Nat'l Cas. Co. v. White Mountains Reinsurance Co., No. 11-3158 (7th Cir. 2013)
Annotate this Case
Justia Opinion Summary
Want to stay in the know about new opinions from the Seventh Circuit US Court of Appeals?
Sign up for free summaries delivered directly to your inbox. Learn More ›
You already receive new opinion summaries from Seventh Circuit US Court of Appeals. Did you know we offer summary newsletters for even more practice areas and jurisdictions? Explore them here.
Steidl and Whitlock were convicted of 1987 murders, largely based on testimony by two supposed eyewitnesses. Long after the convictions, an investigation revealed that much of the testimony was perjured and that exculpatory evidence had been withheld. The revelations led to the release of the men and dismissal of all charges. Steidl had spent almost 17 years in prison; Whitlock had spent close to 21 years. They sued. By 2013, both had settled with all defendants. Because the defendants were public officials and public entities, disputes arose over responsibility for defense costs. National Casualty sought a declaratory judgment that it was not liable for the defense of former State’s Attorney, McFatridge, or Edgar County, agreeing to pay their costs under a reservation of rights until the issue was resolved. The Seventh Circuit ruled in favor of National Casualty. In another case McFatridge sought a state court order that the Illinois Attorney General approve his reasonable expenses and fees; the Illinois Supreme Court rejected the claim. In a third case, National Casualty sought a declaratory judgment that another insurer was liable for costs it had advanced. The Seventh Circuit affirmed that the other company is liable. It would be inequitable for that company to benefit from National’s attempt to do the right thing, especially since it did not do the right thing and contribute to the defense costs under a reservation of rights.
Download PDF
In the United States Court of Appeals For the Seventh Circuit ____________________ No. 11 3158 NATIONAL CASUALTY COMPANY, et al., Plaintiffs Appellees, v. WHITE MOUNTAINS REINSURANCE COMPANY OF AMERICA, now known as SIRIUS AMERICA INSURANCE COMPANY, Defendant Appellant. ____________________ Appeal from the United States District Court for the Central District of Illinois. No. 2:09 cv 02278 HAB DGB Harold A. Baker, Judge. ____________________ ARGUED NOVEMBER 27, 2012 DECIDED OCTOBER 30, 2013 ____________________ Before FLAUM and TINDER, Circuit Judges, and THARP, Dis trict Judge.* TINDER, Circuit Judge. The wrongful convictions of Gor don Randy Steidl and Herbert Whitlock are a sad chapter in the history of Edgar County, Illinois. Steidl and Whitlock * Of the Northern District of Illinois, sitting by designation. 2 No. 11 3158 were convicted in 1987 of murdering a local married couple, and their convictions were largely based on the testimony of two supposed eyewitnesses who connected the two men to the crimes. Only long after Steidl s and Whitlock s convic tions did a subsequent investigation reveal that much of the key testimony had been perjured, and furthermore, a great deal of exculpatory evidence had been withheld from the two men s defenses. Eventually, these revelations led to the release of the two men as well as dismissal of all charges against them. By then, Steidl had spent almost seventeen years in an Illinois prison; Whitlock had spent close to twen ty one. This unfortunate tale of Steidl s and Whitlock s wrongful imprisonment has provided the backdrop for much litiga tion in the years following their release from prison. Steidl was the first to file a lawsuit on May 27, 2005 approximately one year after his release from prison against the City of Paris, Illinois, the city in Edgar County where the murders occurred; Edgar County, Illinois; several Illinois State Police officers; two Paris police officials; and Michael McFatridge, the former Edgar County State s Attor ney who had been responsible for prosecuting him, and whom Steidl alleged had been the mastermind behind the plot to frame him for murder. Against these defendants, Steidl alleged false imprisonment, due process, malicious prosecution, intentional infliction of emotional distress, and conspiracy claims under state and federal law. Whitlock fol lowed Steidl s lead and filed a similar lawsuit upon his re lease from prison three years later. By March 2013, both Steidl and Whitlock had settled their lawsuits with all de fendants. No. 11 3158 3 Although Steidl s and Whitlock s lawsuits have entirely settled, the involved parties have not yet been able to put this matter fully behind them. Steidl s and Whitlock s suits proved to be only the tip of the litigation iceberg. Because the defendants in the two lawsuits were all public officials and public entities, disputes soon arose over who bore the responsibility for paying the defense costs. The disputes have been particularly heated with regard to the costs in curred by two defendants, Michael McFatridge and Edgar County. Indeed, three different cases have been litigated re garding who is responsible for paying McFatridge s and Ed gar County s defense costs. This case is the last one remain ing of the three. The first of the three spinoff defense cost cases was brought in 2007 by National Casualty Company (hereinafter National Casualty ), the plaintiff in the present case, in fed eral district court. In that case, National Casualty Co. v. McFatridge, 604 F.3d 335, 337 (7th Cir. 2010) (hereinafter McFatridge I ), National Casualty sought a declaratory judgment that it was not liable for the defense costs of either McFatridge or Edgar County under a 1989 insurance policy that its predecessor had issued to County of Edgar S.D. Id. Although National Casualty contested its liability for McFatridge s and Edgar County s defense costs, National Casualty nonetheless agreed to pay for the defense costs of both McFatridge and Edgar County under a reservation of rights until the coverage issue was resolved. In 2010, after reading the language of the National Casualty policy in question, our court agreed with National Casualty that nei ther McFatridge nor Edgar County were covered by the 1989 policy, and as a result, we held that National Casualty had 4 No. 11 3158 no duty to defend or indemnify McFatridge or Edgar Coun ty. Id. at 345. The second of the three spinoff defense cost cases was brought by McFatridge himself in Illinois state court in 2010. There, McFatridge asked the court to order the Illinois At torney General to approve all of McFatridge s reasonable litigation expenses and attorney fees in defense of the Steidl and Whitlock suits as they are incurred by him. McFatridge v. Madigan, 989 N.E.2d 165, 168 69 (Ill. 2013). In May of this year, the Illinois Supreme Court affirmed the state trial court s dismissal of McFatridge s case, finding that McFatridge had failed to show a clear duty on the part of the Attorney General to approve payment by the state of [his] defense expenses. Id. at 173. The third of the three spinoff defense cost cases and the case at hand was filed by National Casualty in 2009. In its complaint, National Casualty asked the federal court for an other declaratory judgment. But instead of asking the court to find National Casualty not liable for McFatridge s and Edgar County s defense costs, National Casualty asked the court to find another insurer liable for these costs. Specifical ly, National Casualty asked the court to find that White Mountains Reinsurance Company (hereinafter White Mountains ) had a duty to defend Edgar County and McFatridge under a policy issued by its predecessor to Edgar County Sheriff s Department & Edgar County in 1986. In addition to seeking a court order for White Moun tains to assume the defense of Edgar County and McFatridge ¦ and assume all costs of defense, National Casualty further sought a court order for White Mountains to reimburse National Casualty for its defense expenditures No. 11 3158 5 on Edgar County and McFatridge prior to the resolution of McFatridge I. Appealing to equity, National Casualty pointed out in its complaint that it had heretofore paid the defense costs for Edgar County and McFatridge under a reservation of rights. But once a district court had declared National Casualty not liable for these defense costs, and particularly once our court affirmed the district court in the McFatridge I decision, National Casualty believed it was entitled to reim bursement by the entity actually liable for McFatridge s and Edgar County s defense costs. White Mountains, according to National Casualty, was the insurer actually liable. This third spinoff case is perhaps the most procedurally complicated one. Unfortunately, the procedural complica tions have only continued to multiply throughout the case s pendency. National Casualty principally sought relief from White Mountains, but it also sued McFatridge, Edgar Coun ty, Steidl, and Whitlock since it had expended funds on McFatridge s and Edgar County s behalf in the Steidl and Whitlock lawsuits despite the fact that National Casualty had no duty to defend either party. White Mountains, in turn, filed a cross claim against McFatridge and Edgar County, asking the court to declare that it had no duty to de fend them under the 1986 policy. White Mountains also filed a counterclaim against National Casualty, asking the court to declare that it had no duty to reimburse National Casualty for its prior expenditures on McFatridge s and Edgar Coun ty s defense costs. Several months into the litigation, McFatridge and Edgar County filed a motion for summary judgment against White Mountains, asking the court to find that, as a matter of law, White Mountains ha[d] a duty to defend Mr. McFatridge 6 No. 11 3158 and the County in the lawsuits filed by plaintiffs Steidl and Whitlock. White Mountains responded a month later by filing a cross motion for summary judgment against McFatridge, Edgar County, and National Casualty, asserting that White Mountains had no duty to pay McFatridge s and Edgar County s defense costs, and thus no duty to reimburse National Casualty. Not to be left behind, National Casualty filed its own cross motion for summary judgment the fol lowing month, arguing that White Mountains owed a legal duty to defend McFatridge and Edgar County, and as a re sult, must immediately assume paying all costs of [their] defense and must reimburse [National Casualty] for all defense costs. Confronted with six parties and three cross motions for summary judgment, the district judge, in his own words, faced a thicket of filings. After sorting through the thicket, however, the judge realized that the motions all asked him to address the same legal issues: whether White Mountains had a duty to defend McFatridge and/or Edgar County un der the 1986 policy, and if so, whether White Mountains had a duty to reimburse National Casualty for its previous ex penditures on McFatridge s and/or Edgar County s defense costs. On August 31, 2011, the district judge decided both legal issues against White Mountains. In granting summary judgment for McFatridge, Edgar County, and National Cas ualty, the district court reached the following conclusions: 1. White Mountains owes a duty to defend McFatridge and Edgar County in the Steidl and Whitlock lawsuits, 2. That this duty to defend exists under White Mountains 1986 Policy (83LE006626); No. 11 3158 7 3. That White Mountains must immediately begin paying all costs of defense in the Steidl and Whitlock lawsuits, and 4. That White Mountains must reimburse Na tional Casualty for all defense fees and costs expended since White Mountains was on notice of the underlying claims. As such, the district court entered judgment in favor of McFatridge, Edgar County, and National Casualty and against White Mountains. Shortly thereafter, the district court determined that no further proceedings were warrant ed with respect to defendants Steidl and Whitlock, dis missed the two men from the action, and terminated the case. White Mountains, in turn, filed a timely appeal. During the two years that have passed since White Mountains filed its appeal with our court, the case has only become more complicated. The appeal began in a normal fashion: White Mountains filed its first brief with our court in July 2012, and by early August, McFatridge, Edgar Coun ty, and National Casualty had all filed their response briefs. But on August 14, 2012, White Mountains filed an unex pected motion with our court. Styled as a motion for an ex tension of time to file a reply brief, White Mountains notified us that it had entered into an agreement with defendant appellee McFatridge, which settled all issues on appeal be tween the parties. Although we granted White Mountains motion the same day, White Mountains filed a second mo tion with our court ten days later, requesting to voluntarily withdraw its appeal as to Michael McFatridge pursuant to Fed. R. App. P. 42(b). Because White Mountains reaffirmed in this motion that it had resolved all issues between itself 8 No. 11 3158 and McFatridge, we again granted White Mountains motion the same day and dismissed McFatridge from the appeal. After McFatridge s dismissal in August 2012, the appeal proceeded in a routine manner for the next several months. The parties concluded their briefing in September, and we heard oral argument on November 27, 2012, with White Mountains as the appellant and Edgar County and National Casualty as the only two remaining appellees. Then in April of this year, we received another unexpected filing. This time, White Mountains filed a joint motion with defendant appellee Edgar County to voluntarily dismiss the appeal with respect to Edgar County because the claims between these parties ha[d] been resolved by settlement. We granted their motion on April 8, 2013. Without a doubt, White Mountains voluntary dismissals had significantly diminished the number of appellees. Yet we soon began to wonder whether White Mountains volun tary dismissals had also significantly diminished the case before our court. With just one of the three initial appellees remaining, it appeared that just one of the four original is sues remained for our court to decide on appeal whether White Mountains must reimburse National Casualty for its expenditures on McFatridge s and Edgar County s defense. At first glance, the first three conclusions of the district court appeared to no longer be in dispute. White Mountains had voluntarily chosen to dismiss McFatridge and Edgar County from this appeal; any controversy regarding White Moun tains liability for their defense costs now appeared to be moot. National Casualty had already raised similar concerns with our court on October 4, 2012, shortly after White Moun tains voluntarily dismissed McFatridge from this appeal. As No. 11 3158 9 such, we ordered the parties to submit supplemental brief ing addressing these concerns. After evaluating the parties supplemental briefs, we conclude that our jurisdiction to review the first three con clusions in the summary judgment order remains intact. The law of the case doctrine binds a tribunal to its prior decisions regarding the case, as well as a higher tribunal s decisions about the matter, but it can never serve to bar a higher court s review of a lower court s decision. Accordingly, we proceed to review all four of the district court s holdings on the merits. In so reviewing, we conclude that White Mountains owed a duty to defend McFatridge and Edgar Country in the Steidl and Whitlock lawsuits, and that this duty arose from White Mountain s 1986 policy. Therefore, we affirm the judgment of the district court. I White Mountains has privately resolved all controversies over the first three holdings of the district court with McFatridge and Edgar County through settlement. The exact terms of the two settlement agreements remain undisclosed, so we have no idea how the parties actually resolved the ex tent of White Mountains duty to defend McFatridge and Edgar County. National Casualty argues that under the doc trine of law of the case, we may not review the district court s judgment for McFatridge. It asserts that because White Mountains voluntarily dismissed its appeal against McFatridge and Edgar County, the part of the district court s judgment as to these two parties must stand as we adjudi cate the dispute between White Mountains and National 10 No. 11 3158 Casualty, lest the district court be required to enter a judg ment that is impermissibly inconsistent on remand. But that is incorrect. While the doctrine of the law of the case creates a presumption against a court s reexamining its own rulings in the course of a litigation ¦ [i]t has no applica tion to the review of rulings by a higher court. Marseilles Hydro Power LLC v. Marseilles Land & Water Co., 481 F.3d 1002, 1004 (7th Cir. 2007) (holding that a district court judg ment regarding a party that settled out of the case could not prejudice the remaining parties in the litigation on appeal). Indeed, we have repeatedly held that [t]he doctrine of law of the case never blocks a higher court from examining a de cision of an inferior tribunal. Belbachir v. County of McHenry, 726 F.3d 975, 978 (7th Cir. 2013) (quoting Payne v. Churchich, 161 F.3d 1030, 1038 n.9 (7th Cir. 1998)) (internal quotation marks omitted). Furthermore, a party s decision to abandon [an opposing party] on appeal, when other [opposing par ties] remain in the case, is not an acknowledgement that the judgment as to the dropped opposing party was sound, and is therefore not a basis on which the remaining [oppos ing parties] can plead waiver or forfeiture. Id. National Casualty further argues that Supreme Court precedent requires us to bind White Mountains to the terms of the district court s ruling, since White Mountains settle ment could have been but was not conditioned on vaca tur of the district court s holdings as to Edgar County and McFatridge. However, the nature of the case appealed here is clearly different from the posture of the case National Casualty relies on: U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18, 19 20 (1994). There, a creditor had settled its entire claim against a debtor after the Supreme No. 11 3158 11 Court had granted the creditor s petition for certiorari but before oral argument was heard in the Court. Even though the merits of the case were mooted by the settlement agree ment, the creditor realized after settlement that the judgment of the Ninth Circuit still stood and could have a deleterious effect on the creditor s subsequent claims. The Court refused to vacate the claims, holding that [w]here mootness results from settlement, ¦ the losing party has voluntarily forfeited his legal remedy by the ordinary processes of appeal or cer tiorari, thereby surrendering his claim to the equitable rem edy of vacatur. The judgment is not unreviewable, but simp ly unreviewed by his own choice. Id. at 25 (citations omit ted). Bonner Mall stands for the principle that suitors enter ing complete settlement should forge thoughtful settlements before relinquishing legal remedy by appeal or certiorari; but it does not stand for the principle that a partial settle ment among several, but not all, parties should tie the hands of the reviewing court. Indeed, such a principle would lead to the absurd result where White Mountains would be una ble to request appellate review of the substantive underpin nings of its case against National Casualty. Unlike the credi tor in Bonner Mall, White Mountains did not draft its settle ment agreements poorly in not requesting that the judgment of the lower court be vacated. It did so in order that this live appeal could still move forward. Furthermore, we agree with the public policy considera tions raised by White Mountains. We want to encourage the strong public policy and substantial public investment supporting the settlement process on appeal. And indeed, our circuit has held that [t]he law generally favors and en courages settlements. Metro. Hous. Dev. Corp. v. Vill. of Ar lington Heights, 616 F.2d 1006, 1013 (7th Cir. 1980). 12 No. 11 3158 In reviewing White Mountains appeal, we have as we must the latitude and responsibility to review the district court s decisions thoroughly. We thus proceed to the merits. II We first consider whether White Mountains owes a duty to defend McFatridge and Edgar County, and whether this duty originates from the 1986 policy. The construction of an insurance policy is a question of law, so we review the dis trict court s finding de novo. Premcor USA, Inc. v. Am. Home Assurance Co., 400 F.3d 523, 526 27 (7th Cir. 2005). To con strue insurance policies, Illinois courts take into account the type of insurance purchased, the nature of the risks in volved, and the overall purpose of the contract. Am. States Ins. Co. v. Koloms, 687 N.E.2d 72, 75 (Ill. 1997). The Illinois Supreme Court has held: Our primary objective in construing the language of a policy is to ascertain and give ef fect to the intentions of the parties as expressed in their agreement. If the terms of the policy are clear and unambiguous, they must be giv en their plain and ordinary meaning, but if the terms are susceptible to more than one mean ing, they are considered ambiguous and will be construed strictly against the insurer who drafted the policy. Courts will not strain to find ambiguity in an insurance policy where none exists. McKinney v. Allstate Ins. Co., 722 N.E.2d 1125, 1127 (Ill. 1999) (internal citations omitted). No. 11 3158 13 And it is also a generally accepted canon of construction that [w]here an inconsistency arises between a clause that is general and one that is more specific, the latter prevails. Al berto Culver Co. v. Aon Corp., 812 N.E.2d 369, 380 (Ill. App. Ct. 2004). However, for insurance policies, at least some Illi nois courts have adopted the canon that [i]f two or more clauses within a policy conflict or are inconsistent, then the clause affording greater coverage will govern. Abram v. United Servs. Auto. Ass n, 916 N.E.2d 1175, 1179 (Ill. App. Ct. 2009). This canon is consistent with the tendency of Illinois to treat provisions that limit or exclude coverage with some skepticism and interpret contracts liberally in favor of the insured and against the insurer. Koloms, 687 N.E.2d at 75. Against this backdrop, we are asked to interpret the White Mountains policy language to determine if it would cover Edgar County. The 1986 policy provides the following terms: ï · The 1986 Policy Declaration Page, Item 1, states that the Named Insured and Ad dress is Edgar County Sheriff s Depart ment & Edgar County, 228 North Central Avenue, Paris, Illinois 61955. The address is for the Sheriff s department. ï · The Additional Named Insured space is blank. ï · The policy, on its first page, states that [White Mountains] will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as civ 14 No. 11 3158 il damages because of wrongful acts arising out of Law Enforcement activities . Additionally, the policy provides the following relevant definitions: NAMED INSURED Means the law en forcement agency named in Item 1 of the dec larations. INSURED Means (A) Named Insured and all paid full or part time employees; (B) unpaid volunteers or reserves while performing law enforcement functions for the Named Insured at the Insured s request; (C) the political sub division in which the Named Insured is locat ed, should such subdivision be named in any action or suit against the Named Insured or any employee for any act, error or omission for which this policy affords protection, and elect ed or appointed officials or other personnel or units of the political subdivision of which the Named Insured is a unit thereof, with respect to their responsibilities to law enforcement. OCCURRENCE Means an accident, includ ing continuous or repeated exposure to condi tions, which results in bodily injury, personal injury, or property damage neither expected nor intended from the standpoint of any In sured. WRONGFUL ACT Means only or all of the following: Actual or alleged error, misstate ment or misleading statement, omission, ne No. 11 3158 15 glect or breach of duty by the Insured individ ual or collectively, while acting or failing to act within the scope of his employment or official duties pertaining to the law enforcement func tions of the Insured. We are asked to decide if Edgar County and McFatridge are covered by a contract with this language. We believe the answer to both questions is yes. National Casualty ekes out a narrow victory here, in large part due to the Illinois canon of construction that favors the insured in cases of ambiguity. (a) Edgar County While we reach the same outcome as the district court and conclude that Edgar County is covered by the 1986 poli cy, we disagree with the district court s reading of the Named Insured section of the declaration and the defini tion of the term. As National Casualty notes, Edgar County is named in the Named Insured section of the policy dec laration. The definition section states that Named Insured refers to the law enforcement agency named in Item 1 of the declarations. The district court concluded that Edgar County cannot be a law enforcement agency, and relied on a general canon of construction that [w]here an inconsistency arises between a clause that is general and one that is more specific, the latter prevails. Alberto Culver Co., 812 N.E.2d at 380. However, there is a more specific canon of interpreta tion to be applied here: Illinois law states that [i]f two or more clauses within [an insurance] policy conflict or are in consistent, then the clause affording greater coverage will govern. Abram, 916 N.E.2d at 1179. This canon comports with the general policy Illinois follows in interpreting insur ance contracts liberally in favor of the insured and against 16 No. 11 3158 the insurer. Am. States Ins. Co., 687 N.E.2d at 75. Applying the Abram canon to the declaration, we can straightforward ly reach the determination that Edgar County is a named in sured. This reading is preferable to the district court s reading for two more reasons. First, the text indicating Edgar Coun ty Sheriff s Department & Edgar County are both Named Insureds was typed into this particular contract, while the definition clause comes from a preprinted form contract. To us, this indicates that the typed language the language ac tually specific to this contract should control, and indeed Illinois has the sensible canon that [a] typed portion of a document prevails over a printed portion in determining the construction of a contract. ETA Trust v. Recht, 574 N.E.2d 4, 9 (Ill. App. Ct. 1991). Besides being sensible, the canon also squares with the policy implicit in the Illinois Supreme Court s instruction to read insurance contracts liberally in favor of the insured and strictly against the insurer who drafted the policy. Am. States Ins. Co., 687 N.E.2d at 75. The second reason we interpret Edgar County to be a Named Insured is that not doing so reads the phrase & Ed gar County completely out of the declaration, and this runs against the plain text of the contract. Illinois case law does not support reading language out of an insurance policy; in fact, it supports giving language contained within the policy its plain and ordinary meaning. McKinney, 722 N.E.2d at 1127. And we agree with National Casualty s assertion that to accept the district court s interpretation, we would have to stand by the assertion that White Mountains specifically listed Edgar County by name under the heading Named In sured for no reason at all. No conceivable reason exists for No. 11 3158 17 listing Edgar County as a Named Insured if Edgar County is not, in fact, a Named Insured. (Appellee s Br. 22 23.) At worst, this is a contractual ambiguity to be construed against White Mountains. See id. White Mountains asserts as a secondary argument that it is not responsible for Edgar County s defense costs because Edgar County s liability is not due to an occurrence that triggered coverage. It makes this assertion on the basis of our decision in McFatridge I, specifically our analysis of the Scottsdale law enforcement policy in that case. There, we held that Scottsdale s law enforcement policy did not pro vide coverage for McFatridge or Edgar County because the policy contained language limiting coverage to when trig gering events occurred as well as other language limiting coverage to liability arising out of the law enforcement activ ities of the sheriff s department. McFatridge I, 604 F.3d at 339 41. White Mountains policy, too, is a law enforcement poli cy. But for reasons known best to White Mountains, the 1986 policy contains language that is quite a bit broader than the language in the Scottsdale law enforcement policy. Where Scottsdale specifies that it will pay all sums which the in sured shall become legally obligated to pay ¦ because of wrongful acts ¦ caused by an occurrence and arising out of the performance of the insured s duties to provide law enforcement, McFatridge I, 604 F.3d at 339 (second emphasis added), White Mountains agrees to pay on behalf of the Insured all sums which the Insured shall become legally obliged to pay ¦ be cause of wrongful acts arising out of Law Enforcement activities ¦ . (S.A. 139) (emphasis added.) In other words, the lan guage provides support for a reading that the policy covers 18 No. 11 3158 not just the wrongful acts of Edgar County and the sheriff s department, but also the wrongful acts of others. Unlike the Scottsdale policy in McFatridge I, this language could validly be read to provide coverage for all law enforcement activity simply by virtue of its taking place within Edgar County. McFatridge I, 604 F.3d at 340. Certainly, this is not the only reading that the policy affords; but Illinois law requires that we err on the side of interpreting the policy strictly against White Mountains in cases of ambiguity. The more compelling argument distinguishing the White Mountains policy from the Scottsdale policy is that the Scottsdale policy is an occurrence based policy, McFatridge I, 604 F.3d at 345, while the White Mountains policy is not occurrence based, and instead provides professional liability coverage for claims arising out of wrongful acts. (S.A. 139.) By its terms, it does not require an occurrence or ac cident to trigger coverage. Occurrence and wrongful act have distinct definitions under the White Mountains policy, and the policy declaration makes clear that it will pay for Edgar County s and the sheriff department s obligations resulting from wrongful acts arising out of Law Enforce ment activities. (S.A. 139.) Steidl s and Whitlock s claims against McFatridge arise out of covered wrongful acts : the policy explicitly covers claims for false arrest, false impris onment, malicious prosecution, and deprivation of rights. For these reasons, we conclude that Edgar County is clearly insured by White Mountains under the 1986 policy. We turn to the question of whether McFatridge is covered. No. 11 3158 19 (b) McFatridge McFatridge is an elected state official. McFatridge I, 604 F.3d at 341 ( McFatridge is not an employee of the sheriff s department or the county ¦ . The best characterization of the state s attorney is that he is a state constitutional official with jurisdiction in the county in which he is elected. ) (em phasis omitted); Madigan, 989 N.E.2d at 171 (describing McFatridge as an elected state official ). As applied to him, subsection (C) of the definition of Insured could be read two ways: 1. elected ¦ officials ¦ of the political sub division ¦ or 2. elected ¦ officials ¦ or units of the politi cal subdivision ¦ Under the first, we do not think McFatridge would be covered, as he is a state elected official and not an elected of ficial of Edgar County although we suppose that would hinge on the level of generality at which one defines the po litical subdivision in which Edgar County is located. Under the second, McFatridge as an elected official would be covered by the policy. But we need not determine which of the readings is correct, as both readings are plausible. [I]f the terms [of a policy] are susceptible to more than one meaning, they are considered ambiguous and will be con strued strictly against the insurer who drafted the policy. McKinney, 722 N.E.2d 1127. For this reason, we easily con clude that White Mountains owes McFatridge the duty of representation under the 1986 policy. 20 No. 11 3158 III Having determined that White Mountains owes Edgar County and McFatridge the duty of representation, we re view the district court s finding that White Mountains must reimburse National Casualty for all defense fees and costs expended since White Mountains was on notice of the un derlying claims. To recover under a theory of unjust enrich ment, National Casualty must show that defendant [White Mountains] voluntarily accepted a benefit which would be inequitable for [it] to retain without payment. People ex rel. Hartigan v. E & E Hauling, Inc., 607 N.E.2d 165, 177 (Ill. 1992). Under Illinois law, [t]he theory of unjust enrichment is based on a contract implied in law ¦ . Because unjust en richment is based on an implied contract, where there is a specific contract which governs the relationship of the par ties, the doctrine of unjust enrichment has no application. Id. (quoting La Throp v. Bell Fed. Savs. & Loan Ass n, 370 N.E.2d 188, 195 (Ill. 1977)). Here, the dispute involves two independent insurance companies with two independent policies. National Casualty and White Mountains never en tered into a contract with each other regarding the insurance coverage of either Edgar County or McFatridge. This case presents an appropriate situation for National Casualty to invoke this equitable doctrine. In March 2008, when Edgar County and McFatridge first made a claim for their defense costs under the 1986 policy, White Mountains predecessor, Folksamerica, agreed to con tribute to McFatridge s defense under a reservation of rights but flatly refused to contribute to Edgar County s defense costs. By June 2010, White Mountains had fully withdrawn from the limited contributions it was making to No. 11 3158 21 McFatridge s defense costs and still persisted in its refusal to contribute to Edgar County s defense costs. White Moun tains never paid any of Edgar County s defense costs, and it only paid some of McFatridge s defense costs. Meanwhile, instead of fulfilling its own obligations to McFatridge and Edgar County, White Mountains allowed National Casualty to foot the bill for McFatridge s and Edgar County s defense costs. National Casualty continued to pay these defense costs under a reservation of rights until our court declared National Casualty not liable for these costs under the terms of its 1989 policy in McFatridge I, 604 F.3d at 345. White Mountains has contributed an insufficient amount toward McFatridge s and Edgar County s defense costs de spite being liable for these costs. Since White Mountains is liable for these defense costs, but National Casualty is not, National Casualty s contributions to the defense costs before the McFatridge I decision constitute a benefit to White Moun tains. National Casualty made clear from the start that its contributions to McFatridge s and Edgar County s defense costs were made under a reservation of rights until its legal duties were clarified under the McFatridge I declaratory judgment action, so National Casualty never waived its right to recoup its contributions. See Standard Mut. Ins. Co. v. Lay, 989 N.E.2d 591, 596 (Ill. 2013) (holding that when the insur er takes the position that the policy does not cover the com plaint, the insurer must: (1) defend the suit under a reserva tion of rights; or (2) seek a declaratory judgment that there is no coverage. If the insurer fails to take either of these actions, it will be estopped from later raising policy defenses to cov erage ). National Casualty has gone above and beyond its legal obligations; White Mountains has fallen short. See Maxum Indem. Co. v. Eclipse Mfg. Co., 848 F. Supp. 2d 871, 884 22 No. 11 3158 (N.D. Ill. 2012) (noting that Illinois law encourages insurers to [defend under a reservation of rights] when faced with a situation of debatable coverage ). As a result, we agree with the district court that it would be inequitable for White Mountains to benefit from National Casualty s attempt to do the right thing, especially since White Mountains did not do the right thing in a situation of questionable coverage and contribute to the defense costs under a reservation of rights. White Mountains is liable for the defense costs of McFatridge and Edgar County as found by the district court. National Casualty is not liable for the defense costs under McFatridge I, 604 F.3d at 345. We also note that there appear to be no other parties liable for McFatridge s and Edgar County s defense costs. McFatridge had previously claimed that the State of Illinois was also re sponsible for his defense costs, but as noted earlier, the Illi nois Supreme Court has recently clarified that the State is not liable for these costs. Madigan, 989 N.E.2d at 173. There fore, White Mountains alone was unjustly enriched by Na tional Casualty s expenditures on McFatridge s and Edgar County s defense costs, and White Mountains must reim burse National Casualty for these expenditures. IV For these reasons, we AFFIRM the judgment of the district court.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
