Mt. Hawley Insurance Company v. Certain Underwriters at Lloyd's, London
19 N.E.3d 106
Ill. App. Ct.2014Background
- Toji Engineering held a CGL policy from Underwriters; 311 Lincolnway and 311 Builders were listed as additional insureds by endorsement limited to liability caused, in whole or in part, by Toji or those acting on Toji’s behalf.
- Gregory Hillesheim sued after a 2008 construction-site injury; the complaint named 311 Entities and Toji among others. 311 Entities tendered defense to Underwriters; Underwriters refused to defend or indemnify, claiming the complaint lacked allegations of vicarious liability.
- Mt. Hawley (insurer for the 311 Entities) defended and later settled claims against the 311 Entities for $325,000 (recovering $150,000 from others).
- Toji moved for summary judgment in the underlying suit and obtained a Rule 304(a) final judgment in its favor, which was not appealed.
- Mt. Hawley sued Underwriters for declaratory relief and reimbursement, arguing Underwriters breached its duty to defend/indemnify; the trial court found Underwriters wrongfully denied defense and was estopped from asserting policy defenses, awarding Mt. Hawley indemnity and defense costs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Underwriters is estopped from asserting noncoverage defenses after wrongfully refusing to defend additional insureds | Mt. Hawley: Underwriters wrongfully refused defense and therefore is estopped from raising policy defenses to indemnity | Underwriters: Its noncoverage defense (Toji’s summary judgment extinguishes indemnity) is not a "policy defense" but a substantive legal consequence of the underlying judgment | Court: Estoppel bars Underwriters from raising that defense; it is a policy defense subject to estoppel |
| Whether Toji’s favorable summary judgment precludes Underwriters’ duty to indemnify 311 Entities | Mt. Hawley: Allegations in underlying pleadings created potential for coverage; estoppel prevents Underwriters from invoking Toji’s SJ to deny indemnification | Underwriters: Toji’s SJ means Toji cannot be liable, so additional insureds cannot seek indemnity tied to Toji’s acts | Court: Denying indemnity on that basis is a policy defense; estoppel prevents Underwriters from relying on the SJ to avoid indemnity |
| Whether estoppel would impermissibly expand policy coverage beyond the contract | Mt. Hawley: Estoppel enforces contractual obligations that Underwriters failed to honor; it does not expand coverage beyond the endorsement’s scope | Underwriters: Forcing indemnity despite Toji’s nonliability effectively increases coverage beyond what was bargained for | Court: Estoppel here enforces insureds’ rights due to insurer’s wrongful conduct; it does not unjustly expand coverage but prevents insurer’s inequitable benefit |
| Whether precedent from other circuits (Platinum, Santa’s Best) prevents applying estoppel to this noncoverage argument | Mt. Hawley: Illinois precedent and equitable doctrine allow estoppel to bar noncoverage defenses | Underwriters: Cites Seventh Circuit decisions limiting estoppel where settlement/reasonableness issues exist | Court: Declined to follow those as controlling; relied on Illinois appellate precedent applying estoppel broadly to noncoverage defenses |
Key Cases Cited
- Employers Ins. of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127 (Ill. 1999) (insurer must defend under reservation of rights or seek declaratory relief or risk estoppel)
- Clemmons v. Travelers Ins. Co., 88 Ill. 2d 469 (Ill. 1981) (equitable estoppel prevents insurer from invoking policy protections after failing to defend)
- Korte Constr. Co. v. Am. States Ins., 322 Ill. App. 3d 451 (Ill. App. Ct. 2001) (estoppel bars insurer from raising noncoverage defenses after wrongfully refusing defense)
- West Am. Ins. Co. v. J.R. Constr. Co., 334 Ill. App. 3d 75 (Ill. App. Ct. 2002) (blanket additional-insured/excess arguments subject to estoppel where insurer delayed or refused to defend)
- Platinum Tech., Inc. v. Fed. Ins. Co., 282 F.3d 927 (7th Cir. 2002) (discusses limits of estoppel where settlement reasonableness and coverage scope are contested)
- Santa’s Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339 (7th Cir. 2010) (addresses inequity of forcing insurer to pay clearly uncovered settlements)
- Gambino v. Boulevard Mortg. Corp., 398 Ill. App. 3d 21 (Ill. App. Ct. 2009) (unclean hands doctrine bars equitable relief to party who acted inequitably)