By Christopher S. Carroll and William Knee

Following are summaries of selected opinions recently issued by the Illinois Supreme Court.

Central Illinois Light Co. v. Home Ins. Co., 213 Ill.2d 141, 290 Ill.Dec. 155 (Opinion Filed December 2, 2004).

Facts: Central Illinois Light Co. (hereafter "CILCO") sued excess liability insurers for indemnity for environmental cleanup costs on policies issued by the defendant insurance company from 1948 to 57 and 1974 to 85. In 1985 IEPA met w/environmental mngrs from the State’s Utility industry; one of the attendees at the meeting was CILCO. The ILEA informed CILCO and other utilities that they were strictly liable for contamination at MGA sites and that they had the option of voluntary cleanup under IEPA supervision and that IEPA had the power to institute suit for cleanup costs. CILCO had a MGA site that contaminated soil and groundwater. CILCO entered into a voluntary agreement for cleanup of this site w/IEPA under the latter’s supervision and at the former’s expense which resulted in the agency sending a No Action letter to the utility. CILCO then sought indemnity for its cleanup costs from its excess liability insurer the defendant. The series of policies from 1957 to 1971 provided coverage for sums that the insured is liable to pay by law as damage to property. The later policies were amended to provide coverage for all sums that the insured is obligated to pay by reason of liability (1) imposed by law (2) assumed under contract/agreement for damages for bodily injury or property damage.

Issue: Did environmental cleanup costs voluntarily incurred to avoid litigation with the State constitute sums which the insured was liable to pay by law for property damage or liability imposed by law for property damage for which indemnity under an excess liability policy was available?

Holdings: (A) Voluntary environ-mental clean up costs in this case are indemnifiable where the insured is acting in response to a claim if no lawsuit or administrative action has been asserted. Existence of strict liability environmental regulations and voluntary cleanup of a hazardous waste site is insufficient to create an insurer’s duty to indemnify.

(B) Environmental Response costs in response to a claim of strict liability statutes made by a state enforcement agency and incurred for site remediation constitute "Damages" under the policy language in issue.

Rationale: (1) Judgment against the insured is not a condition precedent to coverage because the policy language set out "liable to pay" damages and judgment in separate clauses as a condition for coverage. Courts will not interpret contract terms as surplus.

(2) The language of the relevant polices cannot be interpreted as requiring the insured’s liability coverage to pay damages to be determined in a lawsuit. Policy language included the terms "settlement" and "compromise". Therefore the policy language did not require litigation or formal administrative enforcement action as a coverage condition.

(3) Environmental regulations imposed strict liability on the utility and the policy in issue did not require the insurer to defend but only to indemnify. Thus the court was unimpressed with the argument that the insured waived defenses by its voluntary participation.

(4) The industry wide meeting between IEPA and the State Utility industry was tantamount to a tacit threat of litigation if the utilities did not clean up their contaminated sites.

(5) Under the language of the policy in issue, and a lawsuit or administrative proceeding is not required for coverage but to obtain coverage the insured must act in response to an assertion of a potential plaintiff that its failure to act will result in adversarial action. Unilateral action by an insured even if mandated by statute will not constitute damages for which there is indemnity.

Home Ins. Co. v. Cincinnati Ins. Co., 209 Ill.2d 580, 286 Ill.Dec. 165, (Opinion Filed May 26, 2004).

Facts: A general contractor at a highway renovation project was named as an additional insured on policies issues to two of its subcontractors. The General was sued after a worker at its construction site was struck by an inebriated motorist. The worker filed suit inter alia against the General under the theory that the General failed to provide a safe worksite. Defense was tendered to the insurers (Home and Cincinnati) of the two subcontractors. However. Home’s policy was wsa an excess policy while Cincinnati’s was primary. Cincinnati accepted the defense under a reservation of rights as to coverage for any acts done by the subcontractor that it did not insure. Home accepted defense and indemnity on 50/50 basis. The claim against Cincinnati’s insured settled for $40,000; against Home’s insured for $600,000 of which Home paid $500,000 and Cincinnati $100,000. Home filed suit against Cincinnati alleging equitable contribution and equitable subrogation.

Issues: Does an excess insurer have a claim against a primary insurer for equitable contribution?

Does an excess insurer have a claim against a primary insurer for equitable subrogation?

Did the resevation of rights asserting defense and indemnity on 50% basis waive any claim under equitable subrogation for any amount in excess of 50%?

Holding: An excess insurer does not have a claim for equitable contribution but does have a claim for equitable subrogation against a primary insurer but here waived any subrogation claim in excess of 50% of their settlement payment.

Rationale: Contribution in insurance law is an equitable principle between coinsurers which permits one insurer who has paid more than its share of the loss to obtain reimbursement from other insurers who are liable for the same loss. Contribution applies to multiple, concurrent insurance situations and is only available where the concurrent policies insure the same entities, same interests, and same risks. If two insurers cover separate and distinct risks, contribution by one to another is foreclosed.

In contrast, subrogation shifts the entire burden for a loss on a responsible party.

Equitable contribution is not applicable to a primary/excess insurance policy, because the policies do not cover the same risk. Identity of risk is defeated because excess coverage is not triggered until the primary layer is exhausted.

Furthermore, the two polices in controversy were issued to separate subcontractors performing different work, further defeating contribution because the same entities requirement is absent.

The elements of equitable subrogation are: (a) the defendant carrier have primary liability to the insured for a covered loss; (b) the defendant carrier must have secondary liability for the same loss under its policy; and (c) the plaintiff carrier must have discharged its liability to the insured and extinguished the liability of the defendant carrier

The identity of risk element in equitable contribution is different from the same loss element in equitable subrogation. Equitable contribution prospectively looks at risk insured while equitable subrogation looks retrospectively at the loss suffered.

Dardeen v. Kuehling, 213 Ill.2d 329, 290 Ill.Dec. 176 (Opinion Filed December 2, 2004).

Facts: Plaintiff fell on a brick sidewalk outside defendant’s home. He notified the defendant who then contacted he insurance company; the defendant homeowner asked her insurer if she could remove the bricks which caused plaintiff’s fall and the carrier advised her that such alteration of the accident site was permissible, and was told by her insurance agent that she could do so. Plaintiff filed suit against the homeowner, and then amended her complaint to include a spoliation count against the homeowner’s insurer.

Issue: Whether a homeowner’s insurer has a duty to instruct their insured to preserve evidence that may be relevant to a personal injury claim brought against that homeowner.

Holding: Homeowner insurer has no duty to instruct homeowner to preserve relevant evidence in a pending personal injury claim.

Rationale: Spoliation is not an independent tort but is actionable as negligence if the plaintiff can prove, duty, breach thereof, and proximate causation of damages. A spoliation cause of action must meet a two pronged threshold determination of duty: (a) Does a duty to preserve evidence arise by agreement, contract, statute, special circumstances or voluntary undertaking; and (b) Does this duty extend to the evidence in issue which requires an analysis as to whether a reasonable person would foresee that the evidence would be material in a civil action

An insurance contract between a defendant and his insurer will not satisfy the first prong because of lack of privity on the part of the plaintiff, and plaintiff is not a third party beneficiary. Special circumstances conferring a duty to preserve evidence do not exist because plaintiff made no request to the insurer to preserve evidence.

The court would not go so far as to require possession of the spoliated article as a prerequisite to recovery. However, permission from an insurer to remove a hazard would be insufficient to support the special circumstances conferring a duty to preserve evidence on the public policy ground that improvements to enhance public safety are to be encouraged.

Collins v. Lake Forest Hospital, 343 Ill. App. 3d 353 (Opinion Filed December 2, 2004)

Facts: The wife of a deceased brain injury victim sued Lake Forest Hospital for breach of duty under the Illinois Health Care Surrogate Act. After a traumatic head injury and emergency brain surgery, plaintiff’s husband was removed from a ventilator minutes before their children arrived from college to see their father. Wife had requested that the patient not be removed from life support until after the children’s arrival.

Issue: Does a healthcare provider have a duty under the Illinois Healthcare Surrogate Act prior to the attending physician’s written finding of a lack of "decisional capacity" on the part of the patient, to inquire about the availability of a decision-making surrogate?

Holding: There is no duty on the part of a health care provider to inquire into the availability of a surrogate decision maker until after the patient’s attending physician has made a written determination under the act that the patient lacks decisional capacity. There was no such determination in this case. Therefore, the hospital owed no duty to inquire. The trial court properly dismissed the portion of the complaint dealing with the breach.

Rationale: The Plaintiffs argued that because the decedent’s attending physicians had knowledge of the decedent’s lack of "decisional capacity (i.e. the ability to understand and appreciate the nature and consequences of a decision regarding medical or life sustaining treatment) that the hospital’s duty to inquire into the availability of possible surrogates under Section 25(a) of the Illinois Healthcare Surrogates Act was triggered.

The court disagreed and affirmed the trial court’s dismissal of a count of the Plaintiff’s complaint for breach of the duty. The purpose of the act is to create a process for making private life-sustaining treatment decisions "without judicial involvement of any kind." The legislature’s requirement of a written determination by the attending physician is in accord with this purpose.

Eden retirement Center, Inc. v. Department of Revenue 346 Ill. App. 3d 252 (Opinion Filed December 2, 2004)

Facts: Taxing bodies appealed the findings of the circuit and appellate courts which determined the property of a Madison County-based retirement community to be tax exempt. Eden Retirement Center, Inc. is a not-for-profit corporation, enjoying federal tax exempt status. In 1996 Eden applied with the Madison County board of review for a property tax exemption. The board recommended denial of the exemption to the Illinois Department of Revenue. The Department nonetheless granted the exemption, initially. In 2000 an administrative hearing on the issue of Eden’s exemption was held and the ALJ recommended denial of the exemption. The Department adopted the ALJ’s findings and Eden filed in Circuit Court for administrative review. The circuit court set aside the Department’s denial of the exemption and the appellate court affirmed, reasoning that guidelines for determining tax exempt status set forth in Methodist Old Peoples Home v. Korzen, 39 Ill. 2d 149 (1968) applied only to the pre-1984 Property Tax Code and that Eden met two of the statutory requirements of the new code in that it was exempt from federal income tax and its bylaws allow for reductions or waiver of charges to residents based on ability to pay.

Issue: Whether the lower courts erred in determining that Eden was exempt from property taxation based on only two factors contained in the Illinois Property Tax Code: (1) exemption from federal income tax and (2) Eden’s bylaw provisions allowing for reduction of fees based on ability of residents to pay.

Holding: The Illinois Constitution is the fundamental authority regarding property tax exemptions. The general assembly cannot broaden the exemptions that Article IX of the Constitution specifies. The lower courts erred in failing to employ the criteria mandated by the constitution and articulated in Methodist Old Peoples Home v. Korzen , 39 Ill. 2d 149 (1968) and their interpretation of Section 15-65 of the Property Tax Code Violated Article IX of the Illinois Constitution. Decisions of the lower courts are reversed. ALJ’s decision to deny the application for exemption is confirmed.

Rationale: Article IX of the Illinois Constitution subjects all property generally to taxation. The legislature may exempt property of the State and property used exclusively for charitable purposes, but must do so in accordance with the State Constitution. It is not for the legislature, but rather for the courts to determine whether a particular piece of property is used for a constitutionally specified purpose. The burden of proof is on the party seeking the exemption. Here, the ALJ’s determination that the property in question met only one of the six guidelines enumerated in Methodist Old Peoples Home case.

In Re Commitment of Stephen E. Simons (Docket No. 97026 - Opinion filed December 16, 2004)

Facts: After a bench trial where Simon declined to present evidence, the trial court determined that Simon was a sexually violent person under the Sexually Violent Persons Commitment Act (725 ILCS 207/1 et seq.) He was committed to the custody of the Illinois Department of Health and Human Services. At trial, Simon objected to and moved to exclude testimony of two of the state’s expert witnesses, arguing that the witnesses relied on novel scientific methodologies such as certain actuarial risk assessment instruments, which had yet to gain general scientific acceptance. As such, Simons argued that under Frye v. United States, 293 F. 1013 (D.C. Cir. 1923), the opinions must be excluded.

Issue: Whether actuarial risk assessment, as utilized by the State’s witnesses, is admissible under Frye.

Holding: The actuarial risk assessment, whether or not subject to Frye, is unquestionably generally accepted by professionals who assess sexually violent offenders, and is therefore perfectly admissible in a court of law.

Rationale: Experts in at least 19 other states rely upon actuarial risk assessment in forming their opinions on sex offenders’ risk of recidivism. Therefore, opinions based on the assessment are admissible. Justice Freeman’s strongly worded dissent states that the majority n this case ignored the "real issue" in the case: whether the trial court erred in failing to conduct a Frye hearing, and instead opted to change the law regarding the standard of review in Frye cases and adopt a new standard, despite not being asked by the parties to examine the standard of review. The dissent also notes the majority’s decision to "sidestep" the issue of whether the assessment employed by the state’s experts was subject to Frye, and instead declare the question irrelevant in light of the general acceptance of the assessment.

In Re Adoption Of L.T.M. (Docket Nos. 95746, 97947 consolidated - Opinion filed January 21, 2005).

Facts: In this Franklin County Case, John appealed from the trial court’s finding that he was an unfit parent under the Adoption Act. Based on the finding, John’s parental rights were terminated and a judgment of adoption was entered. The Supreme Court granted John’s leave to appeal, and stayed the adoption pending appeal. John and Ellen, who were never married, had two children, D.M. and L.T.M. L.T.M. is their second child. John and Ellen never lived together after L.T.M. was born. L.T.M. had always lived with Ellen. The record reflected that John had been convicted of armed violence, unlawful use of weapons and aggravated unlawful restraint in connection with his entering D.M.’s school, brandishing a gun and removing D.M. to Washington State. John has been incarcerated since 1995, with expected release in 2010. John waived any arguments regarding the "best interests" portion of the court’s ruling, but objected to the finding of unfitness. The appellate court denied John’s motion for a free record on appeal and later dismissed his appeal for want of prosecution as John failed to file the record on appeal. The Court held that the finding of unfitness was not against the manifest weight of the evidence. In addition the Court made important rulings on the question of the right to a free record on appeal, and whether a statutory scheme providing for appointment of counsel for indigent parents facing termination of parental rights under the Juvenile Court Act, but not under the Adoption Act violates the equal protection clause of the Fourteenth Amendment to the U.S. Constitution.

First Issue: Was the court’s finding of unfitness against the manifest weight of the evidence?

Holding: No, the court reviewed the record and upheld the finding of the trial court that John was unfit, despite John’s argument that he made reasonable efforts to see the child.

Rationale: The burden of proving grounds for termination is on the party seeking termination. However, the court is free to disregard testimony it finds not to be credible. In this case, the trial court did not believe John’s testimony and the remaining evidence presented by Ellen was sufficient to sustain the finding of unfitness for failure to maintain interest and involvement with the child.

Second Issue: Did the appellate Court err in dismissing John’s appeal for failure to file the record, where John was indigent?

Holding: Yes. The federal constitution requires that where an appeal of the termination of parental rights is allowed as a matter of right, the state may not deny a party a sufficient record to permit appellate review.

Rationale: John’s uncontroverted affidavit showed he was indigent. A court cannot deny an indigent Defendant a free record where an appeal as of right is provided.

Third Issue: Does the statutory scheme that provides free counsel to indigents facing termination of parental rights in proceedings under the Juvenile Court Act, but not under the Adoption Act violate equal protection?

Holding: Yes. A person facing termination of parental rights under the Juvenile Court Act and a person facing termination of parental rights under the Adoption Act are similarly situated.

Rationale: The passing of a statutory scheme is state action. While the state has an interest in limiting the expenditure of attorney’s fees, that interest is not compelling. Thus, a state may not flatly deny appointed counsel to an indigent party facing termination under the Adoption Act, while the same party would have the right to counsel under the Juvenile Court Act.

In Re Marriage Of Schneider (Docket No. 97430 - Opinion filed January 21, 2005)

Facts: This Lake County divorce case deals with the division of marital property, and specifically personal good will as it relates to the valuation of a professional practice in property division. Earl and Jodi were married in 1985 and had three children. At divorce, the parties contested the valuation of Earl’s dental practice and the allocation of marital property. Earl’s Valuation expert testified that the fair market value of the dental practice was $346,300. Of this value, $311,300 was attributed to personal goodwill and $35,000 to fixed assets. The fixed assets included property and equipment, but did not include cash on hand, accounts receivable, cash surrender value of life insurance, or loans due from officers. The expert’s opinion was that the accounts receivable were merely a reflection of future income.

Jodi’s expert opined that the fair market value of the dental practice was $481,000, attributing $144,413 to tangible assets, including accounts receivable, furniture and equipment, cash surrender value of insurance, and inventory. The remaining value of $336,587 was attributed to intangible assets, not including personal goodwill. The intangible assets were described by the expert as including dental records, the leasehold interest, a trained work force, intellectual property, trade names and enterprise goodwill.

The circuit court valued Earl’s dental practice at $38,300, including $8,000 in inventory and $30,330 in furniture and equipment. The circuit court did not include accounts receivable, cash on hand; cash surrender value of life insurance, or loans due from officers in the valuation, accepting Earl’s argument that including those items in the valuation would result in a double counting of those assets. Additionally the circuit court found that any goodwill that existed in the practice was personal goodwill that should not be included in determining the fair market value of the dental practice. Jodi’s expert witness did not establish the existence of any enterprise goodwill in the practice.

The appellate found that the trial court had erred in excluding personal goodwill from the valuation of Earl’s dental practice. Additionally, it found that accounts receivable are business assets and should have been included in the valuation of the dental practice. Likewise, the circuit court should have included the cash on-hand, cash surrender value of insurance policies and loans due from officers in determining the fair market value.

The Court held that accounts receivable, cash on hand, cash surrender value of life insurance, and loans due from officers are all appropriately considered in valuing a professional practice and therefore affirmed the appellate court’s remand to the trial court for reconsideration of value.

The court also held that because the personal goodwill in Earl’s dental practice was considered by the circuit court in assessing the criteria in section 503(d) and in deciding to award Jodi a disproportionate share of the marital assets, any further consideration of that goodwill in valuing Earl’s dental practice would amount to an impermissible double counting. Thus, the appellate court erred in holding that personal goodwill should have been included in the valuation of Earl’s dental practice.

The court’s ruling included a good discussion of two important cases in this area: In re Marriage of Zells, 143 Ill. 2d 251 (1991), and In re Marriage of Talty, 166 Ill. 2d 232 (1995).

In Re Austin W., A Minor [Timothy D. Berkley, guardian ad litem, Appellee, v. The Illinois Department of Children and Family Services, Appellant (Rosemary Fontaine, Appellant)].

(Docket Nos. 97531, 97580 cons - Opinion filed January 21, 2005).

Facts: DCFS and Fontaine (foster parent) appealed the circuit court’s decision to modify a dispositional order changing custody and guardianship from DCFS to minor child’s grandparent. The appellate court affirmed the lower court’s order. After placement of the minor with child’s grandparents (the Wards), a hotline report of abuse was "indicated" against the Wards. The Wards filed an administrative appeal. The ALJ ruled that a preponderance of the evidence supported the indicated finding by DCFS of skull fracture, bone fracture, and substantial risk of physical injury. DCFS notified all interested parties that the decision of the ALJ had been adopted as the final administrative decision of the Department. The Wards then sought judicial review.

After the ALJ issued her recommendation, but before the Director of DCFS adopted the recommendation as the final decision of the Department, GAL Berkley, petitioned to modify the January 12, 2000, dispositional order which placed Austin in the custody and guardianship of DCFS. Berkley asked that the Wards receive custody and guardianship of Austin and be allowed to adopt Austin "without delay."

Hearing on Berkley’s motion was taking place when the Director adopted the ALJ’s recommendation. The circuit court of Madison County was made aware of DCFS’s final determination on the abuse report. Nevertheless, on May 30, 2002, the court granted Berkley’s motion, terminated DCFS’s guardianship of Austin, and placed him in the custody and guardianship of the Wards.

DCFS and Fontaine appealed the Circuit Court’s decision. The Madison County circuit court order modifying the January 12, 2000, dispositional order as to Austin’s guardianship was stayed by the appellate court pending appeal.

The circuit court of Will County affirmed the ALJ’s decision, ruling that the ALJ’s factual findings were not against the manifest weight of the evidence and that the ALJ’s legal and administrative rulings were not clearly erroneous. The Wards did not appeal this ruling.

On October 17, 2003, the Fifth District appellate court concluded, without citation to authority, that the circuit court’s finding that it was in Austin’s best interests to transfer guardianship was not against the manifest weight of the evidence. DCFS and Fontaine were granted leave to appeal to this court.

First Issue: Whether, in all cases, a change in circumstances must be proven as a predicate to the best- interests determination whenever modification of a prior dispositional order regarding custody is sought pursuant to section 2-28(4) of the Juvenile Court Act;

Holding: No. A change in circumstances is not required to be proven. The child’s best interest is the sole determination and a court is not required to determine that DCFS has failed to fulfill its statutory duties.

Rationale: As a practical matter, a petition to modify the custodial arrangement of a ward of the court will rarely be brought unless a change in circumstances has occurred which the petitioner believes will affect the "best-interests" inquiry. This does not mean, however, that a finding that circumstances have changed is a necessary prerequisite to the court’s modification of the dispositional order. The best interests of the child it the only standard the court is bound by.

Second Issue: Whether the circuit court’s decision to remove Austin from the custody and guardianship of DCFS and to place him in the custody and guardianship of the Wards was against the manifest weight of the evidence.

Holding: Yes. The Circuit Court’s ruling was against the manifest weight of the evidence and DCFS was reinstated as the custodial guardian with authority to consent to Austin’s adoption.

Rationale: It was incumbent upon the GAL to show, and the trial court to find, by a preponderance of the evidence that placing Austin in the custody and guardianship of his grandparents was in Austin’s best interests. The best-interests determination is then reviewed under the "manifest weight of the evidence" standard. Key to the determination is that the Madison County circuit court erred when, in reaching its best-interests determination, it relied almost exclusively upon its own findings that the Wards did not abuse Austin — a finding which it had no authority to make.