Part 4: Similarities and differences between a DIY project and the interpretation of an insurance policy

Concluding today, for what it's worth, a reflection on constructing a cabinet and how courts should engage in the proper construction of an insurance policy. For Part 1 of this series, click here. For Part 2, click here.

I won some of the coverage cases I brought for that client I introduced in Part 3 of this series. If I had the heart (or stomach lining) to go back and look, I’m sure I would find that I won more than I lost.

But---and I think this is true of most lawyers, and certainly true of most lawyers that I have known personally---it is the losses that we remember most vividly. Even when we try to forget.

The case that I believe finally cost me this coverage client involved two judges. Both of whom were very good judges. Judges that I liked and respected. Still do, actually.

I laid out a very careful case, in a cross motion for summary judgment, as to why my carrier had no duty to defend a particular suit. There were other paths to the same conclusion, but this one, I thought, was the strongest: There could be no duty to defend because the claim for which a defense was sought was not presented during the term of the claims-made policy. With a 15 page limit and a convoluted cast of characters I had to make some difficult editorial choices.

The first learned judge did not agree with my argument. In denying my motion, the judge found that a lawyer’s letter, written to the insured during the policy term, constituted notice of the claim to the insured. The problem with that approach, which the court did not consider, was that the policy also required that, if an insured received notice of a claim during the policy term, it had to promptly notify the carrier. This it did not do. (It did give notice of this letter to the carrier because the insured didn’t think that the letter really constituted notice of a claim either; this was a quality the letter did not acquire until it was examined under the distorting glare of hindsight.)

Anyway, head bloodied but unbowed, I filed a new motion, carefully delineating how the court’s objections to my initial argument necessitated a favorable ruling on this alternate argument. I don’t think I could have lost that motion if the first judge had continued with my case.

Unfortunately for me, soon after I filed the second motion, because of a change in Chancery Division procedures, my coverage case was removed from this first judge’s calendar.

The second judge was reluctant, for one thing, to interfere in his predecessor’s decision. That is, generally, a good thing. But he was obligated to take up my motion.

When the motion was argued, my opponent—also a good person and a good lawyer—complained bitterly about my position that the policy showed two paths to a favorable disposition: “Counsel is really saying here that, heads, he wins and, tails, I lose.”

Of course I wanted to shout, “Bingo! That’s it exactly!” I am pretty sure that I was slightly more moderate in my actual response.

But the truth is, insurance policies are written in belt-and-suspenders language by persons who are trying to leave nothing to chance. So there may be far more than two routes to a given result, depending on how well the underwriters have anticipated a particular problem. That’s not a defect in coverage.

But the second judge found that there could or might be questions of fact about whether the failure to give notice was reasonable -- at least in part because the insured would not have seen the letter in question as constituting notice of a potential claim -- leaving my insurer stuck defending an underlying case, at great expense, most of which was admittedly not covered (but, you know, if one count is covered there is a duty to defend all) and thoroughly dissatisfied with my ability to predict results.

And the punchline? Or the punch-in-the-gut-line in this case: There was no way in Hell to recover damages for the one event which might, arguably, possibly, maybe have taken place during the policy term. At most, if they succeeded in their claims, the plaintiffs would have wound up relieved of an obligation to pay for something that they were supposed to have paid for, but in fact did not. Something that actually enhanced their property values, albeit against their wishes. And, like any normal liability policy, the policy only required the insurer to pay, ultimately, for damages caused by a covered event.

And the second judge was careful to make the disposition not final, so we couldn’t take the decisions up on appeal even if the carrier was willing to take that route.

I believe in my heart of hearts that both of these judges bent over backwards to be as “fair” as possible to all concerned even though the law and the policies commanded a different result. They both recognized that the warring parties in this case were two groups of neighbors who hated each other; pulling the plug on coverage would, potentially, give advantage to one side over the other... but for the fact that the plaintiffs had no actual damages and really owed the neighbors they were suing a great deal of money. The insurance company’s money, funding the defense, merely provided the fuel to keep the flames of the dispute going. And I’m quite sure the judges in question never intended me any harm. If they thought of my position at all they figured I was getting paid and therefore benefitting from the suit’s continuation. But it cost me the client.

Well, boo hoo, you say: Next time, find more understanding clients. The lesson you may think that can be drawn from these anecdotes is that the Circuit Court of Cook County finds ways to give insureds a break. The big, bad insurance companies can surely afford it.

Unfortunately, when they strive for ‘fairness’ instead of going where the law and policy language requires, our courts wind up being consistently inconsistent. And that may redound as much to the detriment of insureds as insurers.

Fast forward several years. I was representing an insured in a coverage case. From a distance I can see where our position might be viewed as quixotic.

Suffice to say that my client ran a gymnasium and he and a group of instructors in his employ gave lessons to kids. One of the insured’s instructors allegedly had inappropriate contact with one of those kids. More than one. And right out in the open, at the gymnasium, too. The instructor in question was arrested and the arrest was reported in the local paper.

The insurer wrote my client and announced that, on the basis of this initial news account, before any complaint was filed, it would refuse to defend my client. Never mind that, under Illinois law, “Refusal to defend is unjustifiable unless it is clear from the face of the underlying complaint that the facts alleged do not fall potentially within the policy’s coverage.” RLI Ins. Co. v. Illinois National Ins. Co., 335 Ill.App.3d 633, 644 (2004). The carrier’s potential duty to defend can only be ascertained when an insured is sued and the complaint tendered for a defense. This is well established: “To determine whether the insurer has a duty to defend the insured, the court must look to the allegations in the underlying complaint and compare these allegations to the relevant provisions of the insurance policy,” Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill.2d 90, 107-08 (1992).

And the consequences of an unjustifiable refusal to defend are quite severe: “Once the insurer breaches its duty to defend... the estoppel doctrine has broad application and operates to bar the insurer from raising policy defenses to coverage, even those defenses that may have been successful had the insurer not breached its duty to defend.” Employers Ins. v. Ehlco Liquidating Trust, 186 Ill.2d 127, 151-152 (1999).

On the other hand, there is language in Ehlco and elsewhere to the effect that there can be no estoppel if there was no duty to defend in the first place.

And here is where the Circuit Court---another judge for whom I have the greatest respect---went astray.

The policy in question had not one, but two exclusions for sexual misconduct. If it was merely a question of the insurer’s intentions, it was obvious that the carrier had no intention of providing coverage in any case alleging abuse or molestation of any kind. And, of course, I just reminded you that insurers, being belt-and-suspenders types, will not hesitate to erect multiple barriers to coverage they do not wish to provide.

But the Devil is in the details -- in the instructions for the cabinet, for example, or the language of the policy. Or, in this case, in the language of the exclusions. The exclusions were not identical. And the differences between them gave rise, at least in my analysis, to an ambiguity that would, of course, have to be construed in favor of my client, the insured. Because, ordinarily, the intentions of the parties to an insurance contract can only be ascertained from the policy language itself.

However, in this case, the trial court could not get past the fact that the insurer did not intend to cover suits that in any way raised an issue of molestation (and, believe me, the underlying plaintiffs strove mightily to plead into coverage or, in this case, around those exclusions). The trial court could not see any ‘fairness’ in giving the insured coverage---potential coverage, really, just a defense against the various suits---when he could have, and should have, seen the exclusions in the policy. That’s the problem with deciding coverage disputes according to one’s own notions of ‘fairness’ and not strictly according to the law and policy language: It is impossible to predict how a court will rule on the law and the policy without knowing, in advance, who the judge will be and what are his or her notions of ‘fairness.’

These decisions have real-world consequences, as in this case for the victims of the instructor’s misconduct who lost all hope of recompense from the insurer because the trial court built the cabinet that the insurer intended and not the unintended jumble that would have resulted if the policy had been construed as written. (In addition, the insured found it necessary to reallocate his limited funds in light of the adverse coverage determination, which is the nicest way I can say that a large portion of my bill went unpaid.)

Now I do not mean to suggest that always applying the law as decided to the policy as written will always result in judicial happiness and satisfaction. But it is the right and, dare I say it, fairest thing to do.

To illustrate, we go back in time a generation or so. There were only two motion judges in the Law Division in those far off days, and a lot of the first party insurance litigation that now is heard in Chancery was decided either in the Law Division proper or by one of the two Extraordinary Remedies judges who heard cases that were also technically filed in the Law Division. The kind of insurance litigation I was doing then was much more basic, as befitted my age and station in life. I filed summary judgment motions or §2-619 motions presenting issues like whether the insured forfeited coverage by failing to show up for an Examination Under Oath, or by failing to file a Sworn Statement in Proof of Loss upon request, or by failing to file suit within the limited time permitted under the policy.

The two Law Motion judges decided most motions as they were presented, often explaining why they were ruling the way they did, complete with case citations, allowing bright and attentive youngsters, like me, to write down a list of useful cases while waiting to step up.

Well, I was young anyway.

On occasion, though, the motion judge would decide that a particular motion was worthy of full briefing and extended argument. The motion would be set for hearing on the afternoon contested motion call.

For a young lawyer, this was pretty nifty -- a chance to enhance one’s legal writing skills and to speak extensively in court. I had many such opportunities before a succession of motion judges but I recall, in particular, the several occasions I appeared before Judge Thomas J. O’Brien.

In those days I always fought for insurance companies, one in particular, in order to make my daily bread. I assume that, while in private practice, Judge O’Brien, like a lot of attorneys, fought with insurance companies to make his. Regardless, it was my clear impression that Judge O’Brien did not like insurance companies.

But, as I recall, Judge O’Brien never let his attitude toward insurance companies affect his decision making. It did, however, sometimes impact his demeanor....

The attorneys would be waiting in the courtroom for the judge to come out for the afternoon contested call. If Judge O’Brien came out relaxed and smiling, I got nervous. If he told me what a fine brief I’d submitted, or what a good argument I’d made, I knew I was doomed: I could start drafting the order denying my motion.

If, on the other hand, the judge came out aggravated, maybe a little red-faced, I dared to hope that he’d not found a way around me and I might prevail.

The point is---and this was certainly my impression at the time---that the court went where the policy and the law and the facts required. And it seems to me that this is really the way to be fairest to all sides.

Now I realize that these comparatively simple contract disputes of happy memory are not entirely comparable to some of the count-the-angels-dancing-on-the-heads-of-pins questions that may arise in other policy interpretation cases. And I also realize that good judges will understandably try and take a ‘big picture’ point of view. I accept as an article of faith that a settlement is almost always preferable to a judgment.

But the judge tasked with deciding a coverage issue may not be able to direct, much less control, a settlement of the underlying case, and his or her good offices may not even be welcomed by all parties thereto. Still, telegraphing the likely direction of the coverage disposition, arrived at by remorselessly following the policy and the law where it leads, even without actually issuing it, might have a far happier impact on the ultimate resolution of a matter than pulling one’s punches on the coverage question in a misguided attempt to be ‘fair’ to all concerned. Or to maintain the status quo.

I say follow the directions and see what results. Even if what results from the process doesn’t look much like the cabinet offered for sale.

And, not that it really matters, but, for what it’s worth, my cabinet came out just fine. All five drawers fit and everything – although my wife says, and I have reluctantly verified, that the middle drawer sticks some. But I think I know how to fix it.