Illinois 1st Dist. Finds Late Notice Fatal
Insurance Code Section Tolling Notice Until Final Denial Not Applicable in $68M Fidelity Insurance Case
The Illinois First District Court of Appeals, Fifth Division, in an opinion authored by Justice Lampkin, applying Illinois law, affirmed summary judgment for insurer Kansas Bankers Surety Co. against its policyholder, Independent Trust Corp. (now in receivership) in the latter’s effort to collect on a $10M policy after certain of its Directors were found guilty of misappropriation and fraud in excess of $68M from the company and its investors.
The receiver for Independent Trust filed suit in 2004 seeking recovery under the policy, but the appellate court found that the claim was barred because it was filed 12 years after the discovery of the crime and the policy required any such claims be brought within two years of discovery.
The receiver had sought coverage under the Kansas Bankers’ financial crimes insurance policy, but Kansas originally denied coverage asserting that the policy was invalidated when the receiver was appointed. The insurer prevailed in the trial court, but in 2011 the appellate court reversed and remanded.
On remand, the circuit court ruled in 2014 that the policy constituted a type of fidelity insurance, which is exempt from Insurance Code requirements that the insurer must provide a concrete claim denial of the claim before any notice period can begin. Section 143.1 of the Insurance Code provides:
The appellate court agreed, and, in so doing effectively made irrelevant the policyholder’s claim that the insurer had misled it by waiting until after suit was filed to provide its denial. Independent Trust Corp. v. Kansas Bankers Surety Co., 2016 IL App (1st) 143161.