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08/11/94 LIQUIDATION PINE TOP INSURANCE COMPANY

August 11, 1994

IN RE THE LIQUIDATION OF PINE TOP INSURANCE COMPANY STEPHEN F. SELCKE, DIRECTOR OF INSURANCE OF THE STATE OF ILLINOIS, AS LIQUIDATOR OF PINE TOP INSURANCE COMPANY, PETITIONER-APPELLANT,
v.
JOSEPH A. DUNCAVAGE, ADMINISTRATOR OF THE ESTATE OF MARY BETH DUNCAVAGE, CLAIMANT-APPELLEE, AND ILLINOIS INSURANCE GUARANTY FUND, INTERVENING-PETITIONER-APPELLEE.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE EDWIN M. BERMAN, JUDGE PRESIDING.

Released for Publication September 27, 1994.

Hoffman, Johnson, Theis

The opinion of the court was delivered by: Hoffman

PRESIDING JUSTICE HOFFMAN delivered the opinion of the court:

In a proceeding involving the liquidation of Pine Top Insurance Company (Pine Top), the circuit court of Cook County entered an order on January 15, 1993, approving a claim in favor of Joseph Duncavage, individually, and as administrator of the estate of Mary Beth Duncavage, deceased. The Director of Insurance of the State of Illinois (Director), acting in his capacity as liquidator of Pine Top, appeals from that order.

BACKGROUND

In June 1984, Duncavage filed a multi-count complaint in the circuit court of Cook County against the owners of a residential apartment building in which Mary Beth Duncavage was killed as a result of a criminal assault by Tommy Lee Jackson. The specific facts of that suit are not pertinent to this appeal. It is sufficient to note that each of the defendants in that action, except the assailant, were covered under a primary liability insurance policy issued byCommercial Union Insurance Company which provided coverage up to $500,000 and an excess umbrella policy issued by Pine Top with a liability limit of $2 million.

In 1986, liquidation proceedings were commenced against Pine Top in the circuit court of Cook County. On January 16, 1987, an order was entered in that action finding that Pine Top was insolvent and appointing the Director as liquidator. On that same date, the court entered an order fixing the time and procedure for filing claims against Pine Top. Because of the action then pending against Pine Top's insureds for the death of Mary Beth Duncavage, Duncavage submitted a proof of claim on October 26, 1987 to the Director for $2 million which was the policy limit of the Pine Top policy.

On March 11, 1988, Duncavage entered into an agreement entitled "Covenant Not To Execute on Judgment" (covenant) with Pine Top's insureds and Commercial Union. Pursuant to the terms of the covenant, Duncavage received $500,000 and agreed, inter alia, that notwithstanding any judgment that could be rendered in the then pending action against Pine Top's insureds, not to seek to enforce any such judgment against them or Commercial Union. Additionally, the covenant provided that it should not be construed to prevent Duncavage from pursuing any claims that he may have against Pine Top Insurance Company, the Director, the Illinois Insurance Guaranty Fund, the Office of the Special Deputy representing the Director, and Tommy Lee Jackson.

On May 10, 1988, after being informed of the settlement between Duncavage and Pine Top's insureds and Commercial Union for the coverage limit of the Commercial Union policy, the Illinois Insurance Guaranty Fund (Guaranty Fund) determined that Duncavage's claim was a valid "covered claim" under the Guaranty Fund Act (Ill. Rev. Stat. 1987, ch. 73, par. 1065.82 et seq.), and paid Duncavage $150,000, the statutory limit on his claim (see Ill. Rev. Stat. 1987, ch. 73, par. 1065.87-2). As a consequence of its payment to Duncavage, the Guaranty Fund became a claimant in the liquidation of Pine Top. Ill. Rev. Stat. 1987, ch. 73, par. 1065.95.

Because Duncavage's claim against the estate of Pine Top in liquidation remained unresolved, on November 12, 1991, he filed a petition in the liquidation proceeding seeking approval of the claim and a motion requesting a hearing date to adjudicate the claim. On January 9, 1992, the circuit court ordered the Director to make a recommendation on the Duncavage claim. On April 8, 1992, the Director recommended that Duncavage's claim be denied and filed a motion seeking approval of that recommendation. On January 15, 1993, the circuit court approved Duncavage's claim in the sum of $1.85 millionwhich was the gross claim of $2 million less the $150,000 payment received from the Guaranty Fund. The Director appeals from that order.

In urging reversal, the Director contends that: (1) the Pine Top policy was one of indemnity and because Pine Top's insureds did not pay any sums in excess of their primary insurance for the death of Mary Beth Duncavage, no valid claim existed against Pine Top in favor of Duncavage; (2) Duncavage's execution of the covenant precluding recovery against Pine Top's insureds for any amount in excess of their primary insurance extinguished any recovery under Pine Top's policy; (3) allowing Duncavage's claim exposed Pine Top to greater liability under its policy than its total liability would have been if it were not in liquidation; and (4) the circuit court erred by fixing the amount of Duncavage's claim in its order of January 15, 1993.

We address first the question of whether the Pine Top policy was a liability policy or an indemnity policy. The ...


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