By Steven R. Merican

The circuit court awarded some fees, although far less than Catherine requested. Michael appealed the award. The appellate court reversed, but admitted that it did not know how precisely to define the "substantially prevailed" language in the Act. The Supreme Court reversed in part, and held that Catherine had prevailed, but only on the single issue she won on appeal.

The primary issue concerned an interpretation of § 508(a)(3.1) of the IMDMA, which allows an award of attorney fees for the "prosecution of any claim on appeal (if the prosecuting party has substantially prevailed)." In a multi-issue appeal, how does the court determine if the appellant "substantially prevailed?" The Supreme Court stated that the "the appropriate reading of this section is that, in the context of a petition for fees for prosecution of an appeal, the circuit court may only award fees incurred for those individual claims on which the appellant can be said to have ‘substantially prevailed’ on appeal." The court acknowledged "that it still may at times be more of an art than a science for a court to determine whether an appellant has substantially prevailed with respect to an individual issue, [but] the difficulty will be lessened if the court is not required to weigh the relative import of issues raised."

Guillen v. Potomac Ins. Co. of Illinois, 2003 Ill. Lexis 4, Docket No. 93056 (1/24/03). (1) When an insurance policy is modified, the insurer must maintain proof of the mailing of notice recognized by the post office or other commercial delivery service. (2) Insurer is liable to an assignee of the policy benefit for a settlement of a personal injury action. Denise Guillen sued her landlord for injuries from exposure to lead. Guillen settled with the landlord for $600,000. The landlord assigned his right to insurance proceeds for the claim to Guillen, and a condition of the settlement was that Guillen would collect only against the insurer, not directly against the landlord. Potomac insured the landlord. Potomac earlier had declined the landlord’s tender of Guillen’s claim, asserting that the policy contained a lead exposure exclusion.

The first issue was whether the exclusion applied. Guillen asserted it did not because Potomac failed to keep notice of the exclusion, a policy modification, in a form "acceptable to the U.S. Post Office or other commercial mail delivery service," as required by § 143a of the Illinois Insurance Code. The Supreme Court ruled that this requirement applied to material alterations to the policy, and that the unsigned copy of the notice letter that Potomac had did not comply. The court also held that "… when a notification requirement is not satisfied with respect to a material modification to an insurance policy, the modification does not take effect."

Potomac also argued that it did not have to pay the $600,000 settlement because the insured, the landlord, never was "legally obligated to pay as damages," a requirement of the policy. Potomac pointed to the settlement agreement, which prohibited Guillen from collecting against the landlord. Potomac argued that Guillen never was placed in any financial risk, and therefore was not obligated to pay damages.

The Supreme Court acknowledged that the landlord never faced any personal financial risk under the settlement agreement. "However, because Potomac breached its duty to defend, the Ortizes [landlord] are entitled to have the ‘legally obligated to pay’ language liberally construed in their favor." The court concluded that Potomac therefore was obligated to pay the settlement.

Golden Rule Ins. Co. v. Schwartz, 2003 Ill. Lexis 5, Docket No. 92215 (1/24/03). The addition of "knowledge and belief" language to an insurance application established a lesser standard of accuracy by the applicant than that imposed by the Insurance Code. Mark Schwartz applied to Golden Rule for health insurance. The application asked if he was covered by another insurance policy, to which he answered in the negative. Soon after the Golden Rule policy became effective, Mark was injured in an auto accident. Mark’s father had a group policy with Mutual of Omaha under which Mark was an "eligible dependent."

When Golden Rule learned about the Mutual of Omaha policy, Golden Rule rescinded its policy. Golden Rule sought a declaratory judgment, claiming that Mark’s failure to disclose the Mutual of Omaha policy constituted a material misrepresentation that justified rescission of the policy. Mark filed a counterclaim, and argued that he was entitled to coverage because he signed the Golden Rule application based on his "knowledge and belief." The circuit court entered summary judgment in Mark’s favor, but the appellate court reversed.

Section 154 of the Illinois Insurance Code states that a misrepresentation in a policy application may void the policy if the misrepresentation is "made with actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed by the company." However, the Supreme Court ruled that there is a lesser standard in instances in which the policyholder signs the application based on "knowledge and belief." "… Golden Rule opted to include language in its application that had the effect of shifting the focus in a determination of the truth or falsity of an applicant’s statement, from an inquiry into whether the facts asserted were true to whether, on the basis of what he knew, the applicant believed them to be true."

The court concluded that Mark’s answer that he had no other insurance coverage "must be assessed in the light of the applicant’s actual knowledge and belief." The court stated that this was a credibility determination that may only be made by the jury. Summary judgment therefore was improper.

Johnson v. United Airlines, 2003 Ill. Lexis 6, Docket No. 91894 (1/24/03). Party challenging a settlement agreement under the Contribution Act must show absence of good faith by a preponderance of the evidence, not clear and convincing evidence. These wrongful death actions arose from an aircraft collision at the Quincy airport. Among others, plaintiffs sued Raytheon Aircraft Company, the successor to the manufacturer. Raytheon filed a contribution action against Quincy, claiming generally that Quincy failed to provide a reasonably safe ingress to and egress from the airport.

Quincy moved for dismissal based upon improper venue and immunity. While its motion was pending, Quincy settled with plaintiffs for $1,000 each. The circuit court made a good faith finding, and dismissed the contribution claims. The appellate court affirmed.

The appeal caused the Supreme Court to consider what evidence is necessary to establish good faith under the Contribution Act, and the quantum of evidence necessary to challenge the finding. The court ruled that the settling parties have the burden of "making a preliminary showing of good faith." That burden may be met by showing the existence of a valid settlement agreement. But the court also acknowledged that "other factual evidence may be necessary before the [trial] court may determine, as an initial matter, whether the settlement is fair and reasonable…"

The Supreme Court was persuaded that the "clear and convincing" standard of evidence, followed by most Illinois courts, was too high to impose on a party challenging good faith. The court relied on the policies underlying the Contribution Act, and stated: "…[T]he Contribution Act seeks to promote two important public policies – the encouragement of settlements and the equitable apportionment of damages among tortfeasors … [T]he balance of these two policies is best struck by placing the burden of proving the absence of good faith on the party challenging the settlement, but by sustaining the challenge to the settlement when a preponderance of the evidence indicates a lack of good faith."

Raytheon had been held to a "clear and convincing" standard. However, the circuit found that Raytheon had no evidence of a lack of good faith, so the Supreme Court ruled that a remand under the lower evidentiary standard was not necessary.