Insurer Not Entitled to Recoup Money Based on Equitable Subrogation or Horizontal Exhaustion Against a Self-Insured Municipality
The insurer sought to recoup money it paid on a car wreck settlement from the county that was self-insured for up to two million dollars. An intoxicated county employee crashed with another vehicle, killing herself and injuring the other driver. At the time of the accident, the employee’s estate was covered by a personal umbrella policy issued by the insurer. The insurance company settled on behalf of the employee’s estate and then sought equitable subrogation of the settlement and reimbursement of its defense costs from the county. The insurer claimed that the vehicle and employee were covered under the county’s self-insurance, the primary insurance. Therefore, the county owed a duty to defend and indemnify the employee’s estate.
The court held that the doctrine of equitable subrogation would not apply because the first element, that the defendant carrier is primarily liable to the insured for a loss under a policy of insurance, could not be met because a self-insured municipality is not an insurance carrier and does not provide insurance coverage. This was based on the public policy rationale that government funds should be protected. The court also held that the insurance company could not recover from the county based on horizontal exhaustion, which requires that the primary insurer exhausts its limits before an excess carrier is required to contribute. The court held that self-insurance by a public entity is not primary insurance for the purpose of horizontal exhaustion, based on the same public policy rationale of preserving government funds.
State Farm Mutual Auto. Ins. Co. v. Du Page County, 2011 WL 3422800, —N.E.2d —- (Ill.App. 2 Dist., 2011).
