Recent Illinois Insurance-Related Opinions Part 2 - Section 155
Illinois First District Appellate Court holds that insurer, as assignee of insured, could recover Section 155 damages from other insurer that wrongfully refused to defend and indemnify the insured.
Statewide Ins. Co. v. Houston Gen. Ins. Co., No. 03 CH 14719 (Ill. App. Ct. 1st Dist. December 14, 2009).
This coverage action arose out of an accident at a construction site in December, 1997 that left a worker injured. Joseph Construction Company (“JCC”) was the general contractor on the project, and Dryden Contractors, Inc. (“Dryden”) and RC Plumbing, Inc. (“RC Plumbing”) were two of the subcontractors. Statewide Insurance Company (“Statewide”) insured JCC; Westfield Insurance Company (“Westfield”) insured RC Plumbing; and Houston General Insurance Company (“Houston General”) insured Dryden. JCC was listed as an “additional insured” on Houston General’s policy insuring Dryden and Westfield’s policy insuring RC Plumbing.
Although JCC tendered the underlying claim to Houston General for defense and indemnity, Houston General refused the tender, and Statewide and Westfield eventually settled the claim on behalf of JCC. Statewide and Westfield thereafter brought suit against Houston General seeking reimbursement for costs Statewide and Westfield had paid to settle the underlying claim, as well as damages under Section 155 of the Illinois Insurance Code.
The appellate court’s opinion largely focused on Houston General’s argument that there was no coverage for the underlying suit against JCC because the insurance policy had been cancelled. The Appellate Court ultimately rejected this argument and determined that Houston General had a duty to defend and indemnify JCC with respect to the underlying claim.
Having found that Houston General had a duty to defend and indemnify JCC, the Court next focused on the claim for damages under Section 155 of the Illinois Insurance Code. As stated by the court, Section 155 permits a court to award “reasonable attorney fees and costs to an insured who encounters unnecessary difficulties when an insurer withholds policy benefits.” In considering the availability of damages under Section 155 in this case, the court rejected Houston General’s argument that only an insured is entitled to claim those damages. The court held that the “remedy under Section 155 is intended for the protection of both the insured and the assignee who succeeds to the insured’s position.” In this case, because Statewide’s policy contained a provision whereby JCC transferred any and all rights of recovery to Statewide when it made a payment to settle the underlying claim, and because the terms of the settlement agreement established Statewide as JCC’s assignee, Statewide was entitled to Section 155 damages.
Link to opinion:
http://www.state.il.us/court/Opinions/AppellateCourt/2009/1stDistrict/December/1071798.pdf