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Associated Aviation Underwriters, Inc. v. Aon Corporation

July 31, 2003


Appeal from the Circuit Court of Cook County. Honorable Stephen A. Schiller, Judge Presiding.

The opinion of the court was delivered by: Justice Hartman


These appeals consider the propriety of a circuit court good-faith settlement finding in a subrogation setting. The unique circumstances of the appeals involve an insurer that issued a policy containing language which provided coverage not only for its principal insured, one of the settling parties, but caused the circuit court, post-settlement, to declare the same insurer the primary insurer also of the second settling party. *fn1 Prior to the settlement, the insurer recognized coverage for the principal insured, which previously had been found by a jury the less culpable party in an independent action, settled the claim made by the principal insured under the policy, then sued the more culpable party in subrogation (for which it was later declared the primary insurer) and accepted a significantly reduced amount of damages in settlement from the more culpable party, for which settlement it secured the good-faith finding. In doing so, it deprived a third party from pursuing potentially meaningful contribution from the more culpable party. For reasons which follow, we reverse and remand in each of the three appeals taken in this case. *fn2

The controversy emanates from property damage claims following the crash of a private, corporate owned aircraft at Palwaukee Municipal Airport (Palwaukee) on October 30, 1996. In the first appeal (docket number 1-01-4518), Palwaukee Municipal Airport Commission, village of Wheeling and city of Prospect Heights (collectively the Municipalities) challenge a November 20, 2001 circuit court order, making the good-faith finding in a $6 million "Release and Settlement Agreement" (Settlement) between defendants, Aon Aviation, Inc. (sometimes Aon Aviation) and Aon Corporation (collectively Aon Defendants) and its insurers, United States Aviation Underwriters (USAU) and United States Aircraft Insurance Group (USAIG), and plaintiffs, Alberto-Culver Company (Alberto), Alberto's primary insurer, Associated Aviation Underwriters, Inc. (AAU) and the above-named separate insurers (collectively Alberto Insurers) (good-faith appeal).

The Municipalities argue that the circuit court erred by granting Aon Defendants' motion for a good-faith finding because (1) it ignored the only evidence presented at the evidentiary hearing; (2) the Municipalities met the governing preponderance of the evidence standard; and (3) the Settlement violates the terms and purpose of the Joint Tortfeasor Contribution Act (740 ILCS 100/0.01 et seq. (West 2002) (Contribution Act)) and does not satisfy four prerequisites necessary to establish good-faith. The Municipalities also contend that the Settlement does not represent a reasonable share of Aon Defendants' tort liability, because Aon Defendants were found 90% liable and Alberto 10% liable for the accident in a separate wrongful death action not involved in this appeal, and the settling parties concealed all information regarding the terms of Settlement. In addition, the Municipalities assert that the court erred by refusing to allow discovery and failing to compel compliance with Supreme Court Rule 237 (166 Ill. 2d R. 237 (Rule 237)) notices before finding an alleged grossly disparate settlement to be in good-faith.

In their second appeal (docket number 1-02-2797), the Municipalities contest the denial of their motion for relief of judgment under Code of Civil Procedure (Code) section 2-1401 (735 ILCS 5/2-1401 (West 2002) (section 2-1401)), which disputed the good-faith finding, contending that their section 2-1401 motion presented new information that was unavailable at the time the good-faith finding was entered. The Municipalities point to a January 11, 2001 letter in which AAU admitted the true value of the hull coverage claim was $12 million instead of $28 million. *fn3 The Municipalities argue that Aon Defendants cannot obtain a good-faith finding on its Settlement because Alberto was the principal insured on AAU's policy, and AAU became Aon Defendants' primary insurer by virtue of an August 6, 2002 circuit court ruling. *fn4 The Municipalities claim that allowing the good-faith finding to stand would have a devastating effect on public policy of insurance coverage matters.

The third appeal (docket number 1-02-2831) involves the Municipalities' contention that the circuit court erred by denying their motion to stay the outstanding subrogation proceedings until the determination of the good-faith appeal because its August 6, 2002 finding that AAU is Aon Defendants' primary insurer establishes that the Alberto Insurers, having settled with their own insured, Alberto, stands in Alberto's shoes and should not be allowed to apportion competing interests of both Alberto and Aon to the detriment of third parties; as a result, the Municipalities cannot secure a fair contribution allocation via a third-party complaint against Aon Defendants, who have insulated themselves from paying their fair share of liability by the alleged good-faith settlement.

The issues presented for review include whether circuit court abused its discretion by: (1) finding that the Settlement was executed in good-faith; (2) denying the Municipalities' motion for relief from judgment under Code section 2-1401; and (3) denying the Municipalities' motion to stay the subrogation proceedings pending the appeal of the good-faith finding.

Docket Number 1-01-4518 Appeal

On October 30, 1996, a Gulfstream GIV (GIV) aircraft owned and operated by Alberto crashed upon takeoff from Palwaukee, resulting in the deaths of all four persons aboard, including chief pilot and captain for Aon Aviation, Martin Larry Koppie; Robert Hampton Whitener, pilot and captain for Alberto; Arthur Quern, chief executive officer and chairman of the board for Aon Risk Management, Inc.; and Catherine Mio Anderson, a flight attendant employed by Executive Jet, whose services were secured by Aon Aviation. The airplane was destroyed by impact and fire. The flight was conducted pursuant to an Interchange Agreement, which permitted Aon Defendants and Alberto to utilize each corporation's GIV upon occasion. Aon Defendants and Alberto agreed, inter alia, to (1) "hold harmless and indemnify the other from loss, expense, damages, claims or suits which they might suffer as a result of any act or omission of the other party"; (2) maintain operational control of their own GIV during use by the other party; and (3) purchase an aircraft insurance policy with a minimum $150,000,000 value to provide coverage when piloting each other's airplanes. At the time of the accident, Aon Aviation operated Alberto's GIV for the business interests of Aon Defendants. The accident resulted in the initiation of multiple causes of action for wrongful death and survival, declaratory judgment and subrogation.

The circuit court consolidated for discovery and trial the wrongful death and survival actions brought by the four decedents' estates against various combinations of defendants, including Alberto, Aon Defendants, and the Municipalities. Whitener's estate alleged that Koppie was at fault for the accident and that Aon Defendants failed to train and instruct adequately its pilots concerning procedures in mixed crew situations. Koppie's estate alleged that Whitener was at fault and also claimed negligence against Alberto and the Municipalities. Alberto and Whitener's estate filed counterclaims and third-party claims for contribution and contractual indemnity under the Interchange Agreement against Aon Defendants. Aon Defendants filed a counterclaim against Alberto for contribution and contractual indemnity pursuant to the Interchange Agreement. Aon Defendants and Alberto, however, did not file a counterclaim against the Municipalities.

On May 24, 1999, the circuit court granted summary judgment in favor of the Municipalities pursuant to the Illinois Local Governmental and Governmental Employees Tort Immunity Act (745 ILCS 10/1-101 et seq. (West 2002) (Tort Immunity Act)). The estates of Koppie and Quern, and Alberto appealed that decision, which was reversed and remanded for trial on December 7, 2000. See Anderson v. Alberto-Culver USA, Inc., 317 Ill. App. 3d 1104, 1117, 740 N.E.2d 819 (2000). The supreme court denied the Municipalities' petition for leave to appeal. Anderson v. Alberto-Culver USA, Inc., 194 Ill. 2d 565, 747 N.E.2d 351 (2001).

The consolidated causes of action proceeded to trial on November 14, 2000, but did not include claims asserted against the Municipalities. Prior to verdict, the Anderson and Quern estates entered into settlement agreements with Alberto and their causes of action were dismissed. Alberto retained their contribution and third-party claims against Aon Defendants for those settlements. On January 23, 2001, the jury returned a verdict in favor of the Whitener estate and against "Aon" in the amount of $21,051,943, which was reduced by 10% for Whitener's contributory negligence to $18,946,749. The circuit court entered judgment on the verdict on January 24, 2001. The order stated that the jury rendered a verdict against "Aon Corporation" and declared a mistrial as to any and all remaining causes of action, including the Koppie estate's claim and all claims for contribution "by and between Alberto-Culver USA Inc. and Aon Aviation Corp." and contractual indemnity in the Interchange Agreement "by Aon Corporation aka [sic] Aon Aviation Corp. against Alberto-Culver, USA, Inc." With respect to the declaration of mistrials, the order was corrected to remove Aon Corporation from the cross-action for contribution and include Aon Aviation for the contribution and contractual indemnity actions.

On July 12, 2001, the circuit court granted Alberto's emergency motion to correct the record and ordered nunc pro tunc that judgment be entered on the jury verdict in favor of Whitener's estate and against Aon Aviation. The order declared mistrials in all remaining causes of action, found that naming Aon Corporation as the party against whom judgment was entered on January 24, 2001, was a clerical error and that the January 24 order was void and of no effect. Another July 12, 2001 order dismissed Aon Corporation with prejudice and without costs, nunc pro tunc, as of November 28, 2000. Aon Defendants appealed.

On March 6, 2003, this court affirmed the judgment of the circuit court, and found, inter alia, that the trial was conducted fairly and properly and that Aon Defendants had waived and were estopped from any attempt to draw a distinction between their two corporate entities in order to create a procedural advantage. Anderson ...

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