Recent Illinois Insurance-Related Opinions Part 4 - Target Tender; Waiver
An Illinois First District Appellate court holds: 1) insured’s letters requesting a defense and indemnity from risk pooling trust constitute a valid target tender such that the trust was not entitled to contribution; and 2) the risk pooling trust waived any claim for equitable subrogation.
Chicago Hosp. Risk Pooling Program v. Ill. State Med. Inter-Insurance Exch., Nos. 1-07-2195 and 1-07-2258 (Ill. App. Ct. Dec. 22, 2009).
In a coverage case involving a medical malpractice insurer, Illinois State Medical Inter-Insurance Exchange (“ISMIE”), and the Chicago Hospital Risk Pooling Program (“CHRPP”), the First District determined that 1) CHRPP waived any right to assert that payments made in settlement of a medical malpractice claim were made under an “excess” trust such that CHRPP was entitled to equitable subrogation from the insured’s primary medical malpractice insurer and 2) that the insured’s request for a defense and indemnity to CHRPP was a valid target tender under Illinois law such that CHRPP was not entitled to contribution.
In the underlying litigation, a medical malpractice suit was filed against several defendants, including ISMIE’s insured, Dr. Baldoceda, due to alleged negligence during the labor and delivery of twin boys that resulted in one boy’s wrongful death and had left the other with severe neurological damage. As an employed house physician at Norwegian American Hospital (“Hospital”) acting within the scope of his employment, Baldoceda was afforded medical malpractice coverage for the claim through both CHRPP, a trust established by statute through which participating nonprofit hospitals pool certain risks, as well as ISMIE, Baldoceda’s private professional liability insurer. CHRPP, furthermore, provided coverage under both a Primary Trust and an Excess Trust.
After receiving notice of the claim, ISMIE agreed to defend Baldoceda without a reservation of rights. CHRPP, on the other hand, informed Baldoceda under a reservation of rights that it had interpreted the “other insurance” clauses at issue to indicate that ISMIE had a primary duty to defend and indemnify Baldoceda and that, accordingly, CHRPP did not provide primary insurance to Baldoceda for the underlying action. Relying upon Illinois target tender case law, Baldoceda eventually attempted to target tender CHRPP. Although CHRPP replied that it was secondary to the ISMIE coverage and reserved its rights, it ultimately paid $1 million on behalf of Baldoceda to settle the malpractice suit.
Soon thereafter, CHRPP filed a complaint for equitable contribution against ISMIE and, subsequently, amended the complaint to include a claim for equitable subrogation. After extensive litigation, the parties filed cross-motions for summary judgment. ISMIE also moved for summary judgment on its counterclaim for reimbursement of defense costs. The trial court granted summary judgment in favor of CHRPP on the equitable subrogation claim and granted summary judgment to ISMIE for one-half of its defense costs. Both parties timely appealed.
With respect to the equitable subrogation claim, on appeal ISMIE argued, in part, that CHRPP could not establish a necessary element of equitable subrogation, namely that CHRPP was secondarily liable to Baldoceda for the loss under its Excess Trust. ISMIE asserted that CHRPP waived its right to reimbursement under the Excess Trust because all its prior representations had indicated that the settlement payment came from the Primary Trust, not the Excess Trust. The Appellate Court agreed. Specifically, it noted that CHRPP solely sought equitable contribution during the first four years of litigation and because equitable contribution is not available between primary and excess insurers, CHRPP’s conduct implied that the settlement payments made on behalf of Baldoceda had come from the Primary Trust, not the Excess Trust.
Next, the Appellate Court addressed CHRPP’s argument that Baldoceda did not effectively target tender the defense of the underlying malpractice claim to CHRPP. Examining the record, the Appellate Court determined that there was indeed an effective target tender. Notably, the Appellate Court looked to a December 13, 1996 letter, in which Baldoceda told the CEO of the Hospital, that:
“Notwithstanding my ISMIE coverage, I look to [the Hospital], and its insurer, to provide me with my primary and excess layer of malpractice coverage for this occurrence. Furthermore, I request at this juncture, that the Hospital provide me with legal representation by the Hospital’s defense counsel. . . It is my understanding that Illinois law permits me to make the above election as to which available insurance policy is to be treated as my primary coverage.”
The Appellate Court held that the above letter (along with a similar letter from Baldoceda’s counsel) undeniably showed Baldoceda’s intent to receive coverage from CHRPP and forgo ISMIE’s assistance. Additionally, the Court stated that keeping ISMIE on notice as standby coverage would not negate a target tender. Accordingly, Baldoceda’s effective target tender meant that ISMIE was excused of its duty to defend and indemnify.
Link to opinion:
http://www.state.il.us/court/Opinions/AppellateCourt/2009/1stDistrict/December/1072195.pdf