Illinois Court Holds Insured Cannot Deselect Insurer In Connection With Underlying Settlement

by Traub Lieberman Straus & Shrewsberry LLP
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In its recent decision in AMCO Ins. Co. v. Cincinnati Ins. Co., 2014 Ill. App. LEXIS 296 (May 5, 2014), the Appellate Court of Illinois, First District, had occasion to consider whether an insurer selected by an insured’s targeted tender can pursue deselected insurers for equitable contribution or subrogation following an assignment of rights pursuant to a settlement agreement.

Kevin Smith filed a complaint against a general contractor, Hartz Construction Company (“Hartz”), and subcontractors Cimarron Construction Company, Inc. (“Cimarron”) and Van Der Laan Brothers, Inc. (“Van Der Laan”). Smith sought damages for injuries he suffered while working on a construction site. Smith was employed by Edward Allen construction, which was also a subcontractor at the project site.

Cincinnati issued a general liability policy to Hartz (“Cincinnati Policy”); Erie issued a general liability policy to Van Der Laan (“Erie Policy”); and AMCO issued both a primary general liability policy and an umbrella policy (“AMCO Policies”) to Cimarron. Hartz, as an additional insured under the AMCO Policy and the Erie Policy, target tendered its defense of the Smith lawsuit to AMCO and Erie, and both insurers accepted Hartz’s defense tender subject to a reservation of rights. Hartz further informed AMCO and Erie that it did not want Cincinnati to respond to the suit, but instead put Cincinnati on standby for any additional coverage needed upon exhaustion of the AMCO and Erie Policies.

Subsequently, the parties attempted to settle the Smith lawsuit for $1.5 million. AMCO stated that it would be willing to contribute $500,000 toward the settlement, provided that Cincinnati and Erie agreed to contribute equal amounts. Cincinnati refused to contribute any money toward the settlement. It was Cincinnati’s position that Hartz made a targeted tender to AMCO and Erie, and as a result, AMCO’s and Erie’s primary limits had to be exhausted before Cincinnati would be required to respond. Erie responded with an offer to contribute $50,000 toward the settlement. The Smith lawsuit was ultimately settled by AMCO, which to pay Smith $1,450,000 on behalf of Hartz and Cimarron. Further, the settlement agreement contained an assignment of rights that required Hartz and Cimarron to assign their rights against Cincinnati and Erie to AMCO.

Subsequently, AMCO filed suit against Erie and Cincinnati seeking equitable contribution or equitable subrogation for the amounts paid by AMCO to settle the underlying suit. Cincinnati filed a joint motion to dismiss AMCO’s complaint with prejudice arguing in relevant part that due to the targeted tender doctrine, AMCO had no valid claims against Cincinnati. The trial court granted the motion to dismiss in favor of Cincinnati and against AMCO.

On appeal, the Appellate Court of Illinois, First District, was asked to determine whether the trial court erred in granting Cincinnati’s motion to dismiss with prejudice. AMCO took the position that the trial court erred because Hartz relinquished its right to make a targeted tender through the settlement agreement and assignment. That is, pursuant to the settlement agreement’s assignment provision, AMCO was assigned Hartz’s right to deactivate previous targeted tenders. Cincinnati maintained that the trial court did not err on several grounds. In relevant part, Cincinnati argued that AMCO’s position (1) undercut the rationale of the targeted tender; (2) expanded the intended scope of the targeted tender; and (3) would render the targeted tender rule meaningless. The Court agreed with Cincinnati. The Court disposed of each argument advanced by AMCO by holding that the targeted tender rule does not allow an insurer to deselect themselves as target insurers following the settlement of the insured’s underlying lawsuit. Further, the Court distinguished prior decisions where the insured, instead of the targeted insurer, made a decision to deselect a previously targeted insurer following settlement. The Court affirmed the dismissal of the claims against Cincinnati.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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