Reducing Business Costs Through A Selective Tender
Development of the Targeted Tender Rule
In 1992, the Appellate court of Illinois reached a decision that resulted in confusion, litigation and unexpected results ever since. As the law currently stands, an insured that is potentially insured under two or more policies of insurance can select one insurer to respond to a claim and foreclose the selected insurer from seeking any recovery from other insurers. This arises most often in construction related settings where there is a general contractor with one or more subcontractors. The owner and general typically require the subcontractors to name the owner and general as additional insureds under the subcontractor’s general liability policy. The owner and general typically have their own liability policies. As a result, when a claim or suit arises, the owner and general are insured under their own policy as well as all other policies down the line. Illinois is unique in that, since 1992, it has allowed the insured to pick one or more policies to defend and indemnify the insured and foreclose any recovery by the selected insurer.
The Creation of a Right Not to Trigger an Insurance Policy.
Where two policies of insurance potentially apply to a loss, an insured may elect which of the insurers is to defend and indemnify the claim by tendering its defense to one insurer and not the other. Institute of London Underwriters v. Hartford Fire Ins. Co., 234 Ill. App.3d 70, 599 N.E.2d 1311, 175 Ill. Dec. 297 (1st Dist. 1992). In Institute of London, a contractor hired an engineering company to perform repairs on a dockwall. The contract required that the engineering firm secure insurance and list the contractor as an additional insured, which it did with Institute of London Underwriters. In addition, the contractor had its own policy of insurance with Hartford. When a tort action was filed against the contractor, the contractor tendered the action to the engineering firm for its defense and indemnification. The contractor also notified its own insurance carrier, Hartford, of the action. Following the court approval of a $75,000 settlement, the vice president of the contracting company told the attorney representing the contractor, as well as the contractor’s insurance carrier, Hartford, that Hartford should not contribute to the settlement in any way. Ill. App.3d. at 73. Further, the vice president told an adjuster for Hartford that it did not want the Hartford policy to respond to the settlement, but rather, the contractor elected to have the engineering firm and its insurer, Institute of London, pay for the indemnification and defense costs for that litigation. Id. While reviewing this issue, the court in Institute of London framed the issue as follows:
[W]here two insurance policies potentially apply to a loss, may an insured elect which of its insurers is to defend and indemnify the claim by tendering its defense to one insurer and not the other and thereby foreclose the settling insurer from obtaining contribution from the non-settling insurer? Id.
The trial court answered this issue in the affirmative and the Appellate Court of Illinois, First District affirmed this holding. Id. The court in Institute of London found that the insured’s actions could not be called arbitrary, whimsical or vindictive. It further found as follows:
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The contractor bargained with an engineering firm to be an additional insured under the engineering firm’s liability policy;
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The contractor did not tender its defense to its own insurance carrier;
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The contractor may well have feared that if the loss were attributed to its policy with its own carrier, the result may be a rise in premiums or cancellation of the policy;
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It was the contractor’s intent that the engineering firm and/or its carrier should bear the loss. Id. at 78-9.
In Institute of London, the Institute argued that the court should review the “other insurance” clause of Hartford’s policy which required Hartford to contribute to the settlement. The court held that this argument suffered from the same infirmity as the Institute of London’s argument for contribution “in that any liabilities arising under this clause are not triggered until the insurer becomes obligated to pay or defend.” Id. at 77. With this holding, the court in Institute of London, explicitly stated that it never arrived at an examination of the language contained within the insurance policies due to the fact that an election as to which of the two potential policies had already been made and, as a result, foreclosed this issue. When there is no tender for a defense or indemnity, a policy of insurance is not triggered. Id. at 73. Mere knowledge about a claim by an insurer is insufficient to trigger coverage under a policy. Id. at 75.
Based upon the Institute of London decision, an insured which is covered by more then one policy of insurance has the right to forego the assistance of one or more of the insurers. In order to tender to only one insurer, the insured must expressly state their intentions to the non-selected insurer and tender the matter to the selected insurer. The choice by the insured to tender to only one insurer will be upheld by the courts on the basis that there is no coverage under a policy which is not triggered.
