Santa's Best Craft, L.L.C. v. Zurich American Insurance
408 Ill. App. 3d 173
Ill. App. Ct.2010Background
- Santa's Best entities sought defense from Zurich under two Zurich policies for an Ohio stay-on light lawsuit by JLJ/Inliten alleging IP and deceptive practices.
- Zurich defended under reservation of rights due to potential non-coverage and paid reasonable defense costs incurred by plaintiffs' chosen counsel.
- Plaintiffs claimed Zurich breached the duty to defend promptly, failed to reimburse the settlement cost, and vexatiously pursued defenses; Monogram license defense expenses were at issue.
- The underlying suit settled for $3.5 million; plaintiffs sought reimbursement of defense costs (about $2 million claimed) and prejudgment interest.
- CGL policy allegedly covered advertising injuries; umbrella policy allegedly covered advertising injuries as well; litigation addressed whether alleged injuries were advertising injuries.
- Circuit court concluded Zurich had no duty to indemnify for settlement or Monogram defense costs; finalized non-liability for prejudgment interest; this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend | Zurich breached by delaying and underpaying defense costs. | Zurich conducted a reasonableness review and paid promptly; some charges were unreasonable or beyond coverage. | Zurich did not breach; defense costs reviewed and limited to reasonable/covered charges. |
| Duty to reimburse settlement | Settlement cost should be reimbursed as a covered loss. | Settlement not covered because underlying injuries were not advertising injuries; no indemnity obligation. | No indemnity for settlement; injuries not within policy coverage. |
| Duty to reimburse Monogram's defense expenses | Monogram's defense costs paid by plaintiffs should be indemnified. | No coverage for Monogram under either policy; indemnification unavailable. | No duty to indemnify for Monogram's defense expenses. |
| Prejudgment interest | Interest should accrue on liquidated defense amounts. | Damages not readily liquidated; interest not warranted. | No prejudgment interest awarded. |
Key Cases Cited
- Employers Ins. of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127 (1999) (estoppel when insurer breaches duty to defend)
- Murphy v. Urso, 88 Ill.2d 444 (1981) (conflict of interest issues in defense;)
- Peppers v. Maryland Casualty Co., 64 Ill.2d 187 (1976) (reimbursement for reasonable defense costs)
- Binney & Smith, Inc. v. Federal Ins. Co., 393 Ill.App.3d 277 (2009) (indemnity requires actual policy coverage for alleged loss)
- Lexmark Int'l, Inc. v. Transportation Ins. Co., 327 Ill.App.3d 128 (2001) (definition/limits of advertising injury; wide dissemination principle)
- Rombe Corp. v. Allied Ins. Co., 128 Cal.App.4th 482 (2005) (advertising must be broadcast or published; not mere solicitation)
- Hameid v. National Fire Insurance Co., 1 Cal.Rptr.3d 401 (2003) (advertising interpretation as wide dissemination)
- Florists' Mutual Ins. Co. v. Conrey, 201 Ill.App.3d 428 (1990) (definition of advertising)
- Valley Forge Ins. Co. v. Swiderski Electronics, Inc., 223 Ill.2d 352 (2006) (ambiguity/interpretation of policy terms)