of the same transaction or occurrence,
namely, the losses incurred by plaintiffs as a result of the alleged commission
of fraudulent activities by Advance employees.
Counts II and III, however, involve facts different from those in the
Commercial Court action, are not part of the policy coverage issue, and do not
arise from the same transaction or occurrence. For instance, count II alleges
that Insurers breached a fiduciary duty to plaintiffs by revealing confidential
information about them to former Advance employees being sued by plaintiffs.
Count III alleges that a similar breach occurred when Insurers filed the
Commercial Court action. These allegations do not require proof of facts that
involve interpretation of the terms and scope of the fidelity policies, which is
the essence of the English action; instead, they focus on the relationship
between Insurers and plaintiffs, and scope of the duty that Insurers owed
plaintiffs. The alleged injuries suffered by plaintiffs, as claimed in counts
II and III, do not stem from the coverage dispute, but instead occurred later as
a result of actions subsequently taken by Insurers. Accordingly, they did not
arise from the same transaction or occurrence as the Commercial Court action and
cannot be considered the same cause.
Insurers assert that any claim against them for bad faith cannot be
resolved until the coverage issue is decided and an insured cannot recover on
such a claim under the Insurance Code where the insurer rightfully denies
coverage. McDaniel v. Glens Falls Indemnity Co., 333 Ill. App. 596, 602, 78 N.E.2d 111 (1948); Hermitage Insurance Co. v. Action Marine, Inc., 816 F. Supp. 1280, 1286 (N.D. Ill. 1993). Counts II and III do not allege bad faith in
denying coverage, however. Plaintiffs instead claim in those counts that
Insurers breached their fiduciary duty by allowing confidential information to
become a matter of public record during their investigation of plaintiff's claim
for coverage, and by filing a preemptive lawsuit. These claims are not dependent
upon the coverage issue and do not require interpretation of the terms of the
fidelity policies.
C
Plaintiffs argue that even if the "same parties" and "same cause"
requirements of section 2-619(a)(3) were met, the circuit court should have
refused to stay all four counts because of the substantial connections between
this litigation and the State. Multiple actions brought in different
jurisdictions, but arising out of the same operative facts, may be maintained if
the circuit court, in exercising its discretion, determines that both suits
should proceed. Kellerman v. MCI Telecommunications Corp., 112 Ill. 2d 428, 447,
493 N.E.2d 1045 (1986); A.E. Staley Manufacturing Co. v. Swift & Co., 84 Ill. 2d 245, 253, 419 N.E.2d 23 (1980). The following factors should be considered in
deciding whether a stay is warranted under section 2-619(a)(3): comity; the
prevention of multiplicity, vexation, and harassment; the likelihood of obtaining
complete relief in the foreign jurisdiction; and the res judicata effect of a
foreign judgment in the local forum. Zurich, 173 Ill. 2d at 244; Kellerman, 112 Ill. 2d at 447-48.
In the instant case, only one of the 13 Insurers, and none of the
plaintiffs, are either headquartered or have their principal place of business
in Illinois. Further, the parties had minimal contact with Illinois during the
preparation of the fidelity policies, choosing to use American and English
brokers and underwriters who were located in other states and in London. All but
two Insurers executed the policy agreement in London. Although the underlying
claim on which coverage is asserted involves events that took place in Illinois,
most of the events leading to the execution of the fidelity policies, and to the
coverage dispute after Philips filed notice of its claim, took place in other
parts of the United States and England.
Plaintiffs emphasize the American and, specifically, Illinois connections
to this litigation, but evidence in the record reveals that plaintiffs themselves
submitted both their notice of a claim for coverage and the proof of loss to the
London offices of one of the Insurers; an English claims adjuster, Davies, who
was based in London, was hired by Insurers; and most of the discussions between
plaintiffs and Insurers over their claim took place at various locations in
England, with the exception of Davies' October 1995 visit to Chicago.
Most importantly, the terms of the policies expressly provided that English
law would govern interpretation of the agreement. Choice of law provisions may
be enforced in this state. Swanberg v. Mutual Benefit Life Insurance Co., 79
Ill. App. 3d 81, 85, 398 N.E.2d 299 (1979). Plaintiffs argue that the circuit
court could interpret and apply relevant English laws just as capably as the
Commercial Court. The cases cited by plaintiff in support of this argument,
however, do not involve section 2-619(a)(3) motions. In re Estate of Janussek,
281 Ill. App. 3d 233, 666 N.E.2d 774 (1996); Atwood Vacuum Machine Co. v.
Continental Casualty Co. of Chicago, 107 Ill. App. 2d 248, 246 N.E.2d 882 (1969).
Several factors here make it more appropriate for an English court to
adjudicate the coverage claim and interpret its own laws. One potential issue
relating to coverage is whether the acts allegedly committed by Filson evidenced
"manifest intent" as the term is used in the fidelity policies. The parties
acknowledge that the question of how to construe the term is an issue of first
impression in England; that issue remains the subject of intense debate among
courts in our own country. See First National Bank of Louisville v. Lustig, 96 F.3d 1554, 1566 (5th Cir. 1996); Susquehema BancShores v. National Union Fire
Insurance Co., 442 Pa. Super. 281, 287-94, 659 A.2d 991, 994-97 (1995). In light
of these circumstances, it would be difficult to predict how an English court
would decide that issue as a matter of English law.
Plaintiffs claim that they wish to assert an additional basis for coverage
that was not discussed in the proof of loss, and therefore will not be considered
by the English court, preventing them from obtaining complete relief; however,
plaintiffs specifically reserved the right to amend their proof of loss at any
time when they first submitted it to Insurers. No reason appears as to why the
Commercial Court would not allow them to submit additional information and
evidence, or assert additional bases for coverage, during litigation of the
declaratory judgment action.
Plaintiffs further contend that their amended complaint in the circuit
court raises additional allegations relating to the issue of whether Filson
possessed the requisite "manifest intent" when he committed the dishonest acts.
Plaintiffs argue that these allegations are supported by evidence located in
Illinois, and must be resolved in an Illinois court. For purposes of the
Commercial Court action, however, plaintiffs' allegations will be presumed to be
true. The issue in the Commercial Court is whether the allegations in the proof
of loss state a claim for coverage under the fidelity policies. Plaintiffs would
not be required to prove those allegations in the Commercial Court.
To allow multiple litigation of the same issue in two different courts
would place an unnecessary judicial burden on our system. Plaintiffs did not
show that they would be unable to introduce additional allegations in the
Commercial Court action, so as to be deprived of the opportunity to fully
litigate the coverage issue.
For the foregoing reasons, the circuit court's order granting a stay with
respect to counts I and IV of plaintiffs' amended complaint, and denying the stay
with respect to counts II and III, is affirmed.
Affirmed.
HOFFMAN and HOURIHANE, JJ., concur.
[fn1]Although one of the policies mentions "United Kingdom" law, the
parties agree that this is a reference to English law. The Commercial Court also
recognized that the reference to United Kingdom law should be interpreted as a
reference to English law.
[fn2]On May 1, 1997, plaintiffs filed a motion in this court to supplement
the record with the "Skeleton Argument to the English Court of Appeal." This
court agreed to take the motion with the case. In its objection to this motion,
the Fidelity Insurers pointed out that the English Court of Appeal has since
affirmed the Commercial Court's decision and dismissed the appeal. The parties
chose not to supplement the record with the appellate court's decision, however.
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