MHM Services v. Assurance Company of America
975 N.E.2d 1139
Ill. App. Ct.2012Background
- A.B. sued MHM for negligent pre-release screening of a sexually violent offender, seeking damages over $50,000.
- MHM had primary CampMed coverage up to $1 million and excess/umbrella Assurance coverage up to $5 million; suit served June 14, 2006.
- MHM tendered to CampMed, not Assurance; defense costs accumulated and reserves were set as the case progressed.
- In 2008, as the case threatened multimillion-dollar exposure, MHM considered settlement strategy; counsel urged disclosure of insurance and coverage options.
- MHM began then to discover and discuss potential coverage with Assurance; Assurance later determined it could provide excess coverage, and settlement negotiations occurred culminating in a $3.5 million settlement in August 2008.
- MHM filed a three-count action seeking indemnification from Assurance; Assurance counterclaimed, asserting late notice and breach of the notice provision. The circuit court granted summary judgment for Assurance, finding late notice defeated coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether MHM timely gave notice as required by the excess policy | MHM acted diligently and had discretion when to notify under 1.02 | Notice was not required to be immediate; discretion to notify exists under policy terms | No discretion; notice was late and breached |
| Who bears the burden to prove notice compliance | MHM fully complied with all terms; Assurance has burden to prove breach | Assurance bears burden to prove breach after MHM alleged coverage | Burden on MHM to prove substantial compliance; otherwise breach applies |
| Whether the court properly interpreted the notice clause and deemed notice timely or untimely | Policy language allows discretion to notify when coverage is implicated | Excess policy requires notice as soon as practicable; no discretion | Notice must be given as soon as practicable; no discretion afforded to MHM |
| Whether Assurance waived or prejudiced its position by late-notice defense | Assurance waived by activity indicating defense; no prejudice from delay | Delay prejudiced Assurance and defeated its defense | Waiver rejected; late notice defense preserved; prejudice shown |
| Whether Virginia bad-faith law applies or is controlling | Virginia standard supports bad-faith damages | Late-notice defense already defeats coverage; no bad-faith remedy | Bad-faith claim not applicable; late-notice defense controls |
Key Cases Cited
- Northbrook Property & Casualty Insurance Co. v. Applied Systems, Inc., 313 Ill. App. 3d 457 (2000) (notice as soon as practicable with reasonable time inquiry; sophisticated insured duty)
- Yorkville National Bank v. West American Insurance Co., 238 Ill. 2d 177 (2010) (policy language and reasonable time factors in notice)
- Amerisure Insurance Co. v. Laserage Technology Corp., 2 F. Supp. 2d 296 (W.D.N.Y. 1998) (insureds failed to exercise due diligence reviewing policies; prejudice to insurers)
- Tribune Co. v. Allstates Insurance Co., 306 Ill. App. 3d 779 (1999) (excess policies and notice timing; discretionary vs. fixed notice terms)
- Walsh Construction Co. of Illinois, Inc. v. West American Insurance Co., 352 Ill. App. 3d 504 (2004) (notice timing; excess policy expectations discussed)
- American Standard Insurance Co. of Wisconsin v. Slifer, 395 Ill. App. 3d 1056 (2009) (contract interpretation and notice provisions in context)