“This case provides a warning for insurance companies who refuse to defend their insureds.”
So begins the opinion in National American Insurance v. Artisan and Truckers Casualty. Artisan insured Barengolts, a tractor trailer driver, who rear ended the Bernals. The Bernals sued, and alleged various inconsistent claims regarding any agency relationship between and among the defendants. Artisan insured Barengolts, but denied coverage under its contingent liability endorsement. The contingent liability endorsement or CLE, excluded coverage when “the insured auto is being operated, maintained or used for or on behalf of anyone else or any organization whether or not for compensation.” Because the truck had placards for Unlimited Carrier at the time of the accident, Artisan claimed the truck was being used on or behalf of Unlimited, and thus not covered.
National American (NAICO) insured Unlimited Carrier, and defended the case under a reservation of rights. The Court states:
While Artisan was busy refusing to defend, Appellee National American Insurance Company (“NAICO”) was busy defending.
NAICO got the case settled, and also got Barengolts’ rights under the Artisan policy. NAICO sued Artisan, claiming (1) Artisan had a duty to defend and indemnify its insureds in the Bernal case; (2) Artisan breached that duty; and (3) Artisan is now estopped from raising policy defenses to its duty to defend and indemnify. Counts 2 and 3 raised claims of equitable and contractual subrogation, respectively, and Count 4 sought equitable contribution. Eventually, the trial court determined Artisan had a duty to defend the Bernal’s lawsuit, and it breached that duty; and Artisan was estopped from asserting any policy defenses. The Seventh Circuit affirmed.
The duty to defend is broader than the duty to indemnify. Thus, Artisan’s claim that Unlimited would be ultimately liable doesn’t matter. Since Artisan failed to defend under a reservation of rights and did not file a declaratory judgment action, it was estopped from asserting its policy defenses.
Here, Artisan gambled and lost. It did not defend . . . under a reservation of rights. And it did not seek a declaratory judgment in the underlying action. Instead, it refused—on at least seven occasions—to defend. Because “[a]n insurer that believes an insured is not covered under a policy cannot simply refuse to defend the insured[,]” Mt. Hawley Ins. Co. v. Certain Underwriters at Lloyd’s, 19 N.E.3d 106, 111 (Ill. App. Ct. 2014) (quoting A-1 Roofing Co. v. Navigators Ins. Co., 958 N.E.2d 695, 700 (Ill. App. Ct. 2011)), the district court did not err in estopping Artisan from raising policy-coverage defenses. Accordingly, we hold that Artisan is estopped from asserting any coverage defenses under its policy. . . . And because it cannot assert such defenses, it must reimburse NAICO the amount authorized by the settlement agreement, including costs for NAICO’s efforts in defending and indemnifying [the insureds] in the Bernals’ lawsuit.