Rule 23 order filed

December 12, 2014; Motion to publish granted NO. 5-14-0033 January 29, 2015. IN THE

APPELLATE COURT OF ILLINOIS

FIFTH DISTRICT ________________________________________________________________________

ILLINOIS INSURANCE GUARANTY FUND, ) Appeal from the ) Circuit Court of Plaintiff-Appellee, ) St. Clair County. ) v. ) No. 10-MR-255 ) CHICAGO INSURANCE COMPANY, ) ) Defendant-Appellant ) ) (Protestant Memorial Medical Center, d/b/a ) Memorial Hospital, Women's Care of Southern ) Illinois, P.C., Debra Schell, as Mother and Next ) Honorable Friend of J.L., a Disabled Minor, and John A. ) Stephen P. McGlynn, Hucker, M.D., Defendants). ) Judge, presiding. ________________________________________________________________________

JUSTICE STEWART delivered the judgment of the court, with opinion. Justices Welch and Goldenhersh concurred in the judgment and opinion.

OPINION

¶1 The plaintiff, Illinois Insurance Guaranty Fund (the Fund), filed a declaratory

judgment action against the defendant, Chicago Insurance Company (Chicago Insurance),

for the court to determine whether a "claims-made" insurance policy issued to Women's

Care of Southern Illinois, P.C. (Women's Care), for claims made between July 1, 2001,

through July 1, 2002, provided insurance coverage for a former employee of Women's

1 Care, Dr. John Hucker. Chicago Insurance issued the policy. This insurance dispute

stems from a separate lawsuit for medical malpractice filed against Women's Care and

Dr. Hucker on January 22, 2002, during the effective date of coverage of the claims-made

policy. The lawsuit alleged that Dr. Hucker committed medical malpractice on March

25, 2000, while he was employed by Women's Care. However, Dr. Hucker's

employment with Women's Care ended on December 31, 2000, and he was not expressly

named as an insured in the claims-made policy that was issued by Chicago Insurance

after the employment relationship ended.

¶2 Both the Fund and Chicago Insurance filed cross-motions for summary judgment

on the issue of Chicago Insurance's duty to defend Dr. Hucker in the malpractice lawsuit.

The circuit court ruled in favor of the Fund and found that Chicago Insurance was

obligated to pay for Dr. Hucker's defense against the malpractice claim. The court

entered a final order requiring Chicago Insurance to pay $98,694.64 for costs to defend

Dr. Hucker. Chicago Insurance filed a timely notice of appeal. For the following

reasons, we reverse and remand with instructions to enter a summary judgment in favor

of Chicago Insurance.

¶3 BACKGROUND

¶4 The policy at the center of this insurance dispute is a claims-made policy. A

"claims-made" insurance policy is distinguishable from a conventional "occurrence-

based" insurance policy with respect to the type of risks each policy insures. Uhlich

Children's Advantage Network v. National Union Fire Co. of Pittsburgh,

,

(2010). An occurrence-based policy insures against an 2 insurable act or omission that occurs during the policy period regardless of when a legal

claim arising out of the act or omission is made against the insured. A claims-made

policy, however, insures against the risk of a claim being made against the insured during

the policy period.

The claims-made policy allows an insurance company to easily

identify risks which, in turn, allows the company to know in advance the extent of its

claims exposure and compute its premiums with greater certainty.

The coverage

under a claims-made policy is less than a conventional occurrence-based policy, but so

are its costs to the insured.

¶5 The facts alleged in the underlying malpractice complaint establish that on March

25, 2000, Dr. Hucker was an employee of Women's Care, and he delivered a baby, J.L.,

at Protestant Memorial Medical Center. The baby's mother is Debra Schell. Schell

alleged that Dr. Hucker committed malpractice in delivering her baby.

¶6 Dr. Hucker's employment agreement with Women's Care required Women's Care

to provide for and maintain medical malpractice insurance coverage on a "claims-made

basis" during his employment with respect to any duties or services that he performed as

an employee of Women's Care. At the end of 2000, Dr. Hucker and another physician

left Women's Care to form their own practice. The employment agreement did not

require Women's Care to continue to provide Dr. Hucker with claims-made malpractice

insurance coverage after the termination of the employer-employee relationship. Instead,

the employment agreement required Dr. Hucker to "obtain at his own expense

professional liability 'tail coverage' or 'prior acts coverage' covering [him] for

professional liability while he was employed by [Women's Care]," and he was required to 3 furnish evidence of such tail coverage or prior acts coverage to Women's Care. Upon

leaving his employment with Women's Care, Dr. Hucker obtained his own medical

malpractice coverage through MIIX Insurance Company.

¶7 On January 28, 2002, Schell filed her medical malpractice lawsuit against the

hospital, Women's Care, and Dr. Hucker. Dr. Hucker first became aware of Schell's

malpractice claim when he received the complaint sometime after January 28, 2002.

Schell sought damages against Dr. Hucker for his alleged malpractice and against both

the hospital and Women's Care under a vicarious liability theory claiming that

Dr. Hucker committed malpractice while he was their "agent, staff and employee."

¶8 Dr. Hucker's own insurance carrier, MIIX Insurance Company, initially provided

him with a defense to Schell's malpractice lawsuit until it went into liquidation on April

9, 2008. Thereafter, the Fund assumed responsibility for the obligations of MIIX

Insurance Company and took over Dr. Hucker's defense. 1 As noted above, Chicago

Insurance had issued a claims-made policy to Women's Care that was in effect when

Schell filed her lawsuit. Chicago Insurance provided the defense for Women's Care

pursuant to the terms of the claims-made policy. The policy was in effect for a period

1 The Fund is a nonprofit entity established under the Illinois Insurance Code (215

ILCS 5/532 et seq. (West 2012)) to protect holders of policies issued by certain insurance

companies that become insolvent, and third-party claimants under those policies, when

expected coverage ceases to exist. Rogers v. Imeri,

,

.

4 after Dr. Hucker had terminated his employment with Women's Care, July 1, 2001,

through July 1, 2002, and Dr. Hucker was not a named insured in the policy. However,

on March 23, 2010, the Fund demanded that Chicago Insurance assume Dr. Hucker's

defense pursuant to this policy.

¶9 Chicago Insurance declined the Fund's request, maintaining that because

Dr. Hucker was not an insured under its policy, it did not have the duty to defend him

from any malpractice claim. The Fund subsequently filed the present declaratory

judgment action requesting the circuit court to make a determination that Chicago

Insurance owed Dr. Hucker a defense and indemnification in Schell's malpractice lawsuit.

The Fund sought reimbursement for attorney fees and costs that it had expended to

defend Dr. Hucker.

¶ 10 The insuring agreement of the Chicago Insurance policy at issue provided, in part,

as follows:

"The Company will pay on behalf of the Insured all sums which the

Insured shall be legally obligated to pay as Damages for Claims first made

against the Insured and reported to the Company during the Policy Period, or

Extended Reporting Period, as applicable, arising out of Bodily Injury,

Property Damage, Personal Injury or Advertising Injury as a result of a

Medical Incident resulting from the rendering of or failure to render Professional

Services by the Insured, or by any person whose acts the Insured is legally

responsible ***."

5 ¶ 11 The policy at issue also included language relevant to "PERSONS INSURED" as

follows:

"II. PERSONS INSURED

Each of the following is an Insured under this policy to the extent set forth

below:

A. the entity or person named in Item 1. of the Declarations as the

Named Insured;

***

C. any physician or surgeon who becomes a partner, stockholder or

employee of the Named Insured during the Policy Period provided that

within thirty (30) days after becoming a stockholder, partner or employee:

1. the Named Insured notifies the Company of such appointment,

election, ownership or employment;

2. on the date of notification, all other physicians or surgeons who

are partners, officers, shareholders or employees are named in this policy;

and

3. such physician or surgeon submits a completed application to the

Company;

***

E. any employees of the Named Insured other than a physician or

surgeon, but only while acting within the scope of his or her duties as

such." 6 ¶ 12 The terms of the policy defined the term "insured" as "any person qualifying as an

insured in the PERSONS INSURED section of the policy." The policy defined "named

insured" as "the person or entity named in Item 1. of the Declarations of this policy." The

policy also set out the right and duty of Chicago Insurance "to defend any Suit against

the Insured seeking Damages to which this Insurance applies even if any of the

allegations of the Suit are groundless, false or fraudulent."

¶ 13 The physician who filled out the application for the policy on behalf of Women's

Care requested coverage for Women's Care and two physicians who were employed with

Women's Care at the time of the application, Dr. William Chadwick and Dr. Colon-

Alcaraz. As noted above, prior to the application, Dr. Hucker and another physician had

left Women's Care to form their own practice at the end of 2000. Accordingly,

Dr. Hucker was not included in Women's Care's application for insurance coverage.

¶ 14 The policy's declaration page listed the named insured as "Women's Healthcare

Specialists, PC d/b/a Women's Care of Southern Illinois, P.C." The policy also included

a "SCHEDULE OF NAMED INSUREDS-PYSICIANS AND SURGEONS" as

endorsement PSD-2001. Endorsement PSD-2001 listed the following named insureds:

William A. Chadwick, M.D. (prior acts coverage to July 1, 1991); Vincent M. Colon-

Alcaraz, M.D. (prior acts coverage to July 1, 1991); and Women's Healthcare Specialists,

PC, d/b/a Women's Care of Southern Illinois, P.C. (prior acts coverage to August 1,

1999). Endorsement PSD-2002 listed an ancillary employee hired in April 2001, a nurse

practitioner named Kelly R. Murray (prior acts coverage to April 16, 2001), and

7 endorsement PSD-2006 listed Dr. Mark S. Wasserman (prior acts coverage to July 1,

1988), who joined Women's Care on July 5, 2001.

¶ 15 Dr. Hucker was not expressly listed or named in the policy as an insured or in any

subsequent endorsements.

¶ 16 In the Fund's declaratory judgment lawsuit, the parties filed cross-motions for

summary judgment on the issue of whether Chicago Insurance owed Dr. Hucker a

defense and indemnity in the Schell lawsuit pursuant to the terms of the insurance policy.

The circuit court ruled in favor of the Fund, holding that Chicago Insurance had a duty to

defend Dr. Hucker. The court did not articulate any reasoning or analysis for its decision.

Following the settlement and dismissal of Schell's malpractice claim, the circuit court

entered a judgment in favor of the Fund and against Chicago Insurance in the amount of

$98,694.64 for attorney fees and costs. Chicago Insurance filed a timely notice of appeal.

¶ 17 DISCUSSION

¶ 18 This insurance dispute centers on the construction of the language of the

insurance policy issued by Chicago Insurance to determine whether Chicago Insurance

had a duty to defend Dr. Hucker in the medical malpractice lawsuit. Chicago Insurance

argues that the unambiguous language of the claims-based insurance contract at issue

provided that Dr. Hucker was not an insured and did not fit within the coverage

parameters set forth in the insurance contract. The Fund, however, argues that Chicago

Insurance had a duty to defendant Hucker because he falls within the policy's coverage

language. The Fund also argues, alternatively, that the language of the policy was

8 ambiguous with respect to its coverage of claims against Dr. Hucker and that we must

construe the policy against the insurance company and in favor of coverage.

¶ 19 The issue of whether Chicago Insurance has a duty to defend is presented to us by

way of an appeal from the circuit court's summary judgment ruling in favor of the Fund

and denial of a summary judgment in favor of Chicago Insurance. "Summary judgment

is appropriate where the pleadings, depositions, admissions, and affidavits, when taken

together and in the light most favorable to the nonmovant, show that there is no genuine

issue of material fact and that the movant is entitled to judgment as a matter of law."

Abrams v. State Farm Fire & Casualty Co.,

,

(1999). Our review of a summary judgment is de novo.

¶ 20 In determining the propriety of the circuit court's summary judgment, we must

construe the insurance contract language and determine whether Chicago Insurance had a

duty to defend Dr. Hucker. In construing an insurance policy, the court must ascertain

the intent of the parties to the contract. Outboard Marine Corp. v. Liberty Mutual

Insurance Co.,

,

(1992). Courts construe the

policy as a whole with due regard to the risk undertaken, the subject matter that is

insured, and the purpose of the entire policy.

If the words used in the policy are

unambiguous, courts afford them their plain, ordinary, and popular meaning.

¶ 21 An insurer's duty to defend is broader than its duty to indemnify, and it is

"generally determined by comparing the allegation of the underlying complaint against

the insured to the language of the insurance policy." Uhlich Children's Advantage

Network,

,

. An insurer has the obligation to 9 defend if the facts alleged in the underlying complaint fall even potentially within the

policy's language. Abrams,

,

. In determining

whether there is a duty to defend, any doubts will be resolved in favor of coverage. G.M.

Sign, Inc. v. State Farm Fire & Casualty Co.,

, ¶ 25,

. However, the rules of construction do not justify construing a contract against an

insurer where no real ambiguity exists. American Country Insurance Co. v. James

McHugh Construction Co.,

,

(2003).

¶ 22 In the present case, we believe that Chicago Insurance's duty to defend depends on

whether Dr. Hucker qualifies as an insured under the language of the policy at issue.

Federal Insurance Co. v. Economy Fire & Casualty Co.,

,

(1989) ("[T]wo requirements must be satisfied before an insurer's duty

to defend arises: (1) the action must be brought against an insured, and (2) the allegations

of the complaint must disclose the potential of policy coverage."). If the allegations of

the complaint reveal that the claim at issue was not brought against an insured, then the

insurer can justifiably refuse to defend because there is no duty to defend the underlying

action.

¶ 23 As noted above, Dr. Hucker is not expressly named as an insured under the

language of the policy. He was no longer an employee of Women's Care when Women's

Care applied for and obtained the claims-made policy. Dr. Hucker's employment

agreement with Women's Care did not require it to continue to provide claims-made

coverage after the employment relationship ended. Instead, the agreement required Dr.

10 Hucker to obtain his own insurance and provide Women's Care with proof that he had

obtained such coverage.

¶ 24 Nonetheless, the Fund argues that Dr. Hucker falls within a category of insureds

within section II of the policy which sets out the descriptions of "PERSONS

INSURED." Specifically, the Fund highlights section II.E. of the policy, which includes

as insureds "any employee of the Named Insured other than a physician or surgeon, but

only while acting within the scope of his or her duties as such." The Fund argues that

Dr. Hucker qualifies as an insured under this category of insureds and argues,

alternatively, that the section creates an ambiguity which must be construed against

Chicago Insurance.

¶ 25 We agree with Chicago Insurance that this language is not ambiguous and that

Dr. Hucker does not qualify as an insured under section II.E. The plain reading of

section II.E. provides that it applies only to employees "other than a physician or

surgeon." Section II.E. is inapplicable because Dr. Hucker is a physician.

¶ 26 The Fund also quotes the insuring agreement as being ambiguous. Specifically,

the insuring agreement provides that Chicago Insurance will "pay on behalf of the

Insured all sums which the Insured shall be legally obligated to pay as Damages for

Claims first made against the Insured and reported to the Company during the Policy

Period, or Extended Reporting Period, as applicable, arising out of Bodily Injury ***

as a result of a Medical Incident resulting from the rendering of or failure to render

Professional Services by the Insured, or by any person for whose acts the Insured is

legally responsible ***." (Emphasis added.) 11 ¶ 27 The Fund argues that this language establishes insurance coverage for any person

whose acts the insured, i.e., Women's Care, is legally responsible. Therefore, the Fund

concludes, Dr. Hucker is covered within this insuring agreement because Schell alleged

that Women's Care was liable under a vicarious liability theory. Again, the plain

language of the insurance policy does not support the Fund's argument. The plain

language of the agreement states that Chicago Insurance will make payments on behalf of

an "Insured," and as noted above, Dr. Hucker does not qualify as an insured under the

plain language of the policy. Reading the plain language of the policy as a whole, it is

clear that Chicago Insurance agreed to pay on behalf of the insured, i.e., Women's Care,

when it becomes legally responsible for another person's acts.

¶ 28 The language of the policy does not extend any responsibility on the part of

Chicago Insurance to the other person for whom the insured is legally responsible. Under

the plain language of the policy, Chicago Insurance agreed to pay only on behalf of

Women's Care as a result of Dr. Hucker's acts for which it was legally responsible. No

provision within the policy extended any obligation for the insurance company to make

any payments on behalf of Dr. Hucker for those same acts. The Fund does not cite any

cases to establish an obligation of an insured to defend a noninsured simply because a

named insured may be vicariously liable for a noninsured's conduct. Neither the terms of

the policy nor the law governing the construction of insurance contracts support the

Fund's assertion.

¶ 29 The Fund argues that, at the very least, the insuring agreement is ambiguous with

respect to Chicago Insurance's obligation to pay for a defense on behalf of Dr. Hucker. 12 We disagree. An ambiguity exists within an insurance policy only when there exists

more than one reasonable interpretation. Hobbs v. Hartford Insurance Co. of the

Midwest,

,

(2005). We consider only reasonable

interpretations of the policy language and will not strain to find a nonexistent ambiguity.

"Although policy terms that limit an insurer's liability will be liberally construed in

favor of coverage, this rule of construction only comes into play when the policy is

ambiguous."

¶ 30 The policy language expressly limits the coverage of the policy to only the

"Insureds." For the insureds, it covers multiple theories of liability, including direct

negligence and vicarious liability. However, regardless of the theory, the coverage is

only available to the defined insureds, and this insuring language is not ambiguous. No

reasonable interpretation of this policy language can extend coverage to individuals

beyond the defined insureds.

¶ 31 Unless the policy language requires otherwise, an insurance company has no duty

to defend claims against noninsureds. "Where the allegations of the complaint reveal that

the action was not brought against an insured and there was no potential coverage under

the policy, there is no duty to defend the underlying action." Owners Insurance Co. v.

Seamless Gutter Corp.,

,

("As

Westfield was not an insured under the written contract provision of the policy,

Auto-Owners did not have a duty to defend Westfield."); Transcontinental Insurance Co.

v. National Union Fire Insurance Co. of Pittsburgh,

,

(1996) ("[I]mplicit in all the cases upholding the duty to defend is the 13 requirement that the complaint allege facts at least potentially within policy coverage. It

necessarily follows that there can be no potential coverage if the plaintiff is not an

insured."). Once it is determined that Dr. Hucker is not an insured, "there is no coverage,

potential or otherwise," and Chicago Insurance has "no duty to defend" (Transcontinental

Insurance Co.,

,

).

¶ 32 The Fund also argues that Chicago Insurance's duty to defend arises when the

policy is construed in conjunction with section 546 of the Illinois Insurance Code (215

ILCS 5/546 (West 2012)). The Fund is a "source of last resort," and section 546(a) is

designed to ensure that potential claims on the Fund are reduced by the assets of solvent

insurers. (Internal quotation marks omitted.) Rogers,

,

. As a result, section 546 of the Illinois Insurance Code provides: "An insured or

claimant shall be required first to exhaust all coverage provided by any other insurance

policy, regardless of whether or not such other insurance policy was written by a member

company, if the claim under such other policy arises from the same facts, injury, or loss

that gave rise to the covered claim against the Fund. The Fund's obligation *** shall be

reduced by the amount recovered or recoverable, whichever is greater, under such other

insurance policy." 215 ILCS 5/546(a) (West 2012).

¶ 33 We agree with Chicago Insurance that this provision is inapplicable to the present

case because, with respect to the claim against Dr. Hucker, Chicago Insurance's policy is

not "coverage provided by another insurance policy." Chicago Insurance has not

provided "other insurance" which must be exhausted under section 546(a). The plain

language of the insurance policy and the Fund provisions in the Illinois Insurance Code 14 establish that Chicago Insurance is not "other insurance" with respect to Schell's claim

against Dr. Hucker.

¶ 34 Finally, the Fund argues that Chicago Insurance is estopped from raising coverage

defenses. It argues that the claim against Dr. Hucker potentially fell within the coverage

of the claims-made policy. Therefore, Chicago Insurance had a duty to defend the suit

under reservation of rights or seek a declaratory judgment that no coverage exists. The

Fund contends that because Chicago Insurance failed to take either of these steps, it is

estopped from raising policy defenses to coverage. The Fund's argument is incorrect. An

insurer who fails to defend under reservation of rights or file a declaratory judgment

action is estopped from raising policy defenses to coverage only if it is later found to

have wrongfully denied coverage. Employers Insurance of Wausau v. Ehlco Liquidating

Trust,

,

(1999). "This estoppel doctrine

applies only where an insurer has breached its duty to defend."

,

. The estoppel doctrine does not apply if the insurer had no duty to defend.

¶ 35 As we have determined above, Chicago Insurance had no duty to defend

Dr. Hucker. Accordingly, the Fund's estoppel argument has no merit.

¶ 36 The Fund brought this lawsuit seeking a declaratory judgment determining that

Chicago Insurance had a duty to defend Dr. Hucker in Schell's medical malpractice

lawsuit. Both parties filed motions for summary judgment, and the circuit court granted

the Fund's motion without explanation. However, the record on appeal establishes that

Chicago Insurance did not have a duty to defend Dr. Hucker and, therefore, is entitled to

judgment as a matter of law. As a result, the circuit court erred as a matter of law in 15 denying Chicago Insurance's motion for summary judgment and in granting the Fund's

motion. We reverse the circuit court's summary judgment in favor of the Fund and

remand with directions to enter a summary judgment in favor of Chicago Insurance.

¶ 37 CONCLUSION

¶ 38 For the foregoing reasons, we reverse the summary judgment of the circuit court

and remand with directions to enter a summary judgment in favor of Chicago Insurance.

¶ 39 Reversed; cause remanded with directions.

16

NO. 5-14-0033 IN THE APPELLATE COURT OF ILLINOIS FIFTH DISTRICT ____________________________________________________________________________________________

ILLINOIS INSURANCE GUARANTY FUND, ) Appeal from the ) Circuit Court of Plaintiff-Appellee, ) St. Clair County. ) v. ) No. 10-MR-255 ) CHICAGO INSURANCE COMPANY, ) ) Defendant-Appellant ) ) (Protestant Memorial Medical Center, d/b/a ) Memorial Hospital, Women's Care of Southern ) Illinois, P.C., Debra Schell, as Mother and Next ) Honorable Friend of J.L., a Disabled Minor, and John A. ) Stephen P. McGlynn, Hucker, M.D., Defendants). ) Judge, presiding. ____________________________________________________________________________________________

Rule 23 Order Filed: December 12, 2014 Motion to Publish Granted: January 29, 2015 Opinion Filed: January 29, 2015 ____________________________________________________________________________________________

Justices: Honorable Bruce D. Stewart, J.

Honorable Thomas M. Welch, J., and Honorable Richard P. Goldenhersh, J., Concur ____________________________________________________________________________________________

Attorneys Madelyn J. Lamb, Hinshaw & Culbertson, LLP, 521 West Main Street, Suite 300, P.O. Box 509, for Belleville, IL 62222; William P. Hardy, Hinshaw & Culbertson, LLP, 400 South Ninth Street, Appellant Suite 200, Springfield, IL 62701-1908; Jennifer K. Gust, Hinshaw & Culbertson, LLP, 222 North LaSalle Street, Suite 300, Chicago, IL 60601 ____________________________________________________________________________________________

Attorneys James F. Best, Adam M. Stefancic, Best, Vanderlaan & Harrington, 25 E. Washington Street, Suite for 800, Chicago, IL 60602; Ted Harvey, Freeark, Harvey & Mendillo, P.C., 115 W. Washington Appellee Street, P.O. Box 546, Belleville, IL 62222 (attorneys for Illinois Ins. Guaranty Fund); Donald K. Schoemaker, Greensfelder, Hemker & Gale, P.C., 12 Wolf Creek Drive, Suite 100, Swansea, IL 62226 (attorney for Protestant Memorial Medical Center, Inc., d/b/a Women's Care of So. Ill., P.C.) ____________________________________________________________________________________________