and Workers Compensation Updates & Changes in Casualty & Property

heylroyster.com

© 2011 Heyl, Royster, Voelker & Allen

Get Connected!

Updates & Changes

in Casualty & Property

and W

orkers’

Compensation

Casualty & Property

Thursday, May 19, 2011

Bloomington, Illinois

Suite 575, PNC Bank Building 1 North Old State Capitol Plaza PO Box 1687 Springfield, IL 62701 217.522.8822 Urbana Suite 300 102 E. Main Street PO Box 129 Urbana, IL 61803 217.344.0060 Rockford

2nd Floor, PNC Bank Building 120 West State St.

PO Box 1288 Rockford, IL 61105 815.963.4454

Edwardsville

Suite 100, Mark Twain Plaza III 105 West Vandalia Street PO Box 467

Edwardsville, IL 62025 618.656.4646

Chicago

Theater District Business Center 60 W. Randolph St.

Suite 237 Chicago, IL 60601 312.762.9235

Heyl, Royster, Voelker & Allen

May 19, 2011

IN RE: 26th Annual Claims Handling Seminar Dear Seminar Attendee:

On behalf of the firm, I want to welcome you to our 26th Annual Claims Handling Seminar. Our attorneys have endeavored to prepare materials and presentations which will benefit you in your daily work, whether you are a claims professional, risk manager, corporate counsel or employer.

Please be sure to fill out the database update and evaluation form which is with your materials. Your feedback regarding this seminar and your suggestions for future topics are very important to us. We also ask that you be sure to provide your e-mail address since we are now distributing publications such as our Quarterly Review of Recent Decisions and Below the Red Line, our workers’ compensation newsletter, via e-mail.

In order to receive Continuing Education verification, be sure to sign the attendance sheet at the registration table both before the session begins and immediately following the conclusion of our sessions this afternoon. Attendance verification certificates will be e-mailed only to those who sign the attendance sheet both at the beginning and end of the seminar.

Once again, we appreciate your taking the time to join us today, and thank you for your confidence in selecting us as your attorneys.

HEYL, ROYSTER, VOELKER & ALLEN

By:

Gary D. Nelson Managing Partner 309.676.0400

CASUALTY & PROPERTY AGENDA

GET CONNECTED! UPDATES & CHANGES THURSDAY, MAY 19, 2011

1:00 - 4:30 P.M.

BLOOMINGTON, ILLINOIS

1:00 p.m. Welcome & Introductions

– Gary Nelson, Peoria

1:05 p.m. Investigation of Catastrophic Accidents

– Joe Feehan, Peoria

1:20 p.m. Insurance Coverage Update

– Patrick Cloud, Edwardsville

1:35 p.m. Liquor Liability: Social Hosts & Other Issues

– Mike Denning, Rockford 1:50 p.m. Premises Liability Update

– Jeff Bash, Edwardsville

2:05 p.m. Property Insurance Case Law Update

– Dave Perkins, Peoria

2:20 p.m. Recent Developments: Pain Doctors & Injections

– Matt Hefflefinger, Peoria

2:30 p.m. Break

2:50 p.m. What’s on the Horizon? Cases Pending in the Illinois Supreme Court

– Craig Unrath, Peoria 3:10 p.m. Medicare Set-Aside Trusts

– Brad Peterson, Urbana 3:20 p.m. Settlement Pitfalls

– Maura Yusof, Chicago

3:35 p.m. Uninsured and Underinsured Motorist Update

– Mark McClenathan, Rockford

3:50 p.m. Building a Solid Foundation for Defense: Statement Taking Techniques

– Heidi Ruckman, Rockford

4:00 p.m. Building a Solid Foundation for Defense: Gathering and Preservation of Evidence

– Doug Heise, Edwardsville

4:15 p.m. Case Law Update

– Matt Booker, Springfield 4:30 p.m. Cocktails & Hors d’oeuvres

CASUALTY AND PROPERTY

CONTACT ATTORNEYS

HEYL, ROYSTER, VOELKER & ALLEN

Rockford

Chicago

Peoria

Urbana

Springfield

Edwardsville

ILLINOIS

The cases and materials presented here are in summary and outline form. To be certain of their applicability and use for specific claims, we recommend the entire opinions and statutes be read and counsel consulted.

CASUALTY & PROPERTY

GET CONNECTED! UPDATES & CHANGES

Welcome & Introductions ... A-1 Investigation of Catastrophic Accidents ... B-1 Insurance Coverage Update ... C-1 Liquor Liability: Social Hosts & Other Issues ... D-1 Premises Liability Update ... E-1 Property Insurance Case Law Update ... F-1 Recent Developments: Pain Doctors & Injections ... G-1 What’s on the Horizon? Cases Pending in the Illinois Supreme Court ... H-1 Medicare Set-Aside Trusts ... I-1 Settlement Pitfalls ... J-1 Uninsured and Underinsured Motorist Update ... K-1 Building a Solid Foundation for Defense: Statement Taking Techniques ... L-1 Building a Solid Foundation for Defense: Gathering and Preservation of Evidence ... M-1 Case Law Update ... N-1

© 2010 Heyl, Royster, Voelker & Allen © 2011 Heyl, Royster, Voelker & Allen

A-1

WELCOME & INTRODUCTIONS 

Presented and Prepared by:

Gary D. Nelson

[email protected] Peoria, Illinois • 309.676.0400

Heyl, Royster, Voelker & Allen

PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE • CHICAGO

A-2

Gary D. Nelson

Gary currently serves as the Managing Partner of the firm. He began his legal career with Heyl Royster in 1977 and became a partner with the firm in 1985. Gary is also the Chair of our state-wide Insurance Coverage Practice Group. He concentrates his practice on liability insurance coverage cases for CGL,

umbrella/excess, automobile, home, life, health and disability policies, as well as civil litigation in trial and ADR settings with a special focus on trucking and common carrier disputes, construction litigation, and architect/engineer professional liability claims. He has represented more than 100 insurers and self-insureds in over 1,000 cases in his career.

He has litigated a wide range of coverage issues in both the state and federal courts, including the defense of insurance carriers in bad faith and vexatious refusal to pay cases as well as representing insurance agents in errors and omissions claims. He has also had the opportunity to represent several trucking companies and construction companies in catastrophic injury cases, utilizing accident

reconstruction and animation techniques, defending against fatigue, distraction, and conspicuity issues, as well as the medical and biomechanical issues

confronted in those types of catastrophic injury cases. Gary is a frequent speaker on insurance issues to bar and industry groups, both in Illinois and nationally, as well as addressing motor carrier groups and counsel and design professionals on issues unique to those industries. He has authored a chapter on "Other Insurance" in The Law & Practice of Insurance

Coverage Litigation published by West Group and has

published a chapter on "The Intentional Act Exclusion" in the Illinois Institute of Continuing Legal Education handbook on Commercial and Professional Liability

Insurance.

Gary served in the U.S. Army in Korea from 1972-1974.

Professional Recognition

 Martindale-Hubbell AV Rated

 Selected as a Leading Lawyer in Illinois. Only five percent of lawyers in the state are named as Leading Lawyers.

 Named to the Illinois Super Lawyers list (2008-2011). The Super Lawyers selection process is based on peer recognition and professional achievement. Only five percent of the lawyers in each state earn this designation.

 Illinois State Bar Association, Past Chair, Insurance Law Section Council

 American Bar Association, Past Chair, Self-Insurers & Risk Managers Committee

 American Bar Association, Past Chair, Insurance Law Coverage Committee

 Illinois Association of Defense Trial Counsel, Past Chair, Insurance Coverage Committee

 Abraham Lincoln American Inn of Court (Master)

Professional Associations

 Council on Litigation Management

 Federation of Defense and Corporate Counsel

 Defense Research Institute

 Illinois Association of Defense Trial Counsel

 Trucking Industry Defense Association

 American Bar Association

 Illinois State Bar Association

 Peoria County Bar Association

Court Admissions

 State Courts of Illinois

 United States District Court, Central District of Illinois (Trial Bar)

 United States Courts of Appeals, Seventh Circuit

 United States Supreme Court

Education

 Juris Doctor, University of Illinois, 1977

 Bachelor of Arts-Political Science, University of Illinois, 1972

B-1

INVESTIGATION OF CATASTROPHIC 

ACCIDENTS 

Presented and Prepared by:

Joseph G. Feehan

[email protected] Peoria, Illinois • 309.676.0400

Heyl, Royster, Voelker & Allen

PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE • CHICAGO

INVESTIGATION OF CATASTROPHIC ACCIDENTS

I. INTRODUCTION ... B-3

II. COORDINATION OF THE INITIAL INVESTIGATION ... B-3

III. THE INITIAL INVESTIGATION ... B-4

A. The First Call ... B-4

B. Immediately Notify Insured’s Management or Employer ... B-4

C. Gather Data and Evidence at the Accident Site ... B-4

1. Time and Location ... B-4

2. Accident Scene ... B-5

3. Parties Involved ... B-6

4. Witnesses, Law Enforcement, and Emergency Responders ... B-6

5. Vehicles Involved and Property Damage ... B-7

6. Injuries and Fatalities ... B-8

D. Respond to the Injured ... B-8

E. Secure the Accident Scene ... B-8

F. Accident Reconstructionist and Other Experts ... B-8

G. Alcohol and Drug Testing ... B-9

H. Care and Support for the Insured Employee(s) ... B-9

I. Obtain Witness Statements ... B-11

J. Secure Documents ... B-11

K. Secure Vehicle Computer Devices ... B-12

L. Obtain Reports and Evidence from the Authorities ... B-13

M. Internet Resources ... B-13

IV. CONCLUSION ... B-13

The cases and materials presented here are in summary and outline form. To be certain of their applicability and use for specific claims, we recommend the entire opinions and statutes be read and counsel consulted.

B-3

INVESTIGATION OF CATASTROPHIC ACCIDENTS

I. INTRODUCTION

When a catastrophic accident occurs, prompt and efficient collection of evidence is critical to minimizing liability exposure. Within 24 hours of the incident, if the fieldwork has not begun, the evidence begins to fade away. Weather conditions, emergency personnel, law enforcement, and other factors can quickly change the accident scene and may remove critical pieces of evidence. Witnesses’ memories of specific details begin to fade as the accident is no longer fresh. As time elapses following the accident, the who, what, when, where, why, and how of a catastrophic accident become unattainable.

With proper planning and coordination, accident investigators can maximize the collection and preservation of critical pieces of evidence. At the same time, prompt action can minimize the potential for making common investigation errors. The key is to develop a thorough method for collecting reliable, clear, and comprehensive information about an accident which will allow for an early evaluation of liability and damages.

II. COORDINATION OF THE INITIAL INVESTIGATION

It may be advisable to designate an “investigation coordinator” to oversee the initial investigation in order to eliminate confusion and redundancy. It is often prudent to promptly retain the services of an attorney and a law firm with experience in handling the initial investigation, as well as the defense of catastrophic accidents. The benefits of involving an attorney from the very beginning of the investigation include:

 Coordination of investigative efforts to reduce duplicate and unnecessary investigation during the critical initial stages;

 Assistance with the assignment and hiring of claims adjusters, accident reconstructionists, and other specialized investigators or experts;

 Undertake necessary action to ensure the preservation of helpful evidence at the accident scene and to avoid spoliation of evidence;

 Protection of all communications concerning the investigation via the attorney-client and attorney-work product privileges; and

 Formulate an initial evaluation of the potential liability issues and gear the investigation toward the defense of impending litigation.

It is helpful to have a list of attorneys and law firms prepared in advance by state and locality, along with contact information. Retain a law firm that has the resources which are required to promptly coordinate the investigation and the experience to ensure that the necessary components are in place to successfully complete the initial investigation, including retention of highly qualified experts.

III. THE INITIAL INVESTIGATION A. The First Call

The first call usually comes from the insured driver, employee, company, or law enforcement officials.

Obtain preliminary facts from these individuals and entities, such as:

 Whether the accident involved any injuries or fatalities.

 Extent of property damage – to vehicles, equipment, buildings, and products.

 Location, type, and configuration of accident scene.

 Accident conditions, i.e., weather, time of day, lighting, etc.

 Details of the accident, i.e., location of vehicles, equipment, buildings, or products involved, identification of witnesses, nature and extent of physical evidence, etc.

 Existence of photographs or videotapes.

B. Immediately Notify Insured’s Management or Employer

 Compile a list of home, office, fax, e-mail, pager, and cell phone contacts for the insured company officials who will serve as contacts and assist throughout the investigation.

C. Gather Data and Evidence at the Accident Site

Depending on the severity of the accident, promptly retaining an accident reconstructionist, engineer, or other experts/investigators can aid tremendously in determining exposure, event chronology, and necessary additional investigation. After obtaining the preliminary facts, the investigation moves to the scene of the accident where there are crucial pieces of evidence that must be secured and preserved as soon as possible.

1. Time and Location

B-5

 Precise location: state/county/city; route or street, street address; building identification or name; intersection or junction of routes; distance from nearest community; distance from mile markers, utility poles, highway bridges, etc.

2. Accident Scene

(a) Time is of the Essence

 Get to the scene as soon as possible to determine the physical factors and/or traffic conditions that may have played a role in causing the accident.

(b) Construct a Chronology

 Obtain statements from witnesses to determine the sequence of events. If the incident was a car or truck accident, obtain information on the directions of travel of each vehicle to the point of impact and from the point of impact to its final resting place.

(c) Measurements

 Width of the traffic lanes or highway, clearance between parked vehicles, buildings, traffic islands, or other obstructions.

 Distance of the site of the accident or point of impact from identifiable stationary objects, such as telephone poles, fire hydrants, mile posts, etc.

 Length of skid marks and direction the vehicles traveled after the point of impact.

 Distance from the point of impact to detached parts of vehicles.

(d) Photographs/Videotapes

 Scene from various angles.

 Resting position of vehicles, equipment, products or other physical evidence involved.  Damage to all vehicles, property, buildings, equipment, products or other physical

evidence involved.

 Pre-accident paths of the vehicles, i.e., tire tracks, skid marks, fluid trails, etc.

 Area where debris landed.

 Determine existence of security video.

 Potential Police/Fire Department Computer Evidence and vehicle generated video.

 Cell phone photographs/video.

(e) Record Road, Traffic, Weather, and Lighting Conditions (f) Electronic Data

 Potential Computer Forensic Expert

 Preserve Cell Phones, Blackberrys, etc.  Preserve Computers

3. Parties Involved

 Names and addresses of:

– Injured party(ies), co-workers, supervisors, other potential witnesses. – Owners, drivers, and passengers of all vehicles involved.

– Owners of all other property involved.

 Determine the location of each party before and after the accident.

 Determine which parties sustained injuries.

 Identify fatalities and try to determine whether they survived the accident for any period of time.

4. Witnesses, Law Enforcement, and Emergency Responders

Witness Statements: The most important information about an accident usually comes from

witnesses. Therefore, witness statements are vital to the investigation.

 Allow the witness to tell his/her own story and then ask clarifying questions.

 Interview witnesses separately.

 Do not reveal the name or testimony of one witness to another.

 Determine the source of the witness’ information, whether it is from first-hand observation or hearing from another witness.

B-7

 Obtain a signed or recorded statement from each witness, if appropriate.

Information to obtain:

 Names and addresses of individuals first on the scene.

 Interview investigating police officers and any state or federal agency officials (i.e., OSHA, DOT, State Fire Marshal EPA, etc.) to determine their initial opinions, if they photographed the scene, their level of expertise in accident reconstruction, and if they surveyed the area. Also, obtain the name, badge numbers, and address of each law enforcement or agency official.

 Identify the ambulance service and emergency technicians.

 Identify fire and rescue personnel on the scene.

 Identify wrecker or towing service and their employees to determine the condition of the vehicles/cargo/equipment/debris transported and whether further damage was sustained during transport.

 Describe witnesses who refuse to identify themselves, i.e., license plate info, physical characteristics, etc.

5. Vehicles Involved and Property Damage

 Insured vehicle:

– Make, model, year of manufacture, serial number, body type, type of cargo, and gross weight.

– Identify each vehicle in a combination unit, i.e., tractor, trailer, etc.

 For any vehicles operated by a motor carrier, obtain the certificate or permit number issued by the U.S. Department of Transportation or state agency.

 For any leased vehicles, record the names and addresses of both the lessor and lessee.

 If a vehicle is a bus, obtain the information listed above, as well as the number of passengers on board, a list of the passengers, and a diagram showing where each passenger was sitting or standing. It is important to obtain an immediate count of passengers.

 If a vehicle is a passenger car or other small vehicle, record the make, year of manufacture, VIN number, body type, and current license number.

 Describe the damage:

– sustained by each vehicle involved; – to any cargo in any vehicle; and – to any real property.

 Estimate the dollar value of damage to each vehicle, its cargo, and other property damage.

 Determine the cause of damage to each vehicle and related property.

6. Injuries and Fatalities

 Obtain name, address, sex, age, marital status, number of dependent children, and employment status of each injured person.

 Describe the nature and extent of injuries.

 Obtain the name of the doctor and hospital involved in the initial treatment. Describe the nature of the treatment administered. If possible, identify the treating physician(s).

 For fatalities, obtain the clinical cause of death and events that established the cause of death.

 Obtain the date and place of death for each person killed, including persons dying at a later date from injuries sustained in the accident. Possible sources of information include obituaries, newspaper articles, and autopsy or medical examiner’s reports.

D. Respond to the Injured

Respond to the injured by determining the extent of the injuries and obtaining appropriate medical care.

E. Secure the Accident Scene

Secure the accident scene in coordination with local law enforcement to prevent further accidents, injuries, damage, and to preserve the evidence.

F. Accident Reconstructionist and Other Experts

The retention of an accident reconstructionist, engineer, or other appropriate expert should be made by or with the attorney so that any potential privileges will be preserved.

B-9

G. Alcohol and Drug Testing

In trucking accidents, Federal Motor Carrier Regulations require that employers must conduct alcohol testing within eight hours of the accident and drug testing must occur within 32 hours of the accident. If the tests are not completed within the time requirements, the trucking company must maintain a file with documentation of the reasons why the tests were not administered.

Testing must be completed for the truck driver if:

 The accident involved the loss of human life or

 The driver received a citation within eight hours of the accident under state or local law for a moving violation, if the accident involved:

– bodily injury to any person who immediately receives medical treatment away from the scene of the accident; or

– one or more of the vehicles involved in the accident incurred disabling damage such that the vehicle had to be towed or transported away from the accident scene.

Federal law sets forth the requirements for drug testing in the Code of Federal Regulations, 49 C.F.R. § 382.303. Proper procedures should be in place that go to great lengths to complete these tests in order to avoid later accusations and allegations by potential plaintiffs.

Alcohol and drug testing should also be considered in other catastrophic accidents. Frequently, law enforcement or other governmental officials may request that the plaintiff or the insured’s employees undergo testing. Even if such tests are not always required, it may be helpful to show that your insured’s employee or driver was not under the influence.

H. Care and Support for the Insured Employee(s)

By the time the attorney or the claims adjuster comes into contact with the insured, the employee(s) involved frequently has already given a statement to the police or other governmental agency. Unfortunately, employees involved in accidents are often in a high level of mental and emotional distress. As a result, their statements or representations are often incoherent, full of remorse, or distorted by their state of mind. For better or worse, statements made by such employees often become the most significant version of events due to their proximity in time with the accident. Other than the information required by law enforcement, it is imperative that the insured employee(s) should not give any written or recorded

statements.

An experienced claims handler and/or attorney can work to protect the employee(s) from making spontaneous, emotional and discoverable admissions and speculations. Also, in the

event of possible criminal charges, the attorney can retain criminal defense counsel to protect the employee(s) rights.

Consider the following in dealing with the insured’s employee(s):

 Contact the employee immediately and assure them that you are on their side.

 Determine whether the employee needs medical attention.

 Arrange for the employee to submit to alcohol and drug testing.

 Determine if the employee needs counseling, refer him to his employer’s Employer Assistance Program.

 Evaluate the content of any statement given by the employee to the investigating law enforcement authorities and to any other parties.

 Obtain the employee’s own account of the accident, including the chronological events leading up to the accident, and facts leading to the cause of the accident.

 Determine the location of documents related to the vehicle, equipment or product involved.

 Obtain authorization from the employee for release of their medical records, determine if he suffers from any medical conditions or wears glasses or contacts.

 Obtain employee’s personal contact information.

 Advise employee on how to deal with the media.

 Explain to the employee what to expect if a civil suit is filed or if criminal charges are made against him.

 Determine if the employee received a citation or ticket and if so, make arrangements to respond to the citation or ticket.

 Determine if criminal charges have been filed and make arrangements for a defense, if appropriate.

 Determine if there were any maintenance, mechanical, or operational problems experienced before the accident with the vehicle, equipment, or product involved.

B-11

I. Obtain Witness Statements

Often, the most important source of information comes from persons who were involved in investigating or responding to the scene. Preliminary facts that may not be ascertainable at a later date, such as condition of injured parties, initial statements, physical evidence, roadway and weather conditions, status of the vehicles, equipment or product, etc. are essential.

Statements should be obtained from the following persons:

 Insured employees

 Company employees on the scene  Law enforcement

 Emergency responders: fire and EMT  Eyewitnesses

J. Secure Documents

Documents often serve as key pieces of evidence in litigation. They contain information that may reveal confidential information or information that may lead to liability. Some documents may be protected by a privilege, which would prevent disclosure to plaintiffs. However, many documents are not privileged, and may later be subject to a spoliation claim if the documents are not secured from the very beginning of the investigation and then preserved.

Even if litigation is uncertain, it is still worthwhile to secure the following documents:

 Driver’s logs for 30 days prior to the accident.

 Equipment inspection reports for 30 days prior to the accident.

 Dispatch records relating to the driver for a week prior to the accident.

 Bills of lading and shipping documents for the trip involving the accident.  Fuel receipts for 30 days prior to the accident.

 Weight tickets for at least one week prior to the accident.

 Toll receipts for at least one week prior to the accident.

 All maintenance files for the vehicle, equipment, or product involved.

 Employer’s investigation file, including photographs and statements, secured by its own employees.

 Employer’s policies, procedures, and training materials in force at the time of the accident.

 Information relating to the insured’s employees: – qualifications and credentials.

– drug and alcohol testing results.

– payroll records for 30 days prior to the accident. – cell phone records for the month of the accident. – any disciplinary record in personnel file.

K. Secure Vehicle Computer Devices

Heavy trucks manufactured after the mid-1990s are likely to be equipped with on board electronic control modules (“ECM”), which record the truck’s movements prior to the accident. Similarly, some trucks may be equipped with global position systems (“GPS”), which can calculate the exact positioning of a truck. Passenger cars also have technology that can provide useful accident information. Some newer cars contain a car data retrieval (“CDR”) system that downloads information from the air bag control system. All these computer devices can provide critical information such as the speed of the vehicle, the driver’s actions leading up to, during, and after an accident.

Likewise, many other types of products and equipment (i.e., tractors, combines, large machinery) contain similar types of computer generated information stored in devices on the equipment.

In order to preserve this type of evidence, consider the following steps:

 After the vehicle, equipment or product is released by the authorities, secure it until a technician can download the ECM data.

 During the retrieval of the information, have a court reporter present to swear in the technician to establish on the record his qualifications and procedures in downloading the data.

 After downloading, secure a digital and hard copy of the data.

 Contact the insured company to determine if they have any GPS or other digital data.

 Contact the owner of any cars or other passenger vehicles involved in the accident and try to reach an agreement to preserve and obtain the CDR information.

B-13

L. Obtain Reports and Evidence from the Authorities

Another source of critical evidence and data is the investigating law enforcement agencies. Beyond the police report, documents from state agencies and other authorities may provide important information. Obtain the following documents from the appropriate authorities:

 Any commercial motor vehicle inspection reports regarding the working condition of the equipment.

 Any citations issued by IDOT, other state agencies, or other local law enforcement officials.

 Preliminary, final, and supplemental accident reports.

 Any photographs or diagrams of the scene and the objects involved in the accident.

 Any accident reconstruction files generated by authorities with such expertise.

 Official weather reports.

M. Internet Resources

Investigate parties and witnesses through Facebook, MySpace, and other online resource sites.

IV. CONCLUSION

A catastrophic accident can occur at any time. Conducting a thorough initial investigation is critical to preserve the evidence which will serve as the foundation of the ongoing investigation and potential litigation.

In order to conduct the initial investigation, claims handlers should prepare and plan the procedures for conducting the investigation in advance. It is advisable that claims adjusters compile emergency contact information for their insureds. A roster of attorneys and independent adjusters by state and locality should be kept to allow for immediate access to investigation coordinators and investigators after a major accident.

A prompt and thorough investigation will allow you to gain an advantage in avoiding mistakes – which could otherwise result in unfavorable factual surprises later on, during litigation. Investigating and preserving the evidence will enable you mitigate the damages by settling the case early; laying the foundation for a defense to avoid prolonged litigation; and the opportunity to reduce the risk of a negative outcome in the event the case goes to trial.

Joseph G. Feehan

Joe has spent his entire legal career with Heyl Royster, beginning in 1988 in the Peoria office. He is the co-chair of the firm's Truck/Motor Carrier Litigation Practice Group. Joe concentrates his expertise in all areas of civil litigation including product liability, sexual torts, trucking/transportation, premises liability, auto, and commercial litigation.

In recent years, Joe has developed a special focus on defending sexual tort claims, particularly those brought against corporations and religious entities. Many of his cases are against leading Chicago and national counsel where damages sought against these target defendants typically reach several million dollars.

Although always prepared to try cases when necessary, Joe is a skilled negotiator and has had great success resolving cases through mediation. Over the last five years, Joe has resolved over 40 lawsuits through mediation.

Joe is a frequent speaker at programs and seminars on civil litigation, including such topics as effective trial techniques, expert witnesses, and evidentiary issues. Joe has published many articles on various trial practice and evidence issues. He served as Editor-in-Chief of the Illinois Defense Counsel Quarterly, the official journal of the Illinois Association of Defense Trial Counsel, and as a contributor to the IDC Quarterly's Evidence and Practice Tips column for several years. Joe co-authored the chapter on UCC Warranties in the Contract Law Handbook published in 2008 and 2005 by the Illinois Institute of Continuing Legal Education. Currently, Joe serves as Chair of the Peoria County Bar Association's Continuing Legal Education Committee and is President of the Abraham Lincoln Chapter of the Inns of Court. Joe was recently elected to the Board of Directors of the Illinois Association of Defense Trial Counsel.

Joe enjoys an "AV" rating by Martindale-Hubbell. He has been designated an Illinois "Super Lawyer" (top five percent) as a result of a survey of Illinois attorneys and judges conducted by Chicago magazine, as were 13 of his partners. Joe has also been selected as a Leading Lawyer in Illinois.

Publications

 Life After "Same Part of the Body:" An Update on Admissibility of Prior Injuries, Illinois Bar Journal

 Contract Law Handbook; Chapter on UCC

Warranties, Disclaimers and Limitations, Illinois Institute for Continuing Legal Education (2008 and 2005 editions)

 Life After Daubert and Kumho Tire: An Update on the Admissibility of Expert Testimony, Illinois Bar Journal

Professional Recognition

 Martindale-Hubbell AV Rated

 Named to the Illinois Super Lawyers list (2005-2011). The Super Lawyers selection process is based on peer recognition and professional achievement. Only five percent of the lawyers in each state earn this designation.

 Selected as a Leading Lawyer in Illinois. Only five percent of lawyers in the state are named as Leading Lawyers

 Illinois Association of Defense Trial Counsel Distinguished Service Award, 2007

Professional Associations

 National Diocesan Attorneys Association

 Trucking Industry Defense Association

 Defense Research Institute

 Illinois Association of Defense Trial Counsel (IDC Quarterly regular columnist, past Editor-in-Chief, and current Board member)

 Abraham Lincoln Inn American Inn of Court (presently President)

 American Bar Association

 Illinois State Bar Association

 Peoria County Bar Association (Chair of Continuing Legal Education Committee)

Court Admissions

 State Courts of Illinois

 United States District Court, Central and Northern Districts of Illinois

Education

 Juris Doctor (Cum Laude), Northern Illinois University College of Law, 1988

 Bachelor of Arts-Business Administration, Illinois State University (1983)

C-1

INSURANCE COVERAGE UPDATE 

Presented and Prepared by:

Patrick D. Cloud

[email protected] Edwardsville, Illinois • 618.656.4646

Heyl, Royster, Voelker & Allen

PEORIA • SPRINGFIELD • URBANA • ROCKFORD • EDWARDSVILLE • CHICAGO

C-2

INSURANCE COVERAGE UPDATE

I. WHO IS AN INSURED – ADDITIONAL INSURED ENDORSEMENTS ... C-4

A. Pekin Ins. Co. v. Roszak/ADC, LLC ... C-4

B. Pekin Ins. Co. v. Pulte Home Corp. ... C-5

II. INSURING AGREEMENTS AND LIMITS OF LIABILITY ... C-6

A. Scope of “Bodily Injury” Coverage: Medmarc Cas. Ins. Co.

v. Avent America, Inc. ... C-6

B. Definition of Advertising Injury: Santa’s Best Craft, LLC

v. Zurich American Ins. Co. ... C-7

C. Limits of Liability and Anti-Stacking Clauses: Progressive

Premier Ins. Co. of Illinois v. Kocher ... C-8

III. EXCLUSIONS ... C-9

A. Intellectual Property Exclusion: Santa’s Best Craft, LLC

v. St. Paul Fire and Marine Ins. Co. ... C-9

B. Intentional Acts Exclusion ... C-10

1. American Family Mut. Ins. Co. v. Guzik ... C-10

2. West Bend Mut. Ins. Co. v. State ... C-10

3. Pekin Ins. Co. v. Wilson ... C-11

C. Reasonable Belief Exclusion: Founders Ins. Co. v. Munoz ... C-12

IV. GENERAL PROVISIONS OF THE POLICY ... C-12

A. Choice of Law: Liberty Mut. Fire Ins. Co. v. Woodfield Mall, LLC ... C-12

B. Termination of Insurer/Insured Relationship ... C-13

1. Cancellation versus Non-Renewal: Yunker v.

Farmers Auto. Management Corp. ... C-13

2. Cancellation of Policy Covering a Government Vehicle:

American Home Assurance Co. v. Taylor ... C-14

C. Duties of the Insured ... C-14

1. Lack of Notice: West American Ins. Co. v. Yorkville Nat. Bank ... C-14

V. MUTUAL MISTAKE BY THE PARTIES ... C-16

A. Mutual Mistake of Fact: Mid-Century Ins. Co. v.

Founders Ins. Co. ... C-16

B. Mutual Mistake of Law: Hartford Cas. Ins. Co. v. Moore ... C-17

VI. AGENCY: APPARENT AGENCY: FIRST CHICAGO INS. CO. V. MOLDA ... C-18

VII. DUTY TO DEFEND: DETERMINATION OF DUTY TO DEFEND:

KONSTANT PRODUCTS, INC. V. LIBERTY MUT. FIRE INS. CO. ... C-19

VIII. INTERPLEADERS AND THE DUTY TO DEFEND: AMERICAN SERVICE INS.

CO. V. CHINA OCEAN SHIPPING CO. ... C-20

The cases and materials presented here are in summary and outline form. To be certain of their applicability and use for specific claims, we recommend the entire opinions and statutes be read and counsel consulted.

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INSURANCE COVERAGE UPDATE

I. WHO IS AN INSURED – ADDITIONAL INSURED ENDORSEMENTS

A. Pekin Ins. Co. v. Roszak/ADC, LLC

In Pekin Ins. Co. v. Roszak/ADC, LLC, 402 Ill. App. 3d 1055, 931 N.E.2d 799, 341 Ill. Dec. 902 (1st. Dist. 2010), a subcontractor added a general contractor to its CGL policy as an additional insured. The additional insured endorsement contained the following provisions:

Who Is An Insured (Section II) is amended to include as an insured any person

or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability incurred solely as a result of some act or omission of the named insured and not for its own independent negligence or statutory violation.

Pekin Ins. Co., 402 Ill. App. 3d at 1058.

A worker was injured at the jobsite and sued the general contractor and the subcontractor. The complaint against the general contractor contained two counts: 1) negligence and 2) premises liability. The counts against the general contractor made various assertions of negligence, including assertions that the general contractor “[f]ailed to reasonably inspect, supervise and control the work site and the work being done thereon,” “[f]ailed to follow it[s] own safety rules,” and “[f]ailed to follow OSHA safety rules and procedures.” Id. at 1057. Each count against the general contractor ended with an assertion: “That as a direct and proximate result of the negligence of [the general contractor], [the injured worker] was struck by a load of structural steel, suffering serious and permanent personal and pecuniary injuries.” Id. at 1057-1058. The complaint made no allegations about the relationship between the general contractor and subcontractor.

The general contractor tendered its defense to the subcontractor’s insurer pursuant to the additional insured endorsement. The insurer denied the defense, and a declaratory judgment action ensued. On appeal, the Illinois Appellate Court found that no duty to defend existed under the additional insured endorsement. In doing so, the Appellate Court compared the allegation of the complaint to the terms of the additional insured endorsement. The Appellate Court noted that general contractor was only an additional insured under the subcontractor’s policy if the general contractor was being held liable “solely as a result of some act or omission of the” subcontractor and “not for its own independent negligence or statutory violation.” Id. at 1060. The Appellate Court found that nothing in the injured party’s complaint suggested that the general contractor would be held vicariously liable for the subcontractor’s negligence. Rather, the complaint sought recovery for the general contractor’s own negligence. As a

consequence, the Appellate Court read the injured worker’s complaint “as alleging direct liability against [the general contractor], which is not liability ‘incurred solely as a result of some act or omission of the named insured’ as required for coverage.” Id. at 1066. Thus, the additional insured endorsement did not apply.

B. Pekin Ins. Co. v. Pulte Home Corp.

In Pekin Ins. Co. v. Pulte Home Corp., 404 Ill. App. 3d 336, 935 N.E.2d 1058, 343 Ill. Dec. 830 (1st Dist. 2010), a general contractor was an additional insured under its subcontractor’s CGL policy. The additional insured endorsement stated as follows:

Who is an Insured (Section II) is amended to include as an insured any person

or organization for whom you are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability incurred solely as a result of some act or omission of the named insured and not for its own independent negligence or statutory violation.

Pekin Ins. Co., 404 Ill. App. 3d at 338.

A worker at the jobsite was injured and sued the general contractor and the subcontractor, alleging that he was injured when he fell through an unguarded sewer manhole. The injured worker sued both the general contractor and subcontractor asserting that their negligence caused his injuries. The allegations of the complaint asserted theories of direct negligence. It did not explicitly assert a theory of vicarious liability. That said, in response to requests for admission, the injured worker admitted that “he anticipated contending at the time of trial that [the general contractor’s] liability in the underlying litigation is vicarious to or imputed from acts or omissions of” the subcontractor. Furthermore, the subcontractor made “several admissions that raise the possibility that it will be found solely liable to [the injured worker] in the underlying litigation.” Id. at 342.

The general contractor tendered its defense to the subcontractor’s insurer pursuant to the above-referenced additional insured endorsement, and the subcontractor’s insurer denied the claim. In the ensuing coverage litigation, the Appellate Court ruled in favor of the general contractor and found that the subcontractor’s insurer had a duty to defend under the endorsement. According to the Appellate Court, when determining the existence of a duty to defend, it is not restricted to a review of the underlying complaint but can consider matters that fall outside the pleadings. As such, although, “pursuant to the allegations in the underlying complaint, [the general contractor] might be found independently liable to [the injured worker],”

Id. Consideration of the above-referenced admissions by the injured worker and the

subcontractor suggested that it would be possible, if not likely, that any liability attributed to the general contractor would be vicarious in nature. Therefore, the additional insured endorsement was triggered.

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II. INSURING AGREEMENTS AND LIMITS OF LIABILITY

A. Scope of “Bodily Injury” Coverage: Medmarc Cas. Ins. Co. v. Avent America,

Inc.

In Medmarc Cas. Ins. Co. v. Avent America, Inc., 612 F.3d 607 (7th Cir. 2010), a manufacturer was insured under a CGL policy obligating the insurer to:

pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” included within the “products-completed operations hazard” to which this insurance applies. . . . However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply.

Medmarc, 612 F.3d at 612.

The policy defined “bodily injury” as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” Id. The manufacturer was sued in a number of class actions for manufacturing plastic baby bottles containing Bisphenol-A (BPA). According to one of the complaints:

This action arises out of Defendants’ misrepresentations and/or omissions and failures to warn of and/or otherwise disclose that their Baby Products are manufactured using a dangerous chemical recognized to be toxic in several respects for years and which poses serious risks to an individual’s health as the fact that it leaches into food and beverages in the course of normal, everyday use.

Id. at 610.

While the complaints discussed the alleged negative health effects of BPA in some detail, the complaints never alleged that any of the plaintiffs suffered any physical harm. Instead, the complaint sought recovery for economic harm and asserted many causes of action, including consumer fraud, breach of express and implied warranties, intentional misrepresentation, negligent misrepresentation, and unjust enrichment.

The manufacturer submitted these complaints to its CGL carrier for a defense, and the CGL carrier denied the claim. In the ensuing coverage litigation, the Seventh Circuit Court of Appeals ruled that the carrier had no duty to defend under the CGL policy because the underlying complaints did not assert liability “because of bodily injury.” The Seventh Circuit noted that:

[T]he complaints in the underlying suits do not reach the level of asserting claims “because of bodily injury.” Implicit in [the manufacturer’s] argument is that the damages claimed are somehow, at least tangentially, tied to a bodily injury

caused by BPA. As discussed above, that simply is not the case here. The theory of relief in the underlying complaint is that the plaintiffs would not have purchased the products had [the manufacturer] made certain information known to the consumers and therefore the plaintiffs have been economically injured. The theory of the relief is not that a bodily injury occurred and the damages sought flow from that bodily injury.

Id. at 616.

B. Definition of Advertising Injury: Santa’s Best Craft, LLC v. Zurich American

Ins. Co.

In Santa’s Best Craft, LLC v. Zurich American Ins. Co., ___ Ill. App. 3d ___, 941 N.E.2d 291, 346 Ill. Dec. 733 (1st Dist. 2010), the insureds were insured under a CGL policy that provided coverage for “personal and advertising injury.” The policy defined “personal and advertising injury” as an injury “arising out of one or more of the following offenses: . . . f. The use of another’s advertising idea in your ‘advertisement’; or g. Infringing upon another’s copyright, trade dress or slogan in your ‘advertisement.’” The policy defined “advertisement” as “a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers and supporters.” Santa’s Best Craft, 941 N.E.2d at 302.

The insureds were manufacturers of Christmas lights. Every year, the insureds and its competitors would invite 75-100 retailers who were the primary purchasers of Christmas decorations to their showrooms to display their products. These appointments would occur “approximately 18 months before the Christmas season in which their products would appear on the retailers’ store shelves.” No purchases were made during these appointments, but the retailers would purchase items that the retailers viewed in the showrooms as the Christmas season approached. The insureds manufactured Christmas lights named “Stay On” – which allegedly stayed on when one light went off. One of the insureds’ competitors made a similar product called “Stay Lit.” The competitor sued the insureds, alleging that, during these presentations to the 75-100 retailers, the insureds copied its packaging and slogans and put them on the products and packages that the insureds put into their showroom. The competitor sued the insureds alleging a number of causes of action, including “(1) trademark infringement; (2) false designation of origin and trade dress infringement; (3) false advertising; (4) trademark dilution; [and] (5) deceptive trade practices.” Id. at 296.

After the insureds submitted the lawsuit to its CGL carrier asserting that the lawsuit qualified for coverage as a “personal and advertising injury,” the insureds and the CGL carrier disputed whether the case involved injuries arising out of an “advertisement.” As such, the ensuing coverage litigation focused on the definition of “advertisement.” When interpreting the policy’s definition of “advertisement,” the Seventh Circuit Court of Appeals noted that the dictionary defined “broadcast” as meaning “to make widely known: disseminate or distribute widely or at random” and “publish” as meaning “to declare publicly: make generally known: disclose,

C-8

circulate.” Consequently, according to the Court, “under the terms of the CGL policy, an ‘advertisement’ must be widely disseminated to its intended audience, regardless of whether the audience is the general public or a specific market segment thereof.” Id. at 303. Applying this definition to the facts of the case, the Circuit Court of Appeals determined that the underlying lawsuit did not satisfy the definition of “advertisement.” The Court reasoned:

[The insureds] invited each of their 75 to 100 potential customers to their showroom to view their products. The retailers made individual appointments to view the products and received personal presentations about the products displayed. Additionally, as [insureds] admit, they did not send out any mailers or fliers or conduct any Internet-based advertising to attract potential customers. . . . [W]e do not regard [insureds’] “in-person form of promotion” as a broadcast or publication of the type required of an “advertisement” under the terms of the CGL policy.

Id. at 305.

C. Limits of Liability and Anti-Stacking Clauses: Progressive Premier Ins. Co. of

Illinois v. Kocher

In Progressive Premier Ins. Co. of Illinois v. Kocher, 402 Ill. App. 3d 756, 932 N.E.2d 1094, 342 Ill. Dec. 633 (5th Dist. 2010), the insurer issued a policy that listed both an ATV and a motorcycle as insured vehicles. The declarations of the policy listed each vehicle separately and separately listed a limit of liability for liability coverage for each vehicle of $100,000 per person. The policy also contained the following provision:

The limit of liability shown on the Declarations Page is the most we will pay regardless of the number of:

1. claims made; 2. covered vehicles;

3. trailers shown on the Declarations Page; 4. insured persons;

5. lawsuits brought;

6. vehicles involved in the accident; or 7. premiums paid.

Progressive Premier, 402 Ill. App. 3d at 757.

The declarations page also stated that, “The policy limits shown for a vehicle may not be combined with the limits for the same coverage on another vehicle.” Id.

A child was riding as a passenger in the ATV vehicle when the ATV collided with the motorcycle insured by the policy. The child submitted a claim against the policy under its liability provisions,

asserting that he was entitled to $200,000. The insurer objected to this interpretation, asserting that the above-referenced anti-stacking provisions limited liability to $100,000. During the following coverage litigation, the Illinois Appellate Court found that the policy was ambiguous given the facts of the claim. The Appellate Court first noted that this was not the traditional stacking scenario. According to the Court, “[s]tacking ordinarily involves combining or aggregating the policy limits applicable to more than one vehicle where the other vehicles are not involved in the accident.” Id. at 760. Then, the Court stated that the layout of the declarations page created an ambiguity, reasoning:

[T]he declarations page contains separate headings for each vehicle and an additional heading for the general policy coverage. Significantly, uninsured- and underinsured-motorist protection is provided under the general policy provision section and appears to be applicable to any or all of the vehicles with a single limit. By contrast, the other types of coverage – including the bodily injury liability coverage, which is what is at issue here – are listed separately for each vehicle under a heading that indicates the vehicle for which the coverage is provided. The most logical implication of this layout is that if any vehicle is involved in an accident, the limit of bodily injury liability coverage available is the limit listed under that vehicle, whether or not any of the other covered vehicles are involved.

Id. at 764.

Therefore, the Illinois Appellate Court permitted the stacking of the two limits of liability and permitted a recovery of $200,000.

III. EXCLUSIONS

A. Intellectual Property Exclusion: Santa’s Best Craft, LLC v. St. Paul Fire and

Marine Ins. Co.

In Santa’s Best Craft, LLC v. St. Paul Fire and Marine Ins. Co., 611 F.3d 339 (7th Cir. 2010), insureds who manufactured Christmas lights with the name “Stay On” were sued by a competitor who manufactured Christmas lights with the name “Stay Lit.” According to the lawsuit, the insureds copied the “Stay Lit” lights packaging design and sold “Stay On” lights using false and deceptive language. The competitors sued the insured for Lanham Act trademark infringement, false designation of origin, false advertising, trademark dilution, and deceptive trade practices. The insureds’ policy provided coverage for a claim for “[u]nauthorized use of . . . any slogan . . . of others in your advertising.” The policy, however, excluded coverage for “injury or damage . . . that results from any actual or alleged infringement or violation of any of the following rights or laws: . . . trade dress, . . . trademark, other intellectual property rights or laws.” This exclusion, however, had an exception for “unauthorized use of . . . trademarked slogan . . . of others in your advertising.” Santa’s Best, 611 F.3d at 347-348.

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After the insurer denied the insureds’ request for a defense, the insureds sued the insurer in an action for declaratory judgment. In determining whether a duty to defend existed under the Policy, the Seventh Circuit Court of Appeals compared the allegations of the complaint to the terms of the policy. According to the Court, a duty to defend was triggered because the policy provided coverage for claims related to the unauthorized use of a slogan and the complaint alleged that the insureds copied its competitor’s slogans. Furthermore, the Seventh Circuit found that the intellectual property exclusion did not exclude coverage because, even if the intellectual property exclusion applied, the exception to the intellectual property exclusion would have been triggered as well.

B. Intentional Acts Exclusion

1. American Family Mut. Ins. Co. v. Guzik

In American Family Mut. Ins. Co. v. Guzik, 406 Ill. App. 3d 245, 941 N.E.2d 936, 347 Ill. Dec. 67 (3d Dist. 2010), the insured was covered by a liability insurance within a homeowners policy that excluded:

[b]odily injury or property damage caused intentionally by or at the direction of

any insured even if the actual bodily injury or property damage is different than that which was expected or intended from the standpoint of any insured. (Emphasis in original.)

American Family, 406 Ill. App. 3d at 247.

After the insured lost his job and had attempted to sell his home, he set fire to his house. The fire caused the insured’s home to explode, and the explosion damaged the homes of the insureds’ neighbors. The neighbors submitted claims against the insured’s policy. After the insurer denied the claim, it filed a complaint for declaratory judgment. During the declaratory judgment action, the Illinois Appellate Court found that the intentional acts exclusion within the insured’s policy excluded his neighbors’ claims. The Court reasoned that the insured “intentionally caused the explosion and fire on his premises,” and “[t]he fire spreading to the neighbors’ properties was ‘expected’ in that it was a rational and probable consequence of the explosion and fire.” Consequently, “the damage to the neighboring homes falls within the parameters of the exclusionary clause even if it was different than that which [the insured] expected or intended.” Id. at 249.

2. West Bend Mut. Ins. Co. v. State

In West Bend Mut. Ins. Co. v. State, 401 Ill. App. 3d 857, 929 N.E.2d 606, 340 Ill. Dec. 955 (1st Dist. 2010), a general contractor was insured under a CGL policy that contained an exclusion for “intended or expected injury.” The contractor was sued for fraud in a number of lawsuits alleging that the contractor defrauded its customers. The insurer filed for declaratory judgment asserting that no coverage existed under the Policy, and the Illinois Appellate Court concurred on various

grounds, including the fact that the policy’s intentional acts exclusion applied to this case. According to the Appellate Court,

The four underlying complaints that are the subject of this declaratory judgment action similarly allege intentional misconduct designed to defraud customers of [the contractor]. The four underlying plaintiffs’ complaints do not allege that [the contractor] acted negligently. Instead, the four plaintiffs’ complaints allege that [the contractor] knowingly performed improper home repair and remodeling. Thus, the exclusion for expected or intended injury bars coverage for the acts alleged in all four of the underlying complaints.

West Bend, 401 Ill. App. 3d at 938.

3. Pekin Ins. Co. v. Wilson

In Pekin Ins. Co. v. Wilson, 237 Ill. 2d 446, 930 N.E.2d 1011, 341 Ill. Dec. 497 (2010), an insurer issued a policy with an intentional acts exclusion precluding coverage for “‘Bodily injury’ or ‘property damage’ expected or intended from the stand point of the insured.” The intentional acts exclusion contained an exception, however, stating that the intentional acts exclusion did “not apply to ‘bodily injury’ resulting from the use of reasonable force to protect persons or property.” A plaintiff filed a personal injury lawsuit against the insured, alleging that the insured assaulted him. The insured responded to the complaint by asserting that he acted in self-defense.

In the following complaint for declaratory judgment, the trial court found that the insurer had no duty to defend because the plaintiff’s complaint fell within the scope of the policy’s intentional acts exclusion. On appeal, the Illinois Appellate Court reversed, stating that the self-defense exception created a duty to defend. The Illinois Supreme Court then affirmed the Illinois Appellate Court’s reversal of the trial court, concurring with the Appellate Court’s analysis and permitting the consideration of insured’s counter-claim to trigger the duty to defend. According to the Supreme Court,

[C]onsideration of a third-party complaint in determining a duty to defend is in line with the general rule that a trial court may consider evidence beyond the underlying complaint if in doing so the trial court does not determine an issue critical to the underlying action. The trial court should be able to consider all the

relevant facts contained in the pleadings, including a third-party complaint, to determine whether there is a duty to defend. (Emphasis in original.)

Pekin Ins. Co., 237 Ill. 2d at 460.

The Supreme Court also determined that, “in light of the broad scope of [insurer’s] policy, and the clear language of the self-defense exception, the policy requires the defense of the insured

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where a genuine issue of material fact exists as to whether the intentional acts of the insured were committed in self-defense.” Id. at 466.

C. Reasonable Belief Exclusion: Founders Ins. Co. v. Munoz

In Founders Ins. Co. v. Munoz, 237 Ill. 2d 424, 930 N.E.2d 999, 341 Ill. Dec. 485 (2010), the insurer issued personal auto policies including as “persons insured” the “named insured” and “any other person using such automobile with the permission of the named insured, provided the actual use thereof is within the scope of such permission.” The personal auto policies also excluded coverage for “bodily injury or property damage arising out of the use by any person of a vehicle without a reasonable belief that the person is entitled to do so.” Founders Ins., 237 Ill. 2d at 428.

A number of claims were submitted to the insurer alleging that permissive users of vehicles belonging to one of the insurer’s named insureds injured an underlying plaintiff. These permissive users, however, did not have a valid driver’s license – they either never had one or the license had been suspended. The insurer denied the claims on the basis of the above-referenced exclusion stating that the permissive users without a valid license did not have a “reasonable belief” that they were entitled to operate the named insured’s vehicle. In the ensuing coverage litigation, the Illinois Supreme Court concurred. The Illinois Supreme Court interpreted the word “entitle” to mean “to give a right or legal title to: qualify (one) for something: furnish with proper grounds for seeking or claiming something.” Founders Ins., 237 Ill. 2d at 436. According to the Supreme Court, “[w]ithout a valid license, a person has not been given the ‘right’ to drive; has not been ‘qualified’ to drive; has not been ‘furnished with proper grounds’ for doing so.” Id. at 439. As such, a permissive user without a valid driver’s license does not have a reasonable belief that he is “entitled” to operate a motor vehicle.

IV. GENERAL PROVISIONS OF THE POLICY

A. Choice of Law: Liberty Mut. Fire Ins. Co. v. Woodfield Mall, LLC

In Liberty Mut. Fire Ins. Co. v. Woodfield Mall, LLC, ___ Ill. App. 3d ___, 941 N.E.2d 209, 346 Ill. Dec. 651 (1st Dist. 2010), the named insureds included a New York parent corporation and at least 33 subsidiary corporations. One of these subsidiary corporations was located in Ohio and was headquartered in Ohio. The insurer, a Massachusetts corporation, issued a CGL policy for the named insureds. The CGL policy was negotiated by a broker located in New York and representatives of the named insureds located in Ohio. The policy was delivered to the named insureds in Ohio. The named insured that was located in Ohio operated “an extensive, nationwide chain of hundreds of retail eyeglass stores.” The CGL policy provided coverage for the named insureds, including the Ohio subsidiary, on a nationwide basis. The CGL did not contain a choice of law provision.

The Ohio subsidiary corporation operated a retail chain store at a mall located in Northern Illinois. Pursuant to its lease agreement, it was required to name the mall owners and managers

as additional insureds to its CGL policy. The mall owners and managers were not specifically named in the CGL policy as additional insureds but the CGL policy had a general endorsement that automatically added entities as additional insureds if certain requirements were met. The mall owners and managers were sued when a personal injury occurred at the Ohio subsidiary corporation’s location in Illinois. After litigation was initiated over the application of the CGL policy to the claim, a dispute arose over the applicable state law. This dispute was eventually addressed by the Illinois Appellate Court.

According to the Appellate Court, when a policy does not contain an express choice of law provision, the policy’s “provisions are governed by the substantive law of (1) the location of the subject matter, (2) the domicile of the insured or of the insurer, (3) the place of the last act to give rise to an enforceable contract, (4) the place of performance, or (5) any other place bearing a rational relationship to the contract.” The Court noted that “[t]hese factors do not have equal significance and are to be weighed according to the issue involved,” but that “[a] choice-of-law analysis should consider the contracting parties’ justified expectations, yield certain, predictable, and uniform results, and avoid inconsistent interpretations of the same insurance contract.”

Liberty Mut., 941 N.E.2d 215.

After considering these principles, the Illinois Appellate Court determined that Ohio law applied to this dispute. First, the Court ruled that the location of the insured risk was not an important factor in this case because the CGL policy covered the named insureds’ risks on a nationwide basis and the location of the accident and injuries in Illinois had little bearing on the analysis. On the other hand, the subsidiary named insured involved was headquartered in Ohio, the CGL policy was negotiated by representatives of the named insureds located in Ohio, and the policy was delivered to the named insureds in Ohio.

B. Termination of Insurer/Insured Relationship

1. Cancellation versus Non-Renewal: Yunker v. Farmers Auto.

Management Corp.

In Yunker v. Farmers Auto. Management Corporation, 404 Ill. App. 3d 816, 935 N.E.2d 630, 343 Ill. Dec. 622 (3d Dist. 2010), an insurer had issued a personal auto policy to an insured. The policy period for the personal auto policy ended on July 20, 2006. On June 14, 2006, the insurer sent the insured a notice stating: “THIS IS THE ONLY NOTICE YOU WILL RECEIVE PRIOR TO THE DATE PREMIUM IS DUE[.] YOUR POLICY WILL EXPIRE IF PREMIUM IS NOT RECEIVED BY THE DUE DATE.” Yunker, 404 Ill. App. 3d at 818. The insured did not pay the premium by July 20, 2006, and the policy expired on July 20, 2006. After the insured was involved in an accident on August 7, 2006 and submitted a claim against the insurer for coverage, the insurer sent the insured a correspondence informing the insured that the policy had expired. The insured subsequently sued the insurer.

During the coverage litigation, the Illinois Appellate Court found that the insurer had acted appropriately, and no coverage existed. According to the Appellate Court, a cancellation means