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Hartford Fire Insurance Co. v. Whitehall Convalescent and Nursing Home

March 30, 2001

HARTFORD FIRE INSURANCE COMPANY, PLAINTIFF-APPELLEE,
v.
WHITEHALL CONVALESCENT AND NURSING HOME, INC., AMERICAN ZURICH INSURANCE COMPANY, WHITEHALL NORTH CONVALESCENT AND NURSING HOME, INC., THE NORTH AND WOODBINE CORPORATION, M.C. MANAGEMENT COMPANY, STEVEN MANAGEMENT COMPANY, AND PAUL MULDER, DEFENDANTS-APPELLANTS.



The opinion of the court was delivered by: Presiding Justice Quinn

Appeal from the Circuit Court of Cook County

Honorable John K. Madden, Judge Presiding.

This consolidated appeal arises out of a declaratory judgment action filed by plaintiff, Hartford Fire Insurance Company (Hartford), against defendants, Whitehall Convalescent and Nursing Home (Whitehall), Whitehall North Convalescent and Nursing Home (Whitehall North), North & Woodbine Corporation (Woodbine), Steven Management Company (Steven Management), and Paul Mulder (Mulder) (collectively defendants). Hartford filed a motion for judgment on the pleadings which the trial court granted, finding that Hartford had no duty to defend or indemnify defendants in the underlying action. The trial court also denied defendants' motion for partial judgment on Hartford's pleadings. Following the trial court's rulings, Hartford filed a motion for reimbursement of costs it expended in defending defendants in the underlying action. The trial court granted Hartford's motion for reimbursement of defense costs in the amount of $102,985.34. Defendants appeal the trial court's rulings and contend that the trial court erred in: (1) finding that Hartford did not have a duty to defend; (2) denying defendants relief as to their affirmative defenses of estoppel and waiver; (3) dismissing defendants' counterclaims for breach of contract, statutory consumer fraud and common law fraud; and (4) granting Hartford's motion for reimbursement of defense costs where Hartford's reservation of rights failed to explicitly indicate its intention to seek reimbursement. For the following reasons, we reverse.

Defendants are each involved in the business of providing housing and care for elderly and infirm persons. Arthur Arenson is the executor of the estate of Sol Arenson, who is deceased and joined as a party as the designated representative of the class of persons who have been residents of Whitehall, Whitehall North, and Woodbine. On January 7, 1993, Arenson, individually and as a representative of the class of persons who have been residents and or sponsors of Whitehall, Whitehall North or Woodbine, commenced an action (the Arenson complaint) against defendants. The Arenson complaint alleged that residents of the three nursing homes are not permitted to purchase and use medications on their own; rather, the individual who sponsors or guarantees payment of all amounts incurred by the resident signs a contract and agrees to be responsible for charges relating to prescriptions and medical supplies. Residents and/or sponsors also receive a document entitled "Schedule of Charges" which states that they will be billed for medications at the current rate charged by Weber Automated Systems, Inc. (Weber), the pharmacy and medical supply company used by defendants. The Arenson complaint alleged that since 1989, Whitehall, Whitehall North and Woodbine have consistently charged their residents and/or sponsors an amount in excess of what the nursing homes actually paid Weber for the prescriptions and medical supplies. The Arenson complaint further alleged that defendants accomplished this by creating two sets of invoices for the products - one indicating the amount for which defendants had been billed and another reflecting inflated figures for defendants to present to their residents and/or sponsors. According to the complaint, this conduct was done with the intention to defraud the residents by misrepresenting the expenses they incurred in purchasing the products from Weber.

Counts I and II of the Arenson complaint sought recovery under the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. 1961 et seq.(1994)). Counts VII and IX asserted violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq.(West 1198)) and common law fraud. Count X alleged breach of contract against defendants due to dishonest billing for residents' medications.

Hartford issued health care facility professional liability policies and umbrella policies to defendants. Hartford's Health Care Facility Professional Liability Coverage provided coverage as follows:

"1. Insuring Agreement

We will pay those sums that the insured becomes legally obligated to pay as damages because of injury to which this insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS - COVERAGE. This insurance applies only to 'medical incidents' which occur during the policy period. The injury must be caused by a 'medical incident.' The 'medical incident' must take place in the 'coverage territory.' We will have the right and duty to defend any 'suit' seeking these damages." The policy defined "medical incident" in pertinent part as follows:

'Medical Incident' means any act or omission in the furnishing of professional health care services to any person, including:

a. The furnishing of food, beverages, medications or appliances in connection with such services;

***

e. Failure to comply with any right of a health care facility resident under any state law regulating your business as a resident health care facility;

f. Failure to comply with any right of a resident as included in the United States Department of Health and Human Services regulation governing participation of intermediate care facilities and skilled nursing facilities regardless of whether your business is subject to such regulations;***

***

Any such act or omission together with all related acts or omissions in the furnishing of such services shall be considered one 'medical incident'."

The limits of insurance for each medical incident under the policy was $1 million. The medical incident ...


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