American Safety Casualty Insurance v. City of Waukegan
2011 U.S. Dist. LEXIS 73118
N.D. Ill.2011Background
- Dominguez obtained a $9,063,000 verdict against Waukegan in a civil rights case arising from a police investigation led by Hendley.
- The City held various insurance policies (Northfield, Underwriters, Westport, American Safety, Interstate) for periods from 1991–2002; issues concern coverage for the Dominguez judgment and related defense and indemnity responsibilities.
- Dominguez was exonerated in 2002 after post-conviction DNA testing, with conviction vacated on April 26, 2002, affecting accrual under Illinois trigger rules.
- American Safety resisted coverage, arguing no duty to defend or indemnify; the court held American Safety had a duty to defend and could be liable beyond the policy limits for costs and fees.
- The court found Interstate must indemnify the City for amounts above American Safety’s coverage up to the Interstate limits; Northfield/Underwriters/Westport were not triggered for this claim.
- Judgment entered March 3, 2011 allocated loss responsibilities: American Safety $1,000,000; Interstate $7,963,000; self-insured retention $100,000; with additional allocations for costs, interest, and attorney’s fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did American Safety have a duty to defend Dominguez claim? | Waukegan asserts duty to defend existed because Dominguez's claims fell within policy terms. | American Safety contends coverage did not apply to the underlying acts or accrual timing. | Yes; American Safety breached its duty to defend. |
| Is exhaustion of the self-insured retention a precondition to the duty to defend? | SIR exhaustion must occur before defense; otherwise no duty exists. | SIR exhaustion governs payment, not the duty to defend. | Exhaustion not required to trigger the duty to defend. |
| Does Waukegan's voluntary assumption of Hendley's liability excuse American Safety from defending? | Voluntary assumption voids insurer defenses. | Indemnification is compelled by tort immunity law, not voluntary; no excuse. | No; not a valid precondition; estoppel arises from failure to defend, not the voluntary assumption clause alone. |
| What is American Safety's liability after finding a duty to defend exists? | American Safety must indemnify up to policy limits and cover related fees. | Should apply SIR and policy defenses to limit exposure. | American Safety must indemnify to the policy limits and pay related costs, with additional Section 155 penalties awarded for vexatious handling. |
| Are Northfield/Underwriters/Westport triggered or liable in this action? | All policies may be triggered by Dominguez claims through various theories. | Their policies were not triggered for the Dominguez claims; they owe no duty to defend or indemnify. | Northfield/Underwriters not triggered; Westport granted in full; their defense/indemnity duties denied. |
| What is Interstate's liability after the trigger analysis? | Interstate should indemnify the City for the excess over American Safety’s coverage. | Interstate’s duty to defend is limited; indemnification follows policy terms. | Interstate must indemnify the City for the excess loss up to its $10,000,000 limit. |
Key Cases Cited
- McFatridge v. National Casualty Co., 604 F.3d 335 (7th Cir. 2010) (accrual of false arrest and malicious prosecution claims for insurance purposes)
- Ehlco Liquidating Trust v. Crum & Forster Managers Corp., 186 Ill.2d 127 (Illinois Supreme Court 1999) (ambiguity and duty to defend vs. duty to pay; SIR interpretation)
- Santa's Best Craft, LLC v. St. Paul Fire and Marine Ins. Co., 611 F.3d 339 (7th Cir. 2010) (duty to defend and coverage interpretation; bona fide disputes)
- McFatridge v. County of Edgar, 2009 WL 1209449 (7th Cir. 2009) (multiple authorities on trigger for civil rights claims)
- River Valley Cartage Co., Inc. v. Hawkeye-Security Ins. Co., 17 Ill.2d 242 (Illinois Supreme Court 1959) (all-interest preemption for post-judgment interest allocation)
- Hartford Accident and Indemnity Co. v. Aetna Ins. Co., 173 Ill.App.3d 665 (Ill. App. Ct. 1988) (pro rata interest allocation between primary and excess carriers)
- Argento v. Village of Melrose Park, 838 F.2d 1494 (7th Cir. 1988) (Section 9-102 vs. 1-4-6 indemnity framework for municipalities)
- Wilson v. City of Chicago, 120 F.3d 681 (7th Cir. 1997) (tort immunity act and duty to pay judgments)
- Idaho Counties Risk Management Program Underwriters v. Northland Ins. Co., 205 P.3d 121 (Idaho Supreme Court 2009) (rejects multiple trigger theory in civil rights context)