Insurance Corp. of Ireland, Ltd. v. Board of Trustees of Southern Illinois University

• Decision Date: 15 July 1991
• Docket Number: No. 90-2371,90-2371
• Citation: 937 F.2d 331
• Parties: ,497, 1991-1 Trade Cases 69,497, 68 Ed. Law Rep. 583 INSURANCE CORPORATION OF IRELAND, LTD., Plaintiff-Appellant, v. BOARD OF TRUSTEES OF SOUTHERN ILLINOIS UNIVERSITY and Richard Moy, M.D., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 331

937 F.2d 331

60 USLW 69,497, 1991-1 Trade Cases 69,497,

68 Ed. Law Rep. 583

INSURANCE CORPORATION OF IRELAND, LTD., Plaintiff-Appellant, v. BOARD OF TRUSTEES OF SOUTHERN ILLINOIS UNIVERSITY and Richard Moy, M.D., Defendants-Appellees.

No. 90-2371.

United States Court of Appeals Seventh Circuit.

Argued Feb. 21, 1991.

Decided July 15, 1991.

Robert M. Chemers, Pretzel & Stouffer, Jerry L. McDowell, Wilson, Elser, Moskowitz, Edelman & Dicker, Chicago, Ill., and Michael L. Cohen, J. Marks Moore, III, and James W. Bartlett, Wilson, Elser, Moskowitz, Edelman & Dicker, Baltimore, Md., for plaintiff-appellant.

Shari R. Rhode, Southern Illinois University, Carbondale, Ill., Theodore LeBlang, M. Douglas Henderson, Richard G. Higgerson, Springfield, Ill., and Michele Odorizzi, and William B. Hoff, Jr., Mayer, Brown & Platt, Chicago, Ill., for defendants-appellees.

Before BAUER, Chief Judge and COFFEY and EASTERBROOK, Circuit Judges.

BAUER, Chief Judge.

In this appeal, we are asked to review the district court's interpretation of a general liability insurance policy issued by Appellant Insurance Corporation of Ireland ("ICI") to Southern Illinois University ("SIU"). The issue is whether the policy covered legal expenses incurred by SIU in defending an antitrust lawsuit filed by Humana of Illinois, Inc. ("Humana"). Humana's suit named as defendants SIU and one of its officers, Richard Moy, M.D., the Dean of SIU Medical School. ICI brought an action in federal district court seeking a judgment declaring that its policy did not provide coverage for the costs of defending Dean Moy and SIU against Humana's claims. The district court disagreed, and entered judgment in favor of Dean Moy and SIU. ICI appeals, and we affirm.

I.

Our story begins back in 1980, when SIU sent out to various insurance brokers a "Request for Quotation." This document invited bids for SIU's comprehensive general liability insurance and gave specifications for the coverage required by SIU. One of the specifications was that the policy must cover "all students and employees while acting within the scope of their duties." Defendants' Trial Exhibit ("DX") 1. This makes perfect sense, of course; a university does not "act" in a way that might create liability but through its employees, and thus any liability insurance coverage for SIU's activities necessarily would cover the activities of SIU's employees, provided they were acting within the scope of their employment. At any rate, various bids were submitted in response to the Request. SIU ultimately chose a policy underwritten by Bercanus Insurance Company and Beacon Insurance Company (the "Bercanus/Beacon policy"). A Chicago insurance broker, Marsh & McLennan ("M & M"), submitted the successful bid on behalf of Bercanus and Beacon. The Bercanus/Beacon policy incorporated by reference the coverage specification concerning employees, and it took effect June 1, 1980. The policy was to run for three years.

Before the Bercanus/Beacon policy expired, however, M & M came to SIU with an idea. M & M had developed an insurance program that was especially designed for universities and that would combine property and liability coverage. The combined policies issued under this program were underwritten by London-based insurance companies, including ICI. M & M suggested that SIU replace the Bercanus/Beacon policy with one of these combined policies underwritten by ICI. M & M represented that such a switch would save SIU about $50,000 per year. SIU was quite interested, but wrote to M & M that the new policy must provide the same coverage as specified in the Request for Quotations. See DX 5. M & M assured SIU that the coverage would be the same. (Earlier, M & M had forwarded to ICI the details of SIU's coverage under the Bercanus/Beacon policy, as well as SIU's bid specification referring to the coverage of employees. ¹ Having seen all that, ICI had authorized a policy for SIU.)

SIU decided to heed M & M's advice and agreed to the switch. SIU signed on with ICI for a three-year, combined property and comprehensive general liability policy, with coverage beginning on July 1, 1981. The liability portion of the ICI policy provided coverage for the "Assured" for all damages it became legally obligated to pay "because of Personal Injury, Property Damage or Wrongful Act," and covered as well the costs of defending against "any claim or suit against the Assured seeking damages on account of personal injury or property damage even if any of the allegations of the claims or suit are groundless, false or fraudulent." Appellant's Appendix ("AA") at 35. "Personal Injury" was defined quite broadly by the policy to include several business-related torts, such as "Infringement of Copyright, Title or Slogan," and "Unfair Competition." Id. at 37. Excluded from coverage was "personal injury arising out of the willful violation of a penal statute or ordinance committed by or with the knowledge or consent of any Assured." Id. at 36. The policy defined "Assured" as including the "Named Assured" (essentially SIU's Board of Trustees) and:

Any person or organization to such extent and for such limits of liability as the named Assured has agreed before loss to provide insurance for, provided [ICI] shall not be liable for any amount agreed to by the named Assured which is in excess of the limits of liability afforded by this policy.

Id. These coverages and definitions were basically the same as contained in the Bercanus/Beacon policy.

Two years later, changes were made to the wording of the ICI policy, including the substitution at various points of the American term "insured" for British term "assured." The "Declarations" section of the newly-worded policy listed the risks covered by the policy, including "Hospital Professional and/or Malpractice Liability," "School Board Liability," and "Professional Liability for Attorneys and/or Students associated with the Law School." AA at 61. In general, no substantive changes were made in 1983, at least none that are relevant for our purposes here.

The 1981 ICI policy was due to expire July 1, 1984. Prior to that expiration date, SIU sent out another "Request for Quotation" containing specifications for the insurance SIU needed. This Request, like the 1980 Request, specified that liability coverage would be provided for all SIU employees. M & M passed these materials along to ICI and ultimately submitted on ICI's behalf the winning bid. ICI issued a renewal policy for SIU, which took effect July 1, 1984, and was to run for three years. This time, ICI issued the policy from its new Chicago offices rather than from London. The 1984 ICI policy added the pledge that ICI "shall allow the Insured to control the selection of the adjusting firm to be utilized on claims and also the selection of defense attorneys." AA at 116. Otherwise, the 1984 policy was, in all respects here relevant, identical to the 1981 policy (as amended).

The second chapter in our story begins with Humana's suit against SIU and Dean Moy. Humana filed the suit in August, 1984--at the very start of the term of the 1984 ICI policy. Humana complained of SIU's refusal to allow physicians on its full-time faculty to practice at Humana's hospital in Springfield. Humana claimed that that practice violated federal and Illinois antitrust laws and constituted unfair competition and tortious interference under Illinois common law. Humana sought injunctive relief against SIU and injunctive relief and monetary damages against Dean Moy. ² SIU immediately notified ICI of the suit and chose (as was its right under the 1984 policy) the attorneys it wished to handle the defense to Humana's claims: the Chicago law firm of Seyfarth, Shaw, Fairweather & Geraldson. Two months later, ICI's claims manager in Chicago sent Seyfarth, Shaw a letter "confirming" its retention as defense counsel for SIU and Dean Moy. DX 20, AA at 206. (Seyfarth, Shaw represented SIU in a previous antitrust action, and ICI paid Seyfarth, Shaw's fees for that defense under an earlier policy--apparently without dispute.)

Seyfarth, Shaw went to work on the defense of SIU and Dean Moy. By late 1985, the firm had amassed well over $75,000 in fees, bills for which had been submitted and forwarded to ICI. Payment was not forthcoming, however, and Seyfarth, Shaw was losing patience. Seyfarth, Shaw and SIU were not the only ones who thought ICI should pony up. ICI retained its own law firm in Chicago to investigate whether the ICI policies covered the defense of Humana's claims. That firm reported to ICI in mid-1985 that, subject to two possible loopholes, the policies provided coverage. By late 1985, the firm resolved its doubts in favor of full coverage and recommended to ICI that it pay the outstanding fees. DX 29.

The issue came to a head in January 1986, when the increasingly estranged parties met in M & M's Chicago offices. As of that time, Seyfarth, Shaw had incurred about $175,000 in unpaid fees and expenses and threatened to withdraw from the Humana case if the fees were not paid by February 1. By the close of that meeting, ICI's Chicago manager capitulated. He later wrote to his superiors in London that, at that meeting, he and ICI's local attorney were "shot down on all Q's we raised regarding coverage," and that they concluded after the meeting that "we had compromised any chance we had had to deny coverage by: (A) Not sending out reservation of rights letter, [and] (B) Retaining services of Seyfarth firm and then saying nothing regarding possible no coverage situation for period of fifteen months." DX 37. ³

About two weeks after the January 1986 meeting, ICI paid Seyfarth, Shaw the $175,000. The letter accompanying the payment contained no reservation of rights clause, non-waiver clause, or any other language suggesting that ICI continued to dispute coverage. Rather, ICI seemed to attribute the delay in payment to criss-crossed communications among...