In the
United States Court of Appeals
For the Seventh Circuit

No. 00-3031

Commercial Underwriters Insurance Company,

Plaintiff-Appellant,

v.

Aires Environmental Services, Ltd., n/k/a
Aires Consulting Group, Inc.,

Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 2129--Ronald A. Guzman, Judge.

Argued January 22, 2001--Decided July 30, 2001


  Before Bauer, Kanne, and Evans, Circuit
Judges.

  Kanne, Circuit Judge. Defendant-
appellee, Aires Environmental Services,
Ltd., provides environmental, health, and
safety consulting services to companies
in the manufacturing industry. On
November 17, 1997, Aires notified its
general liability carrier, plaintiff-
appellant Commercial Underwriters
Insurance Company (CUIC), that it had
been named as a defendant in a lawsuit
involving an industrial accident. After
investigating the claim, CUIC denied
coverage, alleging that Aires had
breached the insurance contract by
failing to give CUIC timely notice of the
occurrence that gave rise to the claim.
CUIC filed a diversity suit in federal
district court seeking a declaratory
judgment that it had neither a duty to
defend nor a duty to indemnify Aires in
the underlying lawsuit. On cross-motions
for summary judgment, the district court
found that Aires’ delay in notifying CUIC
of the occurrence was reasonable and
granted Aires’ motion for summary
judgment on the issue of CUIC’s duty to
defend. Because we agree with the
district court that Aires’ notice to CUIC
was timely under the circumstances, we
affirm the judgment of the district
court.
I.   History

  On November 9, 1995, a serious accident
at Reynolds Metals Company in McCook,
Illinois claimed the lives of three
workers and resulted in three other
workers being seriously injured. The
accident occurred when, in the course of
excavating a pit in the area of the
Reynolds facility known as cast house
station number three, a compressed air
pump line was mistakenly connected to an
unlabeled source of compressed argon
rather than a source of atmospheric air.
Because argon is heavier than oxygen, the
introduction of argon into the excavation
pit displaced the breathable oxygen such
that the workers in and near the pit
began to suffocate and collapse.

  One of the people called on to assist in
the rescue attempt at cast house station
number three was Aires employee Joseph
DeLucia. Approximately one year before
the accident, Aires entered into an
agreement to provide environmental and
safety consulting services to Reynolds.
Aires agreed to assign DeLucia, an
industrial hygienist, to work regularly
at Reynolds’ McCook plant under the
direction and supervision of Reynolds
safety director, J.B. Haney. Under the
terms of the agreement, DeLucia’s
schedule, as well as his assignments,
were controlled solely by Reynolds; Aires
did not provide any supervision or
direction to DeLucia while he was
assigned to Reynolds’ plant. DeLucia
provided weekly reports of his activities
and findings to Haney and forwarded them
to Aires for billing purposes. His duties
at Reynolds included safety inspections,
safety training, air testing, and pipe
labeling. Although DeLucia had conducted
asbestos and air testing in the cast
house prior to the accident, neither he
nor any Aires employee had performed any
other work at cast house station number
three prior to the accident.

  Several hours after he was called upon
to help rescue workers, DeLucia informed
Aires management of the accident at
Reynolds. Initially, Reynolds asked
Aires’ senior industrial hygienist,
Dennis Cesarotti, to come to the plant to
help investigate the accident, but
Reynolds later decided that it would
conduct the investigation internally. The
Occupational Safety and Health Agency
(OSHA) also conducted an investigation of
the accident and issued several citations
to Reynolds for failing to properly label
compressed gas lines. Although Aires was
not allowed to participate directly in
the accident investigation, Aires was
privy to the investigation results
because Reynolds enlisted Cesarotti’s
help in developing confined space
training and safety programs aimed at
preventing similar accidents.

  On December 8, 1995, the first of
several accident-related lawsuits was
filed against Reynolds. Because DeLucia
was to be deposed in this litigation,
Aires contacted its attorney to inquire
whether DeLucia needed representation at
his deposition. Aires’ attorney advised
that DeLucia did not need representation
because Aires was not a party to the
lawsuit. Nearly two years later, in
November 1997, however, Aires became a
party to several lawsuits when the
underlying plaintiffs amended their
complaints to add Aires as a defendant.
The suits alleged that Aires was liable
for the accident injuries because it
failed to fulfill its obligation to
ensure proper labeling of gas lines.

  On November 17, 1997, Aires notified its
professional liability carrier, Steadfast
Insurance Company, as well as its general
liability carrier, CUIC, of the pending
lawsuit. Steadfast agreed to defend Aires
under a reservation of rights and
retained a law firm to defend Aires.
CUIC, on the other hand, did not respond
to the notification until April 17, 1998,
at which point it requested more informa
tion about the claim and indicated that
it was reserving its rights. On June 5,
1998, CUIC tentatively agreed to split
defense costs with Steadfast pending
investigation of the claim. After
conducting the investigation, however,
CUIC determined that the two-year delay
between the accident and Aires’
notification constituted a breach of a
provision of the insurance policy that
required Aires to give notice "as soon as
practicable" of any occurrence that might
give rise to a claim. Consequently, CUIC
advised Aires that it was denying the
claim, withdrawing from its interim
participation in the defense, and filing
for a declaratory judgment against Aires.

  On March 31, 1999, CUIC filed a
complaint in district court seeking a
declaratory judgment that it had neither
a duty to defend nor a duty to indemnify
Aires in any action arising out of the
accident at Reynolds. CUIC and Aires
filed cross-motions for summary judgment.
The district court found that Aires’
delay in notifying CUIC of the occurrence
was reasonable in light of the
surrounding facts and circumstances and
denied CUIC’s motion for summary
judgment. The district court granted
Aires’ cross-motion for summary judgment
on the issue of CUIC’s duty to defend,
but, because the underlying lawsuits were
still pending at that time, the district
court did not reach the issue of CUIC’s
duty to indemnify Aires. The court found
that the indemnification issue was not
ripe for review and that a determination
of CUIC’s duties in that regard could
potentially prejudice the parties in the
underlying action.

  On appeal, CUIC argues that Aires should
have and did anticipate that it would be
sued in connection with the Reynolds
accident as soon as December 1995, and
therefore it was error for the district
court to find that Aires had not breached
its duty to provide notice of potential
claims "as soon as practicable." Thus,
CUIC asks that we reverse the district
court’s grant of summary judgment to
Aires and enter summary judgment in favor
of CUIC.

II.    Analysis

A.    Standard of Review

  We review the district court’s grant of
summary judgment de novo, construing all
facts in favor of the non-moving party.
See Wolf v. N.W. Ind. Symphony Soc., 250
F.3d 1136, 1141 (7th Cir. 2001). Summary
judgment is proper when "the pleadings,
depositions, answers to interrogatories,
and admissions on file, together with the
affidavits, if any, show that there is no
genuine issue as to any material fact and
that the moving party is entitled to a
judgment as a matter of law." Fed. R. Civ.
P. 56(c); see also Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23, 106 S. Ct.
2548, 91 L. Ed. 2d 265 (1986). Summary
judgment is appropriate if, on the record
as a whole, a rational trier of fact
could not find for the non-moving party.
See Wolf, 250 F.3d at 1141.
B.   Timeliness of Notice

  Aires had a contractual duty to give
notice to CUIC "as soon as practicable of
any occurrence or an offense that may
result in a claim." Notice provisions
such as the one at issue in this case are
intended to ensure that the insurer will
not be prejudiced in its ability to
investigate and defend claims against its
insureds. See Amer. Country Ins. v.
Efficient Constr. Corp., 587 N.E.2d 1073,
1075 (Ill. App. Ct. 1992). Therefore,
Illinois law provides that the failure to
fulfill a condition precedent that
requires timely notice of potential
claims relieves the insurer of any duty
to defend or indemnify the insured. See
Indus. Coatings Group, Inc. v. Amer.
Motorists Ins. Co., 658 N.E.2d 1338, 1343
(Ill. App. Ct. 1995).

  In general, the duty to notify the
insurer of an occurrence arises at the
point in time that it would appear "to a
reasonably prudent person that a claim
potentially covered by the policy may be
brought against the insured." Id. (inter
nal quotation omitted). Although we may
consider lack of prejudice to the insurer
as one factor in determining whether
notice was timely, an insurer need not
prove that it was prejudiced in order to
deny coverage. See Twin City Fire Ins.
Co. v. Old World Trading Co., 639 N.E.2d
584, 589 (Ill. App. Ct. 1993); Sisters of
Divine Providence v. Interstate Fire &
Cas. Co., 453 N.E.2d 36, 38-39 (Ill. App.
Ct. 1983). Conversely, "[a] lengthy
passage of time is not an absolute bar to
coverage provided that the insured has a
justifiable excuse for the delay." Sonoco
Bldgs., Inc. v. Am. Home Assurance Co.,
877 F.2d 1350, 1356 (7th Cir. 1989)
(internal quotation omitted); see, e.g.,
Atlanta Int’l Ins. Co. v. Checker Taxi
Co., 574 N.E.2d 22, 26 (Ill. App. Ct.
1991) (holding that a two-year delay
between the accident and notice to the
excess insurance company was not
unreasonable); Barrington Consol. High
Sch. v. Amer. Ins. Co., 319 N.E.2d 25,
27-28 (Ill. 1974) (holding that a four-
year delay in notice was reasonable where
the insured had no expectation of suit).
Therefore, we must consider all of the
facts and circumstances surrounding a
particular case and apply a standard of
reasonableness in order to determine
whether notice in a particular case was
timely. See Twin City Fire Ins. Co., 639
N.E.2d at 588.

  CUIC argues that it was unreasonable for
Aires to wait two years to notify CUIC of
the accident at Reynolds because Aires
had immediate knowledge of the accident
as well as the lawsuits filed against
Reynolds. Aires does not deny knowledge
of the accident or the lawsuits; rather,
Aires maintains that it never anticipated
that it would be sued in connection with
the accident at Reynolds. Aires contends
that this belief was reasonable because
neither DeLucia nor any other Aires
employee had performed work near the
accident site that could reasonably be
thought to have contributed to the
accident. CUIC responds that it is
irrelevant whether Aires believed that
its employees’ conduct would result in
liability, asserting that the important
issue is whether a claim was likely to be
filed.

  CUIC is correct that the focus of our
inquiry into the reasonableness of Aires’
conduct is "not the appearance that the
insured may be liable," but rather the
appearance that a claim may be brought
against the insured. Amer. Country Ins.,
587 N.E.2d at 1075. It is impossible,
however, to completely divorce these two
concepts when attempting to determine if
a reasonable person would anticipate suit
because the probability that a suit will
be filed is a function of how successful
that suit is likely to be. While an
insured who has reason to know that a
suit is likely to be filed (or has been
filed) is not entitled to be excused from
late notice, it may be reasonable in some
situations for an insured not to expect
suit if they are not directly involved in
an accident and have no reason to think
that they may be liable.

  Most of the cases cited in support of
CUIC’s argument that Aires’ notice was
untimely involve situations where the
insured waited a significant time before
providing notice to its insurer even
after suit had been filed. See, e.g.,
Indus. Coatings Group, Inc., 658 N.E.2d
1338 (finding that notice to the insurer
fourteen months after the United States
Environmental Protection Agency notified
appellant that it would be held liable
for clean-up costs was untimely); Twin
City Fire Ins. Co., 639 N.E.2d 584
(holding that notice was untimely where
suit was filed in July 1986 and notice
was not provided to insurer until April
1989); Sisters of Divine Providence, 453
N.E.2d 36 (finding that the duty to
notify was breached where a lawsuit was
filed in April 1977 and notice was not
conveyed to the insurer until April
1980). That is not the case here, though,
because Aires notified its insurance
carriers as soon as the complaints were
filed against it.

  The question before us, then, is whether
Aires turned a blind eye to the risk of
a legitimate action, or simply failed to
anticipate that prospective plaintiffs
would take a shotgun approach to naming
defendants. CUIC maintains that it was
the former--that a reasonably prudent
person in Aires’ position would have
expected suit at the time of the
accident, or at the latest, at the time
suit was filed against Reynolds. CUIC
claims that, at the time of the accident,
it should have been foreseeable to Aires
management--who had a high level of
sophistication in matters involving risk
management and safety litigation--that
Aires was likely to be named as a
defendant because of the seriousness of
the accident, DeLucia’s involvement in
the labeling of compressed gas lines, and
DeLucia’s position as a safety advisor at
Reynolds. We disagree.

  First of all, the fact that the accident
resulted in fatalities, in itself, is not
sufficient evidence that Aires should
have been on notice that it might be sued
because neither DeLucia nor any other
Aires employee was directly involved with
the accident at cast house station number
three. The only activity that Aires ever
performed in cast house station number
three was testing for asbestos and lead--
and it is uncontroverted that these
substances were not involved in the
accident. Aires employees did perform air
testing in other areas of the cast house,
but not in cast house station number
three. We are also unconvinced that
DeLucia’s involvement with the labeling
of compressed gas lines should have put
Aires on notice that it was likely to be
sued. Although DeLucia prepared labels
for gas lines, he was never responsible
for actually placing the labels on the
appropriate lines--in fact he was not
permitted to place labels on the gas
lines because of Reynolds’ agreement with
its unionized labor force. Similarly, we
are unable to accept that DeLucia’s mere
presence at Reynolds as an on-site
industrial hygienist means that Aires
should have expected to be sued over any
accident that occurred in the plant.
While DeLucia’s position involved making
safety recommendations and performing
tests, his activities were performed only
at the direction of Reynolds safety
director, J.B. Haney. DeLucia was not in
charge of overall safety for the entire
facility, and as such, would not expect
to be held responsible for each and every
accident that occurred there.

  Nor are we convinced that the expertise
of Aires management in safety litigation
suggests that its conclusion that it was
unlikely to be sued was unreasonable. The
implicit premise of this argument is that
Aires, with its expertise in safety
litigation, was better able to predict
the likelihood of suit than a similarly-
situated entity. This premise is most
likely correct. However, it does not
necessarily follow that the fact that
Aires incorrectly predicted that it would
not be sued means that its determination
was unreasonable. As the district court
pointed out, Aires’ expertise in
riskmanagement makes it more, not less,
likely that Aires’ assessment of the risk
of suit was reasonable. See Commercial
Underwriters Ins. Co. v. Aires Envtl.
Serv. Ltd., No. 99 C 2129, 2000 WL
1053960, at *4 (N.D. Ill. July 31, 2000).
The fact that the plaintiffs did not
amend their complaints to add Aires as a
party until nearly two years after
Reynolds was named also gives credence to
Aires’ belief that it was not likely to
be a target of the lawsuit. Therefore,
given the limited nature of the duties of
Aires employees near the site of the
accident and the fact that DeLucia was
not involved in the processes that
contributed to the accident, we are
unwilling to say that it was unreasonable
for Aires to expect that they would not
be sued.

  According to CUIC, even if it was
reasonable for Aires not to anticipate
legal action at the time of the accident,
it should have expected suit when
plaintiffs sued Reynolds and began
scrutinizing DeLucia’s activities at
Reynolds. To evaluate this claim, we must
determine whether anything about the suit
against Reynolds or plaintiffs’ scrutiny
of DeLucia should have signaled to Aires
that the plaintiffs were now targeting
Aires as opposed to simply gathering
information about what actually happened
in cast house number three leading up to
the accident. CUIC’s evidence certainly
suggests that it would have been
unreasonable for Aires to think that
Reynolds was unlikely to be sued, but the
likelihood of suit against Reynolds is
not at issue here. Up until the point at
which plaintiffs added Aires as a
defendant, CUIC can point to nothing
specific about plaintiffs’ underlying
investigation that suggests that Aires
should have known that plaintiffs were
attempting to make a case against Aires.
When viewed through the lens of Aires’
limited role at cast house three, we find
that it was reasonable for Aires to
believe that plaintiffs’ efforts were
aimed at gathering general information
about safety procedures at Reynolds.

  CUIC argues that Aires’ delay in notice-
-even if objectively reasonable--was
nonetheless untimely because Aires
subjectively believed that it was likely
to be sued in connection with the
accident at Reynolds. This contention is
primarily based on the deposition
testimony of Aires president Dennis
Cesarotti. At his deposition on January
22, 1999, Cesarotti made several
statements that suggested that he and
other Aires principals had discussed the
possibility that Aires might be sued in
connection with the Reynolds accident./1
Subsequently, Cesarotti attempted to
correct his deposition testimony by
submitting a supplemental affidavit in
which he claimed that he was mistaken
about several of his prior answers. In
the supplemental affidavit, Cesarotti
specifically noted that he "never was a
party to a conversation in which anyone
implied that Aires would be named as a
defendant in the lawsuits that arose out
of the November 9, 1995 accident at the
Reynolds plant in McCook, Illinois."
Cesarotti Aff. para. 15. Cesarotti also
asserted that CUIC’s attorney did not
disclose that she was coverage counsel
conducting an investigation for the
purpose of denying coverage; he alleges
that it was his belief that his statement
was going to be solely for the purpose of
assisting Aires’ defense in the
underlying action.

  Our cases provide that, in general,
parties may not "patch-up potentially
damaging deposition testimony" with a
contradictory affidavit. Maldonado v.
U.S. Bank, 186 F.3d 759, 769 (7th Cir.
1999). We will, however, accept a contra
dictory supplemental affidavit if the
party offers a suitable explanation such
as "confusion, mistake, or lapse in
memory [ ]for the discrepancy." Id. Here,
we believe that Cesarotti has provided a
credible explanation for his mistaken
testimony. Cesarotti was not responsible
for, and did not deal with, insurance
matters for Aires, and as such, he was
not prepared to answer insurance-related
questions. Cesarotti’s readiness to
testify to matters on which he was ill-
informed is explained by his belief that
the intention of the CUIC attorney
conducting the deposition was only to
defend Aires’ interests. It is undisputed
that Cesarotti testified incorrectly to
several matters at his deposition--for
example, he stated that Aires had
notified its professional liability
carrier, Steadfast, in advance of its
notification to CUIC when, in fact, the
two carriers had received notice at the
same time. Moreover, the validity of
Cesarotti’s supplemental affidavit is
substantiated by the testimony of
Geoffrey Bacci, the individual
responsible for Aires’ insurance matters,
as well as by Aires’ post-accident
conduct. Bacci has consistently
maintained that he never considered it a
possibility that Aires would be sued in
connection with the Reynolds accident.
Aires did not contact its attorney with
respect to the claim except to inquire
whether DeLucia needed representation at
his deposition, nor did it contact its
professional liability carrier until
after the suit had been filed. For all of
these reasons, we are unwilling to accept
CUIC’s contention that Cesarotti’s
initial deposition testimony constitutes
an admission by Aires that it expected to
be sued as a result of the Reynolds
accident.

III.   Conclusion

  Considering Aires’ limited involvement
in cast house station number three, and
Aires’ prompt notice to CUIC as soon as
suit was filed, we find that Aires acted
reasonably in waiting to give notice to
CUIC until a claim was filed against it.
Therefore, we AFFIRM the district court’s
grant of summary judgment on the issue of
CUIC’s duty to defend and REMAND for a
determination of CUIC’s duty to
indemnify.

FOOTNOTE

/1 In answer to the question "[d]id you ever have
a discussion internal to Aires as to whether or
not Aires might be sued" in connection with the
accident at Reynolds, Cesarotti replied, "[o]h
yeah." Cesarotti Dep. at 48. He also testified
that Aires had given notice to its professional
liability carrier (Steadfast) and that he and his
partner were "somewhat sarcastically counting the
days before the statute would be up and they
wouldn’t be able to file against us." Id. at 54.
