Insurance Law

Dist. Ct. did not err in granting plaintiff-insured’s motion for summary judgment in plaintiff’s action, alleging that defendant-insurance company breached its insurance contract by failing to pay $10 million in proceeds from its directors-and-officers liability insurance policy, under circumstances where: (1) federal government began investigation into plaintiff’s contributions to “patient assistance plan,” where federal government asserted that said contributions violated federal Anti-Kickback Statute and federal False Claims Act; (2) federal government claimed that plaintiff funded said plan to help patients pay for plaintiff’s own drugs for which plaintiff would ultimately obtain payment from Medicare; and (3) plaintiff eventually settled with federal government for $100 million, $50 million of which was labeled “restitution to the United States,“ without federal government ever filing formal charges against plaintiff. While defendant denied coverage due to its belief that plaintiff’s settlement of instant “claim” was not insurable, because Illinois public policy prohibits insurance coverage for settlement payments that are restitutionary in nature, Dist. Ct. could properly find that defendant failed to establish that settlement payment was restitutionary in nature. Moreover, Ct. of Appeals held that: (1) even if $50 million portion of settlement payment was restitutionary in nature, i.e. payment designed to restore victim what had been taken from it or to force perpetrator to disgorge fraudulently obtained profits, remaining $50 million could still be categorized as compensatory and thus insurable; and (2) defendant would still have to show that $10 million plaintiff seeks in lawsuit applied to uninsurable portion of settlement payment.

Dist. Ct. did not err in granting defendant-insurance company’s motion for summary judgment in plaintiff-insured’s action seeking payment from defendant on fire losses covered under policy issued by defendant. Record showed that plaintiff had retained third-party as public adjuster and general contractor for repairs on said fire losses and directed any insurance company to include third-party on all payments on fire loss claim. Defendant thereafter negotiated with third-party on said fire loss claim and delivered two settlement checks to third-party that named plaintiff, its mortgagee and third-party as joint co-payees. Third-party then endorsed names of all co-payees, cashed checks and kept proceeds for itself. While plaintiff argued that defendant still had obligation to pay settlement proceeds to it, Dist. Ct. could properly find that when third-party as agent of plaintiff and co-payee received and cashed defendant’s settlement checks, said actions served to discharge defendant’s performance obligations under insurance policy. Ct. further observed that defendant did not agree to take responsibility for actions of public adjuster hired by plaintiff.

Dist. Ct. did not err in granting defendant-insurance company’s motion for summary judgment in plaintiff-insured’s action, alleging that defendant wrongfully denied plaintiff’s claim for life insurance benefits, where: (1) at time plaintiff’s husband signed application for insurance policy, he was unaware of his stage IV lung cancer; (2) plaintiff’s husband subsequently became aware of said diagnosis, but failed to notify defendant of his cancer diagnosis prior to signing actual policy; and (3) husband died approximately one year after signing policy without ever notifying defendant of cancer diagnosis. Language in policy application required husband to notify defendant of any changes in his health between time of application and issuance of policy, and husband’s failure to inform defendant of his known stage IV cancer diagnosis by time he received policy amounted to material misrepresentation that allowed defendant to rescind policy and return premiums to plaintiff. Ct. rejected plaintiff’s contention that husband had no duty to disclose his cancer diagnosis, when he only learned of said diagnosis after he had signed application for policy.

Dist. Ct. did not err in dismissing plaintiffs-insureds’ action, seeking declaration that they were entitled to recover under commercial insurance policy issued by defendant-insurance company for lost income as result of “physical loss or damage” done to their customers’ properties, when customers’ businesses were either shut down or reduced in operation because of COVID-19-related government orders. While plaintiffs claimed that COVID-19 virus caused such physical loss or damages to customers’ properties, such that loss of income to plaintiffs arising out of said shutdown/reduction of customer’s businesses was covered by defendant’s policy, Ct. of Appeals held that instant temporary loss of use or restriction on use of customers’ properties did not constitute physical damage or loss. As such, plaintiff’s claims for lost income arising out of closure/restriction of customers’ properties were not covered by defendant’s insurance policy.

Dist. Ct. did not err in granting plaintiff-insurance company’s motion for summary judgment in action seeking declaration that it did not owe coverage to defendant-insured for 2019 fire damages to its warehouse based upon exclusion in relevant insurance policy. Record showed that defendant learned on two occasions in 2017 that its sprinkler system in warehouse lacked working water supply, and that problem with sprinkler system was never fixed. Moreover, policy stated that it would not pay for losses resulting from fire under circumstances, where: (1) insured knows of any “suspension or impairment” to its automatic sprinkler system; and (2) insured failed to notify plaintiff of said suspension or impairment. As such, Dist. Ct. could properly find that instant exclusion applied, where it was undisputed that defendant was aware of sprinkler system impairment and never notified defendant of said impairment. Ct. rejected defendant’s contention that exclusion should not apply because impairment at issue was sealed water line that was located outside warehouse.