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In re Liquidation of Legion Indemnity Corporation

Court of Appeals of Illinois, First District, Second Division

April 16, 2013

In re LIQUIDATION OF LEGION INDEMNITY CORPORATION (Andrew Boron, Director of Insurance of the State of Illinois, as Liquidator of Legion Indemnity Insurance Company, Petitioner-Appellee,
Robert Rohlwing, Nancy Rohlwing, Robert Pahlke, and Paulette

Rehearing denied: June 11, 2013.

Held [*]

In an action arising from the settlement of a claim for the death of a young girl who was struck by a school bus insured by a company that was in liquidation, a settlement agreement was entered into between the girl’s parents and the owner of the bus company, after it filed for bankruptcy, that provided for the payment to the parents of $1.2 million from the bus company, $250, 000 from the Insurance Guaranty Fund, and $50, 000 from uninsured motorist coverage, and in return, the parents assigned their rights to payment from the insurance company to the bus company, but when the bus company submitted a claim for the remaining $5, 750, 000 limits on the bus company’s policies, the liquidator’s approval of the $1.2 million amount paid to the parents was upheld on appeal, since allowing the amount requested would result in a windfall for the bus company and circumvent the rule against the assignment of personal injury claims, while the liquidator’s recommendation supported the public policy of distributing the assets of liquidated insurance companies to all interested parties in an even-handed manner.

Appeal from the Circuit Court of Cook County, No. 02-CH-06695; Review Hon. Mary Mikva, Judge, presiding.

Arnstein & Lehr LLP, of Chicago (Hal R. Morris, Mary Cannon Veed, and Konstantinos Amiros, of counsel), for appellants.

Joel A. Haber, Todd A. Rowden, and Timothy L. Binetti, all of Thompson Coburn LLP, of Chicago, for appellee.

Panel JUSTICE SIMON delivered the judgment of the court, with opinion. Presiding Justice Harris and Justice Quinn concurred in the judgment and opinion.



¶ 1 On October 7, 1998, 10-year-old Kristie Talley suffered substantial injuries that caused her death when the bicycle she was riding was caught between a curb and a school bus owned and operated by Barrington Transportation Co., Inc. (Barrington). Kristie's parents, James and Melanie Talley, brought an action against Barrington, Barrington School District 220 and the driver of the bus, Ralph H. Toppel, Jr. The Talleys pleaded counts seeking compensation for: wrongful death; a survival action; and recovery under the Rights of Married Persons Act (750 ILCS 65/15 (West 1998)). Prior to trial, Legion Indemnity Company (Legion), Barrington's primary and excess insurer, was declared insolvent and placed into liquidation and the Deputy Director of the Office of the Special Deputy Receiver of the State of Illinois Department of Insurance was affirmed as the statutory liquidator of Legion (Liquidator).

¶ 2 As a result of the loss of coverage, Barrington had insufficient resources and was unable to reach a settlement with the Talleys. In response, Barrington filed for bankruptcy on the eve of trial. This effectively halted the trial and the Talleys filed a proof of claim with the bankruptcy court.

¶ 3 Thereafter, Barrington and the Talleys entered into mediation and reached a settlement. Under the relevant terms of the settlement agreement, the Talleys received $1.2 million from Barrington, $250, 000 from the Illinois Insurance Guaranty Fund (Fund) and $50, 000 from uninsured motorist coverage. In return, the Talleys assigned to Barrington their rights to any payment from Legion. The former principals of Barrington and their next generation, the Pahlkes and Nancy and Robert Rohlwing (collectively Claimants), submitted a claim in the liquidation of Legion seeking the remaining $5, 750, 000 limits in Barrington's two policies with Legion. The Liquidator recommended the claim be approved for $1.2 million, the amount Barrington paid to the Talleys apportioned among the two policies.

¶ 4 Claimants objected to the recommendation and the Liquidator filed a petition in the circuit court to approve the claim in the amount recommended. The circuit court entered an order on October 5, 2011, approving the Liquidator's recommendation. On February 27, 2012, the circuit court denied Claimants' motion for reconsideration.

ΒΆ 5 On appeal, Claimants contend that the circuit court erred in determining that the assignment between the Talleys and Barrington was void because it was not one for a personal injury claim but, rather, a contractual right pursuant to the settlement agreement for an accrued right of payment. Claimants contend that the Liquidator had ample opportunity to challenge the reasonableness of the agreed-upon amount of the settlement, but failed to do so, and that the circuit court should have recognized and approved the established value of the claim. Claimants assert that it follows that the Liquidator's determination that the claim was worth $1.2 million, and not the full amount of the assignment, is not supported by the record. Alternatively, Claimants argue that, if the assignment is void and may be disregarded, it does not erase the evidence of record that the Talleys possessed a sizable survival claim. Additionally, Claimants argue that Barrington's motion for partial approval of its ...

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