U.S. Federal District Court Rules That Insurer is Estopped from Cutting Policy Limit

In the wrongful death case for Lee Lindemann, filed on behalf of the Estate of Sue Ann Lindemann, the U.S. District Court ruled that estoppel blocked National Fire & Marine Insurance Co. from invoking a “declining balance” provision in its insurance policy. The insurance company asked for a reduction from its $1 million liability limit to $600,000 by subtracting the $400,000 National paid for the defense expenses during two years of litigation.

National’s policy covered Dr. Erick Falconer in this wrongful death case and another defendant, Western Healthcare. In May 2013, the answer that Falconer’s attorney submitted to “Interrogatory 9” said he was insured under a National policy that had a $1 million liability limit.

But when responding to her request for a copy of the insurance policy, Dr. Falconer’s attorneys reportedly took the shortcut of referring back to this interrogatory answer. This maneuver meant that the litigants didn’t see the policy provision that ordinarily would have reduced the liability limit by the amount of defense expenditures.

More than two years later, as the wrongful-death case neared trial, the defense attorneys handed over a copy of the policy as part of the doctor’s supplemental discovery response.

National belatedly sued for a declaratory judgment, stating that it was entitled to reduce its liability limit by the amounts it spent defending its insureds. St. Elizabeth’s Hospital, one of the defendants in the wrongful-death case, requested summary judgment based on estoppel.

The trial court granted the hospital’s motion, ruling that National was on the hook for full liability of the $1 million because of the discovery shortcut by the attorneys who were selected to defend Dr. Falconer.

Under Illinois law, to “establish estoppel in an insurance context, the insured must show: (1) that he was misled by the acts or its agents; (2) reliance by the insured on those representations; (3) that such reliance was reasonable; and (4) detriment or prejudice suffered by the insured based on reliance.” Chatham v. Dann, 351 Ill.App.3d 353 (2004). The First District noted further that “it is not necessary that the insurer intended to mislead the insured in order for the estoppel to apply.”

The court found that St. Elizabeth’s Hospital had sufficiently demonstrated that it was misled by the acts or misstatements by National or its agents. The court also found that there was reasonable reliance by National or its agents. The court also found that there was reasonable reliance, and it was sufficiently demonstrated that St. Elizabeth’s relied on National’s misrepresentations to its detriment.

In conclusion, the U.S. District Court found that it was reasonable to believe that the parties would have changed their litigation strategies if they knew National would seek to reduce the policy limits from $1 million to $600,000. Therefore, the court found that St. Elizabeth’s had sufficiently demonstrated that it reasonably relied on National’s misrepresentations to its detriment, and thus, as a matter of law, National is estopped from imposing the policy’s declining balance provision, which would reduce the policy’s limits from $1 million to $600,000.

National Fire & Marine Insurance Co. v. Lindemann, No. 15CV910.

Kreisman Law Offices has been handling wrongful death lawsuits, medical malpractice cases and birth trauma injury lawsuits for individuals, families and loved ones who have been injured, harmed or killed by the carelessness or negligence of a medical provider for more than 40 years in and around Chicago, Cook County and its surrounding areas, including St. Charles, Calumet City, Beecher, Lansing, South Holland, Blue Island, Crystal Lake, Cary, Grayslake, Burbank, Winnetka, Northfield, Northbrook, Chicago (Wicker Park, Rogers Park, Little Village, Lawndale, Logan Square, Goose Island, West Loop, Bronzeville, Kenwood, Jackson Park, Grand Crossing, South Shore, South Chicago, Calumet Heights, East Side), Elmwood Park, Schiller Park, Elk Grove Village and Palatine, Ill.