Policyholder’s Ability To Target Tender Cannot Be Assigned To Settling Insurer.

The Illinois First District Appellate Court rejected a settling insurer’s attempt to deselect itself and target tender the policyholder’s other available coverage, based on assignment of this right by the policyholder in the settlement agreement.

The court held thatAmco Insurance Company could not force Cincinnati Insurance Company to contribute to a $1.5 million settlement of a personal injury lawsuit, finding that such an outcome would improperly expand the “target tender” doctrine.  The doctrine allows a policyholder that is covered by multiple insurance policies to pick which insurer will defend or indemnify it.  In this case, the general contractor (an additional insured on the Amco policy) chose to pursue coverage from Amco, rather than under its own CGL policy with Cincinnati.  As part of its settlement with Amco, the policyholder assigned any and all rights it had against Cincinnati to Amco.  Amco sought equitable contribution from Cincinnati, based on the theory that Amco (as assignee) could deselect itself and target tender the claim to Cincinnati.  The appellate court rejected this argument:  “Under Amco’s interpretation, a targeted insurer could simply settle the underlying lawsuit contingent on the assignment of the insured’s rights, and then seek contribution from every other insurer that was not originally targeted…The entire purpose of the targeted tender doctrine would be eviscerated.”  The case is Amco Ins. Co. v. Cincinnati Ins. Co., No. 1-12-2856 (Ill. App. 1st Dist. May 5, 2014).

While the court’s decision is based, in part, on a reluctance to expand the target tender doctrine, allowing the policyholder to assign its target tender rights to a settling insurer would likely have the effect of contracting the target tender rule.  Specifically, insurers against whom the policyholder decided not to target for liability in the first instance could nonetheless be held liable in subsequent contribution proceedings by the settling insurer.

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