Developers Surety & Indemnity Co. v. Lipinski
2017 IL App (1st) 152658
| Ill. App. Ct. | 2017Background
- DSI issued performance/payment bonds for subcontractor 3D; when 3D abandoned the job, DSI handled Moran’s bond claim and retained Lipinski as surety counsel.
- DSI contested Moran’s demands, litigated 3D v. Moran, and ultimately settled in 2010 for $3.7 million after earlier opportunities to settle for a much lower amount allegedly existed in 2005.
- DSI sued Lipinski for legal malpractice alleging his failure to advise an earlier, cheaper settlement caused DSI’s larger payout.
- During discovery DSI disclosed that CHUBB (E&O) and two reinsurers reimbursed most of DSI’s settlement and costs; DSI admitted insurers/reinsurers covered all provable damages.
- Trial court ruled the collateral source rule did not apply in legal malpractice actions and permitted evidence of insurer/reinsurer payments; because DSI could not prove unreimbursed damages, the complaint was dismissed.
- Appellate court affirmed on procedural grounds: under 735 ILCS 5/2-403(c) (subrogation statute), the reinsurers/insurer were the real parties in interest and should have been named or disclosed; DSI’s failure to do so required dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether collateral source payments by reinsurers/insurer are excluded from damages in legal malpractice (i.e., collateral source rule applies) | Collateral source rule should bar defendant from benefiting from DSI’s insurance/reinsurance; DSI owed reimbursements so no windfall to DSI | Sterling Radio establishes collateral source rule does not apply in legal malpractice; insurer/reinsurers payments should offset damages | Court avoided deciding collateral source rule’s substantive scope and affirmed dismissal on procedural grounds (failure to name real parties in interest) |
| Whether DSI’s malpractice claim could proceed when insurers/reinsurers fully reimbursed DSI | DSI said it still had recoverable damages because of contractual reimbursement mechanics and self-insured retention | Lipinski argued no provable damages remained and, alternatively, that proximate cause could not be proven | Trial court found DSI could not prove damages once reimbursement shown; appellate court affirmed dismissal but on 2-403 grounds rather than proximate-cause analysis |
| Whether a plaintiff bringing an action that is, in effect, a subrogation claim must name subrogee(s) under section 2-403(c) | DSI contended this was a direct malpractice claim by DSI, not a subrogation suit by insurers | Lipinski argued section 2-403(c) required disclosure/naming of insurer/reinsurers when they are the real parties in interest | Court held 2-403(c) required naming or disclosure of subrogee; because insurers/reinsurers fully covered DSI’s loss they were the real parties in interest and must have been named; failure to comply warranted dismissal |
| Whether amendment to add subrogation count and/or real parties in interest could cure defect after dismissal | DSI sought leave to amend to assert subrogation on behalf of reinsurers | Lipinski opposed as untimely/futile | Trial court denied leave to amend as futile/untimely; appellate court affirmed dismissal for failure to comply with 2-403(c) |
Key Cases Cited
- Shaw v. Close, 92 Ill. App. 2d 1 (explaining subrogee must be named or disclosed as real party in interest under section 2-403(c))
- Sterling Radio Stations, Inc. v. Weinstine, 328 Ill. App. 3d 58 (legal malpractice plaintiff who personally suffered no out-of-pocket loss cannot recover that judgment amount as damages)
- Muryani v. Turn Verein Frisch-Auf, 308 Ill. App. 3d 213 (statement of collateral source rule that third-party benefits do not reduce recoverable damages)
- Wills v. Foster, 372 Ill. App. 3d 670 (collateral source rule rationale: defendant should not benefit from plaintiff’s foresight in acquiring insurance)
- Gadson v. Among Friends Adult Day Care, Inc., 2015 IL App (1st) 141967 (where insured’s pecuniary interest fully satisfied, insurer-subrogee must file in its own name)
- Prudential Ins. Co. v. Romanelli, 243 Ill. App. 3d 246 (section 2-403(c) and insurer subrogation principles)
- Nitrin, Inc. v. Bethlehem Steel Corp., 35 Ill. App. 3d 577 (subrogee must be named when it is the real party in interest)
- In re Detention of Stanbridge, 2012 IL 112337 (appellate courts may affirm on any ground supported by the record)