N.D. Ill. / Broad Target Tender Rights

Policyholder May Select Which Concurrent Excess Insurer Must Pay Indemnity Post-Settlement, Summarizing Existing Liberal IL Selective Tender Rights

The United States District Court for the Northern District of Illinois, in an opinion written by Judge Alonso, applying Illinois law, upheld an insured’s right to “target tender” to a particular insurer to pay a settlement. In the instant case, two insurers—Acuity Insurance (“Acuity”) and RLI Insurance Company (“RLI”)—disputed the appropriate method of apportioning a settlement against their mutual insured, George Daker of the Daker Corporation, who was involved in an automobile accident that resulted in the death of another person.

Acuity issued a primary business automobile insurance policy to Daker, with a limit of $1,000,000 per accident, and a commercial excess liability policy, which had a limit of $8,000,000 per occurrence. RLI issued to Daker a personal umbrella liability policy, with a limit of $1,000,000 per occurrence. Both insurers agreed to participate in a mediation in the underlying case, with Acuity taking “ultimate control” over the negotiations. Additionally, the insurers agreed to a nonbinding “interim funding arrangement,” which stated that, if the case settled for an amount greater than the $1,000,000 limit of the Acuity primary policy, RLI would contribute 32.25% of the excess and Acuity would contribute the remaining 68.75%. The underlying case settled at mediation for $2,650,000. Shortly thereafter, George Daker sent an email to RLI in which he stated that he wanted to exhaust the RLI umbrella policy prior to the Acuity excess policy.

Ultimately, the issue before the District Court was whether Daker made an effective selective tender, or “target tender” to RLI. The District Court affirmed the notion that, under Illinois law, an insured, having exhausted its primary insurance coverage, may selectively tender its indemnity among concurrent excess insurers. The District Court rejected RLI’s argument that the “target tender” doctrine did not apply in the automobile liability context, finding no prior decision that appeared to limit the “paramount” right of the insured to target or knowingly forgo a particular insurer’s coverage.

Additionally, the District Court held that the settlement did not extinguish the insured’s ability to selectively tender to RLI. That RLI participated in the settlement was of no legal consequence to Daker’s “target-tender” rights. Noting that the insurers had not come to a binding agreement regarding allocation and that Daker’s targeted tender followed quickly after the settlement agreement, the District Court reasoned that the post-settlement tender caused no undue prejudice to RLI.

The District Court upheld the insured’s right to accept a defense from one insurer, allow it to settle a case on the insured’s behalf, then deselect that insurer to require a different insurer to bear the settlement. The District Court cited several reasons why insureds value this right, including fear of increased premiums or cancellation of the policy in the future. As such, the District Court granted Acuity’s motion for summary judgment and denied RLI’s cross-motion for summary judgment, stating that RLI must exhaust its $1,000,000 policy limit before Acuity’s excess policy is required to pay. RLI Ins. Co. v. Acuity Ins., 2022 WL 36100 (N.D. Ill. Jan. 4, 2022).