Court Opinion

ID: 9862204
Source: CourtListenerOpinion
Date Created: 2023-09-25 01:03:20.279766+00
Date Added: 2024-06-11T11:30:30.871132
License: Public Domain

JUSTICE McBRIDE, dissenting: I respectfully dissent from the majority’s decision to allow reimbursement of defense costs in this case of first impression. Although there is authority from other jurisdictions that have permitted reimbursement of costs based upon a reservation of rights letter similar to the one here (for example, Buss cited by the majority), I do not believe Illinois case law supports the majority’s decision. Under Illinois law, an insurer’s duty to defend its insured arises from, and is limited by, the express undertaking to defend as stated in the contract of insurance. Conway v. County Casualty Insurance Co., 92 Ill. 2d 388, 394, 442 N.E.2d 245 (1982). The policy here contained the following language: “We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance ***. We have no duty to defend a claim, proceeding or suit that is not covered by this insurance.” (Emphasis added.) This language states that a defense undertaken by Gainsco would be at its own “expense.” There is no contract language providing for reimbursement of costs in the event a court later finds that there is no duty to defend. Because that language could easily have been included in the policy and bargained for by the parties, I would not allow for reimbursement. Further, the Illinois Supreme Court has repeatedly held that when a complaint against an insured alleges facts within or potentially within the scope of coverage, an insurer taking the position that the complaint is not covered has two options: defend under a reservation of rights or seek a declaratory judgment that there is no coverage. State Farm Fire & Casualty Co. v. Martin, 186 Ill. 2d 367, 373, 710 N.E.2d 1228 (1999). These are two separate and distinct options. State Farm, 186 Ill. 2d at 373. Only if an insurer fails to take either of these steps and is later found to have wrongfully denied coverage is the insurer “estopped from raising policy defenses to coverage.” Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 150-51, 708 N.E.2d 1122 (1999). Gainsco, like other insurers, chose both, it defended under a reservation of rights and sought a declaratory judgment. See Insurance Co. of Illinois v. Markogiannakis, 188 Ill. App. 3d 643, 652, 544 N.E.2d 1082 (1989). Additionally, though, in a letter reserving its policy rights, Gainsco said it would reserve its rights to recoup its defense costs. As pointed out above, however, the policy does not contain any such right. Because Illinois law provides the insurer with the option of filing a declaratory judgment, without forwarding defense costs, Gainsco should not be allowed to create a third option the insured never agreed to or anticipated. In its five-page reservation of rights letter, dated July 23, 1999, Gainsco begins by pointing out that it has reviewed the “First Amended Complaint” naming its insured Midwest. After that, it details certain provisions, definitions, and exclusions contained in the subject policy. It indicates, among other things, that since the policy applies to damages because of property damage or bodily injury caused by an occurrence, the “claim” is not covered by the policy. The letter also says the “claim” may not be covered because the first amended complaint alleges “that the Insured is liable to plaintiffs for *** intentional and/or willful conduct.” Then, after pointing out numerous reasons why the policy does not cover the claim, Gainsco states “subject to the foregoing and without waiving any of its rights and defenses, including the right to recoup any defense costs[,] *** the Company agrees to provide a defense in the captioned suit *** [and] the Company notes its right to associate with the Insured and its counsel in the defense of the underlying litigation.” Toward the end of this letter, it adds the following: “Please note that any acts taken by or on behalf of the Company are taken under and pursuant to a full reservation of rights and defenses under the Policy. Likewise, we will understand that any acts taken by or on behalf of the Insured are taken pursuant to a reservation of its rights as well.” In my opinion, this letter was a clear indication by Gainsco that it would defend its insured under a reservation of policy rights. Gainsco claims its insured accepted the benefits of an implied agreement that Gainsco would be reimbursed if there was no duty to defend. Midwest says there was no agreement and that Gainsco was doing only what it was obligated to do under the policy. The majority has adopted Gainsco’s view and relies upon McKechney, a 1903 supreme court decision involving a dispute over a construction contract. McKechney, 205 Ill. 372. I do not think McKechney is particularly helpful in this case because it did not involve an insurer and its insured. Buss, a California decision the majority relies upon, which we are not bound to follow, is clearly distinguishable. In that case, after the insurance company forwarded its reservation of rights letter to its insured, the parties “entered into an agreement supported by consideration” that if a court ordered defense costs to be shared pro rata, Buss would reimburse its insurance company. Buss, 16 Cal. 4th at 42, 939 E2d at 770, 65 Cal. Rptr. 2d at 370. Since there was no agreement established here, and certainly no consideration for such an agreement, I would reverse. Grinnell, also relied upon by the majority, is equally unpersuasive because it does not look to Illinois law at all in interpreting the question of reimbursement. Grinnell, 996 F. Supp. 836. Before today, Grinnell has never been followed by any Illinois court. Walbrook, 726 F. Supp. at 784, is of questionable validity under Illinois law; it holds an implied agreement to reimbursement is created despite an insured’s objection to an insurer’s reservation of defense costs. Not one of these cases discusses an insurer’s right in Illinois to file a declaratory judgment when it disputes coverage. Not one of these cases suggests that a provision like the one in this policy was present in the relevant insurance policies, specifically, that the “right” to defend will be at the insurer’s “expense.” Because Gainsco exercised its “right” to defend, it agreed to defend, and the policy provides it will be at Gainsco’s “expense,” and it is not entitled to reimbursement of its expenses in defending its insured. As pointed out by Midwest, Illinois law does not generally allow parties to a contract to go outside the contract terms in an attempt to recover money damages based upon equitable or quasi-contract principles. La Throp v. Bell Federal Savings & Loan Ass’n, 68 Ill. 2d 375, 391, 370 N.E.2d 188 (1977) (“ ‘where there is a specific contract which governs the relationship of the parties, the doctrine of unjust enrichment has no application,’ ” quoting Brooks v. Valley National Bank, 113 Ariz. 169, 174, 548 P.2d 1166, 1171 (1976)); Industrial Lift Truck Service Corp. v. Mitsubishi International Corp., 104 Ill. App. 3d 357, 360, 432 N.E.2d 999 (1982) (as a general rule no quasi-contractual claim can arise when a contract exists between the parties concerning the same subject matter on which the quasi-contractual claim rests). I would also reverse the trial court’s decision because no specific theory of relief was pled in Gainsco’s declaratory judgment complaint. Although Gainsco claims it was entitled to defense costs based upon a theory of unjust enrichment, it has been somewhat vague about this theory of relief both here and in the trial court. Either way, its complaint does not state any legal basis for relief; for that reason, I believe the order should be reversed. The majority also suggests that Midwest should have turned down the defense of the suit and forced the issue. I do not agree. Only in hindsight did either party learn that there was no duty to defend. To tell an insured that it cannot accept defense payments because of some language that was slipped into a five-page reservation of rights letter again seems wrong, particularly when Illinois precedent gives an insurer the right to file a declaratory judgment to dispute coverage. Additionally, in its reservation of rights letter, Gainsco stated that “any acts taken” are taken under “a full reservation of its rights and defenses under the policy.” The question then becomes, were the defense costs initially paid by Gainsco “acts taken under a full reservation of its rights and defenses”? If so, should not Gainsco be held to the provision that its “right” and “duty” to defend will be at its own “expense?” It should also be noted that this motion for reimbursement of costs was decided similarly to a motion for summary judgment. Therefore, unless we can say that Gainsco was entitled to a judgment of its costs as a matter of law, the motion should have been denied. At a minimum, there are unresolved questions of material fact as to Gainsco’s intent when it originally paid the defense costs. See Insurance Co. of the West v. Haralambos Beverage Co., 195 Cal. App. 3d 1308, 1323, 241 Cal. Rptr. 427, 434-35 (1987) (summary judgment order reversed for trial on whether insured entered into an agreement to reimburse insurer or whether under a theory of equitable restitution the insurer conferred a benefit incidental to the protection of its own interest).1 Therefore, I would reverse the decision of the trial court. It also seems unfair for Gainsco to call upon the policy provisions to reserve its rights and defenses, yet later disavow that same policy in terms of the payments it has made. In its letter, Gainsco specifically said it was agreeing to provide a defense in the “captioned suit,” but it now disavows that as well. Without being too repetitive, Gainsco could have filed a declaratory judgment without agreeing to defend at the same time. As pointed out above, it does not lose its policy defenses by exercising that option. Only when an insured does not exercise either option can estoppel apply. Ehlco, 186 Ill. 2d at 150-51. Although I am not encouraging this second option as a matter of course, Illinois law provides for it. Finally, there is authority from other jurisdictions that supports denying the reimbursement of defense costs sought here. See, e.g., Terra Nova Insurance Co. v. 900 Bar, Inc., 887 F.2d 1213, 1219-20 (3d Cir. 1989) (concluding generally, under Pennsylvania law, that even when the insurer defends under a reservation of rights letter, it may not later recover costs expended in defending the insured, on the ground that the insurer’s provision of a defense is as much for its own benefit as for the insured’s). For all of the above reasons, I would deny reimbursement of defense costs. In the alternative, I would remand this matter for a trial to determine whether the defense costs in this case were actually paid pursuant to the policy or whether there was an agreement between the parties that Gainsco would be reimbursed by Midwest because of a subsequent court order that there was no duty to defend.  Though not specifically overruled, in Buss the Supreme Court of California considered and disapproved of Insurance Co. of the West. Buss, 16 Cal. 4th at 52 n.14, 939 F.2d at 778 n.14, 65 Cal. Rptr. at 378 n.14.