Opposition Brief — Adco Oil Co. v. Home Insurance Co. of Illinois

No. 98-1093 om

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1998

ADCO OIL COMPANY,

Petitioner,

THE HOME INSURANCE COMPANY

OF ILLINOIS,

Respondent.

On Petition for a Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

BRIEF IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI

ROBERT MARC CHEMERS*

ScoTT L. HOWIE

PRETZEL & STOUFFER, CHARTERED

One South Wacker Drive

Chicago, Illinois 60606

(312) 346-1973

Attorneys for Respondent

ROBERT MARC CHEMERS

ScoTtT L. HOWIE

Of Counsel *Counsel of Record

Midwest Law Printing Co., Chicago 60610, (312) 321-0220

i

QUESTION PRESENTED

Is it consistent with the public policy of Illinois to

enforce the plain language of an insurance policy’s

reporting requirement?

il

TABLE OF CONTENTS

PAGE

QUESTION PRESENTED .................. i

TABLE OF AUTHORITIES ................ iii

OPINIONS BEUOW .i-o6s 6a eee eee 1

STATEMENT OF FACTS ................0-. 1

ARGUMERING o. 6 0cs 000 ad tee ee ee 2

I. The Seventh Circuit’s Application of

Illinois Public Policy Does Not Call For

Review in This Court................. 2

Il. The Seventh Circuit’s Decision Concerns

Unique Factual Circumstances That Are

Unlikely to Yield a General Rule of

AME neces es (2 eee 7

Ill. The Seventh Circuit’s Interpretation of

One State’s Public Policy Is Unlikely to

Have a National Impact............... 8

CONCLAIINGON 666-08 6000 000 640 Nee 9

ill

TABLE OF AUTHORITIES

American Country Insurance Co. v. Cash,

171 Ill. App. 3d 9, 524 N.E.2d 1016

I I nk nc oc nce chee sce cee

American States Insurance Co. v. National

Cycle, Inc., 260 Ill. App. 3d 299, 631

N.E.2d 1292 (1st Dist. 1994) ..........

Bruder v. Country Mutual Insurance Co.,

156 Ill. 2d 179, 620 N.E.2d 355 (1993) ...

Hagler v. Country Mutual Insurance Co.,

274 Ill. App. 3d 896, 655 N.E.2d 26

Se

Home Insurance Co. v. Adco Oil Co.,

987 F. Supp. 1057 (N.D. Ill. 1997) ......

Home Insurance Co. v. Adco Oil Co.,

154 F.3d 739 (7th Cir. 1998) ..........

Industrial Coatings Group, Inc. v. American

Motorists Insurance Co., 276 Ill. App. 3d

799, 658 N.E.2d 1338 (1st Dist. 1995) ...

Jones v. Universal Casualty Co.,

257 Ill. App. 3d 842, 630 N.E.2d 94

CN Se eee

Kerr v. Illinois Central Railroad Co.,

283 Ill. App. 3d 574, 670 N.E.2d 759

SE I a ns sn os oS ob kk ein

iV

Newby v. Lake Zurich Community Unit

District 95, 136 Ill. App. 3d 92, 482

N.E.2d 1061 (2d Dist. 1985) .............. 7

Reagor v. Travelers Insurance Co.,

92 Ill. App. 3d 99, 415 N.E.2d 512

6" 3) ewe sree res ee re 3

Reisman v. Delgado,

117 Ill. App. 3d 331, 453

N.E.2d 902 (1st Dist. 1983) .............-- 4

Twin City Fire Insurance Co. v. Old World

Trading Co., 266 Ill. App. 3d 1,

639 N.E.2d 584 (1st Dist. 1993) ............ 4

1

OPINIONS BELOW

The opinion of the U.S. District Court for the North-

ern District of Illinois is reported at Home Insurance

Co. v. Adco Oil Co., 987 F. Supp. 1057 (N.D. Ill. 1997).

The opinion of the U.S. Court of Appeals for the Sev-

enth Circuit, reversing the district court, is reported at

Home Insurance Co. v. Adco Oil Co., 154 F.3d 739 (7th

Cir. 1998). Both opinions are faithfully reproduced in

the appendices to Adco Oil Company’s petition for writ

of certiorari.

STATEMENT OF FACTS

Adco Oil Company sued Illinois attorney Michael

Rovell for malpractice after Rovell allegedly botched a

lawsuit in which he had represented Adco. Rovell was

insured under a liability-insurance policy issued by The

Home Insurance Company of Illinois, but that policy

required that a policyholder report any potentially cov-

ered claims to the company during the effective period

of the policy—and Rovell did not report Adco’s lawsuit

against him to The Home until after the policy had ex-

pired.

The Home filed this diversity suit under the Declara-

tory Judgment Act, seeking a determination that it was

not obligated to defend or indemnify Rovell in Adco’s

lawsuit because Rovell had breached the policy’s re-

porting requirement. Adco responded that the policy

requirements should be disregarded because Rovell’s

breach had been deliberate. The district court agreed

with Adco’s argument and entered summary judgment

in its favor—but the Court of Appeals reversed, agree-

2

ing with The Home that Rovell was not entitled to

the benefits under a policy that he had undisputedly

breached.

Adco seeks further review in this Court.

ARGUMENT

Certiorari should be denied. Adco offers this Court an

issue that is purely one of state law—and insists that

the purportedly unique circumstances of this case call

for an exception to a proposition that is otherwise

unchallenged under that law. Either feature suggests

that this case is unsuitable for review in this Court; in

concert, both call for this Court to deny Adco’s petition.

I. The Seventh Circuit’s Application of [Illinois

Public Policy Does Not Call For Review in This

Court.

Purely a matter of Illinois law, the rule of decision

that governs this case is not something calling for this

Court’s attention. Adco does not even suggest that this

case is controlled by anything other than the law of

Illinois, and other than a brief nod in one of its “Ques-

tions Presented for Review,” does not suggest the

presence of any topic of national import. By its own

argument, Adco urges this Court to devote itself to an

interpretation of one state’s public policy.

As in the courts below, Adco contends that a nearly

two-decade-old opinion of the Appellate Court of Illinois

contains the abstract passage that provides the rule of

decision in this case. In Adco’s argument, the Court of

Relea

3

Appeals misconstrued the public policy of Illinois be-

cause it did not agree with Adco’s view of a passage in

Reagor v. Travelers Insurance Co., 92 Ill. App. 3d 99,

415 N.E.2d 512 (1st Dist. 1980). The passage on which

Adco rests the whole of its argument reads as follows:

Neither the insured nor the insurer, acting sep-

arately or together, may act to defeat the rights

of the injured party. [PET’N FOR WRIT OF CER-

TIORARI at 7.]

Adco urges that this sentence defeats the notice re-

quirement contained in The Home’s policy, and that

Rovell’s failure to report Adco’s lawsuit to The Home

cannot vitiate his coverage under that policy—despite

the undisputed fact that his failure was a deliberate

breach of the policy.

But the passage from Reagor is too abstract to

support the weighty argument that Adco makes; as the

Court of Appeals observed, “propositions so abstract

rarely decide concrete cases.” Slip op., APPENDIX TO

PETN at A-6. Indeed, Illinois law is replete with cases

in which the actions of policyholders have eliminated

the coverage they might otherwise possess. Provisions

requiring prompt or immediate notice of a suit are more

than mere technical requirements; they are valid

conditions precedent. Kerr v. Illinois Central R.R. Co.,

283 Ill. App. 3d 574, 670 N.E.2d 759, 765 (1st Dist.

1996); Industrial Coatings Group, Inc. v. American Mo-

torists Ins. Co., 276 Ill. App. 3d 799, 658 N.E.2d 1338,

1343 (1st Dist. 1995). A policyholder may not disregard

those provisions with impunity. American States Ins.

Co. v. National Cycle, Inc., 260 Ill. App. 3d 299, 631

N.E.2d 1292, 1300 (1st Dist. 1994). A policyholder’s

4

breach of those conditions relieves the insurer of any

obligation it might otherwise have with respect to the

claim for coverage. American Country Ins. Co. v. Cash,

171 Ill. App. 3d 9, 524 N.E.2d 1016, 1018 (1st Dist.

1988); Reisman v. Delgado, 117 Ill. App. 3d 331, 453

N.E.2d 902, 905 (1st Dist. 1983).

Importantly, an insurer need not demonstrate any

prejudice resulting from the policyholder’s breach of the

notice condition. Prejudice to the insurer may be taken

into account, but its absence does not excuse the in-

sured’s unreasonable delay. Jones v. Universal Cas. Co.,

257 Ill. App. 3d 842, 630 N.E.2d 94, 102 (1st Dist.

1994). Indeed, an asserted lack of prejudice is pertinent

only where the insured has a good excuse or the delay

was brief. Twin City Fire Ins. Co. v. Old World Trading

Co., 266 Ill. App. 3d 1, 639 N.E.2d 584, 589 (1st Dist.

1993).

Notwithstanding Adco’s argument, none of this is at

all inconsistent with Reagor. As the Court of Appeals

recognized, that decision addressed only the agreement

between the insurer and the insured that a certain

policy did not cover the subject accident. The Appellate

Court of Illinois concluded that this was not binding on

a third party, an injured individual. The Court of Ap-

peals in the present case acknowledged the limited

scope of the Reagor decision:

All Reagor holds is that this bare agreement is

not conclusive against an injured party, any

more than a cancellation of the policy (after the

accident) and a refund of the premium to the

insured would be. [Slip op., APPENDIX TO PET’N

at A-6.]

5

Adco points to nothing in Reagor—or in any other de-

cision, for that matter—indicating that Reagor stands

for anything more broad than this.

The Seventh Circuit duly noted two specific and un-

challenged public policies of the state of Illinois: first,

that attorneys are not required to maintain malprac-

tice-liability insurance, and second, that Illinois enforc-

es notice provisions in liability-insurance policies. Adco

does not dispute either. Instead, Adco insists that the

Seventh Circuit answered the wrong question; in Adco’s

argument, the case turns upon an interpretation of

Reagor, a 1980 decision of the Appellate Court of IIli-

nois:

(T]he question should be whether or not Illinois

public policy as expressed in Reagor would bar

(The Home] from raising this otherwise general

rule of law upholding policy defenses. [PET’N

FOR WRIT OF CERTIORARI at 16.)

The Seventh Circuit, unlike Adco, considered Reagor

alongside Illinois law that made Adco’s argument more

dubious. Adco relies almost exclusively upon Reagor, as

if that decision were the only source of public policy in

Illinois. But the public policies of Illinois—like those of

most states—are many, and in certain circumstances,

some must yield to others. Adco wholly overlooks, for

instance, the Illinois public policy of enforcing the

terms of a contract as they are written.’ See, e.g.,

' Adco’s insistence upon ignoring the plain language of The

Home’s policy is particularly improper because it is unneces-

sary. Contrary to its plea in this Court, Adco need not look to

(continued...)

6

Bruder v. Country Mut. Ins. Co., 156 Ill. 2d 179, 188-

89, 620 N.E.2d 355, 359 (1993); Hagler v. Country Mut.

Ins. Co., 274 Ill. App. 3d 896, 900, 655 N.E.2d 26, 28

(5th Dist. 1995).

Other features of Illinois law—features that Adco

ignores in this Court—militate still further against

Adco’s argument that dictum in Reagor should control

this case. As the Seventh Circuit observed, Illinois does

not require attorneys to purchase malpractice-liability

insurance, and it does not prevent clients from retain-

ing uninsured lawyers to represent them. This sets the

present case still further apart from Reagor, which con-

cerned car insurance; state legislation in Illinois re-

quires drivers to maintain specified limits of auto in-

surance, embodying the policy that the public at large—

and not just the policyholder—has an interest in car

insurance.

But the same cannot be said of legal-malpractice

insurance. Adco does not dispute the fact that Illinois

permits attorneys to practice without insurance, but it

urges this Court nonetheless to find that The Home

ought to be forced to overlook his undisputed breach.

Yet there is likewise no dispute that Rovell could have

voided his insurance coverage deliberately by cancelling

his policy, and there is no dispute that he could have

' (...continued)

The Home’s policy for recompense; as the Court of Appeals ob-

served, there are other sources of compensation available—

among them the law firm where Rovell was a partner at the

time of his alleged malpractice, or that firm’s liability carrier.

APPENDIX TO PET’N at A-7. Adco is silent as to these sources.

7

deliberately chosen not to obtain a policy in the first

place. Moreover, Adco openly concedes that Rovell could

have voided his coverage through negligence. Adco in-

sists that because Rovell deliberately voided his cover-

age in another way, by deliberately breaching a policy

condition, his breach ought to be ignored—and that The

Home ought to be required to fulfill its duties to Rovell

under the policy that he breached.

But there is nothing in I]linois public policy that sup-

ports any such rule. In Illinois, as in other jurisdictions,

the most reliable source of public policy is the body of

laws passed by the legislature. Newby v. Lake Zurich

Community Unit Dist. 95, 136 Ill. App. 3d 92, 105, 482

N.E.2d 1061, 1071 (2d Dist. 1985). Yet despite Adco’s

public-policy argument, the Seventh Circuit found no

statute that elevates attorney-liability coverage to the

level of car insurance, and Adco points to none. Adco as

much as concedes that this case is governed by the law

of Illinois, but offers no reason that the Court of Ap-

peals’ interpretation of that law is a subject that merits

review in this Court. Without such a showing, review in

this Court is improper, and certiorari should be denied.

II. The Seventh Circuit’s Decision Concerns Unique

Factual Circumstances That Are Unlikely to

Yield a General Rule of Law.

The impropriety of further review is also demonstrat-

ed by the peculiarity of the factual circumstances at

issue here. By Adco’s own concession, an insured is not

entitled to coverage where he has negligently voided

coverage through an inadvertent failure to notify the

tne p LIC pe riod. PETN FOR WRIT

ORARI at 13. Indeed, Adco’s argument is funda

ntally premised upon the contention that Rovell d:

berately violated the policy’s reporting requirement

leed, Adco concedes that were that circumstance dif

rent—had Rovell inadvertently failed to report thi

vsuit to The Home—the breach would have vitiated

Home's duties under the policy

he facts of this case therefore represent a decidedly

isual situation: the circumstance in which a policy

der deliberately forfeits a known source of indemnif1

nn for which he has paid a premium. This circum

e—which Adco claims to be the controlling factual

rcumstance of this case—is a rare one indeed. Adco’s

etition in this Court is silent as to why a policyholder

ight take such actions, and it offers no explanation

r Rovell’s own decision to forfeit coverage under The

Home's policy. There is no evident reason to expect that

this unique factual scenario will play out with sufficient

lrequency, even nationwide, to call for this Court to

sue a ruling as to how to address it—especially where

7 rT)

lere 1s no suggestion that the laws of the states are

idequate to the task

il. The Seventh Circuit’s Interpretation of One

State’s Public Policy Is Unlikely to Have a Na-

tional Impact.

finally, there is no merit to Adco’s perplexing sugges-

tion that the Seventh Circuit’s interpretation of Illinois

public policy might have some substantial national im-

ict. Even Adco does not contend that this case con-

9

cerns anything but the law of the state of Illinois,

where the Seventh Circuit sits; as Adco itself concedes

throughout its petition, the decision for which it seeks

review is one that construed the public policy of that

one state. With a single exception, Adco’s petition in

this Court cites no law from any jurisdiction other than

(Ilinois—and tellingly, that one exception is a Seventh

Circuit decision interpreting II]linois law.

In stark contrast to this uniformly state-law-governed

matter, Adco prays for certiorari on the ground that the

Seventh Circuit’s interpretation of Illinois law is an

event of national significance. This argument is as

inappropriate as it is irrational. Given the degree to

which Illinois law controls this case, its substantive

effect is limited to the law of that state. What effect

this case might have on the law of other jurisdictions is

a mystery—and it is one that Adco’s petition does noth

ing to help solve.

CONCLUSION

By its own admission, Adco asks this Court to adopt

an interpretation of a narrow factual exception to an

otherwise undisputed principle of purely state law—one

that the Court of Appeals rejected after thoroughly con

sidering the very arguments and authorities that Adc:

offers here. But Adco offers no issue of proper signi

icance to call for this Court’s review. Adco’s conster

nation notwithstanding, the questions it presents are