Duty To Defend Despite Deposit Of Policy Limit
July 07, 2010
The 1st District Appellate Court recently held that an insurer's deposit of the policy limit with the court in an interpleader action did not relieve the insurer of its duty to defend. American Service Insurance Co. v. China Ocean Shipping Company (Americas) Inc., 2010 WL 2487945 (1st Dist., June 16, 2010).
The insurer, ASI, was represented by Newman, Raiz LLC, Chicago. Schuyler, Roche & Crisham P.C. represented the two parties, COSCO and Interpool Titling Trust (Interpool Trust), seeking coverage under ASI's policy.
This coverage action involved a multi-vehicle accident in 2003 resulting in eight deaths and many other injuries, and generating 12 consolidated lawsuits. ASI's policy issued to Frontline, the employer of the driver of a tractor-trailer involved in the accident, was subject to a $1 million liability limit. The policy provided coverage for the tractor, which was expressly identified in the policy, and also for a "non-owned trailer" identified as "Vehicle # 44."
The complaint in the underlying litigation alleged that COSCO and Interpool Trust had lease or ownership interests in the trailer involved in the accident. ASI's policy did not identify either COSCO or Interpool Trust as insureds under the policy, but did identify a different entity, Interpool Inc., as an additional insured.
In 2004, ASI filed an interpleader action in which it paid its policy limit into the court and sought a declaration that it had no further duty under its policy, including no duty to defend. COSCO and Interpool Trust were eventually added to the interpleader action as defendants and asked the court for a determination that they were insureds under the ASI policy entitled to a defense. In one of its pleadings, ASI admitted that "Interpool" was an additional insured.
Following the filing of cross summary judgment motions in 2007, the trial court found that both COSCO and Interpool Trust qualified as insureds and that ASI was obligated to defend them in the underlying litigation. The court also granted their fee petitions for litigation costs they had incurred. ASI took this appeal.
In an opinion by Justice Michael J. Murphy, the 1st District affirmed. He first addressed ASI's argument that COSCO and Interpool Trust were not insureds under the policy. These defendants argued initially that, although not identified in the policy as insureds, Frontline's application for coverage with ASI identified Interpool Inc., and its affiliates as insureds, which, they argued, reflected the intention of the parties that Interpool Trust be so identified as well.
Murphy rejected the argument on the ground that the policy itself did not reflect coverage for Interpool Inc.'s affiliates, and a fact question existed in any event as to whether Interpool Trust was actually an affiliate of Interpool Inc. He also rejected the further argument that ASI had made a judicial admission in its pleading that Interpool Trust was an insured, because the admission in ASI's pleading was not clear as to which entity it was referring.
Murphy nevertheless found that COSCO and Interpool Trust were, in fact, insureds based on other language in the ASI policy extending coverage to persons incurring liability "because of acts or omissions of an insured" specifically identified in the policy. In this case Frontline was the named insured, coverage extended to its driver, and the liability of COSCO and Interpool Trust was based on the driver's negligent conduct. They therefore qualified as insureds.
The defendants further argued that coverage extended to Vehicle # 44, a trailer "non-owned" by Frontline, because it had been interchanged by COSCO to Frontline. In response to this argument in the trial court ASI had submitted an affidavit of its litigation manager to the effect that the trailers listed in the ASI policy "were additional trailers for additional insureds named on said ASI Policy only," COSCO and Interpool Trust were not so named, and that Vehicle # 44 therefore was not the one involved in the accident.
The trial court, however, had stricken the affidavit on the ground that it was overly conclusory. Murphy agreed that it was, that the affidavit also was not clear that it was based on personal knowledge, and that it therefore could not be used to create a fact issue. On this basis Murphy found coverage for Vehicle # 44 (and appears at least impliedly to have found that Vehicle # 44 was the one involved in the accident).
He then turned to ASI's argument that, after depositing the policy limits with the court clerk, it was relieved of its duty to defend. ASI relied on policy language that it "will not defend any suit after it has paid the applicable limit of its liability for the accident which is the basis of the lawsuit."
Citing to Conway v. Country Casualty Insurance Co., 92 Ill. 2d 388 (1982), and other cases, Murphy said the Illinois courts have consistently held that an insurer cannot discharge its duty to defend by simply depositing policy limits with the court.
ASI contended, however, that American Standard Insurance Co. v. Basbagill, 333 Ill. App. 3d 11 (2002), supported its position. The policy language there was similar to that just quoted, and although the court ultimately held that the insurer there was not relieved of its duty to defend, it did so on the ground that the insurer had not fully relinquished control of the funds and that its payment was conditional.
Here, by contrast, contended ASI, its tender of funds to the court was unconditional.
It also relied on Carolina Casualty Insurance Co. v. Estate of Studer, 555 F. Supp 2d 972 (S.D. Ind. 2008), where the court held that where the insurer has no potential obligation to indemnify – as is the case when it has exhausted – it can have no duty to defend. The court in that case therefore relieved the insurer of the obligation to defend.
Murphy, however, pointed out that Studer had not cited Conway, and that he was compelled to follow the holding of the Illinois Supreme Court. He also noted that ASI had not provided the defendants with a defense during the several years that the interpleader action was pending. He therefore concluded that ASI had a duty to defend.
ASI further argued that the trial court erred in granted the defendants' fee petitions, particularly without an evidentiary hearing. Murphy, however, appeared to agree with the defendants that no hearing was necessary because ASI had not presented anything of substance in response to their fee petition. He also agreed with the trial court that the fees were prima facie reasonable because they had been paid.
As for ASI's argument that the trial court also did not give it sufficient opportunity to conduct discovery on the reasonableness of the fee petition, Murphy pointed out that ASI failed to cite any authority in support of its position, and its argument therefore was waived.
The court therefore affirmed summary judgment in favor of COSCO and Interpool Trust.
