The Absence of Any Factual Allegations Which Could Be Resolved to Preclude Insurance Coverage Defeats Insured's Claim for Independent Counsel
NATIONAL CASUALTY COMPANY v. FORGE INDUSTRIAL STAFFING INC. (June 3, 2009)
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Forge Industrial Staffing, Inc. is an employee staffing company. It has insurance coverage through National Casualty Company (NCC) that insurers it, among other things, from intentionally discriminating against its employees. When several of Forge's former employees brought anti-discrimination charges before the EEOC, NCC agreed to defend Forge but reserved the right to deny coverage later. Given NCC's reservation of rights and the exclusion in the policy of coverage for punitive damages or claims arising from Forge’s intentional or reckless disregard of the law, Forge requested independent counsel. NCC refused. After Forge hired its own counsel, NCC brought a declaratory judgment action to resolve the issue. The district court found no actual conflict and concluded that NCC did not have to pay for Forge’s own counsel. Forge appeals.
In their opinion, Judges Cudahy, Williams and Tinder affirmed. The Court noted that Illinois law provides a broad duty to defend as well as a right to direct the defense. Only if an actual conflict exists does the insured have a right to have the insurer pay for independent counsel. The Court looked to the allegations of the complaint and the terms of the policy to determine whether an actual conflict existed. An actual conflict exists if the underlying complaint contains two mutually exclusive theories of liability, only one of which is covered by the policy. Here, the Court held that neither the possibility of punitive damages in future litigation nor the policy exclusion of willful conduct created an actual conflict. The possibility of punitive damages was too speculative. With respect to the policy exclusion, there were no allegations of willful conduct and there were no allegations which would preclude coverage if resolved a certain way. Thus, the requirements for independent counsel were not met.
