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Community Unit Sch. Dist. v. Country Mut. Ins.

OPINION FILED APRIL 22, 1981.

COMMUNITY UNIT SCHOOL DISTRICT NO. 5, COUNTIES OF WHITESIDE AND LEE, PLAINTIFF-APPELLEE,

v.

COUNTRY MUTUAL INSURANCE COMPANY, DEFENDANT-APPELLANT.



APPEAL from the Circuit Court of Whiteside County; the Hon. CONWAY L. SPANTON, Judge, presiding.

MR. JUSTICE ALLOY DELIVERED THE OPINION OF THE COURT:

Rehearing denied May 18, 1981.

Country Mutual Insurance Company (hereinafter Insurer) appeals the judgment entered against it by the Circuit Court of Whiteside County in a declaratory judgment suit by Community School District No. 5, Counties of Whiteside and Lee (hereinafter School District). The School District filed a declaratory action seeking judicial determination of the duties and obligations of the Insurer under a school legal liability insurance policy between the School District and the Insurer. The specific issue raised in the declaratory suit was whether the policy provided coverage to the School District with respect to an unfair employment practice action filed by an applicant for a position with the School District. The complaint, seeking money damages as well as installment in the position, was filed with the Fair Employment Practices Commission of the State of Illinois against the School District. The sole issue before the circuit court in this case was the construction of the insurance policy. The court entered judgment in the declaratory action, finding that the Insurer had no duty to directly defend the action filed with the Commission, but that it did have an obligation, under the loss provisions of the policy, to reimburse the School District for any judgment or award that might be levied against it by the Commission, and also for attorneys' fees and expenses incurred by the School District in the defense of the suit before the Commission. The Insurer appeals from the court's judgment insofar as it held that the Insurer had an obligation to reimburse the School District for judgments or awards in the action and for attorneys' fees and expenses.

The facts are not in dispute. In 1979, the School District, pursuant to its statutory duty to indemnify itself, board members, employees and other personnel from specified damage claims (see Ill. Rev. Stat. 1979, ch. 122, par. 10-20.20), purchased from the Insurer a "School District Legal Liability Policy," with a policy period from March 21, 1979, through March 21, 1980. The policy contained the following pertinent provisions:

"I. COVERAGES A & B — Legal Liability

A. The Company will pay on behalf of the insured, individually or collectively, loss to which the insured may become legally obligated to pay because of a Wrongful Act occurring during the policy period; and

B. The Company will reimburse the School District for all loss for which the School District may be required or permitted by law to indemnify the Insured, individually or collectively, for a Wrongful Act occurring during the policy period."

The definitional provisions set forth the meanings of "wrongful act" and "loss."

"III. DEFINITIONS

D. Wrongful Act means any and all of the following: actual or alleged errors, misstatement or misleading statement, act or omission or neglect or breach of duty by the Insured, individually or collectively, in the discharge of School District duties, or any matter claimed against them solely by reason of being or having been the Insured during the policy period;

E. Loss means any amount which an Insured is legally obligated to pay or for which the School District may be required or permitted by law to pay as indemnity to an Insured, for a claim or claims made against the Insured, individually or collectively, for which insurance is provided, and shall include but not be limited to damages, judgments, settlements and costs, costs of investigation and defense of legal actions, (excluding from such costs of investigation and defense salaries of officers or employees of the School District or any other governmental body) claims or proceedings and appeals therefrom, costs of attachment or similar bonds, provided always, however, such subject of loss shall not include fines imposed by law, nor that part of any judgment awarded as exemplary or punitive damages; * * *."

The duty of defense is specified in the following provision of the contract:

"II. DEFENSE, SETTLEMENT, SUPPLEMENTARY PAYMENTS

With respect to such insurance as is afforded by this Policy, ...


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