Insurer Is Entitled To Setoff For Amount Of Insured's Recovery From Other Party For The Same Injury, But Only For Net Amount After Deduction For Fees And Costs
ILLINOIS SCHOOL DISTRICT AGENCY v. PACIFIC INSURANCE COMPANY (June 29, 2009)
In 1994, a student sued East Moline School District (the "District"). The District made a claim against the Illinois School District Agency (the "Agency"), an Illinois school cooperative formed for the purpose of providing insurance to its members. The Agency's third-party administrator, the Martin Boyer Company (“MBC”), processed and allowed the claim. The Agency paid for the District's defense until a new third-party administrator, two years later, determined that the claim was not covered. The District settled the student's lawsuit and sued the Agency to recover its defense costs. The District alleged a) a violation of the Illinois Insurance Code, b) waiver, and c) estoppel. The Agency prevailed. The Agency then sued MBC to recover the amount it had paid the district in defense costs due to MBC’s initial erroneous determination of coverage. The Agency also made a claim for the same injury under an errors and omissions policy issued by Pacific Insurance Company. The Agency sued when Pacific denied the claim, seeking both the costs of defending the District's lawsuit and the cost of pursuing MBC for reimbursement. The court ordered Pacific to reimburse the Agency approximately $100,000 for defending against the District’s Illinois Insurance Code claim but not for defending against the waiver and estoppel claims. It also granted summary judgment to Pacific on the MBC claim. On a first appeal, the Seventh Circuit vacated the summary judgment on estoppel and remanded for the court to consider whether the estoppel claim was equitable, which was covered, or contractual, which was not covered. On remand, the court concluded that the District raised both equitable and contractual estoppel. The Agency was therefore entitled to reimbursement on the estoppel claim. At about the same time, the Agency prevailed in its case against MBC and received over $700,000. On Pacific's motion, the court concluded that the judgment fully compensated the Agency for its losses and granted summary judgment to Pacific. The Agency appeals. Pacific then moved to amend the court's initial $100,000 award on the ground that the first appeal somehow vacated that award. The court granted the motion. The Agency appeals.
In their opinion, Judges Bauer, Ripple and Wood reversed and remanded. Two issues were raised by the Agency: the summary judgment for Pacific on the estoppel claim and the court's reversal of the $100,000 Illinois Insurance Code award. On the estoppel claim, the Court stated the truism that a party can only recover once for the same injury. Although the Agency sought to recover its defense costs from both MBC and Pacific, it also asserted other claims against MBC. The Court held that the Agency, on remand, could present evidence to show that some of the MBC verdict should be apportioned to other claims. The Court also agreed with the Agency that any setoff as a result of the MBC verdict should be net of the Agency’s fees and costs of pursuing that matter. Although there is no contractual or statutory right to recover fees, the Court concluded that the Agency must get credit for its fees in order to be put in the same position it would have been in absent Pacific's breach. With respect to the district court's reversing itself on the Insurance Code judgment, the Court also agreed with the Agency. The Court pointed out that neither party attacked the judgment on the first appeal. In the absence of a cross-appeal, Pacific cannot enlarge its rights. Since Pacific's basis for the Rule 60 motion was its contention that the Court vacated the judgment, the Rule 60 motion was granted in error.
