Right to Tender a Defense
Illinois School District Agency (ISDA) provided a commercial general liability policy to St. Charles Community Unit School District 303 (the District) from July 1, 1995, to July 11, 2001. Prior to the ISDA policy, the District had policies with General Casualty Company of Wisconsin from September 1, 1971, to September 1, 1974; Employers Fire Insurance Company from October 1, 1974, to October 1, 1977; Hartford Accident and Indemnity Company from October 1, 1977, to July 1, 1985; and Indiana Insurance Company from October 1, 1985, to July 1, 1995. The District was sued three times from March 2001 to March 2002 for mold-related injuries. The District tendered a defense to ISDA, General Casualty, Hartford, and Indiana. The District spent $2.2 million on mold remediation. It then settled with Hartford for $150,000, with Indiana for $500,000 and with General Casualty for $10,000. While settlement negotiations with ISDA were going on, ISDA filed suit, seeking a declaratory judgment that it had no obligation to cover mold remediation expenses unrelated to the defense of the mold lawsuit and that the District breached the insurance contract by engaging in secret settlements with the three other insurers. The court held the District had the right to deactivate tender of the litigation defense as to the other three insurers and that doing so, in exchange for settlement payments, did not breach its policy with the ISDA.
On appeal, ISDA contended the District violated the terms of its insurance policy by entering into “secret” settlements with the other insurers and tendering the defense of the mold litigation to the ISDA alone. It argued these actions constituted a breach of the District’s purported fiduciary duty to the ISDA and that the District received a “windfall” in the amount of the insurance proceeds it received that exceeded the amount of its litigation costs. The District countered that an insured party has a paramount right to tender defense of a lawsuit to any primary insurer it chooses, that an insured owes no fiduciary duty to an insurer, and that the mold infestation cost the District far more than the sum of the settlements it received. In its cross-appeal, the District argued that the ISDA is liable for a greater portion of the Woods invoices than the circuit court allowed. The ISDA responded that the court ruled based on the evidence before it when it found the ISDA not liable for the invoices in question.
The court noted that no Supreme Court case approved the use of the selective tender rule to consecutive insurance policies. The court decided not to provide such authority and held the circuit court erred in granting summary judgment to the District based on its purported right to selectively tender the defense of the mold lawsuits to the ISDA as a consecutive insurer. The court further declined to address the “double payment” arguments urged by the ISDA to support this outcome. The court held on the cross-appeal that the circuit court did not enhance the District’s burden and properly required it to prove that the disputed invoices predominantly concerned litigation work and that the District did not meet this burden.
Illinois School Dist. Agency v. St. Charles Community Unit School Dist. 303, 2012 WL 1108519, —N.E.2d —- (Ill.App. 1 Dist., 2012), Nos. 1-10-0088, 1-10-2005.
