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Dearborn Insurance Co. v. International Surplus Lines Insurance Co.

September 23, 1999

DEARBORN INSURANCE COMPANY,
PLAINTIFF-APPELLEE,
V.
INTERNATIONAL SURPLUS LINES INSURANCE COMPANY,
DEFENDANT-APPELLANT.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY No. 95 CH 12318 HONORABLE LESTER D. FOREMAN, JUDGE PRESIDING.

The opinion of the court was delivered by: Justice Hall *fn1

The parties to this action are two insurance carriers. Plaintiff, Dearborn Insurance Company (plaintiff), issued a claims-made insurance agents' and brokers' professional liability policy to James Klein Insurance Service, Inc. (Kleinco), for the policy period of December 31, 1989 to December 31, 1990 (hereinafter plaintiff's policy). Endorsement 3 to plaintiff's policy amended the named insured to include Canon Insurance Service (Canon) and the Billco Partnership (the partnership), a partnership comprised of two general partners - Kleinco and Canon. Defendant, International Surplus Lines Insurance Company (defendant), issued a claims-made insurance agents' and brokers' professional liability policy to Canon for the policy period of March 15, 1991 to March 15, 1992 (hereinafter defendant's policy). Defendant's policy had a $15,000 deductible.

Plaintiff filed this action seeking reimbursement from defendant for costs incurred in defending and indemnifying the sole mutual insured, Canon. The parties filed cross-motions for summary judgment. The circuit court granted plaintiff's motion for summary judgment and denied defendant's cross-motion for summary judgment. Defendant filed a motion for reconsideration and plaintiff filed a motion to enforce the judgment. Following argument on these motions the circuit court denied defendant's motion for reconsideration and granted, in part, plaintiff's motion to enforce the judgment. Defendant appeals. For the reasons that follow, we affirm.

In 1985, Canon and Kleinco were California corporations that had formed the Billco partnership. As general partners, Canon and Kleinco operated a property and casualty insurance brokerage business. Although Canon and Kleinco were partners in the sense of shared ownership, the office managed by Kleinco was managed separately from the office managed by Canon and each office had its own book of business and client base.

In 1987, the partnership was dissolved pursuant to an agreement of partnership termination (the dissolution agreement). The dissolution agreement provided, inter alia: (1) that Kleinco would assume all liabilities and obligations of the partnership, except for liabilities and obligations arising as a result of actions or inactions of Canon not known by Kleinco at the time of execution of the termination agreement; (2) that Kleinco would indemnify Canon in the event of any suit arising out of any alleged acts or omissions by Kleinco while acting on behalf of the partnership; and (3) that Kleinco would continue to maintain insurance coverage for the partnership for the benefit of Canon through 1992.

During 1985 and 1986 Kleinco handled the account of Sundance Financial, Inc. (Sundance). In December 1990 Sundance filed an action in California state court against its insurance agent, GAF Insurance Services, on the basis of negligence and breach of contract for the agent's alleged failure to procure the proper excess coverage (Sundance I). On November 28, 1990, Kleinco forwarded to plaintiff correspondence it had received from GAF indicating its intent to file a third-party action against Kleinco in the Sundance litigation. This letter did not mention Canon. Plaintiff acknowledged receipt of Kleinco's notice of potential claim. On November 7, 1991, Kleinco was served with a cross- complaint for indemnity, contribution, and declaratory relief in Sundance I naming both Kleinco and Canon, but not the partnership. In a letter dated November 7, 1991, Kleinco requested that plaintiff defend both Kleinco and Canon in this matter. Plaintiff defended both Kleinco and Canon, but no indemnity payment was made by plaintiff on behalf of either in Sundance I.

On November 14, 1991, William Cooper, Canon's insurance broker, sent a letter to defendant enclosing a copy of the cross-complaint in Sundance I. The first paragraph of the letter summarized the litigation and the surrounding circumstances. The second paragraph discussed potential other insurance Cooper thought might be available in connection with this claim. The third paragraph stated:

"As you can see from the November 7th letter from Pam Davis to their E&O carrier (Virginia Surety), Klein's office is asking their carrier to respond on behalf of James Klein Insurance and Canon Insurance. Therefore, at this time, it's probably best that you accept this as a possible claim but not something in which you need to take an active role unless, of course, your claims people disagree. In this regard, I await your feedback."

Upon receipt of this correspondence, defendant opened a claim file and established a reserve. Defendant did not admit or deny coverage and did not file a declaratory judgment action to determine its rights and/or obligations to Canon in connection with Sundance I. Defendant did not undertake the defense of Canon in Sundance I and rejected plaintiff's demands to share in the costs of defending Canon.

On September 4, 1992, Sundance filed a second action naming Kleinco and the partnership as defendants (Sundance II). Sundance I and II were consolidated. Plaintiff also defended and indemnified Kleinco and the partnership in connection with Sundance II. Plaintiff made a $25,000 indemnity payment on behalf of Kleinco and the partnership to settle a portion of their liability in Sundance II.

On December 22, 1995, plaintiff filed a complaint for equitable contribution, equitable subrogation, and unjust enrichment based upon defendant's refusal to participate in the defense of Canon. Plaintiff sought to be reimbursed for defendant's portion of the defense expenses incurred on behalf of Canon in the Sundance litigation. Defendant denied any obligation to participate in Canon's defense, arguing that Canon had not tendered the defense to it.

After defendant filed its answer, but before discovery commenced, the parties filed cross-motions for summary judgment. Plaintiff argued that the matter was governed by California law, but that under either California or Illinois law, Canon had tendered its defense to defendant through the November 14, 1991, letter from Cooper to defendant. Therefore, defendant had a duty to defend Canon in the Sundance litigation. Defendant argued that Illinois law governed this matter. Relying on Institute of London Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d 70, 599 N.E.2d 1311 (1992), defendant further argued that it did not have any duty to defend or indemnify Canon because Canon had chosen not to tender its defense in the Sundance litigation to defendant.

The circuit court concluded that California law applied to this matter. The circuit court concluded that the November 14, 1991, letter constituted a tender of defense to defendant and granted plaintiff's motion for summary judgment. The circuit court also ordered that plaintiff's right of contribution was 50% of any current or future defense costs and indemnity payments made by plaintiff on behalf of Canon.

Defendant filed a motion for reconsideration on December 6, 1996, and an amended motion for reconsideration on January 2, 1997. Attached to the amended motion were the affidavits of Mr. James G. O'Brien, a vice president of defendant; Mr. William Murray, Jr., the claims representative employed by defendant in connection ...


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