Illinois Insurance Guaranty Fund v. Chicago Insurance Company , 2015 IL App (5th) 140033 ( 2015 )

Illinois Official Reports
Appellate Court
Illinois Insurance Guaranty Fund v. Chicago Insurance Co.,
2015 IL App (5th) 140033Appellate Court ILLINOIS INSURANCE GUARANTY FUND, Plaintiff-Appellee, v.
Caption CHICAGO INSURANCE COMPANY, Defendant-Appellant
(Protestant Memorial Medical Center, d/b/a Memorial Hospital,
Women’s Care of Southern Illinois, P.C., Debra Schell, as Mother and
Next Friend of J.L., a Disabled Minor, and John A. Hucker, M.D.,
Defendants).
District & No. Fifth District
Docket No. 5-14-0033
Rule 23 Order filed December 12, 2014
Motion to publish
granted January 29, 2015
Opinion filed January 29, 2015
Held Where the Illinois Insurance Guaranty Fund filed a declaratory
(Note: This syllabus judgment action against defendant insurer for a determination of
constitutes no part of the whether a “claims-made” policy issued to a women’s clinic for claims
opinion of the court but made between July 1, 2001, through July 1, 2002, provided coverage
has been prepared by the for a physician formerly employed at the clinic, even though the
Reporter of Decisions physician was not expressly named as an insured in the claims-made
for the convenience of policy issued by defendant after the physician’s employment
the reader.) relationship ended, the trial court’s entry of summary judgment for
plaintiff requiring defendant to pay for the defense of the physician in
an underlying malpractice claim was reversed and the cause was
remanded, since defendant’s policy was not “coverage provided by
another insurance policy” that had to be exhausted under section
546(a) of the Insurance Code, the physician did not qualify as an
insured under the plain language of the policy, and defendant insurer
only agreed to pay on behalf of the clinic as a result of the physician’s
acts for which it was legally responsible.
Decision Under Appeal from the Circuit Court of St. Clair County, No. 10-MR-255;
Review the Hon. Stephen P. McGlynn, Judge, presiding.
Judgment Reversed; cause remanded with directions.
Counsel on Madelyn J. Lamb, of Hinshaw & Culbertson, LLP, of Belleville,
Appeal William P. Hardy, of Hinshaw & Culbertson, LLP, of Springfield, and
Jennifer K. Gust, of Hinshaw & Culbertson, LLP, of Chicago, for
appellant.
James F. Best and Adam M. Stefancic, both of Best, Vanderlaan &
Harrington, of Chicago, and Ted Harvey, of Freeark, Harvey &
Mendillo, P.C., of Belleville, for appellee.
Panel JUSTICE STEWART delivered the judgment of the court, with
opinion.
Justices Welch and Goldenhersh concurred in the judgment and
opinion.
OPINION
¶1 The plaintiff, Illinois Insurance Guaranty Fund (the Fund), filed a declaratory judgment
action against the defendant, Chicago Insurance Company (Chicago Insurance), for the court
to determine whether a “claims-made” insurance policy issued to Women’s Care of Southern
Illinois, P.C. (Women’s Care), for claims made between July 1, 2001, through July 1, 2002,
provided insurance coverage for a former employee of Women’s Care, Dr. John Hucker.
Chicago Insurance issued the policy. This insurance dispute stems from a separate lawsuit for
medical malpractice filed against Women’s Care and Dr. Hucker on January 22, 2002, during
the effective date of coverage of the claims-made policy. The lawsuit alleged that Dr. Hucker
committed medical malpractice on March 25, 2000, while he was employed by Women’s
Care. However, Dr. Hucker’s employment with Women’s Care ended on December 31, 2000,
and he was not expressly named as an insured in the claims-made policy that was issued by
Chicago Insurance after the employment relationship ended.
¶2 Both the Fund and Chicago Insurance filed cross-motions for summary judgment on the
issue of Chicago Insurance’s duty to defend Dr. Hucker in the malpractice lawsuit. The circuit
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court ruled in favor of the Fund and found that Chicago Insurance was obligated to pay for Dr.
Hucker’s defense against the malpractice claim. The court entered a final order requiring
Chicago Insurance to pay $98,694.64 for costs to defend Dr. Hucker. Chicago Insurance filed a
timely notice of appeal. For the following reasons, we reverse and remand with instructions to
enter a summary judgment in favor of Chicago Insurance.
¶3 BACKGROUND
¶4 The policy at the center of this insurance dispute is a claims-made policy. A “claims-made”
insurance policy is distinguishable from a conventional “occurrence-based” insurance policy
with respect to the type of risks each policy insures. Uhlich Children’s Advantage Network v.
National Union Fire Co. of Pittsburgh, 398 Ill. App. 3d 710, 715, 929 N.E.2d 531, 537 (2010).
An occurrence-based policy insures against an insurable act or omission that occurs during the
policy period regardless of when a legal claim arising out of the act or omission is made against
the insured. A claims-made policy, however, insures against the risk of a claim being made
against the insured during the policy period. Id. The claims-made policy allows an insurance
company to easily identify risks which, in turn, allows the company to know in advance the
extent of its claims exposure and compute its premiums with greater certainty. Id. The
coverage under a claims-made policy is less than a conventional occurrence-based policy, but
so are its costs to the insured. Id.¶5 The facts alleged in the underlying malpractice complaint establish that on March 25,
2000, Dr. Hucker was an employee of Women’s Care, and he delivered a baby, J.L., at
Protestant Memorial Medical Center. The baby’s mother is Debra Schell. Schell alleged that
Dr. Hucker committed malpractice in delivering her baby.
¶6 Dr. Hucker’s employment agreement with Women’s Care required Women’s Care to
provide for and maintain medical malpractice insurance coverage on a “claims-made basis”
during his employment with respect to any duties or services that he performed as an employee
of Women’s Care. At the end of 2000, Dr. Hucker and another physician left Women’s Care to
form their own practice. The employment agreement did not require Women’s Care to
continue to provide Dr. Hucker with claims-made malpractice insurance coverage after the
termination of the employer-employee relationship. Instead, the employment agreement
required Dr. Hucker to “obtain at his own expense professional liability ‘tail coverage’ or
‘prior acts coverage’ covering [him] for professional liability while he was employed by
[Women’s Care],” and he was required to furnish evidence of such tail coverage or prior acts
coverage to Women’s Care. Upon leaving his employment with Women’s Care, Dr. Hucker
obtained his own medical malpractice coverage through MIIX Insurance Company.
¶7 On January 28, 2002, Schell filed her medical malpractice lawsuit against the hospital,
Women’s Care, and Dr. Hucker. Dr. Hucker first became aware of Schell’s malpractice claim
when he received the complaint sometime after January 28, 2002. Schell sought damages
against Dr. Hucker for his alleged malpractice and against both the hospital and Women’s Care
under a vicarious liability theory claiming that Dr. Hucker committed malpractice while he
was their “agent, staff and employee.”
¶8 Dr. Hucker’s own insurance carrier, MIIX Insurance Company, initially provided him with
a defense to Schell’s malpractice lawsuit until it went into liquidation on April 9, 2008.
Thereafter, the Fund assumed responsibility for the obligations of MIIX Insurance Company
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and took over Dr. Hucker’s defense. 1 As noted above, Chicago Insurance had issued a
claims-made policy to Women’s Care that was in effect when Schell filed her lawsuit. Chicago
Insurance provided the defense for Women’s Care pursuant to the terms of the claims-made
policy. The policy was in effect for a period after Dr. Hucker had terminated his employment
with Women’s Care, July 1, 2001, through July 1, 2002, and Dr. Hucker was not a named
insured in the policy. However, on March 23, 2010, the Fund demanded that Chicago
Insurance assume Dr. Hucker’s defense pursuant to this policy.
¶9 Chicago Insurance declined the Fund’s request, maintaining that because Dr. Hucker was
not an insured under its policy, it did not have the duty to defend him from any malpractice
claim. The Fund subsequently filed the present declaratory judgment action requesting the
circuit court to make a determination that Chicago Insurance owed Dr. Hucker a defense and
indemnification in Schell’s malpractice lawsuit. The Fund sought reimbursement for attorney
fees and costs that it had expended to defend Dr. Hucker.
¶ 10 The insuring agreement of the Chicago Insurance policy at issue provided, in part, as
follows:
“The Company will pay on behalf of the Insured all sums which the Insured shall
be legally obligated to pay as Damages for Claims first made against the Insured and
reported to the Company during the Policy Period, or Extended Reporting Period, as
applicable, arising out of Bodily Injury, Property Damage, Personal Injury or
Advertising Injury as a result of a Medical Incident resulting from the rendering of
or failure to render Professional Services by the Insured, or by any person whose acts
the Insured is legally responsible ***.”
¶ 11 The policy at issue also included language relevant to “PERSONS INSURED” as follows:
“II. PERSONS INSURED
Each of the following is an Insured under this policy to the extent set forth below:
A. the entity or person named in Item 1. of the Declarations as the Named
Insured;
***
C. any physician or surgeon who becomes a partner, stockholder or
employee of the Named Insured during the Policy Period provided that
within thirty (30) days after becoming a stockholder, partner or employee:
1. the Named Insured notifies the Company of such appointment, election,
ownership or employment;
2. on the date of notification, all other physicians or surgeons who are partners,
officers, shareholders or employees are named in this policy; and
3. such physician or surgeon submits a completed application to the Company;
***
E. any employees of the Named Insured other than a physician or surgeon, but
only while acting within the scope of his or her duties as such.”
1
The Fund is a nonprofit entity established under the Illinois Insurance Code (215 ILCS 5/532
et seq. (West 2012)) to protect holders of policies issued by certain insurance companies that become
insolvent, and third-party claimants under those policies, when expected coverage ceases to exist.
Rogers v. Imeri, 2013 IL 115860, ¶ 14, 999 N.E.2d 340.
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¶ 12 The terms of the policy defined the term “insured” as “any person qualifying as an insured
in the PERSONS INSURED section of the policy.” The policy defined “named insured” as
“the person or entity named in Item 1. of the Declarations of this policy.” The policy also set
out the right and duty of Chicago Insurance “to defend any Suit against the Insured seeking
Damages to which this Insurance applies even if any of the allegations of the Suit are
groundless, false or fraudulent.”
¶ 13 The physician who filled out the application for the policy on behalf of Women’s Care
requested coverage for Women’s Care and two physicians who were employed with Women’s
Care at the time of the application, Dr. William Chadwick and Dr. Colon-Alcaraz. As noted
above, prior to the application, Dr. Hucker and another physician had left Women’s Care to
form their own practice at the end of 2000. Accordingly, Dr. Hucker was not included in
Women’s Care’s application for insurance coverage.
¶ 14 The policy’s declaration page listed the named insured as “Women’s Healthcare
Specialists, PC d/b/a Women’s Care of Southern Illinois, P.C.” The policy also included a
“SCHEDULE OF NAMED INSUREDS-PYSICIANS AND SURGEONS” as endorsement
PSD-2001. Endorsement PSD-2001 listed the following named insureds: William A.
Chadwick, M.D. (prior acts coverage to July 1, 1991); Vincent M. Colon-Alcaraz, M.D. (prior
acts coverage to July 1, 1991); and Women’s Healthcare Specialists, PC, d/b/a Women’s Care
of Southern Illinois, P.C. (prior acts coverage to August 1, 1999). Endorsement PSD-2002
listed an ancillary employee hired in April 2001, a nurse practitioner named Kelly R. Murray
(prior acts coverage to April 16, 2001), and endorsement PSD-2006 listed Dr. Mark S.
Wasserman (prior acts coverage to July 1, 1988), who joined Women’s Care on July 5, 2001.
¶ 15 Dr. Hucker was not expressly listed or named in the policy as an insured or in any
subsequent endorsements.
¶ 16 In the Fund’s declaratory judgment lawsuit, the parties filed cross-motions for summary
judgment on the issue of whether Chicago Insurance owed Dr. Hucker a defense and indemnity
in the Schell lawsuit pursuant to the terms of the insurance policy. The circuit court ruled in
favor of the Fund, holding that Chicago Insurance had a duty to defend Dr. Hucker. The court
did not articulate any reasoning or analysis for its decision. Following the settlement and
dismissal of Schell’s malpractice claim, the circuit court entered a judgment in favor of the
Fund and against Chicago Insurance in the amount of $98,694.64 for attorney fees and costs.
Chicago Insurance filed a timely notice of appeal.
¶ 17 DISCUSSION
¶ 18 This insurance dispute centers on the construction of the language of the insurance policy
issued by Chicago Insurance to determine whether Chicago Insurance had a duty to defend Dr.
Hucker in the medical malpractice lawsuit. Chicago Insurance argues that the unambiguous
language of the claims-based insurance contract at issue provided that Dr. Hucker was not an
insured and did not fit within the coverage parameters set forth in the insurance contract. The
Fund, however, argues that Chicago Insurance had a duty to defendant Hucker because he falls
within the policy’s coverage language. The Fund also argues, alternatively, that the language
of the policy was ambiguous with respect to its coverage of claims against Dr. Hucker and that
we must construe the policy against the insurance company and in favor of coverage.
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¶ 19 The issue of whether Chicago Insurance has a duty to defend is presented to us by way of
an appeal from the circuit court’s summary judgment ruling in favor of the Fund and denial of
a summary judgment in favor of Chicago Insurance. “Summary judgment is appropriate where
the pleadings, depositions, admissions, and affidavits, when taken together and in the light
most favorable to the nonmovant, show that there is no genuine issue of material fact and that
the movant is entitled to judgment as a matter of law.” Abrams v. State Farm Fire & Casualty
Co., 306 Ill. App. 3d 545, 548, 714 N.E.2d 92, 94 (1999). Our review of a summary judgment
is de novo. Id.¶ 20 In determining the propriety of the circuit court’s summary judgment, we must construe
the insurance contract language and determine whether Chicago Insurance had a duty to
defend Dr. Hucker. In construing an insurance policy, the court must ascertain the intent of the
parties to the contract. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90,
108, 607 N.E.2d 1204, 1212 (1992). Courts construe the policy as a whole with due regard to
the risk undertaken, the subject matter that is insured, and the purpose of the entire policy. Id. If
the words used in the policy are unambiguous, courts afford them their plain, ordinary, and
popular meaning. Id.¶ 21 An insurer’s duty to defend is broader than its duty to indemnify, and it is “generally
determined by comparing the allegation of the underlying complaint against the insured to the
language of the insurance policy.” Uhlich Children’s Advantage Network, 398 Ill. App. 3d at
716, 929 N.E.2d at 538. An insurer has the obligation to defend if the facts alleged in the
underlying complaint fall even potentially within the policy’s language. Abrams, 306 Ill. App.
3d at 549, 714 N.E.2d at 94. In determining whether there is a duty to defend, any doubts will
be resolved in favor of coverage. G.M. Sign, Inc. v. State Farm Fire & Casualty Co., 2014 IL
App (2d) 130593, ¶ 25, 18 N.E.3d 70. However, the rules of construction do not justify
construing a contract against an insurer where no real ambiguity exists. American Country
Insurance Co. v. James McHugh Construction Co., 344 Ill. App. 3d 960, 970, 801 N.E.2d
1031, 1039 (2003).
¶ 22 In the present case, we believe that Chicago Insurance’s duty to defend depends on whether
Dr. Hucker qualifies as an insured under the language of the policy at issue. Federal Insurance
Co. v. Economy Fire & Casualty Co., 189 Ill. App. 3d 732, 735, 545 N.E.2d 541, 544 (1989)
(“[T]wo requirements must be satisfied before an insurer’s duty to defend arises: (1) the action
must be brought against an insured, and (2) the allegations of the complaint must disclose the
potential of policy coverage.”). If the allegations of the complaint reveal that the claim at issue
was not brought against an insured, then the insurer can justifiably refuse to defend because
there is no duty to defend the underlying action. Id.¶ 23 As noted above, Dr. Hucker is not expressly named as an insured under the language of the
policy. He was no longer an employee of Women’s Care when Women’s Care applied for and
obtained the claims-made policy. Dr. Hucker’s employment agreement with Women’s Care
did not require it to continue to provide claims-made coverage after the employment
relationship ended. Instead, the agreement required Dr. Hucker to obtain his own insurance
and provide Women’s Care with proof that he had obtained such coverage.
¶ 24 Nonetheless, the Fund argues that Dr. Hucker falls within a category of insureds within
section II of the policy which sets out the descriptions of “PERSONS INSURED.”
Specifically, the Fund highlights section II.E. of the policy, which includes as insureds “any
employee of the Named Insured other than a physician or surgeon, but only while acting
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within the scope of his or her duties as such.” The Fund argues that Dr. Hucker qualifies as an
insured under this category of insureds and argues, alternatively, that the section creates an
ambiguity which must be construed against Chicago Insurance.
¶ 25 We agree with Chicago Insurance that this language is not ambiguous and that Dr. Hucker
does not qualify as an insured under section II.E. The plain reading of section II.E. provides
that it applies only to employees “other than a physician or surgeon.” Section II.E. is
inapplicable because Dr. Hucker is a physician.
¶ 26 The Fund also quotes the insuring agreement as being ambiguous. Specifically, the
insuring agreement provides that Chicago Insurance will “pay on behalf of the Insured all
sums which the Insured shall be legally obligated to pay as Damages for Claims first made
against the Insured and reported to the Company during the Policy Period, or Extended
Reporting Period, as applicable, arising out of Bodily Injury *** as a result of a Medical
Incident resulting from the rendering of or failure to render Professional Services by the
Insured, or by any person for whose acts the Insured is legally responsible ***.” (Emphasis
added.)
¶ 27 The Fund argues that this language establishes insurance coverage for any person whose
acts the insured, i.e., Women’s Care, is legally responsible. Therefore, the Fund concludes, Dr.
Hucker is covered within this insuring agreement because Schell alleged that Women’s Care
was liable under a vicarious liability theory. Again, the plain language of the insurance policy
does not support the Fund’s argument. The plain language of the agreement states that Chicago
Insurance will make payments on behalf of an “Insured,” and as noted above, Dr. Hucker does
not qualify as an insured under the plain language of the policy. Reading the plain language of
the policy as a whole, it is clear that Chicago Insurance agreed to pay on behalf of the insured,
i.e., Women’s Care, when it becomes legally responsible for another person’s acts.
¶ 28 The language of the policy does not extend any responsibility on the part of Chicago
Insurance to the other person for whom the insured is legally responsible. Under the plain
language of the policy, Chicago Insurance agreed to pay only on behalf of Women’s Care as a
result of Dr. Hucker’s acts for which it was legally responsible. No provision within the policy
extended any obligation for the insurance company to make any payments on behalf of Dr.
Hucker for those same acts. The Fund does not cite any cases to establish an obligation of an
insured to defend a noninsured simply because a named insured may be vicariously liable for a
noninsured’s conduct. Neither the terms of the policy nor the law governing the construction of
insurance contracts supports the Fund’s assertion.
¶ 29 The Fund argues that, at the very least, the insuring agreement is ambiguous with respect to
Chicago Insurance’s obligation to pay for a defense on behalf of Dr. Hucker. We disagree. An
ambiguity exists within an insurance policy only when there exists more than one reasonable
interpretation. Hobbs v. Hartford Insurance Co. of the Midwest, 214 Ill. 2d 11, 17, 823 N.E.2d
561, 564 (2005). We consider only reasonable interpretations of the policy language and will
not strain to find a nonexistent ambiguity. Id. “Although policy terms that limit an insurer’s
liability will be liberally construed in favor of coverage, this rule of construction only comes
into play when the policy is ambiguous.” Id.¶ 30 The policy language expressly limits the coverage of the policy to only the “Insureds.” For
the insureds, it covers multiple theories of liability, including direct negligence and vicarious
liability. However, regardless of the theory, the coverage is only available to the defined
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insureds, and this insuring language is not ambiguous. No reasonable interpretation of this
policy language can extend coverage to individuals beyond the defined insureds.
¶ 31 Unless the policy language requires otherwise, an insurance company has no duty to
defend claims against noninsureds. “Where the allegations of the complaint reveal that the
action was not brought against an insured and there was no potential coverage under the policy,
there is no duty to defend the underlying action.” Owners Insurance Co. v. Seamless Gutter
Corp., 2011 IL App (1st) 082924-B, ¶¶ 33, 41, 960 N.E.2d 1260 (“As Westfield was not an
insured under the written contract provision of the policy, Auto-Owners did not have a duty to
defend Westfield.”); Transcontinental Insurance Co. v. National Union Fire Insurance Co. of
Pittsburgh, 278 Ill. App. 3d 357, 368, 662 N.E.2d 500, 508 (1996) (“[I]mplicit in all the cases
upholding the duty to defend is the requirement that the complaint allege facts at least
potentially within policy coverage. It necessarily follows that there can be no potential
coverage if the plaintiff is not an insured.”). Once it is determined that Dr. Hucker is not an
insured, “there is no coverage, potential or otherwise,” and Chicago Insurance has “no duty to
defend” (Transcontinental Insurance Co., 278 Ill. App. 3d at 368, 662 N.E.2d at 508).
¶ 32 The Fund also argues that Chicago Insurance’s duty to defend arises when the policy is
construed in conjunction with section 546 of the Illinois Insurance Code (215 ILCS 5/546
(West 2012)). The Fund is a “source of last resort,” and section 546(a) is designed to ensure
that potential claims on the Fund are reduced by the assets of solvent insurers. (Internal
quotation marks omitted.) Rogers, 2013 IL 115860, ¶ 14, 999 N.E.2d 340. As a result, section
546 of the Illinois Insurance Code provides: “An insured or claimant shall be required first to
exhaust all coverage provided by any other insurance policy, regardless of whether or not such
other insurance policy was written by a member company, if the claim under such other policy
arises from the same facts, injury, or loss that gave rise to the covered claim against the Fund.
The Fund’s obligation *** shall be reduced by the amount recovered or recoverable,
whichever is greater, under such other insurance policy.” 215 ILCS 5/546(a) (West 2012).
¶ 33 We agree with Chicago Insurance that this provision is inapplicable to the present case
because, with respect to the claim against Dr. Hucker, Chicago Insurance’s policy is not
“coverage provided by another insurance policy.” Chicago Insurance has not provided “other
insurance” which must be exhausted under section 546(a). The plain language of the insurance
policy and the Fund provisions in the Illinois Insurance Code establish that Chicago Insurance
is not “other insurance” with respect to Schell’s claim against Dr. Hucker.
¶ 34 Finally, the Fund argues that Chicago Insurance is estopped from raising coverage
defenses. It argues that the claim against Dr. Hucker potentially fell within the coverage of the
claims-made policy. Therefore, Chicago Insurance had a duty to defend the suit under
reservation of rights or seek a declaratory judgment that no coverage exists. The Fund contends
that because Chicago Insurance failed to take either of these steps, it is estopped from raising
policy defenses to coverage. The Fund’s argument is incorrect. An insurer that fails to defend
under reservation of rights or file a declaratory judgment action is estopped from raising policy
defenses to coverage only if it is later found to have wrongfully denied coverage. Employers
Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 150-51, 708 N.E.2d 1122,
1135 (1999). “This estoppel doctrine applies only where an insurer has breached its duty to
defend.” Id. at 151, 708 N.E.2d at 1135. The estoppel doctrine does not apply if the insurer had
no duty to defend. Id.-8-
¶ 35 As we have determined above, Chicago Insurance had no duty to defend Dr. Hucker.
Accordingly, the Fund’s estoppel argument has no merit.
¶ 36 The Fund brought this lawsuit seeking a declaratory judgment determining that Chicago
Insurance had a duty to defend Dr. Hucker in Schell’s medical malpractice lawsuit. Both
parties filed motions for summary judgment, and the circuit court granted the Fund’s motion
without explanation. However, the record on appeal establishes that Chicago Insurance did not
have a duty to defend Dr. Hucker and, therefore, is entitled to judgment as a matter of law. As
a result, the circuit court erred as a matter of law in denying Chicago Insurance’s motion for
summary judgment and in granting the Fund’s motion. We reverse the circuit court’s summary
judgment in favor of the Fund and remand with directions to enter a summary judgment in
favor of Chicago Insurance.
¶ 37 CONCLUSION
¶ 38 For the foregoing reasons, we reverse the summary judgment of the circuit court and
remand with directions to enter a summary judgment in favor of Chicago Insurance.
¶ 39 Reversed; cause remanded with directions.
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