ISMIE Mutual Insurance Co. v. Pergament
2025 IL App (1st) 230787
Ill. App. Ct.2025Background
- Taryn and Doug Kessel sued Dr. Eugene Pergament for professional negligence after their child was born with Maple Syrup Urine Disease (MSUD) following allegedly erroneous genetic screening.
- Dr. Pergament was insured by ISMIE Mutual Insurance Company, which defended him under a reservation of rights, citing policy exclusions for management activities.
- In 2018, Dr. Pergament settled with the Kessels by assigning his rights under the ISMIE policy to them, but the settlement explicitly relieved him of any personal payment obligation.
- The Kessels then amended their complaint, seeking to hold ISMIE directly liable for the settlement based on the policy assignment.
- ISMIE filed a declaratory judgment action asserting no duty to indemnify because Dr. Pergament was not legally obligated to pay anything under the settlement; the Kessels counterclaimed, alleging a breach of policy and violation of the Illinois Insurance Code (section 155).
- The trial court granted summary judgment for ISMIE, finding no indemnity obligation and no breach or unreasonable conduct by ISMIE; the Kessels appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to indemnify under policy | Pergament not legally obligated to pay; no duty | Kessels: ISMIE must indemnify for assigned settlement | No duty to indemnify; insured not "legally obligated to pay" under settlement |
| Effect of reservation of rights | ISMIE reserved rights, preserved defenses | ISMIE's December 2016 letter was a breach/abandonment | ISMIE did not breach duty to defend or indemnify by letter while defending under ROR |
| Application of Guillen case | Liberal construction applies only with breach | Liberal construction should apply due to alleged breach | Liberal approach in Guillen inapplicable—no breach of duty to defend by ISMIE |
| Section 155 Insurance Code claim | No vexatious/unreasonable conduct; bona fide dispute | ISMIE's refusal to indemnify was vexatious/unreasonable | No violation; bona fide dispute existed, ISMIE acted within rights |
Key Cases Cited
- Guillen v. Potomac Insurance Co. of Illinois, 203 Ill. 2d 141 (2003) (liberal construction of "legally obligated to pay" applies only if the insurer breaches its duty to defend)
- Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127 (1999) (an insurer preserves policy defenses by defending under a reservation of rights or seeking declaratory judgment)
- Nationwide Property & Casualty Insurance Co. v. State Farm Fire & Casualty Co., 2022 IL App (1st) 210267 (outlines distinction between duty to defend and duty to indemnify; no duty to indemnify arises before insured is liable)
- West Bend Mutual Insurance Co. v. Krishna Schaumburg Tan, Inc., 2021 IL 125978 (policy terms construed by their clear language absent ambiguity)