October 2018 Case Notes & Comments

"A single arrow is easily broken, but not ten in a bundle." ~ Japanese Proverb

MONTHLY QUIZ: Manager of Employer's fast-food restaurant, falls on a wet floor at work and subsequently undergoes medical treatment, PT and surgery. At arbitration, Manager testifies that her medical expenses were paid by her Husband's medical insurer and/or out-of-pocket. Employer submits a fee schedule, which lists the $17,597.96 in medical bills paid by Husband's medical insurer and $260 in co-payments, paid by Manager. Manager and Employer enter a stipulation that the fee schedule amount of medical bills submitted by Manager were $37,767.32. Employer disputes that the fee schedule is the only appropriate basis for calculating the amount of the compensable medical. Section 8(a) of the Workers Compensation Act (820 ILCS 305/8(a)) provides that "[t]he employer shall provide and pay the negotiated rate, if applicable, or the lesser of the health care provider's actual charges or according to a fee schedule." Employer was ordered to pay $17,857.96, representing the $17,597.96 paid by husband's insurer and Manager's out-of-pocket expenses of $260. On appeal, Manager argues that she is entitled to $37,767.32 as the fee scheduled amount of the bills; and, that it was an error to order Employer to pay medical expenses in a lower amount negotiated and paid by a third party insurance carrier and not the stipulated fee schedule amounts. Employer argues that under Section 8(a), it is only liable for the amount of medical expenses actually paid pursuant to the negotiated rate." Who is correct? You be the Judge. (Answer below). 

INSURANCE COVERAGE - LEF SUCCESSFULLY WINS ON SUMMARY JUDGMENT IN WATER DAMAGE CASE: Leahy, Eisenberg & Fraenkel recently obtained summary judgment in the United States District Court for the Central District of Illinois on application of the "Continuous or Repeated Seepage or Leakage of Water" exclusion in a commercial property policy. Insured, a hotel, brought a claim against its property insurer for water damage discovered behind the drywall of over 30 of its rooms which resulted in approximately $1M in property damage and business income damages. The insurer disclaimed coverage based on a faulty workmanship/faulty construction exclusion in the policy, and reserved its right to rely on additional policy provisions to further deny coverage. Expert testimony in the case established that the water infiltration was the result of faulty workmanship/faulty construction of the hotel. The insured attempted to rely on the ensuing loss provision of the exclusion to argue that the ensuing water damage should still be covered. However, under Illinois law, there is no coverage for an ensuing loss where the ensuing loss is, itself, excluded from coverage. Relying on the "Continuous or Repeated Seepage or Leakage of Water" exclusion, the insurer took the litigation position that the ensuing water damage was also excluded based on evidence in the record demonstrating the water infiltration occurred over a long period of time. The insured challenged the position as barred by Illinois' "mend the hold" doctrine which prevents an insurer from taking a litigation position not previously raised in its denial of coverage. The Central District of Illinois agreed with the insurer that its reservation on other potential provisions in the policy, and its affirmative defense based on the "Continuous or Repeated Seepage or Leakage of Water" exclusion at the onset of litigation, properly raised the coverage issue and did not implicate the "mend the hold" doctrine. The Court also agreed with the insurer that the ensuing loss language in the policy only applied to the faulty workmanship/faulty construction exclusion and did not impact the application of the "Continuous or Repeated Seepage or Leakage of Water" exclusion. Summary judgment in favor of the insurer was granted and the case was dismissed. Tracy Holdings LLC v. West Bend Mutual Ins. Co., 2018 U.S. Dist. LEXIS 162363, 2018 WL 4571859, __ F. Supp. 3d __ (C.D. Ill. Sept. 24, 2018). 

INSURANCE - ILLINOIS SUPREME COURT HOLDS THAT STATUTE OF LIMITATIONS FOR CLAIMS AGAINST AGENTS ACCRUES UPON DELIVERY OF THE POLICY: In early 2012 Homeowners asked Agent to provide them with a new homeowner's policy. Homeowners claim that they gave Agent a copy of their old policy and requested a new policy that was "equal to the coverages" provided by the former insurer. Insurer issued the policy in 2012, which was renewed for the next three years. Homeowners were sued for defamation, invasion of privacy, and intentional infliction of emotional distress. In August 2014, Insurer denied coverage and filed a declaratory action. In September 2015, the Homeowners filed a claim against Insurer and Agent, contending that because their old policy would have potentially covered such claims, Agent was negligent. Section 13-214.4 of the Code of Civil Procedure (Code) provides customers a two-year deadline to file any lawsuits against insurance producers. 735 ILCS 5/13-214.4 (West 2014). On motions to dismiss, Agent and Insurer argued that the two-year period began when Homeowners first received their policy in March 2012, so their claims were untimely after March 2014. The trial court granted the motions, reasoning that insureds have an obligation to read their policies. The appellate court reversed, reasoning that the "discovery rule" delayed the start of the limitations period until Homeowners knew or should have known of the injury (i.e. when Insurer denied the claim). The Illinois Supreme Court reversed and held that a failure to procure insurance is a tort arising out of a contract which accrues at the time of the breach. The insureds had the obligation to read their contract and could have learned of the alleged breach when provided with the policy in 2012. The cause of action thus accrued at that time. Patti Deuel of Leahy, Eisenberg & Fraenkel represented American Family Mutual Insurance Company. American Family Mutual Insurance Company v. Walter Krop, et al. 2018 IL 122556 (Oct. 18, 2018). 

INSURED'S INTENTIONAL ACTS DO NOT PRECLUDE COVERAGE TO CO-INSUREDS FOR NEGLIGENT FAILURE TO PREVENT THE SEXUAL ABUSE UNDER HOMEOWNERS "EXPECTED INJURY" EXCLUSION: Insurer issued a homeowner's insurance policy to Wife and Husband, which excluded coverage for "any bodily injury or property damage intended by, or which may reasonably be expected to result from the intentional or criminal acts or omissions of, any insured person." Wife and her home-run Daycare were sued by a Mother, wherein Mother alleging that Husband assaulted her two minor Children, both of who attended Daycare. Insurer filed a declaratory action contending that it owed no duty to defend or indemnify Wife or Daycare. The trial court granted Insurer judgment on the pleadings based upon the "expected injury" exclusion and Mother appealed. On appeal, Mother argued that in reviewing a duty to defend, it was necessary to distinguish between Husband's intentional acts and the "independent" negligent acts of Daycare and Wife. Despite the fact that the "expected injury" clause used the words "any insured" and although the policy definitions contained a "joint obligations" clause (i.e. imposing joint obligations on the named insured and that person's "resident spouse."), the appellate court examined the specific factual allegations asserted against Daycare and Wife to determine whether the "expected injury" exclusion applied to their particular conduct. Since none of the allegations contended that Daycare or Wife acted intentionally, participated in the abuse, or knew or should have known of such acts, the "expected injury" exclusion was not triggered. Allstate Indemnity Co. v. Contreras, 2018 IL App (2d) 170964 (Oct. 19, 2018). NOTE: Decision also discusses Illinois 'inferred-intent' rule," whereby it is presumed that a person who sexually abuses a minor intends to injure the minor. COMPARE/CONTRAST: Westfield National Insurance Co. v. Continental Community Bank & Trust Co., 346 Ill. App. 3d 113 (2nd Dist. 2003).  

ANSWER TO QUIZ: Here, under the plain language of section 8(a) of the Act, the employer is required to pay (1) the negotiated rate, if applicable, (2) the lesser of the health care provider's actual charges, or (3) according to a fee schedule. 820 ILCS 305/8(a). Contrary to Manager's assertion, there is no limiting language that requires Employer to pay the negotiated rate only when it is negotiated by Employer or Employer's own insurance carrier. The statute clearly requires the Employer to pay "the negotiated rate." Had the legislature intended to limit negotiated rates and agreements to those between Employer or Employer's own insurance carrier, it could have included this restriction; however, the legislature declined to do so. Perez v. Illinois Workers' Compensation Comm'n, 2018 IL App (2d) 170086WC (Jul 31, 2018).