Illinois School District Agency v. St. Charles Community Unit School District 303 ( 2012 )

ILLINOIS OFFICIAL REPORTS
Appellate Court
Illinois School District Agency v. St. Charles Community Unit School District 303,
2012 IL App (1st) 100088Appellate Court ILLINOIS SCHOOL DISTRICT AGENCY, Plaintiff-Appellant and
Caption Cross-Appellee, v. THE ST. CHARLES COMMUNITY UNIT SCHOOL
DISTRICT 303, a Unit of Local Government, Defendant-Appellee and
Cross-Appellant.
District & No. First District, Sixth Division
Docket Nos. 1-10-0088, 1-10-2005 cons.
Filed March 30, 2012
Held In an action arising from a dispute over defendant school district’s
(Note: This syllabus insurance coverage for mold claims, the appellate court rejected the
constitutes no part of district’s argument for the extension of the targeted tender rule beyond
the opinion of the court cases involving concurrent insurance policies where the policies at issue
but has been prepared were all consecutive and, therefore, the appellate court reversed the trial
by the Reporter of court’s ruling that the selective tender rule applied to compel plaintiff, an
Decisions for the agency established by several school districts to pool their risks by
convenience of the offering insurance coverage for purchase by members, to defend the mold
reader.)
claims alone, without equitable contribution; however, the appellate court
rejected the district’s argument that invoices from a mold expert retained
separately by the district and the agency were for litigation purposes and
were subject to reimbursement under the policy and upheld the finding
that the invoices were the district’s responsibility.
Decision Under Appeal from the Circuit Court of Cook County, No. 03-CH-2413; the
Review Hon. Nancy J. Arnold, Judge, presiding.
Judgment Reversed in part and affirmed in part; cause remanded.
Counsel on Daniel J. Zollner, of Dykema Gossett PLLC, and J. Timothy Eaton,
Appeal Patricia S. Spratt, and Michael P. Sheehan, all of Shefsky & Froelich
Ltd., both of Chicago, for appellant.
Scott O. Reed, of Donnelly, Lipinski & Harris, LLC, and Michael J.
Duggan, of Klein, Thorpe & Jenkins, Ltd., both of Chicago, for appellee.
Panel PRESIDING JUSTICE GARCIA delivered the judgment of the court,
with opinion.
Justices McBride and R. Gordon concurred in the judgment and opinion.
OPINION
¶1 Plaintiff Illinois School District Agency (ISDA), a provider of commercial general
liability insurance, appeals the circuit court’s ruling that defendant St. Charles Community
Unit School District 303 (District) properly targeted the ISDA to defend the District in a
series of lawsuits stemming from mold infestation in the District’s high school building, over
other insurers that issued policies covering the District prior to the policy issued by the
ISDA. Illinois is one of only three states that allow an insured to selectively tender the
defense of a lawsuit to one insurer over other chronologically concurrent insurers. The
Illinois Supreme Court has never approved extending this uncommon right to include
chronologically consecutive insurance policies. The policy grounds underlying the selective
tender rule do not apply to past insurers where the risk of increased premiums or the risk of
policy cancellation does not exist. We reverse the circuit court’s grant of summary judgment
in favor of the District on counts II, III and IV of the ISDA’s amended complaint; we remand
for further proceedings consistent with this opinion. We reject the District’s cross-appeal
challenging the circuit court’s judgment in favor of the ISDA on the District’s counterclaim
that it was entitled to reimbursement for certain invoices from the same mold expert
separately retained by the ISDA and the District.
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¶2 BACKGROUND
¶3 The District is a public entity that oversees St. Charles East High School, which suffered
a mold infestation that gave rise to this case. The ISDA was established by certain school
districts of Illinois to pool their risk. It offers for purchase by its members insurance
coverage, much like ordinary commercial insurance carriers. The ISDA provided commercial
general liability (CGL) insurance coverage to the District from July 1, 1995, through July 11,
2001. Its policy provided that the ISDA “will have the right and duty to defend any ‘suits’
seeking *** damages.” It also provided that the ISDA “will pay, with respect to any claim
or ‘suit’ we defend: *** All reasonable expenses incurred by the [District] at our request to
assist us in the investigation or defense of the claim or ‘suit.’ ”
¶4 Prior to coverage by the ISDA, the District held CGL policies with General Casualty
Company of Wisconsin (General Casualty) from September 1, 1971, to September 1, 1974,
Employers Fire Insurance Company from October 1, 1974, to October 1, 1977, Hartford
Accident and Indemnity Company (Hartford) from October 1, 1977, to July 1, 1985, and
Indiana Insurance Company (Indiana) from October 1, 1985, to July 1, 1995.
¶5 The Mold Lawsuits
¶6 In March 1999, the District notified the ISDA that it faced potential tort liability
stemming from mold exposure to St. Charles East High School students. The ISDA reserved
its rights and retained attorney Robert Smyth of the law firm of Donohue, Brown,
Mathewson & Smyth to investigate and monitor mold-based claims.
¶7 Between March 2001 and March 2002, three separate lawsuits were filed against the
District alleging the District’s negligence caused the former students to suffer mold-related
injuries. In April 2001, the District tendered the defense of the suits to the ISDA and Indiana.
On June 26, 2001, the ISDA accepted the defense of the suits against the District, subject to
a reservation of rights; the ISDA retained attorney Smyth to represent and defend the District
in the lawsuits. On August 21, 2001, the District tendered the defense of the lawsuits to
Hartford and General Casualty as well. On September 7, 2001, Hartford acknowledged
receipt of the tender. On September 24, 2001, Indiana agreed to defend the District pursuant
to a reservation of rights. On October 1, 2001, General Casualty acknowledged receipt of the
tender, reserved its rights, and declined to defend. On February 15, 2002, Hartford agreed to
defend against the lawsuits under a reservation of rights.
¶8 In a letter dated March 19, 2002, the District’s coverage counsel, Scott Reed, informed
the ISDA that the District “has now obtained defense of the [action] under a reservation of
rights from all primary general liability insurers with coverage in force on an occurrence
basis from October 1, 1981 through July 11, 2001.”
¶9 As a result of the mold problem, the District employed several contractors and experts
to investigate and remedy the mold infestation. On July 23, 2002, Reed provided the ISDA,
Indiana, and Hartford with copies of the “expert and consultant bills to date” generated by
these services, which totaled approximately $2.2 million.
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¶ 10 Hartford, Indiana, and General Casualty Settle
¶ 11 On August 14, 2002, Hartford sued the District in federal court, asserting it was not
obligated to reimburse the District for the expert and consultant bills the District had
incurred. On or about October 16, 2002, Hartford and the District reached a settlement
whereby Hartford paid the District $150,000 in exchange for the District’s “de-activation”
of its tender of defense, which rendered moot its claim for indemnity. The agreement was
fully executed on November 20, 2002. It provided that Hartford’s payment satisfied its
obligations to the District, including
“any costs and expenses incurred by The School District in defense or indemnity of the
Underlying Lawsuits, or any other costs associated with the mold remediation which
were incurred on or before October 14, 2002. These costs and expenses include, but are
not limited to, AAA Environmental, Golan Harris, Holian Asbestos Removal, Carnow
Conibear, Judge & James, Raths Raths & Johnson, Shirmer Engineering, STS
Consultants, Air Quality Services, HP Woods, and Donohue Brown Mathewson &
Smyth [hereinafter, the vendors].”
In a letter dated November 22, 2002, the District informed the ISDA’s in-house claims
handler and its outside counsel that the District and Hartford had reached a settlement
agreement, “the terms of which are confidential.” Pursuant to the settlement, the District
withdrew its tender to Hartford effective October 14, 2002.
¶ 12 On December 9, 2002, the District settled with Indiana. It deactivated its tender in
exchange for a $500,000 payment. The settlement included language substantially similar
to that of the Hartford settlement in that Indiana’s payment satisfied obligations as to both
litigation defense and reimbursement of mold remediation expenses provided by the same
vendors listed in the Hartford settlement. The District also informed the ISDA’s claims
handler and outside counsel of this agreement, the terms of which were declared confidential.
A similar settlement was reached between the District and General Casualty for $10,000.
¶ 13 The District’s reimbursement claims arose from its payment of certain vendors from its
own funds. When it later received the settlement proceeds, it deposited the proceeds into the
District’s “Educational Fund,” which it used to pay general operating expenses.
¶ 14 The Lawsuits
¶ 15 The District remained in settlement discussions with the ISDA and apparently believed
the discussions would continue. The ISDA, however, filed the instant action against the
District on February 6, 2003. Count I of the lawsuit sought a declaration that the ISDA had
no obligation to cover mold remediation expenses unrelated to the defense of the mold
lawsuit; count II alleged the District’s “secret” settlements with the other three insurers
breached its insurance contract with the ISDA. On September 30, 2005, the District filed an
answer and a four-count counterclaim. Count I of the counterclaim sought a declaration that
the ISDA was obliged to cover mold remediation costs in addition to litigation defense
expenses; count II alleged the ISDA had breached its contract with the District by failing to
compensate the District for remediation and litigation defense costs; count III sought to
recover costs and attorney fees the District incurred in pursuing insurance coverage from the
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other insurers; and count IV sought penalties against the ISDA pursuant to section 155 of the
Insurance Code (215 ILCS 5/155 (West 2004)) for the ISDA’s “vexatious and unreasonable
delay” in providing the insurance coverage to which the District was entitled.
¶ 16 The ISDA moved to dismiss all four counts of the counterclaim. On May 4, 2006, the
circuit court denied the motion as to counts I through III, but granted it as to count IV. On
June 21, 2010, the court entered judgment for the ISDA on count III of the counterclaim. The
District does not challenge these rulings on cross-appeal.
¶ 17 On January 27, 2006, the District moved for partial summary judgment on count I of its
counterclaim that sought reimbursement under the ISDA policy for mold remediation
expenses that it claimed also aided the litigation, and on count II of the ISDA’s lawsuit that
claimed the settlements with the three other insurers and deactivations of tender breached the
ISDA’s insurance contract. Following oral argument, Judge Nancy Arnold denied the
District’s summary judgment motion as to count I of the counterclaim. As to the District’s
summary judgment motion regarding count II of the ISDA’s complaint, the ISDA argued that
the District’s deactivations of tender to Hartford, Indiana, and General Casualty were
improper because the District was compensated for the deactivations. Judge Arnold ruled no
legal distinction existed between compensated and uncompensated deactivation of tender:
“I don’t see any real dispute in your response, frankly. *** There is a little argument made
with no support saying there is a distinction here. But there’s no case law telling me the
distinction has any legal basis.”
¶ 18 On June 14, 2006, the circuit court entered summary judgment for the District on count
II of the ISDA’s complaint, holding the District had the right to deactivate tender of the
litigation defense as to the other three insurers and that doing so in exchange for settlement
payments did not breach its policy with the ISDA. With a favorable ruling on the same claim
by the ISDA, the District voluntarily dismissed count II of its counterclaim, claiming a policy
breach by the ISDA. The court, however, granted leave to the ISDA to file an amended
complaint alleging the District received a “double recovery” from its settlement with the
other insurers and the unspecified insurance proceeds it received from the ISDA.
¶ 19 The ISDA moved for reconsideration of the court’s ruling on the compensated
deactivation of tender, which the court denied on August 14, 2006. On November 7, 2007,
the ISDA again moved the court to reconsider, this time based on a relatively new case,
Kajima Construction Services, Inc. v. St. Paul Fire & Marine Insurance Co., 368 Ill. App.
3d 665 (2006), aff’d, 227 Ill. 2d 102 (2007). At oral argument, Judge Arnold observed that
Kajima stood only for the proposition that an insured cannot selectively tender defense of a
lawsuit to an insurer based on an excess insurance policy when the insured still has available
primary insurance policies. The circumstances in Kajima were not the circumstances in the
instant case and thus did not warrant reconsideration of the ISDA’s claim.
¶ 20 On June 8, 2008, the ISDA filed an amended complaint, adding count III, which sought
setoff or restitution of amounts paid in defending and settling the litigation, and count IV,
which argued for proration or restitution from the District for the amount it allegedly paid
in excess of its “allocable pro rata share” of defense costs in the lawsuits. The ISDA then
filed a “Motion for Setoff of Insurance Settlement Proceeds,” arguing that the District
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“breached its express duties, implied duty of good faith, and fiduciary duties under the ISDA
Agreement”; that the District “received a double recovery of defense and indemnity costs,
received a windfall profit and has been unjustly enriched”; and that the District’s settlement
agreements with the other insurers “intentionally prejudiced [the] ISDA by releasing its right
to equitable contribution.” The District responded that it had actually recovered less than
one-third of its investigative costs and therefore received no windfall and breached no duty
to the ISDA. On December 4, 2009, the circuit court denied the ISDA’s motion and entered
judgment for the District on counts III and IV of the ISDA’s amended complaint. The record
before us contains no findings of fact or conclusions of law as to the order of December 4,
2009, which is unaccompanied by any transcript of the proceedings.
¶ 21 The ISDA remained the lone insurer that defended and indemnified the District in the
lawsuits, which settled for $90,000 in September 2007. The ISDA alleges it paid “$550,889
in defense fees and expenses related to the Mold Lawsuits, and $90,000 to settle the Mold
Lawsuits,” for a total expenditure of $640,889.1
¶ 22 The ISDA timely appeals, following the circuit court’s order of June 21, 2010, which
disposed of count III of the District’s counterclaim, the last issue in the case.
¶ 23 The Cross-Appeal
¶ 24 The District cross-appeals from the circuit court’s judgment in the ISDA’s favor on count
I of the District’s counterclaim and count I of the ISDA’s amended complaint. Before the
circuit court, the parties submitted cross-motions for partial summary judgment regarding
“whether disputed invoice entries from Dr. James Woods are legitimate defense costs as to
which [the ISDA] owes a duty to reimburse [the District], or whether these invoice entries
represent services requested by [the District] for its efforts to remediate the mold condition
in its physical plant.” The court’s previous orders of June 14, 2006, and April 24, 2008, had
established that the ISDA had no duty to indemnify the District for remediation under the
CGL policy. The court resolved the cross-motions for reimbursement on the disputed
invoices in “a bench trial,” pursuant to a joint stipulation. On May 22, 2009, the court issued
written “Findings of Fact and Entry of Judgment After Stipulated Trial.” In the course of the
stipulated trial, the court considered the briefs, exhibits, oral arguments, and the depositions
of expert Woods and attorney Smyth.
¶ 25 The court found Dr. Woods was “an expert originally retained by the ISDA defense
counsel, Robert Smyth, but then separately retained by [the District] for its own purposes.”
It noted that the ISDA had only paid a portion of expert Woods’ invoices, contending the
unpaid invoices were allocable to mold remediation, not litigation defense. Under the
language of the ISDA’s policy, the “ISDA was obligated to pay for expenses it actually
incurred, and all reasonable expenses incurred by [the District] at ISDA’s request to assist
in the investigation or defense of the mold litigation.” The court agreed with the case law
1
The ISDA also states at page 22 of its brief that “[t]he total spent by [the] ISDA to defend
and settle the Mold Lawsuit was $715,674.” The discrepancy of $74,785 between the two totals is
the amount for “allocated Loss (Claim Adjustment) Expenses.”
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cited by the District, Aerojet-General Corp. v. Transport Indemnity Co., 948 P.2d 909, 924
(Cal. 1997), that “the burden of proving the existence, amount, reasonableness, and necessity
of site investigation as defense costs rests with the insured.” However, the circuit court found
Aerojet and the other cases cited by the District distinguishable because the remediation
measures undertaken by the insureds in those cases were compelled by government
environmental cleanup regulations, which triggered the duty of the insurers to indemnify for
the remediation costs. The court noted: “The mold infestation at St. Charles High School did
not need to be corrected to avoid potential liability in any of the lawsuits.”
¶ 26 The court then turned its attention to the disputed invoices from expert Woods. The
question for the court was whether the disputed invoice entries represented reasonable
expenses incurred for defense purposes at the ISDA’s request. The court “reject[ed] [the
District’s] argument that where Woods’ work was useful for remediation and litigation, the
court should arbitrarily order each party to bear half of the costs.” It found “relevant, but not
conclusive, the fact that [the District] internally coded these expenditures as construction,
capital improvement, or operation and maintenance costs.” The court found that Woods’
work on the “Seven-Step Protocol,” a step-by-step plan for some of his work at the high
school, “was done pursuant to [the District’s] request, was not requested by the defense
counsel engaged by the ISDA, and was implemented for the purpose of remediation, not
litigation.” Turning to specific invoices, the court found the invoices dated April 26, 2001,
and May 16, 2001, were properly chargeable to litigation expenses, which the ISDA was
obligated to pay. The ISDA does not appeal that finding.
¶ 27 The court next found the “overwhelming evidence” indicated the May 14-16 entry
pertained to meetings and preparation requested by the District for purposes of mold
remediation. The court observed, “The remaining invoices were all billed to [the District]”
through its superintendent. It found “[the District] bears the burden of proving that the
expenses listed are reasonable expenses incurred at the ISDA’s request to assist in the
investigation or defense of the mold litigation.” With regard to each of the remaining
invoices, dated June 14, August 6, October 1, and December 31, 2001, consistent with the
deposition testimony of Woods that the work “was needed for remediation [but] could be
used for forensic[s],” the court found the work predominately served to remedy the school’s
mold infestation. Judge Arnold ruled the possible dual purpose of the work was “not
sufficient to establish that the work represented *** was performed at the ISDA’s request to
aid it in the mold litigation.” Accordingly, the court held the ISDA had no obligation to pay
any of the remaining disputed invoices.
¶ 28 The District timely cross-appeals.
¶ 29 ANALYSIS
¶ 30 The ISDA contends the District violated the terms of its insurance policy by entering into
“secret” settlements with the other insurers and tendering the defense of the mold litigation
to the ISDA alone. It argues these actions constituted a breach of the District’s purported
fiduciary duty to the ISDA and that the District received a “windfall” in the amount of the
insurance proceeds it received that exceeded the amount of its litigation costs. The ISDA
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seeks a setoff or restitution of that amount. The District counters that an insured party has a
paramount right to tender defense of a lawsuit to any primary insurer it chooses, that an
insured owes no fiduciary duty to an insurer, and that the mold infestation cost the District
far more than the sum of the settlements it received. In its cross-appeal, the District urges that
the ISDA is liable for a greater portion of the Woods invoices than the circuit court allowed.
The ISDA responds that the court ruled based on the evidence before it when it found the
ISDA not liable for the invoices in question.
¶ 31 We note that the District’s responsive brief contains 34 single-spaced footnotes, many
of which advance substantive arguments, in the span of 64 pages. “Footnotes are
discouraged, but if used must be double-spaced.” Ill. S. Ct. R. 341(a) (eff. July 1, 2008).
“Substantive arguments may not be made in footnotes.” Technology Solutions Co. v.
Northrop Grumman Corp., 356 Ill. App. 3d 380, 382 (2005) (sua sponte striking all
footnotes from the parties’ briefs where their briefs contained slightly more footnotes per
page than the District’s). While we grant the District greater lenience than did the court in
Technology Solutions, we caution counsel for the District that supreme court rules are not
mere suggestions.
¶ 32 The ISDA’s Appeal–Selective Tender
¶ 33 We agree with the parties that our review of the circuit court’s summary judgement order
finding the District in compliance with the ISDA insurance contract is subject to de
novo review. Kajima, 227 Ill. 2d at 106 (“This court conducts a de novo review of an order
granting summary judgment.”); Avery v. State Farm Mutual Automobile Insurance Co., 216
Ill. 2d 100, 129 (2005) (“the construction, interpretation, or legal effect of a contract is a
matter to be determined by the court as a question of law”). “Summary judgment is
appropriate where the pleadings, depositions, admissions and affidavits on file, viewed in the
light most favorable to the nonmoving party, reveal that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a matter of law.” Kajima,
227 Ill. 2d at 106 (citing 735 ILCS 5/2-1005(c) (West 2006)).
¶ 34 The ISDA notes the parties’ insurance agreement expressly provides the ISDA’s
coverage is applicable only as excess over other applicable insurance. It argues the District
breached the policy’s provision of “other insurance” when the District, through its
settlements with Indiana, Hartford, and General Casualty, foreclosed the ISDA from seeking
equitable contribution from these other insurance companies for the mold litigation. The
District counters that it had the unfettered right to tender the defense of the lawsuits to any
of its insurers.
¶ 35 “[T]he doctrine of equitable contribution allows [an insurer] to be reimbursed by other
insurers that are also liable for [a] loss.” American States Insurance Co. v. CFM
Construction Co., 398 Ill. App. 3d 994, 998 (2010). It “ ‘arises from a right, which is
independent from the rights of the insured, to recover from a co-obligor who shares the same
liability as the party seeking contribution.’ ” Id. (quoting Argonaut Insurance Co. v. Safway
Steel Products, Inc., 355 Ill. App. 3d 1, 10-11 (2004)). “The purpose of the doctrine is to
provide a remedy when one insurer has paid a debt that is equally owed by another insurer.”
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CFM, 398 Ill. App. 3d at 998. “ ‘The fact that one insurer undertakes the burden of a full
settlement payment does not mean the insurer is a volunteer.’ ” Id. (quoting Chicago
Hospital Risk Pooling Program v. Illinois State Medical Inter-Insurance Exchange, 325 Ill.
App. 3d 970, 981 (2001)). “Equitable ‘contribution applies to *** policies [that] insure the
same entities, the same interests, and the same risks.’ ” CFM, 398 Ill. App. 3d at 998
(quoting Home Insurance Co. v. Cincinnati Insurance Co., 213 Ill. 2d 307, 316 (2004)).
¶ 36 The District does not argue that the ISDA failed to meet the criteria for equitable
contribution; rather, it contends the ISDA is ineligible for equitable contribution arising from
the doctrine’s exception known as the targeted tender or selective tender rule. “[T]he
‘targeted’ or ‘selective’ tender doctrine allows an insured covered by multiple insurance
policies to select or target which insurer will defend and indemnify it with regard to a
specific claim.” Kajima, 227 Ill. 2d at 107; John Burns Construction Co. v. Indiana
Insurance Co., 189 Ill. 2d 570, 574 (2000); Cincinnati Cos. v. West American Insurance Co.,
183 Ill. 2d 317, 323 (1998). “ ‘Where an insured makes such a designation, the duty to
defend falls solely on the selected insurer. That insurer may not in turn seek equitable
contribution from the other insurers who were not designated by the insured.’ ” Burns, 189
Ill. 2d at 575 (quoting Cincinnati, 183 Ill. 2d at 324). “The insured may choose to forgo an
insurer’s assistance for various reasons, such as the insured’s fear that premiums would be
increased or the policy cancelled, in the future.” Cincinnati, 183 Ill. 2d at 326. The insured
is also “ ‘permitted to deactivate coverage with a carrier previously selected for purposes of
invoking exclusive coverage with another carrier.’ ” Kajima, 227 Ill. 2d at 110-11 (quoting
Alcan United, Inc. v. West Bend Mutual Insurance Co., 303 Ill. App. 3d 72, 83 (1999)).
¶ 37 In 2001, Justice Quinn of the First District observed that Illinois’s status as one of a very
small minority of states that employ the targeted tender doctrine is not one of distinction: “In
the vast area of legal jurisprudence, there are undoubtedly many instances where being the
first, or only, jurisdiction to grant rights to persons or entities may rightly be a source of
pride. While it is still very early, the doctrine of ‘selective tender’ does not appear to me to
be one of those instances.” Chicago Hospital Risk Pooling Program, 325 Ill. App. 3d at 987
(Quinn, J., specially concurring). Ten years later, our research has identified Montana and
Washington as the only other states recognizing the right of selective tender. See XL
Specialty Insurance Co. v. Progressive Casualty Insurance Co., 411 F. App’x 78, 81 (9th
Cir. 2011) (citing Casualty Indemnity Exchange Insurance Co. v. Liberty National Fire
Insurance Co., 902 F. Supp. 1235, 1237, 1238 & n.3 (D. Mont. 1995), citing Institute of
London Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d 70 (1992)); Mutual
of Enumclaw Insurance Co. v. USF Insurance Co., 191 P.3d 866, 873 (Wash. 2008). As
such, we tread with caution when the application of this right, which is uncommonly
generous to insured parties, falls outside of the circumstances previously approved by our
supreme court.
¶ 38 The ISDA contends the “other insurance” clause of its policy entitled it to equitable
contribution from the District’s other insurers. The clause provides:
“Coverage provided by this Plan shall apply only as excess over other insurance and/or
coverage applicable to a loss hereunder regardless of whether such other coverage
provides primary, excess, umbrella or contingent coverage. When both this coverage and
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other insurance apply to the loss on the same basis, whether excess or contingent, the
Agency shall not be liable under this Plan for a greater proportion of the loss than that
stated in the [contribution by equal shares provision].”
“Other insurance” excess clauses such as this one are “an effort to override [an insured’s
right] to choose among co-insurers.” River Village I, LLC v. Central Insurance Cos., 396 Ill.
App. 3d 480, 487 (2009). Such provisions, as in this case, “attempt to render otherwise
primary insurance as excess over any other collectible insurance, most often with statements
in the policy that declare the insurer’s coverage to be excess over any other valid and
collectible insurance available to the insured.” Id. “An ‘other insurance’ provision does not
in itself overcome the right of an insured to tender defense of an action to one insurer alone.”
Burns, 189 Ill. 2d at 578. Accordingly, the existence of the “other insurance” clause is not
dispositive. Nor are we inclined to address in this case whether a legal distinction exists
between compensated and uncompensated deactivation of tender, as the circuit court below
rejected.
¶ 39 Rather, we deem the dispositive issue to be whether an insured’s right to selective tender
among chronologically concurrent policies extends to consecutive ones such as the policies
at issue in this case. There is no supreme court precedent for doing so. See Kajima, 227 Ill.
2d at 117; John Burns Construction Co. v. Indiana Insurance Co., 189 Ill. 2d 570 (2000);
Cincinnati, 183 Ill. 2d at 317. The most recent supreme court decision on the selective tender
rule suggests that the insurance policies must be concurrent for the rule to apply: “[T]argeted
tender can be applied to circumstances where concurrent primary insurance coverage exists.”
(Emphasis added.) Kajima, 227 Ill. 2d at 117 (insured could not selectively tender lawsuit
defense to one insurance carrier over another where the two policies were not concurrent
primary policies); see also Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 200:37
(3d ed. 2007) (citing Kajima for the proposition that “the selective tender rule is only
applicable to concurrent insurance coverage and not consecutive primary or excess coverage
policies where other primary coverage is available”). Accordingly, where coverage is not
concurrent, but rather consecutive as it was in this case, we do not read the authority the
District relies upon as foreclosing the ISDA’s claim for equitable contribution by invoking
the targeted tender exception.
¶ 40 In River Village, this court declined to apply the targeted tender rule to a policy
determined to provide “excess coverage,” consistent with the supreme court’s decision in
Kajima. River Village, 396 Ill. App. 3d at 492. The River Village court noted: “The targeted
tender doctrine allows an insured who is covered by multiple and concurrent insurance
policies to select, or ‘target,’ which insurer he wants to defend and indemnify him regarding
a specific claim.” (Emphasis added.) Id. at 486. River Village is not authority for the
District’s claim in the instant case.
¶ 41 We are aware of only one Illinois case that appears to have applied the targeted tender
rule to consecutive insurance policies, a case which the District acknowledged at oral
argument is not factually on point for the issue before us. See Richard Marker Associates v.
Pekin Insurance Co., 318 Ill. App. 3d 1137 (2001).
¶ 42 In that case, architect Marker was insured by Pekin Insurance Company from August 25,
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1991, to August 25, 1992, and by Statewide Insurance Company beginning on August 25,
1992. Id. at 1139. Marker was sued by a client and tendered defense of the suit to both
insurance companies. Id. Marker then withdrew his tender to Statewide, leaving only Pekin
to indemnify Marker after he settled with the former client. Id. In Pekin’s suit for equitable
contribution from Statewide, the circuit court granted Pekin summary judgment. Id. at 1140.
The appellate court reversed, holding that Pekin was not entitled to equitable contribution
from Statewide precisely “because Marker had elected to forgo coverage under Statewide’s
policy.” Id. at 1145. The Marker court acknowledged that “our courts have chosen to protect
the insured’s right to choose or knowingly forego coverage.” Id. at 1144. An insured’s
decision to forego coverage by one insurer in favor of another was explained by “the
insured’s fear that premiums would be increased or the policy canceled in the future.” Id. at
1141 (citing Cincinnati, 183 Ill. 2d at 326, and Alcan, 303 Ill. App. 3d at 79).
¶ 43 That explanation for the selective tender rule has no application in this case. The District
selectively tendered the defense of its litigation to its current insurer, the ISDA. Thus, the
District could not have acted out of “fear that premiums would be increased or the policy
canceled, in the future” as was noted in Marker. Marker, 318 Ill. App. 3d at 1141. See
Cincinnati, 183 Ill. 2d at 326 (“[The] insured may choose to forgo an insurer’s assistance for
various reasons, such as the insured’s fear that premiums would be increased or the policy
cancelled in the future.”); Enumclaw, 191 P.3d at 873 (“Like a driver involved in a minor
accident, an insured may choose not to tender in order to avoid a premium increase. The
insured may also want to preserve its policy limits for other claims, or simply to safeguard
its relationship with its insurer.”). The District’s tender to the ISDA made future premium
increases or cancellation of its policy more likely, rather than less.2 Of course, the District
may well have decided that either risk was acceptable given the compensation it received
from Indiana, Hartford, and General Casualty for deactivation of its tender of defense. Cf.
CFM, 398 Ill. App. 3d at 998. Nor is it accurate to describe this case as one where the
District exercised its right “[to] forgo coverage” from the other insurers as the Marker court
noted for the outcome there. Marker, 318 Ill. App. 3d at 1144. While we have declined to
address the issue of compensated versus uncompensated deactivation of tender, first noted
and then dismissed by the circuit court, we observe that foregoing coverage from other
insurers generally does not entail receiving $660,000 as the District received from Hartford,
Indiana, and General Casualty for its deactivation of tender. Compensated deactivation of
tender appears indistinguishable from a payment of “a debt *** equally owed by another
insurer.” CFM, 398 Ill. App. 3d at 998. The District presents us with no good reason to
conclude that the targeted tender doctrine, as established by our supreme court’s decisions,
should extend to the circumstances present in this case.
¶ 44 The ISDA advances a handful of other arguments effectively seeking equitable
contribution. It relies on the “transfer of rights” clause of its insurance agreement with the
District; it argues the targeted tender doctrine does not apply to it because it is an
2
Indeed, the insurance policy between the District and the ISDA was terminated about three
months after the District tendered to the ISDA.
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“intergovernmental cooperative”; and it contends the District violated a fiduciary duty and
a duty of good faith owed to the ISDA. Further, it argues that the District “has been paid
twice for its defense and indemnity costs in the Mold lawsuits–once by [the] ISDA and once
by the settling insurers.” We decline to address those arguments as well.
¶ 45 Under the circumstances presented in this case, we narrowly draw our holding. In our
review of the grant of summary judgment on counts II, III, and IV of the ISDA’s amended
complaint, we conclude that the District was not entitled to judgment as a matter of law. No
supreme court case approves the use of the selective tender rule to consecutive insurance
policies. Nor do we provide such authority in this case. Accordingly, we conclude the circuit
court erred in granting summary judgment to the District based on its purported right to
selectively tender the defense of the mold lawsuits to the ISDA as a consecutive insurer.
Given our remand, we decline to address the “double payment” arguments urged by the
ISDA to support this outcome, though we note that the ISDA is correct that an insured party
may not receive a double recovery for the same “harm or injury.” Federal Insurance Co. v.
Binney & Smith, Inc., 393 Ill. App. 3d 277, 296 (2009) (remanding for further findings where
“[f]ailure to account for *** settlement [with one insurer] ha[d] the potential of providing
[the insured] with a windfall” in light of additional insurance payments from a second
insurer). We remand to the circuit court for further proceedings consistent with this opinion.
¶ 46 Though our reversal of summary judgment in favor of the District renders unavailing the
District’s request for attorney fees in its “Conclusion” of its brief, even if our decision were
otherwise, we would reject the District’s request out-of-hand as “a claim of error that is
merely listed but not ‘argued’ [does] not satisfy the requirements of Rule 341.” Vancura v.
Katris, 238 Ill. 2d 352, 373 (2010) (citing Ill. S. Ct. R. 341 (eff. July 1, 2008)).
¶ 47 The District’s Cross-Appeal
¶ 48 The District asserts it is entitled to reimbursement from the ISDA for certain invoices
from Dr. James Woods that it contends could benefit both remediation and litigation. The
District contends the circuit court misconstrued the District’s burden as to the so-called “dual
purpose” invoices. The District contends the circuit court enhanced the District’s burden of
proof at trial when the court referenced policy language that the ISDA would be responsible
only for defense costs “at ISDA’s request.”
¶ 49 We understand the ISDA to counter that the true issue on cross-appeal is whether the
District met its burden before the circuit court to prove the “dual purpose” invoices were
predominately litigation expenses rather than remediation expenses, which the bench trial,
based on the stipulated facts, was meant to resolve.
¶ 50 The parties dispute the applicable standard of review on the cross-appeal issue. The ISDA
accuses the District of failing to identify the applicable standard of review in violation of
Illinois Supreme Court Rules 341(h)(3) and 341(i) (eff. July 1, 2008) (both parties “must
include a concise statement of the applicable standard of review for each issue”). We note
the ISDA’s position on the applicable standard is itself unclear as it identifies potentially
different applicable standards but fails to state which standard should apply to the issue
before us. The District argues that its fundamental claim that the circuit court improperly
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enhanced its burden regarding the disputed invoices presents a question of law subject to de
novo review.
¶ 51 We elect to apply a de novo standard of review to the District’s initial contention that its
burden was unfairly enhanced by the circuit court’s interpretation of the CGL contract
between the parties. See 1350 Lake Shore Associates v. Healey, 223 Ill. 2d 607, 614, 627
(2006) (questions of law regarding the burden of proof are reviewed de novo). Should we
find no fundamental error of law regarding the District’s burden, we review the circuit
court’s findings supporting its judgment, following the bench trial, against the manifest
weight of the evidence. System Development Services, Inc. v. Haarmann, 389 Ill. App. 3d
561, 570 (2009) (“The standard of review in a bench trial is whether the judgment is against
the manifest weight of the evidence.” (Internal quotation marks omitted.)).
¶ 52 The District concedes that it bore the general burden of establishing that the disputed
invoices were subject to reimbursement under the CGL policy. Our supreme court “has long
established that the burden is on the insured to prove that its claim falls within the coverage
of an insurance policy.” Addison Insurance Co. v. Fay, 232 Ill. 2d 446, 453 (2009). The
District quotes Aerojet for the indisputable proposition, under the context of this case, that
“it is the insured that must carry the burden of proof on the existence, amount, and
reasonableness and necessity of the site investigation expenses as defense costs, and it must
do so by the preponderance of the evidence.” Aerojet, 948 P.2d at 924; see also Continental
Casualty Co. v. Board of Education, 489 A.2d 536, 546 (Md. App. 1985) (“The insured has
the burden of establishing that a given item of legal service or expense was reasonably
related to the defense of [the suit against it.] The [insured] must prove its damages.”). The
District acknowledges that expenses incurred only for remediation are its sole responsibility.
¶ 53 Paragraph 4 of the supplementary payments subsection in section I of the CGL policy
expressly provides: “We will pay, with respect to any claim or ‘suit’ we defend: *** All
reasonable expenses incurred by the Member [the District] at our request to assist us in the
investigation or defense of the claim or ‘suit.’ ” (Emphasis added.) The circuit court duly
noted this language. “When construing the language of an insurance policy, a court’s primary
objective is to ascertain and give effect to the intentions of the parties as expressed by the
words of the policy.” Rich v. Principal Life Insurance Co., 226 Ill. 2d 359, 371 (2007). “If
the words used in the policy are clear and unambiguous, they must be given their plain,
ordinary, and popular meaning.” Id.¶ 54 The District argues that the circuit court improperly enhanced its burden when it required
the District to demonstrate, pursuant to the policy language, that the defense costs were “at
ISDA’s request.” The District asserts the circuit court “went too far in [the] ISDA’s favor.”
However, the District does not contend this provision was invalid or inapplicable. Rather,
the District suggests that requiring it to demonstrate Woods’ services were at the ISDA’s
request effectively allows an insurer to simply “say *** that it is not going to pay for
particular services.” According to the District, such an unrestrained reading of paragraph 4
of the supplementary payments of the policy gives insufficient consideration to the ISDA’s
“duty,” under the CGL policy, to defend suits against the District. The District contends it
should not be required to prove the ISDA “requested” the work of Woods reflected in the
disputed invoices when the work underlying the invoices benefitted the investigation or
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defense of the suits against the District and the remediation the District sought. The District
contends the circuit court erroneously classified certain expenses as remediation expenses
when they were in fact litigation defense costs as well, for which the ISDA should share
responsibility.
¶ 55 The ISDA contends the District’s burden at the stipulated bench trial was the same with
or without “at our request” language in the policy that the circuit court duly noted. The ISDA
points out that had the District not hired the same individual for its remediation work that the
ISDA hired as a litigation expert, the dispute between the parties would not have arisen. In
any event, it remained the District’s burden to prove, by preponderance of the evidence, that
any so-called “dual purpose” billings weighed in favor of an expense for litigation defense
and against an expense for remediation. The ISDA points to the absence of a provision in the
CGL policy for equally sharing so-called “dual purpose” expenses. The ISDA contends the
District’s challenge to the outcome of the trial concerns the circuit court’s assessment of the
evidence, not some sort of misallocation of the District’s burden.
¶ 56 Each of the invoices contested by the District was for work performed subsequent to the
District’s retention of Woods for its own remediation purposes. Indeed, Woods’ testimony
was that his litigation work was “winding up” toward the end of April of 2001. The four
invoices contested by the District, with the earliest dated June 14, 2001, were billed directly
to the District, unlike previous bills, which were billed to defense counsel. The District
internally coded all of Woods’ invoices it received directly as construction, capital
improvement, or operation and maintenance costs.
¶ 57 Woods testified that he considered the June 14, 2001, invoice to be the responsibility of
the District. He stated that all of the work invoiced for August 16, 2001, was done pursuant
to his contract with the school board. He testified that the October 1, 2001, invoice “was
needed for the remediation, but it could be used for the forensic[s].” The final invoice, dated
December 31, 2001, contained a single line entry that expressly pertained to a meeting
regarding remediation. Woods testified that other line items on this invoice “could have been
used for both,” but later stated line items were performed for remediation and “were not
intended for the lawsuit.” Nonetheless, Woods noted that most of the work reflected in the
invoices “could” have been used for litigation in addition to remediation.
¶ 58 At the bench trial on the stipulated facts, the circuit court was asked to decide whether
the services in the disputed invoices were “incurred by [the District] at [the ISDA’s] request
to assist [the ISDA] in the investigation or defense of the claim or ‘suit,’ ” under the
language of the policy. Whether Woods’ services could have been used for litigation, and not
solely for purposes of remediation, was rendered a factual question, which fell to the circuit
court to resolve as trier of fact. The court did precisely that. The circuit court did not rule that
absent a directive from the ISDA authorizing Woods’ work all of the disputed invoices were
the responsibility of the District. Rather, the circuit court properly sifted through each line
item in the invoices to determine whether the invoices, which undoubtedly arose at the
direction of the District, were predominately for remediation or litigation. The court
concluded that the ISDA had to reimburse the District for the April 26, 2001 invoice and the
May 16, 2001 invoice, because the line items concerned litigation defense matters, not
because there was a showing that the ISDA expressly “requested” the work to be performed.
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As we noted, the ISDA does not challenge these findings on appeal.
¶ 59 We reject the District’s contention that the circuit court’s reference to the policy language
should somehow be understood as enhancing the District’s burden at trial. Based on our de
novo review, the District’s burden was never enhanced by the circuit court below. The
District’s burden before the circuit court was to demonstrate that the disputed invoices
predominately concerned litigation work, not remediation work. Based on the circuit court’s
judgment, the District did not meet its burden below.
¶ 60 We also agree with the ISDA that the District attempts to make more out of the language
in paragraph 4 of the supplementary payments of the policy than is supported by the record.
The District’s novel claim that the circuit court’s rejection of the District’s “dual purpose”
argument is the product of some sort of misunderstanding by the circuit court regarding the
District’s burden of proof on the issue is not only misguided but unsupported by any case
law. Nor does the record support the District’s suggestion that Woods was engaged to do
“dual purpose” work. As the circuit court expressly found, Woods was “originally retained
by [the] ISDA defense counsel, Robert Smyth, but then separately retained by [the District]
for its own purposes.” (Emphasis added.) The District disingenuously attempts to use the
timing of the hiring of Woods to bolster its argument that it should not have been required
to obtain the ISDA’s consent for Woods’ “dual purpose” work because the “ISDA had
already given its overall approval to Woods’ retention.” The distinct and separate hiring of
Woods by the ISDA and the District amply supports the circuit court’s resolution of the
disputed invoices in the ISDA’s favor. Clearly, the ISDA did not approve all of the work
performed by Woods. The circuit court properly rejected the District’s facile claim that the
hiring of Woods by the ISDA triggered a duty to reimburse the District for the invoices that
arose, following its hiring of Woods, for his efforts at remediation.
¶ 61 The cases cited by the District do not support a result contrary to one reached by the
circuit court. “[I]t is the insured that must carry the burden of proof on the existence, amount,
and reasonableness and necessity of the site investigation expenses as defense costs, and it
must do so by the preponderance of the evidence.” Aerojet, 948 P.2d at 924. Whether
expenses are remedial or defense-related “will depend upon the facts.” Continental Casualty,
489 A.2d at 544. Nor does the language in another California case cited by the District help
its cause. “ ‘If site investigation expenses must be incurred by the insurer in fulfilling its duty
to defend the insured, they must be incurred. *** Even if the insured may happen to derive
some added benefit, the insurer does not shoulder any added burden. The insurer may not be
heard to complain.’ ” (Emphasis added.) Barratt American, Inc. v. Transcontinental
Insurance Co., 125 Cal. Rptr. 852, 859 (Cal. App. 2002) (quoting Aerojet, 948 P.2d at 925).
As always, “if” conveys far more than its two letters suggest. It is undoubtedly true that the
insurer will not be heard to complain when the insured proves “site investigation expenses”
had to be incurred to fulfill the insurer’s duty to defend the insured. In the instant case, the
inescapable conclusion is the District failed to meet that burden. The other cases the District
cites, General Accident Insurance Co. of America v. State of New Jersey, Department of
Environmental Protection, 672 A.2d 1154 (N.J. 1996), American Bumper & Manufacturing
Co. v. Hartford Fire Insurance Co., 550 N.W.2d 475 (Mich. 1996), and State v. Blank, 745
F. Supp. 841 (N.D. N.Y. 1990), are equally inapposite. Those cases involved governmentally
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mandated investigations that were necessary for the defense in the litigation, unlike Woods’
work in the invoices before us.
¶ 62 We are given no reason to disturb the findings of the court below that the contested
expenses were incurred pursuant to Woods’ engagement by the District and not at the
ISDA’s request, as the policy requires for reimbursement. The District failed to meet its
burden before this court to demonstrate that the circuit court’s findings were contrary to the
manifest weight of the evidence presented. Haarmann, 389 Ill. App. 3d at 570. The circuit
court’s findings do not reflect some sort of enhanced burden imposed on the District based
on the policy language; rather, the findings were in line with the evidence that each of the
disputed invoices was the sole responsibility of the District, which arose from its remediation
efforts. We also agree with the circuit court’s observation that nothing in the CGL policy
provides support for the District’s proposition that remediation invoices should be split
evenly between the insurer and insured when the underlying work “could” have aided the
litigation.
¶ 63 Upon our review of the record, the circuit court’s conclusions regarding each of the
disputed invoices were not contrary to the manifest weight of the evidence. Rather, the record
evidence supports that the work reflected in the disputed invoices was not requested by the
ISDA or required to fulfill the ISDA’s duty to defend the District.
¶ 64 CONCLUSION
¶ 65 We decline the District’s invitation to extend the targeted tender rule beyond cases
involving concurrent insurance policies, as the only context in which our supreme court has
applied the rule. Because the District’s insurance policies were all consecutive, the selective
tender rule did not apply to compel the ISDA to defend alone, without the prospect of
equitable contribution from other insurers, the mold lawsuits against the District. We reverse
the summary judgment granted to the District on counts II, III, and IV of the ISDA’s
amended complaint. We reject the District’s cross-appeal that the circuit court erred in its
judgment that certain invoices from the mold expert, retained separately by the ISDA and the
District, were for litigation purposes and therefore subject to reimbursement under the CGL
policy. We affirm the judgment in favor of the ISDA following the stipulated bench trial. We
remand for further proceedings consistent with this opinion.
¶ 66 Reversed in part and affirmed in part; cause remanded.
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