Chicago Hosp. Risk Pooling Program v. STATE MED. INTER-INS. EXCHANGE

JUSTICE QUINN, specially concurring:

I concur in the holdings and in the answers given to the certified questions in this opinion. I write separately to express my concern with the whole theory of “selected tender.” In John Burns Construction Co. v. Indiana Insurance Co., 189 Ill. 2d 570, 574 , 727 N.E.2d 211 (2000), our supreme court articulated the question as follows: “[Wjhether an insurer to whom litigation is tendered and whose'policy contains an ‘other insurance’ clause like the one above may seek contribution from another insurer whose policy is in existence but whose coverage the insured has refused to invoke.” In answering this question in the negative, the court relied upon the holdings in Alcan United, Inc. v. West Bend Mutual Insurance Co., 303 Ill. App. 3d 72 , 707 N.E.2d 687 (1999), Bituminous Casualty Corp. v. Royal Insurance Co. of America, 301 Ill. App. 3d 720 , 704 N.E.2d 74 (1998), and Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317 , 701 N.E.2d 499 (1998). All three of these cases, in turn, relied upon an interpretation of Institute of London Underwriters v. Hartford Fire Insurance Co., 234 Ill. App. 3d 70 , 599 N.E.2d 1331 (1992).

In Burns, our supreme court explained their reasoning as follows: “The insurance provided to Burns by Royal was not ‘available,’ in the language of the other insurance provision, for Burns had expressly declined to invoke that coverage. Moreover, we do not believe that the presence of the ‘other insurance’ provisions in the Indiana policy serves by itself to trigger the coverage afforded by Royal’s policy. An ‘other insurance’ provision does not in itself overcome the right of an insured to tender defense of an action to one insurer alone.” Burns, 189 Ill. 2d at 578 .

Apparently, Illinois is the only state that recognizes this “right.” • The raison d’etre for this right has been explained thusly: “[The] insured may choose to forgo an insurer’s assistance for various reasons, such as the insured’s fear that premiums would be increased, or the policy cancelled, in the future,” and this “ability to forgo that assistance should be protected.” Cincinnati Cos., 183 Ill. 2d at 326 . The insured may base the exercise of this “right” on any reason or no reason at all. When an insured exercises this “right,” the targeted insurer is precluded from obtaining equitable contribution from other insurers that insure the same risk. This makes it much more difficult for insurers to determine the extent of the risk they potentially face in every policy they issue.

In Cincinnati Cos., our supreme court addressed what type of notice to an insurer was required to trigger the duty to defend. In doing so, the court commented that some courts required that the insured actually tender its defense to the insurer before the duty to defend is triggered, citing Institute of London as being an example. Cincinnati Cos., 183 Ill. 2d at 324 . The court rejected the argument advanced by “tender rule courts” that “allowing mere notice to trigger the duty to defend would require the insurer to ‘intermeddle officiously’ in the underlying litigation.” Cincinnati Cos., 183 Ill. 2d at 327 , citing Institute of London 234 Ill. App. 3d at 78-79 . In Burns, the supreme court commented that in Cincinnati Cos. “this court considered what is necessary to trigger an insurer’s duty to defend, and held that the duty arises with actual notice of a claim against an insured, regardless of the insured’s level of sophistication. 3 In reaching that result, the court acknowledged the line of authority that granted an insured the right to elect which of its insurers will defend a particular case.” Burns, 189 Ill. 2d at 574-75 , citing Cincinnati Cos., 183 Ill. 2d at 324 . That “line of authority” consisted entirely of a cite to Institute of London.

In Alcan, the insured tendered its defense to West Bend. The insured informed Reliance Insurance that it was looking only to West Bend for coverage and did not want Reliance to provide coverage for the incident. The appellate court rejected West Bend’s argument that its policy’s “other insurance” clause distinguished the case from Institute of London, as in Institute of London, the insurer to whom tender was made had no such clause in its policy:

“[Ljanguage in Institute of London suggests that the result in that case would not have been different had Institute’s policy contained an ‘other insurance’ clause. In that regard the court stated:

‘ “ ‘Only when a policy is triggered and the insurer becomes obligated to pay “all sums” and to defend “any suit” does the “other insurance” clause come into play to allow liability to be apportioned among the insurers.’ ” ’ Institute of London, 234 Ill. App. 3d at 77 ***.” Alcan, 303 Ill. App. 3d at 81 .

A plain reading of the cited language from Institute of London in no way “suggests that the result in that case would not have been different had Institute’s policy contained an ‘other insurance’ clause.” Alcan, 303 Ill. App. 3d at 81 . The quoted language refers to the policy of the insurer to whom tender was made. While tender was made to Institute, its policy had no “other insurance” clause. As no tender had been made to Hartford, Hartford’s “other insurance” clause did not “come into play.” Even if one were to accept the Alcan court’s hypothesis, its holding that the “other insurance” clause in the policy of the insurer to whom tender was made should be disregarded is based on a “suggestion” contained in dicta.

The court in Bituminous Casualty looked at Institute of London’s language that “ ‘if the policy is never triggered, the issue of liability under the “other insurance” clause does not arise.’ ” Bituminous Casualty, 301 Ill. App. 3d at 726 , quoting Institute, 234 Ill. App. 3d at 77 .

The court interpreted this as follows:

“It is only when an insurer’s policy is triggered that the insurer becomes liable for the defense and indemnity costs of a claim, and it becomes necessary to allocate the loss among co-insurers. The loss will be allocated according to the terms of the ‘other insurance’ clauses, if any, in the policies that have been triggered. As discussed above, Royal’s policy was not triggered and its obligation to defend and indemnify Johnson Construction with regard to the Peterman lawsuit was excused by the targeted tender to Bituminous.” Bituminous Casualty, 301 Ill. App. 3d at 726 .

As in Alcan, this analysis does not take into account the use of the singular form of the word “policy” in Institute of London. Applying the plain language of Institute of London, if the triggered policy contains an “other insurance” clause, the loss should be allocated according to the terms of that clause. Put simply, the amount and nature of the coverage provided should be determined by the language of the policy issued by the insurer to whom tender has been made. If that policy provides for equitable contribution from other insurers covering the same risk, that policy’s provisions should control.

Bituminous opined that if one insurer was able to trigger the insured’s coverage under another insurer’s policy, the policy of the insurer to whom tender was not made becomes, in effect, a third-party beneficiary contract entered into by the insured for the direct benefit of other insurers. Bituminous Casualty, 301 Ill. App. 3d at 726 , citing Institute of London, 234 Ill. App. 3d at 79 . Institute of London, in turn, cited Sabath v. Mansfield, 60 Ill. App. 3d 1008, 1016 , 377 N.E.2d 161 (1978), in support of this proposition. However, Sabath involved a lawsuit in which a stockholder of a corporation sued a company based on a construction contract. Sabath stands for the well-settled proposition that a person may sue as a third-party beneficiary of a contract only when the contract clearly shows that it was made for his direct benefit. Sabath, 60 Ill. App. 3d at 1016 . I do not believe that this principle of contract law provides a basis to disregard the (until recently) equally well-settled principles of equitable contribution in the context of insurance law.

Finally, accepting (as we must) that an ‘other insurance’ clause alone cannot overcome an insured’s right to selective tender, left unanswered by all of the previously cited cases is what, if any, steps insurers may take to protect their right to equitable contribution in the face of a “target tender.” In American Country Insurance Co. v. Kraemer Brothers, Inc., 298 Ill. App. 3d 805, 812 (1998), this court considered the effect of an insurance policy provision requiring the insured to:

“Promptly tender the defense of any claim made or ‘suit’ to any other insurer which also has available insurance for a loss which we cover under Coverage A or B of this coverage part.”

This court held that, in selectively tendering his defense to only the insurer whose policy contained the above language, the insured “clearly breached the terms of the *** policy and is not entitled to a defense or indemnity.” American Country, 298 Ill. App. 3d at 812 . As this case refers to “available insurance,” it would seem that this case’s viability is in serious doubt based on Bums’ holding that insurance is not “available” when the insured refuses to tender his defense or request for indemnification to that insurer.

In the vast area of legal jurisprudence, there are undoubtedly many instances where being the first, or only, jurisdiction to grant rights to persons or entities may rightly be a source of pride. While it is still very early, the doctrine of “selective tender” does not appear to me to be one of those instances.

I note that the court in Cincinnati Cos. also held that “the insurer’s duty to defend is triggered by actual notice of the underlying suit, regardless of the level of the insured’s sophistication.” Further, “ ‘actual notice’ should be defined as ‘notice sufficient to permit the insurer to locate and defend the lawsuit.’ ” (Emphasis added.) Cincinnati Cos., 183 Ill. 2d at 329 . While both statements are arguably correct, the manner in which they are presented may lead to unnecessary confusion.