Failure To Inform Insured Of A Change In Policy Coverage Results In Expanded Liability For An Insurance Company

September 15, 2016

One of the most basic and powerful tools available for every party to a lawsuit is found under Illinois Supreme Court Rule 213.  Simply known as “Interrogatories,” these questions provide a party with the tools to ask questions to the adverse party which must be answered truthfully and fully, outside of any objections.  These questions and answers can provide a wealth of information that can help provide a much broader picture of an ongoing case.  Further, providing responses to these interrogatories also attaches a responsibility to the answering partying to update and amend their responses as necessary when there is a new discovery or a change in circumstances. The failure to do this could lead to devastating consequences as illustrated in the recent Illinois Appellate Court decision Harwell v. Fireman’s Fund Insurance Co., 2016 IL App (1st) 152036 (June 30, 2016).

The Harwell decision is the result of a trial court verdict that awarded over $250,000 to a subcontractor who was injured on a job site when the stairs to the basement of a building under construction collapsed. The subcontractor, Harwell, filed a lawsuit against the general contractor, Kipling Development Corp., as well as against two other subcontractors.  Kipling was covered by a $1,000,000.00 general liability insurance policy provided by Fireman’s Fund Insurance Co.  However, the policy stated that if Kipling failed to obtain certificates of insurance and hold harmless agreements from all of its subcontractors, then the maximum coverage for the policy, including defense costs, was reduced to $50,000. Harwell requested information regarding Kipling’s general liability insurance in an interrogatory. Kipling’s attorneys, who were being paid for by Fireman’s Fund as part of general liability policy, responded to Harwell’s interrogatory by correctly stating that Kipling had $1,000,000.00 of general liability coverage.

At some time in 2008, after Kipling’s attorneys answered the interrogatory, Fireman’s Fund notified Kipling that it was enacting the reduction in coverage clause of the policy pursuant its terms and conditions and the maximum coverage, including the cost of defense, was now $50,000.  Fireman’s Fund, reiterated this in 2011 to Kipling’s attorneys, but they failed to amend the interrogatory response.  In 2012, Harwell obtained a jury verdict in his favor for over $250,000, but recovery from Kipling was impossible because the business had folded without any assets.  In 2013, Harwell brought a suit for declaratory judgment against Kipling and Fireman’s Fund asking for a declaration that Fireman’s Fund cover Harwell’s damages.  Fireman’s Fund responded that its maximum liability was $50,000, which had been reached paying for Kipling’s defense.

In its analysis, the Appellate Court reiterated the strength of the Illinois Supreme Court Rules, declaring that they “have the force of law,” and that parties must strictly comply with these rules.  The Court further illustrated the hardship Harwell suffered from Kipling’s attorneys’ failure to amend their responses to Harwell’s interrogatories.  It was obvious to the Court that, had Harwell known that the maximum liability had been reduced from $1 million to $50,000, he could have sought a settlement instead of continuing litigation against Kipling, whose defense costs were picking away at $50,000 rather than $1 million.

Justice Michael B. Hyman went as far as declaring the actions of Kipling, Fireman’s Fund, and their attorneys akin to “sandbagging.”  Furthermore, Justice Hyman stated that Kipling, Fireman’s Fund, and their attorneys fashioned a game of “heads I win, tails I win.”  This led the Court to declare that equity demanded that Fireman’s Fund be prevented from asserting the reduction in liability coverage against Harwell, through a legal doctrine called estoppel.  This resulted in Fireman’s Fund having to pay Harwell for the damages he obtained from Kipling, even though Fireman’s Fund had otherwise properly enacted the reduction in coverage clause.

From the moment a lawsuit is filed, the actions and conduct of all parties are bound by various statutes, rules, and procedures. The failure to abide by any one of these procedures can have devastating consequences to an otherwise very strong case.  It is for this reason that the professionals at Rock Fusco & Connelly are available to manage any of your legal service requirements.