Court Opinion

ID: 3146696
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:20:40.278996+00
Date Added: 2024-06-11T11:55:13.883489
License: Public Domain

SECOND DIVISION
                                                 FILED: May 22, 2007

No. 1-06-1221

STEADFAST INSURANCE COMPANY,              )      Appeal from the
                                          )      Circuit Court of
     Plaintiff-Appellant,                 )      Cook County.
                                          )
v.                                        )      No. 02 CH 18381
                                          )
CAREMARK RX, INC., and                    )
CAREMARK, INC.,                           )      HONORABLE
                                          )      MARY ANN MASON,
     Defendants-Appellees.                )      JUDGE PRESIDING.

     JUSTICE HOFFMAN delivered the opinion of the court:

     Steadfast Insurance Company ("Steadfast") appeals from an

order of the circuit court denying its motion for restitution of

costs it paid defending Caremark Rx, Inc., and Caremark, Inc., in

two underlying federal actions.     For the reasons which follow, we

affirm in part, reverse in part, and remand the cause for further

proceedings.

     Caremark   Rx,   Inc.,   and   its       subsidiary,   Caremark,   Inc.

(hereinafter collectively referred to as "Caremark"), administer

prescription drug benefits for health plans throughout the country.

In 2001, Steadfast issued a managed care professional liability

policy to Caremark.    Pursuant to the policy, Steadfast agreed to

pay those sums in excess of the policy's deductible that Caremark

might become legally obligated to pay as "Damages" for "Claims"

made by reason of any negligent act, error, or omission committed
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by Caremark arising out of its rendering or failing to render

"Professional Services" in the course of business.                The policy

excluded claims for intentional, criminal, or fraudulent acts.

Under the policy, Steadfast was required to defend any "Claim"

against Caremark seeking "Damages" payable under the terms of the

policy,   even   if   the   allegations    were     groundless,   false,   or

fraudulent.

     In 2002, members of health plans administered by Caremark

filed two lawsuits in federal court.            The federal actions alleged

that, in managing the plans' prescription-drug benefits, Caremark

breached its fiduciary duties under the Employee Retirement Income

and Security Act (ERISA) (29 U.S.C. § 1001 et seq. (2000)) by

conspiring with drug manufacturers to obtain for its own benefit

undisclosed   discounts,     rebates,     and    "kickbacks"   for   favoring

certain higher-priced drugs.      The complaints also charged Caremark

with misrepresentation and failure to disclose material information

and sought an accounting.      Caremark tendered the defense of these

two suits to Steadfast.

     In letters dated April 11, 2002, June 17, 2002, and July 10,

2002, Steadfast stated that it had no obligation to defend or

indemnify Caremark in the federal actions.            Thereafter, Caremark

filed a declaratory judgment action against Steadfast in the United

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States District Court for the Northern District of Illinois,

seeking a finding that Steadfast had an obligation to defend and

indemnify   it   with    regard   to   the     underlying     federal     actions.

Caremark's federal declaratory judgment action was subsequently

dismissed for lack of subject matter jurisdiction.

     Steadfast then filed a complaint for declaratory judgment in

the Circuit Court of Cook County, seeking a declaration that it had

no duty to defend or indemnify Caremark in the two federal actions.

Caremark filed a counterclaim, seeking a declaration that Steadfast

owed a duty to defend and indemnify it in the underlying actions.

Caremark also sought attorneys' fees pursuant to section 155 of the

Illinois Insurance Code (215 ILCS 5/155(1) (West 2002)), claiming

that Steadfast's denial of coverage was vexatious and unreasonable.

     Steadfast     and   Caremark      filed    cross-motions       for   summary

judgment. On September 23, 2003, the circuit court entered summary

judgment in favor of Caremark, denied Steadfast's cross-motion for

summary judgment, and found that Steadfast had a duty to defend

Caremark    in   the   two   underlying      actions.    The    circuit     court

subsequently     granted     Steadfast's       motion   for     a   finding    of

appealability pursuant to Supreme Court Rule 304(a) (155 Ill.2d

304(a)).    The court, however, refused to stay enforcement of the

order pending the outcome of an appeal.

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     Steadfast appealed the circuit court's order dated September

23, 2003.    Steadfast Insurance Co. v. Caremark Rx, Inc., 359 Ill.

App. 3d 749, 835 N.E.2d 890 (2005) (Steadfast I).        In the appeal of

Steadfast I, this court concluded that the factual allegations in

the underlying complaints failed to assert conduct constituting a

negligent act, error, or omission, and, as a consequence, Steadfast

had no duty to defend or indemnify Caremark.       Steadfast I, 359 Ill.

App. 3d at 760-61.      We, therefore, reversed the circuit court's

order granting Caremark's motion for summary judgment and denying

Steadfast's motion, and entered summary judgment in favor of

Steadfast regarding its duty to defend and indemnify. Steadfast I,

359 Ill. App. 3d at 762.     As Caremark's claim for attorneys' fees

under section 155 of the Illinois Insurance Code (215 ILCS 5/155(1)

(West 2002)) was still pending in the circuit court, we remanded

the matter for resolution of that claim.          Steadfast I, 359 Ill.

App. 3d at 762.

     On remand, the circuit court denied Caremark's claim for

attorneys' fees.       Steadfast filed a "motion for restitution,"

seeking to recover the defense costs it expended in the two

underlying   federal   actions.   Attached   to    the   motion   was   the

affidavit of Nelson Tavares, the director of healthcare claims at

Steadfast's parent company, Zurich American Insurance Company.

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Tavares attested that Steadfast had paid $964,846.43 for Caremark's

defense in the federal actions.

     The circuit court denied Steadfast's motion for restitution,

finding that Steadfast's filing of a declaratory judgement action

was the "functional equivalent" of an agreement to defend Caremark

under a reservation of rights.          Applying the Illinois Supreme

Court's holding in General Agents Insurance Co. of America, Inc. v.

Midwest Sporting Goods Co., 215 Ill. 2d 146, 166, 828 N.E.2d 1092

(2005) (General Agents), that an insurer cannot recover defense

costs paid pursuant to a reservation of rights absent a provision

entitling it to such relief, the court concluded that, because the

insurance policy in this case likewise contained no provision

allowing Steadfast to recoup defense costs, Steadfast could not

recover the costs it expended defending Caremark in the underlying

actions. Steadfast subsequently filed a motion for reconsideration

and a motion for leave to file a second amended complaint, seeking

to add a claim for recovery of the defense costs on the basis of

restitution, recoupment and/or unjust enrichment.        Both motions

were denied by the circuit court, and the instant appeal followed.

     Steadfast contends that the circuit court erred in denying its

motion for restitution.   It alleges that it paid $964,846.43 in

defense costs solely to comply with the circuit court's order

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finding that it had a duty to defend Caremark in the underlying

federal actions.   Steadfast contends that, because the circuit

court's order was reversed, it is entitled to recover those defense

costs.

     Although it is unclear under which section of the Code of

Civil Procedure (735 ILCS 5/1-101 et seq. (West 2004)) Steadfast's

motion for restitution was brought, similar motions have been

treated as motions for summary judgment.     See General Agents, 215

Ill. 2d at 153 (considering insurer's motion for recovery of

defense costs a motion for summary judgment).      Like a motion for

summary judgment, Steadfast's motion was decided based upon the

pleadings and evidentiary materials submitted by the parties, and

without an evidentiary hearing.    Therefore, we regard Steadfast's

motion for restitution as a motion for summary judgment.         See

General Agents, 215 Ill. 2d at 153.     We review the circuit court's

decision to grant or deny a motion for summary judgment de novo.

Harrison v. Hardin County Community Unit School District No. 1, 197

Ill. 2d 466, 470-71, 758 N.E.2d 848 (2001).

     Relying upon the holding in General Agents, Caremark argues

that it is not obligated to return the defense cost paid by

Steadfast because the policy at issue in this case does not contain

a provision allowing Steadfast to recover such costs.     In General

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Agents, an insurer defended its insured under a reservation of

rights and also sought a declaratory judgment that it had no duty

to defend.    The insurer's reservation of rights letter provided

that it had the right to recoup any defense costs paid in the event

that it was determined that the insurer did not owe the insured a

defense.     The   insurance     policy,   however,     did   not   contain   a

provision allowing the insurer to recover defense costs.                    The

Illinois    Supreme   Court    concluded   that   the   insurer     could   not

unilaterally modify its policy through a reservation of rights

letter to allow for the reimbursement of defense costs in the event

that it is later found to have no duty to defend.             General Agents,

215 Ill. 2d at 162-63.        Consequently, the supreme court held that

the insurer was not entitled to the reimbursement of defense costs

paid pursuant to a reservation of rights letter absent an express

provision in the insurance policy to that effect.             General Agents,

215 Ill. 2d at 166.

     In this case, Steadfast did not defend Caremark under a

reservation of rights but, rather, it refused to defend and filed

a declaratory judgment action.        Therefore, Steadfast, unlike the

insurer in General Agents, did not seek to unilaterally alter its

policy with Caremark through a reservation of rights letter.

Accordingly, the lack of a provision in the policy providing for

the recoupment of defense costs has no effect on the disposition of

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this case.

     Caremark       also   argues    that    questions    regarding       coverage

remained until this court in Steadfast I found that Steadfast owed

no duty to defend.         It contends that Steadfast was, therefore,

required to pay its defense costs during the pendency of the appeal

of the declaratory judgment action and is, thus, not entitled to be

reimbursed    for    the   defense    costs   expended     in    the   underlying

actions.

     An    insurer    is   obligated    to    defend     its    insured    if   the

underlying complaint alleges facts within, or potentially, within

the policy's coverage.         U.S. Fidelity & Guaranty Co. v. Wilkin

Insulation Co., 144 Ill. 2d 64, 73, 578 N.E.2d 926 (1991).                      An

insurer’s duty to defend arises as soon as damages are sought and

continues so long as any questions remain concerning whether the

underlying claims were covered by the policy.             General Agents, 215

Ill. 2d at 165.

     In this case, Steadfast sought a declaratory judgment that it

had no duty to defend or indemnify Caremark in the underlying

actions.     In reversing the circuit court's order concluding that

Steadfast had a duty to defend Caremark, this court held, as a

matter of law, that the factual allegations in the underlying

complaints failed to assert conduct within the policy's coverage.

Steadfast I, 359 Ill. App. 3d at 760-61.           Because Steadfast I was

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decided as a matter of law, and because no factual issues existed

on   the   question   of   a   duty   to    defend,   we   conclude   that   no

uncertainty concerning coverage ever existed at the time Caremark

tendered the defense of the underlying actions to Steadfast.

Consequently, Steadfast's duty to defend Caremark during the appeal

of its declaratory judgment action did not arise out of its

contractual obligations under the policy but, rather, arose out of

the circuit court's erroneous order declaring that Steadfast had a

duty to defend Caremark in the underlying federal actions.

      If a party has received a benefit from an erroneous decree or

judgment, it must, after reversal, make restitution.             Buzz Barton

& Associates, Inc. v. Giannone, 108 Ill. 2d 373, 382, 483 N.E.2d

1271 (1985).     For this reason, we disagree with the basis upon

which the circuit court denied Steadfast's motion for restitution.

However, our analysis continues.

      The issues in controversy and the theories upon which recovery

is sought are fixed in the complaint.           Kincaid v. Ames Department

Stores, 283 Ill. App. 3d 555, 568, 670 N.E.2d 1103 (1996).             A party

cannot seek summary judgment on a theory that was never pled in the

complaint.    Gold Realty Group Corp. v. Kismet Café, Inc., 358 Ill.

App. 3d 675, 680, 832 N.E.2d 403 (2005).

      Restitution is an equitable remedy, the basis of which is a

claim for unjust enrichment.          Independent Voters of Illinois v.

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Illinois Commerce Comm'n, 117 Ill. 2d 90, 98, 510 N.E.2d 850

(1987).    Steadfast's complaint did not contain a claim for unjust

enrichment nor did its complaint allege any facts satisfying the

elements of such a cause of action.

     We may affirm the judgment of the circuit court on any basis

in the record.         Liberty Mutual Insurance Co. v. American Home

Assurance Co., 368 Ill. App. 3d 948, 955, 858 N.E.2d 530 (2006).

Because the circuit court could not enter summary judgment on a

theory of recovery not pled in the complaint (see Gold Realty Group

Corp.,    358   Ill.   App.   3d    at    680),   we   affirm   the   denial   of

Steadfast's motion for restitution.

     Steadfast also argues that the circuit court erred in denying

it leave to amend its complaint to include a claim for unjust

enrichment.     We agree.

     Whether to grant or deny a motion for leave to file an amended

complaint is a matter within the sound discretion of the circuit

court, and its decision will not be overturned on appeal absent an

abuse of that discretion.          Clemons v. Mechanical Devices Co., 202

Ill. 2d 344, 355, 781 N.E.2d 1072 (2002).              In determining whether

or not to grant such a motion, a court must consider the following

factors: (1) whether the proposed amendment would cure a defect in

the pleadings; (2) whether the proposed amendment would prejudice

or surprise other parties; (3) whether the proposed amendment is

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timely; and (4) whether there were previous opportunities to amend

the pleading.       Clemons, 202 Ill. 2d at 355-56.

      In this case, Steadfast's second amended complaint would cure

its   insufficient        complaint    by    asserting         a    claim      for    unjust

enrichment.     Additionally, nothing in the record indicates that

Caremark    would    be    prejudiced       or   surprised         by    the   amendment.

Steadfast's motion for restitution gave Caremark adequate notice of

Steadfast's intent to seek recovery of the defense costs. Finally,

the event giving rise to Steadfast's claim for unjust enrichment

did not occur until this court issued its decision in Steadfast I,

and Steadfast's       motion    for    leave     to     file       its   second      amended

complaint was filed within one month of the supreme court's denial

of Caremark's petition for leave to appeal that decision. Although

Steadfast could have sought to amend its complaint to include a

claim   for   unjust      enrichment    prior      to    filing          its   motion    for

restitution, we do not find that the amendment was untimely or

unreasonably delayed.

      Based upon the record before us, we conclude that the circuit

court erred in denying Steadfast leave to file a second amended

complaint.    On remand, Steadfast should be allowed to amend its

complaint to include a claim for unjust enrichment.

      For the foregoing reasons, we affirm the circuit court's

denial of Steadfast's motion for restitution, reverse the circuit

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court's order denying Steadfast's motion for leave to file its

second   amended    complaint,   and   remand    the   cause   for   further

proceedings not inconsistent with this opinion.

     Affirmed      in   part;    reversed   in    part;    remanded    with

instructions.

     SOUTH and HALL, JJ., concur.

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