only West American. From an underwriting standpoint, the risk assumed by Aetna did not contemplate primary coverage by Chicago Insurance. The fact that Celer had a policy with Chicago Insurance was entirely fortuitous; it could not have influenced Aetna's expectations concerning the level of primary coverage that would be available to its insureds or the premium it charged. See Illinois Emcasco, 487 N.E.2d at 112 . Likewise, Chicago Insurance insured only Celer. The risk assumed by Chicago Insurance did not contemplate the risk attendant to insuring an entire pharmacy and its staff of pharmacists. The broader exposure would certainly affect the premium charged, if not the very decision to insure.
Viewing these policies in their entirety and in light of their underlying policy considerations, as Illinois Emcasco requires, there is no basis for holding Chicago Insurance liable for any portion of the Grammas settlement attributable to Brook Park, Pinter or Nale. Chicago Insurance's liability must be limited to Celer's share of the settlement, up to its policy limits. Unfortunately for Aetna, the terms of the settlement do not furnish the court with any basis for deciding how much of the total settlement is attributable to Celer.
Aetna's attorneys, Cassiday Schade & Gloor, controlled the defense and settlement of the Grammas litigation. Despite the knowledge that Celer was separately insured by Chicago Insurance, Aetna's counsel took no steps to apportion the Grammas defendants' liability under the settlement. Such an apportionment, if made with Chicago's knowledge and without its objection, would have been binding on Chicago Insurance in the absense of fraud or collusion. There is no equity in attempting to make that apportionment now; the incident which gave rise to the Grammas suit occurred nearly a decade ago. Chicago Insurance, which received late notice of the claim and had no opportunity to defend its insured, would be at a distinct disadvantage in trying to "reconstruct" the extent of its insured's liability. Aetna's settlement of the Grammas suit without first apportioning the liability thereunder estops it from seeking apportionment at this time. See United States Fidelity & Guaranty Co. v Continental Casualty Co., 198 Ill App 3d 950, 556 NE2d 671, 145 Ill. Dec. 53 (1990).
For similar reasons, defendant's objections to that portion of the Magistrate Judge's report and recommendation concerning Chicago Insurance's liability for defense costs are also sustained. Coverage for the cost of an insured's defense is a separate aspect of the Chicago policy. It could only be triggered by knowledge that the insured has been sued and by knowledge that Chicago's assistance was desired. See Hartford Add. & Indem. Co. v Gulf Ins Co., 776 F.2d 1380 (7th Cir 1985). Absent a tender of defense by Celer (or Aetna, on his behalf), the coverage for defense costs under the Chicago policy was not triggered. An insurer should not be required to pay the cost of defending an action which it was never afforded an opportunity to defend in the first instance, particularly when the demand for reimbursement comes after the litigation has been concluded.
Accordingly, defendant's objections to the Magistrate Judge's report and recommendation are sustained. Aetna's motion for summary judgment is denied and Chicago Insurance's motion for summary judgment is granted. The court finds and declares that Chicago Insurance is not obligated to contribute to the defense or settlement of the Grammas litigation.
The only remaining issue is Aetna's motion for Rule 11 sanctions. The Rule 11 motion centers on two points: (a) Chicago's reliance on United States Fidelity & Guaranty Co. v Continental Casualty Co., 198 Ill App 3d 950, 556 N.E.2d 671, 145 Ill. Dec. 53 (1990); and (b) Chicago's attempt to distinguish Illinois Emcasco. Aetna's arguments concerning both points are rejected. The Continental Casualty decision, though perhaps inartfully argued by Chicago Insurance, supports this court's determination that Aetna is estopped from seeking contribution from Chicago Insurance because of Aetna's failure to apportion liability at the time of the Grammas settlement. As for Chicago's attempt to distinguish Illinois Emcasco on the basis that Chicago Insurance did not co-insure Brook Park, Pinter and Nale, the court has found this distinction meritorious.
ORDERED: Defendant's objections to the Magistrate Judge's report and recommendation are sustained. Plaintiff, Aetna Casualty & Surety Company's, motion for summary judgment is denied. Defendant, Chicago Insurance Company's, motion for summary judgment is granted. Aetna's motion for Rule 11 sanctions is denied.
George W. Lindberg
United States District Judge
NOV 27 1991
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