Hinkhouse Williams Walsh

Circuit Court of Cook County Entered Summary Judgment in Favor of Erie Insurance

In this case of first impression in Illinois, the Circuit Court of Cook County entered summary judgment in favor of Erie Insurance.  The unique facts of the case involved a fire at Narchem Corporation (“Narchem”), an insured of Erie and a specialist in contract research and development for the pharmaceutical industry.  Narchem was a tenant in a commercial space in Chicago.  On March 19, 2015, a fire occurred at the premises.

An investigation of the fire began after the loss.  Erie controlled Narchem’s defense through the terms of the policy and retained counsel for Narchem for the investigation, although no litigation had been filed against Narchem.  Narchem contended that it had the right to independent counsel due to a conflict of interest between Erie and Narchem.  Narchem maintained that the conflict arose out of rumors that were spreading that Narchem’s employees might have intentionally started the fire.  Thus, because Erie’s chosen defense counsel could “steer” the investigation outside of coverage and into the intentional act exclusion, Narchem insisted on independent counsel.

The Chicago Police and Fire Departments conducted independent investigations of the fire and determined that the cause was “undetermined.”  Nevertheless, Narchem’s counsel contended that a conflict of interest still remained.  Narchem’s counsel asserted that the “landlord’s insurer has made comments that the fire was/may have been intentionally set.”  Narchem did not provide Erie with any details regarding the name of the landlord’s insurer, the identity of the person who allegedly made the comments about the cause of the fire, the date of the alleged comments, whether a Narchem employee allegedly started the fire or the factual basis for the comments.  Narchem maintained its insistence on independent counsel unless Erie waived the intentional act exclusion and the limits of the policy.

Erie asserted that no conflict existed because the record did not contain any credible allegations that a Narchem employee intentionally started the fire.  Erie invited Narchem to provide some evidence beyond the speculative comments from unnamed sources that someone had accused Narchem of intentionally setting the fire.  Despite its continued requests for independent counsel, Narchem did not provide Erie with any corroboration from a bona fide statement that someone had accused Narchem of intentionally starting the fire. 

The court framed the unique legal issue as to what quantum of evidence is necessary to trigger a conflict of interest after a loss but before an actual lawsuit is filed.  Typically the court compares the allegations in a complaint to the terms of the insurance policy to determine the existence of a conflict.  If the complaint alleges facts that fall both inside the policy and outside the policy, a conflict exists and the insured is entitled to independent counsel.  In this case no lawsuit had been filed against Narchem to evaluate a possible conflict in the traditional manner. 

The court determined the Erie, indeed, owed Narchem some duty during the investigation.  Erie volunteered to provide a defense even though no suit had been filed against Narchem.  As to whether a conflict existed, the court stated that something more than the speculative comments of the insured’s counsel was needed to entitle Narchem to independent counsel.  The court did not find any credible evidence in the record that suggested that a Narchem employee had been accused of intentionally starting the fire.  Narchem’s own counsel was the only source of information that Narchem intentionally started the fire.  The court rejected Narchem’s counsel’s comments as credible enough to trigger a duty on Erie’s part to provide independent counsel.  Thus, the court granted summary judgment in favor of Erie and against Narchem.

Bruce Lichtcsien of Hinkhouse Williams Walsh was counsel for Erie Insurance.