Insured’s Unreasonable Notice of a Suit to Excess Insurer Deprives Insurer to Participate in Defense

In MHM Services, Inc. v. Assurance Co. of America, the insured, MHM Services, Inc. (“MHM”), contracted with healthcare services, including mental health services on behalf of governmental entities. In April 2003, MHM contracted with the Illinois Department of Corrections, (“IDOC”), to screen IDOC inmates who were nearing the end of their prison terms, but were candidates for indefinite confinement as provided by the Illinois Sexually Violent Persons Commitment Act.  On June 5, 2006, A.B. sued MHM for failure to recommend to the State of Illinois to pursue indefinite confinement of Christopher Hanson (“Hanson”) as a sexually violent person. Hanson had been eligible for parole in late 2004 but had a series of criminal convictions, most of which were for sexual assaults on women in Libertyville, Illinois.  On June 6, 2005, Hanson attacked A.B., then a teenager, while she was running on a bike path in a forest preserve in Libertyville. He sexually assaulted A.B., stabbed her in the neck, and repeatedly cut her throat until she appeared lifeless.  MHM had two liability insurers.

MHM had professional liability coverage through CampMed Casualty and Indemnity Company, which could provide up to $1 million, in addition to MHM’s self-insured retention of $250,000. When MHM was served with A.B.’s suit on June 14, 2006, the company’s then-general outside counsel tendered the case to CampMed, but not to Assurance.  When CampMed received notice on June 16, 2006, it exercised its right to hire Chicago attorney Jeffrey Singer to defend MHM. Singer’s initial approach was to move to dismiss the suit on grounds of sovereign immunity.

The court found insured’s failure to give notice to excess insurer until two years after service of suit was unreasonable and deprived insurer of any meaningful participation in defense.

MHM Services, Inc. v. Assurance Co. of America, 975 N.E.2d 1139 (Ill. App. 1st Dist., 2012).