The Hartford Accident and Indemnity Company, a Connecticut Corporation v. Gulf Insurance Company, a Missouri Corporation
Docket: 86-2425
Court: Court of Appeals for the Seventh Circuit; January 15, 1988; Federal Appellate Court
In the case Hartford Accident and Indemnity Company v. Gulf Insurance Company, the plaintiff, Hartford, appeals a district court's summary judgment favoring Gulf. The appeal arises from a previous reversal of a summary judgment granted to Hartford. In 1979, the City of Peoria opted to outsource its tree maintenance to the Pleasure Driveway and Park District, formalized through the Shade Tree Agreement, which required the Park District to obtain insurance for the program. Gulf provided coverage under a policy that named the City as an additional insured for tree trimming operations.
On December 24, 1979, a tree on City property fell and killed Laurence Lovell, resulting in a wrongful death lawsuit against both the City and the Park District. The complaint accused them of negligence in tree maintenance, but did not claim the City had identified the tree as dangerous or that the Park District had worked on it. Gulf defended the Park District but declined to defend the City, a decision not communicated to the City. After Hartford requested Gulf to defend the City, Gulf refused, asserting that its policy only covered trees designated as dangerous by the City.
Hartford subsequently settled the lawsuit for approximately $190,000 and incurred $7,000 in attorney's fees. Gulf settled the Park District's liability for $15,000. Hartford initiated this legal action against Gulf to recover costs, believing its policy covered only excess amounts beyond Gulf's coverage.
Under Illinois insurance law, insurers are obligated to defend any action against their insured if the allegations in the complaint potentially fall within the policy's coverage. If an insurer fails to provide a defense after the insured has tendered it, the insurer is estopped from denying coverage for any resulting damages, unless they defend under a reservation of rights or seek a declaratory judgment on coverage. However, an insurer’s duty to defend does not arise if the insured did not provide an opportunity for the insurer to defend, emphasizing the importance of timely tender. In a case involving Hartford and Gulf Insurance Company, Hartford sought a declaratory judgment asserting that Gulf was obligated to indemnify it for settlements paid on behalf of the City due to Gulf’s refusal to defend the City against a lawsuit. Gulf denied these allegations and the district court set a trial date, with Hartford intending to prove that Gulf wrongfully refused the tendered defense. Gulf acknowledged the tender but contested whether the City itself had made the tender. The pretrial order confirmed that Hartford had tendered the City's defense to Gulf, which was refused. Gulf’s pretrial memorandum raised the issue of its proper refusal of the defense tender.
Gulf declined to defend the City based on the assertion that the City did not tender its defense to Gulf or request indemnification, knowing the insurance provision of their Agreement was inapplicable. Instead, The Hartford had been defending the City for around ten months and sought Gulf's defense. Gulf maintained it should not be estopped from denying coverage since the City never formally requested its defense.
During the jury trial, The Hartford presented no evidence regarding the tender of defense. It did demonstrate that Gulf was aware of a claim against the City that might fall under its policy but refused to defend. After two days of evidence, Hartford moved for a declaration of estoppel against Gulf, arguing that Gulf had breached its duty to defend without addressing the issue of tender. The court treated this motion as one for summary judgment, ultimately ruling that Gulf had a duty to defend based on the claims potentially covered under its policy, even if it might not need to indemnify.
Gulf sought to submit an offer of proof regarding the issue of estoppel, which the court allowed despite Hartford's objections. Gulf's offer included extensive excerpts from depositions, asserting that City Manager James Daken would testify that no official or lawyer had ever asked Gulf to defend the City. Gulf also indicated that claims manager Robert Kellison would corroborate this point. Hartford did not counter the claims about tender in response to Gulf's offer, instead arguing the testimony would be incompetent or irrelevant without addressing the substance of the claims.
The court found that no City of Peoria employee requested Gulf to defend the City against the Lovell Complaint, yet it acknowledged that the City’s counsel had tendered a defense to Gulf. However, it concluded that Gulf breached its duty to defend since its policy might cover allegations against the City. Hartford was granted judgment, but on appeal, the appellate court reversed this decision, stating Hartford did not demonstrate estoppel. The court emphasized that for estoppel to apply, the insured must formally tender the defense. It clarified that the defense obligation is triggered only when the insured communicates a claim potentially covered by the policy and indicates the desire for the insurer's assistance.
The appellate court found that the defense was not properly tendered because City officials did not request Gulf to defend; rather, tender occurred 10 months into litigation through Hartford's attorney, acting independently. No evidence suggested this attorney represented the City’s interests. Additionally, Gulf’s awareness of the lawsuit through its role as the Park District's insurer did not satisfy the tender requirement, which mandates both knowledge of coverage and a request for assistance. The court referenced Illinois cases that reinforce that no estoppel arises without giving the insurer a chance to defend, reiterating that an insurer's duty to defend only arises upon proper request from the insured.
The court addressed whether 'tender' requires a formal written request from the insured or if any method that indicates the insurer's need for assistance suffices. It noted that Hartford failed to provide evidence supporting either interpretation. Consequently, the panel reversed the district court's summary judgment in favor of Hartford and remanded the case for further proceedings. On remand, Gulf sought a directed verdict and summary judgment, arguing that Hartford had completed its case without sufficient evidence and that it could not provide further evidence to support its claim that Attorney Mueller had properly tendered the city's defense to Gulf. Hartford sought to reopen its case to introduce evidence of proper tender, asserting that the prior ruling merely reflected insufficient evidence at the time of its summary judgment motion. Hartford contended that the pretrial stipulation indicated that the defense had been tendered and rejected, and that no contest regarding the sufficiency of the tender had been raised until a trial brief clarified Gulf's position.
The district court expressed dissatisfaction with the circumstances, ultimately determining that Hartford had not proven adequate tender and that the issue was contested. It acknowledged the ambiguity of the pretrial order but concluded that once Gulf's trial brief was filed, Hartford was on notice regarding the dispute over the tender's propriety. Hartford failed to provide any evidence to support its claim before resting its case. Consequently, the court denied Hartford's motion to reopen and granted Gulf's motions for a directed verdict or summary judgment, leading to a judgment for Gulf. Hartford then appealed, contesting whether it lost the opportunity to demonstrate adequate tender.
The appellate court acknowledged the district court's reasoning in reversing the earlier summary judgment for Hartford but clarified that it could have awarded summary judgment to Gulf without remanding. However, an appellate court must ensure that doing so does not unfairly deprive the opposing party of presenting relevant evidence. The district court reasonably interpreted the appellate panel's decision not to grant summary judgment to Gulf regarding the City's inadequate tender as an indication that Hartford had not had a fair opportunity to present its evidence.
If the district court on remand determined that Hartford had indeed passed up this opportunity, it would properly enter judgment for Gulf. The appellate court noted that its failure to specify the need for further evidence on remand left the decision to reopen the record to the district court’s discretion. The district court's finding that Gulf contested the adequacy of the City's tender, which required Hartford to present evidence, was not clearly erroneous. The stipulation in the pretrial order indicated that tender by Hartford was not disputed, yet Gulf's trial brief and unrebutted offer of proof raised significant issues regarding the City's tender.
The district court did not err in concluding that Hartford had a realistic chance to present its evidence previously, thus justifying its denial of Hartford’s motion to reopen the case. The appellate opinion did not introduce any new legal principles that could have surprised the parties; rather, it reaffirmed established Illinois law requiring an insured to tender its defense before an insurer must provide defense or risk estoppel. The panel's distinction between sophisticated and unsophisticated insureds aimed to emphasize the lack of equitable reason to excuse the City's failure to tender but did not alter existing law and was considered dicta that ultimately did not aid Hartford’s position.
Granting Hartford's motion would likely necessitate a new trial with a fresh jury. The City Manager's deposition and Hartford's lawyer's demand letter, which did not mention his agency, cast doubt on Hartford's position, indicating that not reopening the case does not constitute a clear miscarriage of justice. Inadequate evidence to support a judgment is typically detrimental, and cases are rarely remanded solely to allow a party to introduce missing evidence. Here, with no additional evidence, no genuine issue regarding tender exists under established legal principles. Gulf is thus entitled to either a directed verdict or summary judgment, as both standards are equivalent.
The court’s prior opinion can clarify the intent behind its mandate, and ambiguity in both the pretrial and remand orders has created procedural complications. The district court interpreted the remand order validly but may have misunderstood the original panel's intention. The initial ruling highlighted Gulf's missed opportunities rather than Hartford's actions. The district court erred in denying Gulf the chance to prove it bore no responsibility for the City. Although Hartford won during the trial, it could have presented further evidence, but it is unreasonable to expect a winning plaintiff to seek additional evidence to counter the court's legal theories.
The remand, intended for a new trial unless Gulf successfully moved for summary judgment, was complicated by procedural issues. The appellate panel now clarifies its intention, reversing the district court's judgment and remanding for a new trial. The remand will specifically address whether the City adequately tendered its defense to Gulf, with either party allowed to move for summary judgment or a directed verdict as appropriate. The judgment is reversed and remanded with instructions.
