Illinois Insurance Coverage Law

Severability clauses and additional insureds

Dan Wills — Thu, 21 Jul 2011 16:03:57 -0600

Do severability clauses protect additional insureds from policy exclusions? In Archer Daniels Midland Co. v. Burlington Ins. Co. Group, Inc., 2011 WL 1196894 (N.D. Ill.), the court said yes and no.

ADM was an AI on a contractor's policy with Burlington. An employee of the contractor injured at an ADM facility sued ADM. Burlington eventually rejected ADM's tender under the employer's liability and cross-liability exclusions. The employer's liability exclusion applied to "bodily injury to: (1) an 'employee' of the insured arising out of and in the course of employment of the insured;..." The cross-liability exclusion, on the other hand, applied to "'bodily injury' ...to...3. a present...employee of any insured." The policy also had a standard severability clause under which the insurance would apply "a. As if each named insured were the only named Insured; and b. Separately to each insured against whom...suit is brought."

The court, based upon the wording ("the" v. "any") and the underlying purpose of each exclusion, held that the employer's liability exclusion did not preclude coverage but that the cross-liability exclusion did.

Regarding the employer's liability exclusion, the court found that it could apply to the named insured only because it barred coverage for injury to an employee of "the insured." The cross-liability exclusion, however, did apply because it barred coverage for injury to an employee of "any insured." In other words, if the underlying lawsuit involves an employee of any insured, no insured is covered. Further emphasizing this point, the court suggested that if the employer's liability exclusion had also referred to "any insured," there would be no coverage for any insured so long as one insured was the employer. The court stated that "[the] majority rule is that the distinction between the terms 'the insured' and 'any insured' in an exclusion is crucial in determining the import of a severability clause."

Is that so? Should it be? In reaching its holding the Midland court distinguished several cases where the courts refused, based upon the severability clause, to apply exclusions for "any insured' where the exclusion would not apply to the AI seeking coverage. For example, in United States Fidelity and Guaranty Co. v. Shorenstein Realty Serv., 700 F.Supp. 2d 1003 (N.D. Ill. 2010), the court refused to apply to AIs a professional services exclusion that barred coverage for injury caused by rendering or failing to render any professional services by or on behalf of "any insured" because the AIs did not perform professional services at the project. (Full disclosure: I represent one of the insureds in Shorenstein).

As the Midland court noted, the purpose of a cross-liability exclusion is to bar coverage for suits between insureds. The clause would be meaningless if it did not apply to all insureds. The purpose of the employer's liability and professional services exclusions, however, is narrower: It is to bar GL coverage where other insurance, workers compensation and professional liability, respectively, is available. These exclusions, then, should apply only to the named insured (where the exclusion applies to "the insured") or to the insured who is the employer or is performing professional services (where the exclusion applies to "any insured"). Contrary to the Midland court's suggestion, the exclusions should not apply to all insureds where only one is implicated by the exclusion.

Insurer entitled to deduct medical payments from UIM limits

Dan Wills — Mon, 11 Oct 2010 07:30:00 -0600

In Zdeb v. Allstate Ins. Co. (Ill. App., First Dist., no. 1-09-2774, 9-17-10), Zdeb's auto policy with Allstate provided $100,000 in UIM coverage and $50,000 in MP coverage. The policy allowed a setoff for medical payments. Zdeb was injured in an auto accident and had damages above the UIM limit. The at-fault driver paid his $50,000 limit.

When Allstate paid Zdeb only $38,952.53 ($50,000 less $11,047.47 in medical payments), she sued, claiming that to allow a setoff where there is no double recovery violates public policy. The appellate found the MP setoff to be consistent with the underinsured motorist statute, 215 ILCS 5/143-2(4), the purpose of which is to "place the insured in the same position he would have occupied if injured by a motorist who carried liability insurance in the same amount as his [UIM coverage]. The court thus affirmed the circuit court's grant of summary judgment to Allstate.

This is the best blog in the world!

Dan Wills — Fri, 08 Oct 2010 07:53:01 -0600

Or one of the best. Insurance blogs. In the U.S. But you get the point. Check out Lexis-Nexis for many worthwhile insurance blogs.

Mid-Century misses mutual mistake; court doesn't.

Dan Wills — Thu, 07 Oct 2010 16:24:39 -0600

In Mid-Century Ins. Co. v. Founders Ins. Co. (Ill.App., First District, No. 1-09-1858, 9-24-10), the court rejected Founders' claim for equitable contribution from Mid-Century for an accident where both policies covered the vehicle at issue because a mutual mistake of fact obviated coverage under Mid-Century's policy.

On February 23, 2005, Bryan Berry, while driving his Chevy Cavalier, hit a pedestrian, who sued him. Berry had insured the Cavalier and his Dodge Durango with Mid-Century but let the policy lapse on the Cavalier and insured it with Founders before the accident. Mid-Century had accordingly canceled the policy for the Cavalier and issued an insurance card listing the Durango as the covered vehicle. However, the policy Mid-Century issued listed the Cavalier as the covered vehicle.

Founders settled the tort case for $100,000 and sought equitable contribution of $50,000 from Mid-Century. The circuit court granted Founders summary judgment in the ensuing declaratory action.

Although both carriers assumed throughout the litigation that the Mid-Century policy covered the Cavalier, and argued instead whether the automatic termination provision in the Mid-Century policy applied and whether notice to Mid-Century was timely, the appellate court exercised its right to decide a case on grounds not raised by the parties and reversed.

More specifically, the court noted that Berry intended to let coverage for the Cavalier lapse with Mid-Century and in any case would not pay two premiums for the same coverage. Mid-Century, which issued an insurance card on the Durango, intended to cancel coverage for the Cavalier. Because the parties reached a good faith agreement that was erroneously not expressed in their written agreement, there was a mutual mistake of fact, and the parties' actual intent would prevail.

Thus, Founders could not stand in Berry's shoes to enforce the Mid-Century policy as written, and Mid-Century won for reasons it never argued. Which of course raises the question of whether the appellate court should have ruled on a basis neither party raised. As the court noted, it should not address an unbriefed issue if doing so would transform it from jurist to advocate. Here, I think the court acted properly. Berry did not participate in the appeal, where he might have raised the issue. Also, the court sought supplemental briefs on the issue, but apparently neither party addressed it.

Actual notice is whatever we say it is.

Dan Wills — Mon, 27 Sep 2010 13:52:25 -0600

In West American Ins. Co. v. Yorkville National Bank (docket no. 108285, 9-25-10), the Illinois supreme court, after "considering all relevant factors," reversed the appellate court and held that written notice to the carrier 27 months after the underlying lawsuit was filed was reasonable.

On September 24, 2001, Sheryl Kuzma sued Yorkville in Will County for defamation. Yorkville did not provide written notice to its GL carrier, West American, until January 19, 2004. In response to West American's declaratory complaint alleging late notice, Yorkville claimed that West American received oral notice on "several occasions" before then, which amounted to "actual notice."

More specifically, James Liggett, Yorkville's president, claimed that in late 2001 or early 2002 he advised Richard Dickson from Yorkville's insurance agency, which was West American's agent, that Yorkville was involved in a defamation lawsuit and was told that the West American policy would probably not apply. The lawsuit was also discussed at Yorkville's board meetings. Dickson was present as a board member.

The trial court entered judgment for Yorkville, for stipulated damages of $1, 982,778.78, finding that West American had actual notice of Kuzma's lawsuit from the conversation and board meetings with Dickson and that the 2004 written notice was reasonable. The appellate court (388 Ill.App.3d 769) reversed, finding actual notice irrelevant and written notice unreasonable under the policy.

The supreme court framed the issue as whether Yorkville provided written notice within a reasonable time. It stated that the factors to be considered included 1. the policy language, 2. the insured's sophistication, 3. the insured's awareness of an event that could trigger coverage, 4. the insured's diligence in determining whether coverage might be available, and 5. prejudice to the insurer. The court found that the second and third factors favored West American. The court disregarded the first factor because the notice condition did not specify a time for giving notice.

Regarding the fourth factor, the court stated that "an insured's reasonable belief of noncoverage under a policy may be an acceptable excuse for the failure to give timely notice, even where the delay is lengthy." In support the court cited cases where the insureds were young adults or homeowners.

Finally, regarding prejudice, the court stated that "actual notice to an insurer is relevant to whether the insurer has been prejudiced by a delay in receiving written notice as specified in the policy," and an insurer has actual notice of a lawsuit where "it has sufficient information to locate and defend the suit," citing Cincinnati Ins. Co. v. West American Ins. Co., 183 Ill.2d 317 (1998). Because West American, through alleged oral statements made to its agent, knew that a potentially covered suit had been filed against its insured, it suffered no prejudice.

The court held that Yorkville's written notice was given in a reasonable time and did not violate the policy's notice provision.

In his dissent, Justice Freeman noted first that the court, by focusing on the Livorsi factors only, ignored the policy language, pursuant to which Yorkville breached every notice requirement. The result, he predicted, will be increased litigation and "swearing contests" between insureds and insurers as to whether and when notice was given. Second, by extending actual notice the court effectively wrote out of insurance policies conditions precedent to coverage.As they say, read the whole thing.

Effects of health care legislation for insurers will be bad

Dan Wills — Wed, 28 Jul 2010 07:15:26 -0600

For a sober analysis of the likely effects of the health care legislation, including the costs and mandates that will work to squeeze insurers, see this article.

One occurrence under cause theory for accident with three vehicles

Dan Wills — Fri, 23 Jul 2010 15:07:15 -0600

In Auto-Owners Ins. Co. v. Munroe, (7th Cir., no. 09-3427, 7-22-10), the court held that a $1 million policy limit applied even though three insured vehicles caused the accident.

Munroe sufferred serious injury on November 6, 2006, when he tried to pass one truck, struck the rear of a second truck, then collided head on with a third truck. the three trucks, traveling in a convoy, were owned by Wayne Wilkens Trucking. Wilkins and the trucks were insured by Auto-Owners, which provided coverage of $1 million per occurrence and aggregate.

The Munroes sued, alleging negligence against each driver and Wilkens. They settled for policy limits (less a PD payment), with their claim that policy limits were more than $1 million left for a declaratory action. The district court granted Auto-Owners summary judgment in that action, finding that coverage was limited to $1 million per occurrence.

On appeal the Munroes argued that the policy provided $3 million in coverage (three occurrences or $1 million per vehicle). The court rejected the claim for $1 million per vehicle because the policy limited coverage to $1 million regardless of how many persons a claim was made against (severability clause) or the number of vehicles scheduled or involved in the accident (combined limit of liability provision).

Regarding the number of occurrences, the court, citing Nicor, Inc. v. Associated Elec. & Gas, 223 Ill.2d 407 (2006), noted that Illinois applies the cause theory, which presupposes multiple discrete events and asks whether the events had a common cause. In finding only one occurrence, the court distinguished Illinois Nat'l Ins. Co. v. Szczepkowicz, 542 N.E.2d 90 (1989), where the insured truck was struck by a vehicle, moved forward to free a lane, and was struck by a second vehicle five minutes later. Because the two collisions there were not the result of a "single force, nor an unbroken or uninterupted continuum that...caused multiple injuries," there were seperate causes and thus seperate applicable insurance limits.

Here, there was a "single force" and thus a single continuous occurrence. Even if there were seperate causes, then, because they occurred after the single force was set in motion, they were not intervening causes.

In Addison Insurance Co v. Fay, 232 Ill.2d 446 (2009), the court applied a "space and time" test to determine the number of occurrences, stating that it applied to omissions as opposed to affirmative acts of negligence. It seems that without stating as much the Munroe court applied the "space and time" test to "affirmative acts of negligence" as a "continuous occurrence" is simply one lacking separation in space or time.

Worst Supreme Court decision since Plessy v. Ferguson.

Dan Wills — Wed, 23 Jun 2010 16:14:54 -0600

The Volokh Conspiracy has a good discussion of Kelo five years on. In that case, the U.S. Supreme Court, in a 5-4 decision, held that the government can condemn (take) private property for "economic development." In other words, whenever it feels like it.

Bad faith claim required to support discovery regarding similar claims.

Dan Wills — Mon, 14 Jun 2010 16:20:29 -0600

The Insurance Claims and Bad Faith blog discusses a Florida district court case finding that evidence of how the insurer handled similar claims is discoverable only where bad faith is alleged. The case at issue, DeSoto Health & Rehab, LLC v. Philadelphia Indem. Ins. Co., alleged only breach of contract.

Washington State bad faith law is bad, really bad

Dan Wills — Mon, 07 Jun 2010 14:02:29 -0600

The National Insurance Law Forum discusses a Washington supreme court case holding that an insurer that denied a defense under an assault and battery exclusion for post-assault negligence acted in bad faith by relying upon a split in authority to do so.

No coverage where underlying complaint specified an unscheduled location.

Dan Wills — Tue, 01 Jun 2010 13:36:19 -0600

Lorenzo v. Capitol Indemnity Corp., (No. 1-09-1862, First Dist., May 21, 2010), is at first blush the flipside of Chandler v. Doherty, 299 Ill.App.3d 797 (1998). In Chandler (where I represented the carrier), the court found a duty to defend for a car accident even though the carrier had rejected coverage for the involved car (while covering the insured's other car) because the underlying complaint alleged only that the insured was operating a "motor vehicle." In effect, the court found a duty to defend because the complaint did not affirmatively preclude coverage.

In Lorenzo, the policy scheduled 15 of the insured's locations, but the tort complaint identified an unscheduled location as the site of the occurrence, food poisoning. The insured argued that the tort complaint's general allegations that the insured did "process, prepare, distribute, sell and/or otherwise place into the stream of commerce certain foods [including the offending food] for purchase by the consumer public" potentially implicated one or more of the scheduled locations as the policy covered injury arising out of the "ownership, maintenance, or use of the premises shown in the schedule, and operations necessary or incidental to those premises...."

However, the court affirmed a finding of no duty to defend because the complaint specified the location where the food poisoning occurred. In doing so, the court analogized to a hypothetical Chandler complaint that identified the car at issue, under which the court suggested there would have been no coverage.

That is correct but inapposite. Per Chandler, and considering the general allegations at issue in Lorenzo, the complaint there did not affirmatively preclude coverage. What the Lorenzo court actually held is that a complaint's specific allegations precluding coverage will trump general allegations that could otherwise have raised a potential for coverage.

Arbitrators may not award fees under 215 ILCS 5/155

Dan Wills — Fri, 21 May 2010 07:52:46 -0600

In Amerisure Mutual Insurance Company v. Global Reinsurance Corporation of America, No. 08 CH 42242 (Ill. App. Ct. 1st Dist. Mar. 15, 2010), the court considered whether an arbitration panel exceeded its authority in awarding attorneys fees. Amerisure and Global had entered into an agreement in which Global agreed to reinsure Amerisure’s outstanding umbrella policies. In May 2006, Amerisure billed Global for a $1.5 million reinsurance claim. Global did not pay, and Amerisure demanded arbitration pursuant to the agreement. In its arbitration filings Amerisure sought attorneys fees pursuant to Section 155. On November 10, 2008, the arbitration panel awarded Amerisure the reinsurance amount plus attorneys fees. When Amerisure moved to confirm the award, Global filed an answer and counterapplication seeking to reject the award of attorneys fees. Global also filed a motion for summary judgment. The Circuit Court denied Global’s motion, finding that the arbitration panel did not exceed its authority and that no gross error of law appeared on the face of the award.

On appeal, the court noted “Rule 43(d)(2) of the AAA provides three bases upon which an arbitration panel may award attorneys fees: (1) ‘if all parties have requested such an award’; (2) if ‘it is authorized by law’; or (3) if it is authorized by ‘their arbitration agreement.’”

The only potential basis here was if Illinois law authorizes an award of attorneys fees. Under Illinois law, however, section 155 does not authorize arbitrators to award attorneys fees. Accordingly, the court vacated the fee award. The court did not address whether Section 155 can apply to reinsurance contracts generally “because, even assuming, arguendo, it does, the arbitrators did not have authority to award attorney fees pursuant to the statute.”

Experts cannot opine on coverage.

Dan Wills — Tue, 16 Mar 2010 14:15:12 -0600

How many times have you heard an expert testify about coverage in a deposition or try to do so at trial? How many times has it been your expert?

Scottsdale Insurance Co. v. City of Waukegan, No. 07 C 1990, at *1 (N.D. Ill. Feb. 9, 2010), reminds us that this is improper. There the City of Waukegan filed sought coverage under various policies for a $9 million jury verdict from a 42 U.S.C. § 1983 action against a police officer. At issue were motions to strike Waukegan’s insurance expert’s report and to bar the expert’s testimony.

The court, citing Federal Rule of Evidence 702 and Daubert, noted that to be admissible expert testimony must come from one qualified as an expert due to knowledge, training, skill, experience or education; must use a methodology or underlying reasoning that is scientifically reliable; and must be relevant in that it assists the jury in understanding the evidence or in determining a fact in issue.

Relevance was at issue in Scottsdale. The court noted in general that while experts may provide opinions as to ultimate facts they may not testify "as to legal conclusions that will determine the outcome of the case." Because the interpretation of an insurance policy is a question of law, the expert's opinions were doomed.

More specifically, the court barred the following opinions because they would “usurp the Court’s role in interpreting the language contained in the PPL endorsement and the LEL . . .”:

While the Interstate insuring agreement appears to cover only occurrences during the policy period, the insuring agreement is modified by the Police Professional Liability Form Endorsement (“PPL endorsement”).
The PPL endorsement “follows form” over the American Safety Law Enforcement Liability coverage (“LEL”), which is not limited to occurrences during the policy Period.

The court barred the following opinions because they were conclusions regarding duties imposed by law:

If American Safety had settled with Dominguez for its policy limits prior to or during trial, Interstate would have a duty to assume the defense of the City of Waukegan based on the policy definition of “loss.”
Interstate did not fulfill its duties to Waukegan after receipt of notice of the Dominguez claim up to and after the trial. Although Interstate had not duty to defend until the underlying American Safety policy was exhausted, Interstate had a duty to interpret its own policy correctly and not attempt to mislead the City of Waukegan by failing to address the PPL endorsement in Terry Donahoe’s denial letter dated October 20, 2006.

The court barred the following opinions because they told the jury what result to reach:

The arrest of Dominguez; the trial of Dominguez; the requirement that Dominguez register as a sex offender; Dominguez’s arrest and conviction for attempted failure to register as a sex offender; Dominguez’s arrest by the U.S Immigration and Naturalization Service; the alleged malicious prosecution and due process violations were each bodily injuries, personal injuries, occurrences or triggering events that would have engaged coverage under the Law Enforcement Liability (“LEL”) insurance policies in effect at the time of the events.
The Coregis primary polices provide coverage to Waukegan and its police officers with respect to the Dominguez claim and the jury verdict resulting therefrom.
The Coregis umbrella polices provide coverage to Waukegan and its police officers with respect to the Dominguez claim to the extent that “occurrences” qualifying for coverage on the corresponding Coregis underlying polices also qualified as covered “occurrences” on one or more umbrellas.
Coregis did not fulfill its duties under its policies after receipt of notice of the Dominguez claim up to and after trial. Coregis denied coverage unjustifiably, may not have policy defenses with respect to their exposure regarding the Dominguez claim, violated Illinois law with respect to claim handling as a consequence, it is reasonable to conclude that Coregis acted in a vexatious and unreasonable manner in the way they addressed the Dominguez claim.
Based on the reasons provided above and the import of the Employers Insurance of Wausau v. Ehlco Liquidating Trust, et al. case in Illinois, because of Coregis’ failure to deny coverage on a timely basis, it likely has no policy defenses because it is estopped for raising them.

The court struck eighteen more opinions because they constituted legal conclusions.

What use is an insurance expert if he can't testify as to coverage? Not much in my view, which is why I rarely use them. Scottsdale brings home the point, sometimes forgotten by courts in my experience, that experts simply cannot testify as to coverage; only the court can.

Court offers primer on coverage for construction defects

Dan Wills — Thu, 05 Nov 2009 10:02:35 -0600

In CMK Dev. Corp. v. West Bend Mut. Ins. Co., No. 1-08-1155 (1st Dist., 10-30-09), the court applied the standard but at times unclear rule that a CGL policy does not cover defective workmanship but does provide coverage when the defective workmanship results in damage to the property of others. I say standard because countless opinions state the rule; I say unclear because it is often difficult to determine whether damage to "the property of others" is alleged.

In reversing judgment on the pleadings for the insured, the court helpfully offered lists of cases and facts where damage to the property of others was and was not alleged. In CMK, the insurer- developer built a home for a couple but failed to remedy 58 defects set forth in a punch list. In the developer's declaratory action against West Bend, the court assessed damages of $85,906.60, comprising the arbitration settlement with the couple and attorney fees.

The insured argued 1. that scratches to a toilet bowl and tub could have happened after closing, such that the "property" then belonged to "others"; 2. that the insured's defective work on a nearby home caused water runoff that damaged the home at issue such that the home at issue was "other property"; and 3. that the couple may have installed a damaged cork floor such that, again, damage to the property of others was alleged.

The appellate court rejected the first argument, finding no reason to distinguish between damage done the day after or the day before closing, citing Indiana Ins. Co. v. Hydra Corp., 245 Ill.App.3d 926 (1993), where the court held that post-construction cracks in a floor did not trigger coverage. The court quickly dismissed the insured's other arguments finding, as to argument 2, that both homes were the insured's work covered under the same policy, and that argument 3 was pure speculation.

More interesting is the court's dismissal of Country Mut. Ins. Co. v. Carr, 372 Ill.App.3d 335 (2007), because there the homeowners alleged negligence against the insured builder. Carr involved damage to a home's walls caused by improper backfilling by a subcontractor. The Carr court itself made this distinction in finding coverage. However, the labels a plaintiff uses in a complaint do not control, the allegations do. It is unlikely that the CMK court would have found coverage had the purchasers alleged that CMK caused the defects negligently in addition to breaching its contract. If Carr is correct, there will always be coverage for defective work so long as the plaintiff alleges negligence.

One could distinguish Carr on the basis that a subcontractor caused the damage and the policy's "your work" exclusion had an exception for a sub's work. This, however, begs the question. A court must find coverage, "property damage" caused by an "occurrence," before looking to an exclusion. If there is coverage, there must be allegations of damage to the property of another such that the exclusion would not matter. If there is no coverage, again, the exclusion is irrelevant, and coverage cannot be triggered by an exception to an exclusion.

In other words, the "your work" exclusion is worthless - if it would apply there was no coverage to begin with, and if there is coverage it cannot preclude coverage. Thus, Carr was wrongly decided.

Judge Arnold saves paper, fosters organization

Dan Wills — Thu, 29 Oct 2009 12:37:53 -0600

In the October 23 issue of the Daily Law Bulletin, Stan Nardoni discusses Judge Nancy Arnold's standing order, two provisions of which affect declaratory actions involving insurance.

First, "[t}he insurer should file an additional copy of the relevant insurance policy that is Bates numbered. All motions should refer to the Bates numbered pages of the policy." This is a good idea because, as Nardoni notes, policies are rarely paginated in a way that allows for easy citation.

Second, "[p]arties are exhorted NOT to attach copies of the complaint, policy and underlying complaint to the motions they file, but to instead simply provide the items to chambers as courtesy copies." This is an excellent idea that will keep court files and appellate records more manageable.

It is to be hoped that other chancery judges adopt these common sense procedures.

No "magic words" needed for targeted tender

Dan Wills — Fri, 23 Oct 2009 11:47:42 -0600

In State Auto Property & Cas. Ins. Co. v. Springfield Fire & Cas. Co. (Ill. App. 4th Dist., 9-30-09), the court found that where an insured deselects a carrier, pursuant to John Burns Constr. Co. v. Indiana Ins. Co., 189 Ill.2d 570 (2000), it need not make a "targeted tender" to the selected carrier; it need only "file its claim for coverage with [the selected carrier].'

Swearingen Brothers was the named insured on a GL policy with State Auto and a policy with Springfield for the project at issue, where one worker was injured and another was killed. The insured tendered to State Auto, which sought a declaratory judgment that its policy would be excess to Springfield's based on the "other insurance" clauses. The trial court granted Springfield's motion to dismiss based on Burns.

On appeal, State Auto argued that the Burns doctrine applies only for "pre-arranged contractual risk shifting" - where the insured is a named insured on one policy and an AI on another.The appellate court disagreed, holding that the Burns doctrine applies to all policies on which the insured is named, and thus paid the premiums, or contracted to be named, an AI, on another's policy. It would seem that this is an even stronger case for selective tender than in Burns as Swearingen was the named insured and not simply an AI on the State Auto policy.

Perhaps more significantly, the court also rejected State Auto's argument that the deselection of the Springfield policy did not automatically result in a targeted tender to State Auto, to which Swearingen had simply tendered, because it did not advise that it sought coverage solely from State Auto. The court stated that Swearingen needed only to "file its claim for coverage with State Auto" and that no "magic words" were required.

In other words, all tenders are "Burns tenders"; an insured need only deselect its carrier and tender. In fact, it is not even clear from the case that the insured needs to formally deselect - Springfield simply asserted that is was deselected. If so, any carrier not tendered is deselected.

While I continue to believe that Burns was wrongly decided, the above would be a reasonable simplification of the process.

Court applies reasonable choice of law agreed to by parties

Dan Wills — Wed, 09 Sep 2009 09:54:13 -0600

Pursuant to the holding in Auto-Owners Ins. Co. v. Websolv Computing, Inc., No. 07-3286 (7th Cir. 9-1-09), a blast fax case in which the court applied Iowa law, if you can persuade your opponent to agree to a choice of law that favors your position and that is reasonable, the court must apply it. The appellate briefs are here, here, and here.

Although the parties there agreed that Iowa law applied, the district court applied Illinois law, thereby finding coverage under the advertising injury provision pursuant to Valley Forge Ins. Co. v. Swiderski Elecs, Inc., 860 N.E.2d 307 (Ill. 2006), believing that it had to apply the forum state's law.

The appellate court reversed, holding that courts are to honor reasonable choice of law stipulations in contract cases, whether they are made formally or informally. The court also noted that in a diversity case the court applies not the substantive law of the forum but the forum's choice of law rules to determine which state's substantive law applies.

The court noted that Illinois, the forum, applies the "most significant contacts" test to choice of law disputes. Thus, the court considered the domicile of the insured, the place of delivery of the policy, the place of performance and, most important, the location of the insured risk. Since all factors favored Iowa law, the court applied it.

However, because no Iowa court has spoken on the issue, the court ruled as it believed the Iowa supreme court would which, unsurprisingly, was to deny coverage based on the court's reasoning in American States Ins. Co. v. Capital Assocs. of Jackson County, Inc., 392 F.3d 939 (7th Cir. 2004). There, the court found that "privacy" can refer to one's interest in secrecy or seclusion. Since the privacy covered under the advertising injury provision requires "publication," which can refer only to the interest in secrecy, and because corporations do not enjoy a right to seclusion, there was no coverage as the underlying blast fax suit involved a violation only of the interest in seclusion.

American States is better reasoned than Valley Forge. Further, decisions such as Valley Forge result in insurers adding yet another policy endorsement, to exclude coverage for blast faxes, which lengthens policies and helps no one.

IDC Fall Conference September 11, 2009

Dan Wills — Wed, 19 Aug 2009 12:05:45 -0600

The IDC, especially its active insurance committee, of which I am a member and former chair, is well worth your time and participation.

For example, the IDC Fall Conference, at the University Club in Chicago on September 11, 2009, offers CLE and professional credits. Of special interest will be a legislative panel discussion featuring Senate President John Cullerton and Senator Kirk Dillard as well as the Honorable Thomas E. Hoffman on appellate briefs and arguments.

Claim for indemnity premature until insured obligated to pay damages

Dan Wills — Mon, 17 Aug 2009 14:23:44 -0600

Given that, as the court noted in Gregory v. Farmers Automobile Ins. Assoc, (no. 5-07-0264, 6-24-09, on motion to publish order of 5-18-09), appellate courts have "repeatedly held" that while a declaratory judgment on the duty to defend becomes ripe upon filing, one for indemnity does not until the insured becomes legally obligated to pay damages, it is not clear why the court granted a motion to publish.

In any case, the insured there sought a declaration of coverage under an auto liability policy for a pending wrongful death action. The insured is being defended under another policy.

The trial court denied the insurers' motions to dismiss the counts seeking coverage and later granted the insured summary judgment on those counts. The appellate court reversed. Because the tort action is pending, a claim for indemnity is premature:

{U}ntil the fact of liability or the amount of damages is determined in the underlying action, any declaration of coverage or policy limits would be advisory.

The court also rejected the insured's claim of waiver, based on the insurers' filing of a counterclaim seeking a finding of no coverage, because they had raised the ripeness issue in their motions to dismiss.

"Sole negligence" of named insured not bar to AI coverage

Dan Wills — Fri, 14 Aug 2009 12:41:32 -0600

Pekin v. Hallmark Homes, L.L.C. raises what I call a Chandler v. Doherty problem. In other words, must the insured show a potential for coverage, or must the insurer affirmatively show that there is no potential for coverage?

In Chandler, Doherty had one vehicle insured with American Fire Ins. Co. (which I represented on appeal) and one vehicle uninsured, was involved in an accident in the uninsured vehicle which injured Chandler, whose complaint alleged only that Doherty was operating "a motor vehicle." The court held that there was a potential for coverage because"motor vehicle" did not affirmatively exclude the covered vehicle.

In Pekin Ins. Co. v. Beu, and Pekin Ins. Co. v. United Parcel Service, Inc., the first district in effect took the oppisite view in interpreting the following additional insured endorsement in Pekin's policies:

Such person or organization is an additional insured only with respect to liability incurred solely as a result of some act or omission of the named insured and not for its own independent negligence or statutory violation.

The courts held that there would be no coverage for the AI where it is sued for its own negligence. In doing so they rejected the argument that the complaints raised the potential for vicarious liability to the AI, which would be covered under the endorsement, based on its control over the named insured.

However, in Hallmark the second district rejected those holdings, noting that the insurer owes a defense unless "'the insurance cannot possibly cover the liability arising from the facts alleged' and the terms of the policy clearly preclude coverage...."

The court found that the allegations of "control" against the AI could result in vicarious liability to the AI under section 414 of the Restatement (Second) of Torts. Although it was interpreting the same endorsement, it found the holdings in Beu and UPS "unduly restrictive."

In short, with the Pekin endorsement, the insured need not show that the allegations trigger coverage; the insurer must show that they do not. In cases such as Hallmark, then, where the AI is the general contractor, vicarious liability will always be at least possible. In cases where vicarious liability is not possible, however, there will be no coverage. Given the Hallmark court's finding of coverage, the argument that the coverage is illusory fails.

The Hallmark court also considered the standard of review in declaratory actions, finding the case law on the issue confusing. The court held that where factual determinations are not at issue review is de novo.

Pekin had filed a motion for summary judgment where a motion for judgment on the pleadings would have been appropriate as only the allegations of the complaint and policy provisions were at issue. This appears to have been the source of Hallmark's argument that the standard of review should have been abuse of discretion.