An Insured Controls Which Policy is Targeted and Triggered
An insured that wishes to knowingly forego the assistance of an insurer must “specifically express” that desire to the insurer and state a “specific direction not to defend” in the litigation. This “clear direction” must appear within the correspondence directed to the insurer at or near the time of notice of the litigation and cannot be explained through the use of affidavits at the time of a declaratory judgment.
The decision in Institute of London has been tempered by several courts. In Dearborn Ins. Co. v. International Surplus Lines Ins. Co., 308 Ill.App.3d 368, 719 N.E.2d 1092, 241 Ill.Dec. 689 (Ill.App. 1st Dist., 1999), Dearborn sought reimbursement from International for defense and indemnification costs incurred in defending and indemnifying their mutual insured, Canon Insurance Service (Canon). Both insurance carriers issued claims-made insurance agents’ and brokers’ professional liability policies which named Canon as an insured. In 1985 Canon entered into a partnership with Kleinco which operated an insurance brokerage business. After the dissolution of that business, Kleinco was served with a complaint relating to an agent’s alleged failure to procure proper excess coverage.
Both Kleinco and Canon were brought in as defendants under a cross-complaint. On November 7, 1991 Kleinco requested that Dearborn defend both Kleinco and Cannon which it did. On November 14, 1991 Canon’s insurance broker sent a letter to International Insurance Company enclosing a copy of the cross-complaint, summarizing the litigation, and further stating as follows:
As you can see from the November 7th letter from Pam Davis to their E&O carrier (Virginia Surety), Klein’s office is asking their carrier to respond on behalf of James Klein Insurance and Canon Insurance. Therefore, at this time, it’s probably best that you accept this as a possible claim but not something in which you need to take an active role unless, of course, your claims people disagree. In this regard, I await your feedback.
In Dearborn, International Insurance Company opened a claims file and established a reserve but took no further action as far as the litigation was concerned. International refused to participate in the defense of Canon and as a result, Dearborn filed a declaratory action. Dearborn argued that the November 14, 1991 letter from Canon to International was a tender giving rise to International’s duty to defend and indemnify Canon. International argued that pursuant to Institute of London, it did not have a duty to defend or indemnify because Canon had chosen not to tender its defense in the litigation to International Insurance Company. The trial court ruled that the November 14, 1991 letter constituted a tender triggering International’s duty to defend and indemnify Canon. International filed a motion for reconsideration which relied upon affidavits from Canon’s officers and International’s claim representative. These affidavits were offered as proof that Canon never requested International to defend or indemnify and that it was Canon’s specific intent not to tender the defense of the litigation to International. The affidavits further averred that the November 14, 1991 letter was meant only to notify International of a potential claim and not a tender for defense. The trial court denied International’s motion for reconsideration.
The court ruled that the decision was controlled by the supreme court decision in Cincinnati Cos. v. West American Ins. Co., 183 Ill.2d 317, 701 N.E.2d 499 (1998). That decision held that actual notice of a claim triggers “the insurer’s duty to defend, irrespective of the level of the insured’s sophistication, except where the insured has knowingly forgone the insurer’s assistance.” Under this rule, the appellate court of Illinois held that the November 14, 1991 letter clearly put International on notice of the litigation sufficient to trigger its duty to defend. The court then reviewed whether Canon had “knowingly forgone” International’s assistance in the litigation. The appellate court of Illinois held that within the November 14, 1999 letter, Canon failed to give International “specific direction not to defend this case.” Although the letter clearly put International on notice of the suit it did not direct International “to refrain from participating in its defense.” “There was no clear direction in the November 14, 1991, letter not to defend.”
Since the letter itself was clear and unambiguous, the appellate court of Illinois refused to consider the affidavits offered by Canon and instead looked solely to the letter itself to derive the intent of the parties. Under this analysis, the appellate court of Illinois held that International had actual notice of the litigation and that Canon did not knowingly forego International’s assistance in the litigation. As a result, International had a duty to defend Canon and was required to share the defense costs with Dearborn on an equal basis.
Under this decision, an insured who wishes to knowingly forego the assistance of an insurer must “specifically express” that desire to the insurer and state a “specific direction not to defend” in the litigation. This “clear direction” must appear within the correspondence directed to the insurer at or near the time of notice of the litigation and cannot be explained through the use of affidavits at the time of a declaratory judgment. There is no mention within this case of any dispute over the affidavits at the trial level. In order to preserve the use of affidavits at both the trial level and the appellate level the party proffering the affidavits must first prove that the letter relied upon to “knowingly forego” an insurers assistance is ambiguous. Only by proving that the letter(s) are ambiguous can a party offer an affidavit to supplement or explain the letter(s).
