Appeal from the Circuit Court of Cook County. No. 98-CH-04606 Honorable Michael B. Getty, Judge Presiding.
The opinion of the court was delivered by: Justice Theis
The Chicago Hospital Risk Pooling Program (CHRPP) brought an action against defendant, the Illinois State Medical Inter-Insurance Exchange (ISMIE), under theories of equitable contribution, unjust enrichment, and quantum meruit to recover one-half of a settlement payment it made on behalf of a physician covered by both CHRPP and ISMIE. ISMIE filed an affirmative defense, alleging, inter alia, that CHRPP's contribution claim was barred by the physician's selective tender of his claim to CHRPP. The trial court rejected ISMIE's argument, holding that the selective tender rule applied only to traditional insurance companies and did not apply to a self-insured risk-pooling trust. Thereafter, ISMIE filed a motion to dismiss the complaint pursuant to section 2-615 of the Illinois Code of Civil Procedure (the Code) (735 ILCS 5/2-615 (West 1998)), alleging that as a risk-pooling trust CHRPP lacked the necessary elements to state a cause of action for equitable contribution. The trial court denied ISMIE's motion but certified the following questions of law for review under Illinois Supreme Court Rule 308 for interlocutory appeal. 155 Ill. 2d R. 308.
"1. Whether the 'selective tender' rule of Institute of London Underwriters v. Hartford Fire Ins. Co., 234 Ill. App. 3d 70, 599 N.E.2d 1311 (1st Dist. 1992), and its progeny can be applied to the Plaintiff in this case, [CHRPP], which is a self-insurance retention trust established under the Illinois Religious and Charitable Risk Pooling Trust Act; and
2. Whether [CHRPP], a self-insurance retention trust established pursuant to the Illinois Religious And Charitable Risk Pooling Trust Act, may state a cause of action for equitable contribution, unjust enrichment, or quantum meruit against [ISMIE], an insurance company, to recover one-half of a settlement payment that [CHRPP] made on behalf of a physician covered by [ISMIE] and [CHRPP]."
We answer the certified questions as follows and remand for further proceedings consistent with this opinion.
In September 1993, Luz Rivera filed a medical malpractice action against Norwegian-American Hospital, Dr. Ha Nguyen, Dr. Carlos Baldoceda, and her private obstetrician, alleging that they were negligent in delivering her twin sons, causing the death of one and the brain damage of the other. Dr. Baldoceda was insured under a professional liability policy issued by ISMIE. He was also covered under CHRPP as an employed physician of the hospital. CHRPP administers a trust established pursuant to the Religious and Charitable Risk Pooling Trust Act (the Risk Pooling Act or Act) (215 ILCS 150/1 et seq. (West 1998)), whereby participating nonprofit hospitals pool certain risks associated with the care and treatment provided to their patients. Under the CHRPP trust agreement (the Trust Agreement), participating hospitals are required to contribute certain sums to CHRPP in consideration of CHRPP's promise to pay judgments or settlements in response to medical malpractice suits against the participating hospital or other "Covered Persons," which include hospital employees while acting within the scope of their employment.
ISMIE agreed to defend Dr. Baldoceda with respect to the Rivera action. CHRPP declined Dr. Baldoceda's request for a defense under a reservation of rights and claimed that ISMIE had the primary obligation to defend and indemnify him with respect to liability arising out of the Rivera action. However, despite refusing Dr. Baldoceda's tender of the claim, CHRPP settled the Rivera action for $3 million. The settlement reflected that $1 million was paid on behalf of Dr. Baldoceda. ISMIE did not participate in settlement negotiations.
Thereafter, CHRPP sought half of the settlement costs from ISMIE under theories of equitable contribution, unjust enrichment, and quantum meruit based on the court's holding in Padilla v. Norwegian-American Hospital, Inc., 266 Ill. App. 3d 829, 641 N.E.2d 572 (1994). Therein, the court found that, where ISMIE and CHRPP had coincidental coverage obligations to the same physician and where their "other insurance" clauses were deemed incompatible, the liability for a judgment or settlement was owed equally. *fn1 The "other insurance" clauses construed in Padilla are identical to those at issue in this case.
ISMIE set forth its affirmative defenses to the complaint, including that the action for equitable contribution was defeated by the "selective tender" rule as expressed in Institute of London Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d 70, 599 N.E.2d 1311 (1992), and its progeny. Under the rule, where two policies potentially apply to the same loss, the insured may choose to forego coverage under one policy, thereby foreclosing the targeted insurer from obtaining contribution from the nontargeted insurer. ISMIE alleged that, pursuant to the holding in Institute, Dr. Baldoceda exercised his right to tender the defense and indemnity obligation for the Rivera action to CHRPP under the Trust Agreement, and elected not to trigger the defense and indemnity obligations of ISMIE. Accordingly, it alleged that CHRPP could not obtain contribution from ISMIE for its settlement of the Rivera action. In addition, ISMIE filed a counterclaim seeking to recoup the costs it incurred in defending Dr. Baldoceda.
CHRPP responded that ISMIE could not rely on the "selective tender" rule because the rule only applied to traditional insurance companies and that CHRPP was not an insurance company but, rather, a trust. CHRPP claimed that applying the rule to the trust would violate the purpose of the Risk Pooling Act, to minimize the amount of money nonprofit hospitals spend on protecting themselves from the risks of financial loss due to their liabilities (215 ILCS 150/2 (West 1998)), and would undermine its function to provide a public health benefit. CHRPP also argued that the "selective tender" rule could not apply to it because the rule presumes a duty to defend and its Trust Agreement does not obligate it to defend Dr. Baldoceda. Lastly, CHRPP argued that Dr. Baldoceda did not "unequivocally" renounce his coverage under his ISMIE policy in order to exclusively trigger the coverage obligations of CHRPP.
The trial court found that the "selective tender" rule was not applicable to a trust established under the Risk Pooling Act. The court examined the language of the Act which states that trusts formed pursuant to the Act are not to be considered insurance companies or to be in the business of insurance nor are they to be subject to regulation under the Illinois Insurance Code except as specifically provided. 215 ILCS 150/25 (West 1998). Based upon the plain language of the Act, the court concluded that CHRPP was not intended to be treated as insurance and strictly construed the selective tender rule as only applying to traditionally constituted insurance companies. The court held that to hold otherwise would "undermine the legislative intent that the trusts *** operate for the benefit of the participating hospitals and would be contrary to the public policy of the [S]tate of Illinois, as enunciated in the Act, that a trust such as CHRPP should not be considered an insurance company or in the business of insurance."
Thereafter, ISMIE filed a motion to dismiss the complaint, arguing, in part, that the reasons underlying the court's refusal to treat CHRPP as an insurance company for purposes of the "selective tender" rule also dictated that CHRPP could not seek equitable contribution. Specifically, ISMIE argued that the remedy of equitable contribution is available only to insurers that insure on the same basis and that there must be identity between the policies as to parties, insurable interests and risks. Since CHRPP, not being an insurance company, lacked the identity of insurable interests necessary to obtain such a remedy, it could not maintain its cause of action. The trial court denied ISMIE's motion, finding that CHRPP was entitled to the equitable remedies it sought from ISMIE.
Subsequently, the trial court granted a joint motion for interlocutory appeal under Supreme Court Rule 308 (155 Ill. 2d R. 308), finding that the rulings involved questions of first impression under Illinois law and a substantial ground for difference of opinion.
Before answering the certified questions, we review some general principles of insurance law necessary to an understanding of this case. Ordinarily, where an insured has concurrent coverage for the same liability, both of its insurers are obligated to provide coverage under the terms of their respective policies and their coverage obligations are then coordinated, typically by reference to the policies' "other insurance" provisions. These clauses take many forms, but generally provide that, where there is other insurance available to cover the claim, the loss will be apportioned according to various formulas in order to limit each insurer's potential obligation to the insured. See, e.g., Padilla, 266 Ill. App. 3d 829, 641 N.E.2d 572.
However, "other insurance" clauses only affect insurers' rights among themselves; they do not affect the insured's right to recovery under each concurrent policy (Zurich Insurance Co. v. Raymark Industries, Inc, 145 Ill. App. 3d 175, 199, 494 N.E.2d 634, 650 (1986)), nor do they affect the insured's right to selectively tender a claim to one insurer alone. Under the "selective tender" rule, an insured has the paramount right to choose or knowingly forgo an insurer's participation in a claim. John Burns Construction Co. v. Indiana Insurance Co., 189 Ill. 2d 570, 727 N.E.2d 211 (2000).
In Burns, a construction company hired a subcontractor to pave a parking lot. The subcontract agreement required the subcontractor to name the construction company as an additional insured on its policy in addition to the construction company's own insurance coverage. After the paving was completed, a commuter was injured in the parking lot and sued the construction company. The company notified the subcontractor of the lawsuit and requested that its insurer defend and indemnify it. The subcontractor's insurer rejected the tender of the claim and later sought a declaration that both insurance policies were obligated to contribute equally to ...