Does Insurance Cover Suits Which Were Settled Without the Insurer's Involvement ?
In Alliance Syndicate, Inc. v. Parsec, Inc., 318 Ill. App. 3d 590, 741 N.E.2d 1039, 251 Ill. Dec. 861 (2000), the defendant paid $ 2.5 million to an injured individual in settlement of a lawsuit filed against the defendant and CSX Corporation, a third party that the defendant agreed to indemnify. Alliance, 318 Ill. App. 3d at 593.
While the underlying suit was pending, the plaintiff insurer brought a declaratory judgment action against the defendant (its insured) seeking a declaration as to its obligation to defend or indemnify the defendant in the underlying action. Alliance, 318 Ill. App. 3d at 593.
The trial court granted summary judgment in favor of the insurer, and the defendant appealed. Alliance, 318 Ill. App. 3d at 593.
On appeal, the insurer claimed that it was not obligated to cover the amount of the settlement because, inter alia, the defendant "settled the suit without the insurer's involvement." Alliance, 318 Ill. App. 3d at 600.
This court agreed and further found that "where the insurer was otherwise in compliance with the terms of its policy and the defendant, against the wishes of the insurer, accepted the tender of CSX and then voluntarily settled the underlying suit, the defendant violated the provision in the insurer's policy stating that "'no insureds will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense without our consent.'" Alliance, 318 Ill. App. 3d at 601.
The key factual difference is that, in Alliance, the insured accepted the tender of a third party that was not an additional named insured, which the court specifically cited in holding that the insurer was not liable to cover the insured's settlement. See Alliance, 318 Ill. App. 3d at 601.