The Fourth District Updates Its Targeted Tender Rule
Ezra Klein had an interesting piece back in June discussing Wendell Potter’s frank testimony about the insurance industry in front of the Commerce Committee. The testimony and the piece relate to healthcare, but the notions reflected in the article about profit motives and the need to sustain a business by generating money apply to any enterprise in the industry. Rightfully so. We need insurance to mitigate risk that businesses might otherwise not be able to justify taking if the prospect of excessive liability would fall to them directly. The coverage afforded by insurance is sometimes duplicative.
Two companies can be faced with covering the same loss and in that instant it becomes worth their while to attempt to avoid paying or to shift the burden of paying to the other company. Many times, the business that is insured plays a role in deciding which insurance company will be faced with the prospect of both defending a claim and possibly paying out on it. Choosing between the companies, tendering defense of the claim to one and not the other is known as “targeting tender”. Targeting tender is a crucial tool for policy holders. In a choice between your policy and the policy of a sub, choosing to be defended under the sub’s policy can keep your premiums down and reduce costs over the long-term.
In a recent Illinois case, State Auto Property Casualty Insurance Co. v. Springfield Fire & Casualty Co. (Doc. No. 4-08-0977) the fourth district has held that where a company has two policies that it has purchased, as well as a situation where under contract one company is named on another company’s policy, it still has a right to select which of the policies it is seeking coverage under and which it is not. This is the case even where one of the policies may have a provision saying that if the insured is covered by more than one policy, it will be “other-insurance” and should be considered as excess insurance. But a crucial element to maintaining the right to “deselect” one of the policies is that it can never be triggered or tendered towards to begin with.
In essence, the court has stated that the right to select coverage is not superceded by an insurance policy’s “other-insurance” provision so long as the insured never triggers one of the policies. Basically, one of the policies has to never be activated by the tender of defense. Additionally, unlike the requirements of targeting tender when more than one insurer has been selected, the act of tendering in a situation where only one is active does not require the letter requesting coverage to inform the insurer that it is being looked to as the sole insurer for the matter.
