There's No Equitable Subrogation Against County
July 20, 2011
The 2nd District Appellate Court recently held that an umbrella insurer was not entitled to obtain equitable subrogation against a self-insured county that allegedly was primarily responsible for the loss. State Farm Mutual Automobile Insurance Co. v. DuPage County, No. 2-10-0580, 2011 WL 2471920 (2d Dist. June 16, 2011).
The insurer, State Farm, was represented by SmithAmundsen LLC of Chicago. James G. Sotos & Associates Ltd. of Itasca represented the county.
In 2007, an assistant DuPage County state's attorney, Jane Radostits, was killed as the result of an automobile accident with Michelle Lubinski, who incurred an injury in the accident. Radostits, at the time, was driving a county-owned car.
Lubinski subsequently sued Radostits' estate alleging that she was intoxicated, driving in excess of the speed limit and using her cellphone on county business at the time of the accident. The complaint sought recovery not only against the estate, but also against the county on a respondeat superior basis.
Radostits was an insured under three State Farm car policies, although none of the policies provided coverage for the county car she was driving. In addition, Radostits was an insured under a State Farm umbrella policy, which indicated that the policy was excess over all other valid and collectible insurance.
The county was self-insured up to a limit of $2 million with liability coverage in excess of $2 million having been issued by Lexington Insurance Co., up to a limit of $20 million.
Lubinski settled her claims against Radostits' estate with State Farm paying $400,000 - apparently under the umbrella policy - on behalf of the estate. Lubinski also settled her claim against the county for $100,000. Thereafter, State Farm brought this action against the county, claiming that it was not liable under its policies, seeking equitable subrogation against the county for the $400,000 settlement payment and also seeking reimbursement for its defense costs.
The county moved to dismiss and State Farm sought entry of judgment in its favor on all counts. The trial court ruled against State Farm with respect to the applicability of its umbrella policy and also denied State Farm subrogation and reimbursement. It then filed this appeal.
In an opinion by Justice Robert D. McLaren, who characterized the issue before the court as one of first impression, the 2nd District affirmed. He began by noting the usual requirements for equitable subrogation in Illinois: 1) the defendant carrier is primarily liable to the insured for a loss under a policy of insurance, 2) the plaintiff carrier is secondarily liable and 3) the plaintiff carrier discharged its liability to the insured and, at the same time, extinguished the liability of the defendant carrier.
With respect to the question of whether the county, as a self-insured entity, constituted a carrier primarily liable for the loss for purposes of equitable subrogation, McLaren turned primarily to Antiporek v. Village of Hillside, 114 Ill. 2d 246 (1986), which held that a municipality did not waive its statutory tort immunity by participating in a self-insured pool, since, unlike when a municipality purchases private insurance, the municipality's funds are still at risk.
In later decisions, the 2nd District held that a self-insurance pool of municipalities did not have the same obligation to contribute to a settlement as a commercial carrier and that the pool was not in fact an insurer. See Aetna Casualty & Surety Co. of Illinois v. James J. Benes & Associates Inc., 229 Ill. App. 3d 413 (2d Dist. 1992); Yaccino v. State Farm Mutual Automobile Insurance Co., 346 Ill. App. 3d 431 (2d Dist. 2004).
Applying these holdings here, McLaren found that DuPage County is not an insurer or an insurance company and does not provide insurance coverage. He, therefore, said State Farm could not establish the first requirement of equitable subrogation, which is that the defendant must be a carrier that is primarily liable to the insured.
McLaren further observed that the public policy of protecting government funds was better served in this case than in the others relied on by the court, because the risk to a single municipality, i.e., the county here, was greater than the risk involved when a municipality participates in a risk pool. In addition, he noted that government self-insurance does not constitute a policy of insurance. State Farm, therefore, could not establish that the county even had a policy of insurance.
State Farm countered that the county did, in fact, have a policy of insurance above the primary layer of self-insurance of $2 million. McLaren rejected that point by observing that, in this case, State Farm sought recovery only of $400,000, which was well within the layer of self-insurance, so that State Farm was seeking only government funds.
State Farm further argued that under the principle of horizontal exhaustion, an insured is required to exhaust all available primary insurance before any excess insurance may be invoked. The doctrine did not apply, however, according to McLaren, because, once again, the county was not an insurer or a provider of an insurance policy or a carrier for any purpose.
State Farm also relied on the excess "other insurance" clause in its umbrella policy to argue for the application of the county self-insurance, but McLaren reiterated that the county was not an insurer and did not provide "other valid and collectible insurance."
McLaren used the same reasoning to reject State Farm's claim for reimbursement of defense costs.
The court, therefore, affirmed in favor of the county.
Key points
(1) A municipality with self-insurance is not an insurer for equitable subrogation purposes.
(2) A municipality's self-insurance is not insurance for equitable subrogation or horizontal exhaustion purposes.
