The Illinois Appellate Court has affirmed in part and reversed in part a case dealing with an insurer’s duty to defend an insured.
In this case, Hilco, an Illinois corporation, had four related companies. They are Hilco Trading, and its three majority-owned subsidiaries, Hilco Appraisal, Hilco Valuation and Hilco Financial LLC.
Hilco Trading purchased a professional liability insurance policy from the Liberty Surplus Insurance Corp. The insurance policy provided a limit of $10 million in excess of the $250,000 deductible and required Liberty to defend Hilco if it were sued for any wrongful act regarding its professional services. In addition, Hilco bought a similar policy from Illinois Union, providing an additional $10 million limit beyond the Liberty policy.
On March 31, 2010, the Patriot Group LLC filed a lawsuit against all five of the Hilco companies. Hilco Trading and Hilco Financial were charged with fraud. Hilco Trading and Hilco Valuation were charged with negligent misrepresentation.
Hilco Financial borrowed $20 million from Patriot, which it then intended to disburse as asset-based loans. In line with the deal made with Patriot, Hilco Financial was required to file written appraisals and reports making sure that the Patriot recipients of the asset-based loans were fully secured.
The companies hired to write the assessments were Hilco Appraisal and Hilco Valuations.
Patriot alleged in its complaint that Hilco Financial breached the loan agreement by failing to make payments on the interest and principal and by making loans to recipients who were in violation of the terms set out in the contract.
Patriot claimed that Hilco Valuation and Hilco Appraisal overstated the security of the loans it made in its reports to Hilco Financial.
On May 20, 2010, another lawsuit was filed by a bank, HVB, against Hilco Financial regarding an amount borrowed that was $75 million. HVB claimed that even if all of Hilco Financial were liquidated, HVB would take a loss of more than $10 million. It sent a demand letter to Hilco Appraisal and Hilco Valuation. Both entities sent a copy to Liberty.
On Jan. 17, 2012, Hilco filed suit against Liberty seeking declaratory relief and damages. Hilco alleged that Liberty was obligated to defend it in the Patriot and HVB lawsuits.
Liberty moved for summary judgment arguing that it insured only for services provided to a third party and the services of Hilco Appraisal and Hilco Valuation were provided to Hilco Financial, one of the additional insureds and not a third party at all.
Hilco argued that regardless of who the services were provided to, Patriot and HVB sued over those services. Hilco maintained that whether the claims were made against Hilco Appraisal and Hilco Valuation, Liberty still had a duty to defend against them. The trial court dismissed all the claims against Liberty. Hilco appealed to the Illinois Appellate Court.
One of the issues the appellate court weighed in on was whether Hilco Valuations and Hilco Appraisal provided services to Patriot and HVB. If the answer to the question was no, then should Hilco Financial be considered a third party such that Liberty would be obligated to defend against it?
The trial court found that Hilco Appraisal and Hilco Valuation did not provide services to Patriot and HVB. The appellate court disagreed. The appellate panel stated that the sweeping scope of the duty to defend if the actions fall “even potentially within coverage,” then the duty to defend is present. The fact that Hilco Appraisal and Hilco Valuation knew their assessments were going to Patriot and HVB and that there were documents to that effect, including a written consent by Patriot to use the appraisals, that was enough in the court’s view.
Accordingly, the appellate court reversed the circuit court’s decision with respect to Liberty’s motion for summary judgment and remanded the case back to the trial court instructing the judge to enter an order granting Hilco’s motion for partial summary judgment based on the duty to defend.
Hilco Trading, LLC, et al. v. Liberty Surplus Insurance Corp., et al., 2014 IL App. (1st) 123503-U (March 17, 2014).
Kreisman Law Offices has been handling insurance claims, contract disputes, employment contracts and commercial litigation for individuals and businesses for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Schaumburg, Franklin Park, Melrose Park, Maywood, Brookfield, Chicago (Ashburn, Lincoln Park, Edgewater, Little Italy, Chinatown, Greek Town, South Chicago, Washington Heights), Justice, Countryside, Clarendon Hills and Prospect Heights, Ill.
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