                   IN THE SUPREME COURT OF MISSISSIPPI

                              NO. 2002-CA-01659-SCT


ASSOCIATION OF TRIAL
LAWYERS ASSURANCE,
A MUTUAL RISK RETENTION GROUP

v.

MARTIN TSAI


DATE OF JUDGMENT:                        8/30/2002
TRIAL JUDGE:                             HON. DALE HARKEY
COURT FROM WHICH APPEALED:               JACKSON COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANT:                 ROBERT C. GALLOWAY
                                         ERIN M. McCLOSKEY
                                         RONALD L. OHREN
ATTORNEY FOR APPELLEE:                   WILLIAM CARL MILLER
NATURE OF THE CASE:                      CIVIL - INSURANCE
DISPOSITION:                             AFFIRMED ON DIRECT APPEAL AND
                                         CROSS-APPEAL - 08/05/2004
MOTION FOR REHEARING FILED:
MANDATE ISSUED:


      EN BANC.

      WALLER, PRESIDING JUSTICE, FOR THE COURT:

¶1.   Martin Tsai, a judgment creditor of Woodrow Cook, sought to garnish an insurance

policy issued to Cook by the Association of Trial Lawyers Assurance ("ATLA"). In its

defense, ATLA contended that, because the policy was an indemnity policy, it did not have

the duty to defend Cook in the garnishment action and that a prior arbitration proceeding

between it and Cook was binding. Tsai argued that, because the policy provided that ATLA
had a duty to defend Cook, ATLA breached the contract, and, therefore, it was estopped

from raising any defense concerning coverage.

¶2.    The arbitrator agreed with ATLA and determined that the policy did not afford

coverage. The circuit court reversed the arbitrator's findings, held that the policy did contain

a duty to defend and that ATLA breached that duty, and entered judgment in favor of Tsai.

Both parties appeal. We find that, applying Illinois law and under the policy provisions,

ATLA had a duty to defend and a duty to indemnify. We affirm.

                                            FACTS

¶3.    Martin Tsai filed suit against Viceroy Tai USA, Inc.,1 and Woodrow Daniel Cook,

alleging that (1) while Cook was an associate attorney in the law firm Page, Mannino,

Dickenson & McDermott ("Page Mannino"), Cook represented Tsai in the contract for the

sale and purchase of the Pine Island Golf Course, in Ocean Springs, Mississippi; (2) Cook

encouraged him to pursue the purchase of the golf course and to secure financing for the

transaction through Southtrust Bank; (3) Through his representation of Tsai, Cook gained

special knowledge of Tsai's finances; (4) Cook continued to assure Tsai that Southtrust

would grant the loan, prompting Tsai to invest more funds into the project; (5) The deal

never finalized because Southtrust refused to go forward with the loan; (6) Cook breached

his duty to act solely for Tsai's interest and not to disclose Tsai's confidences to third parties;

(7) Cook used his special knowledge of Tsai's financial situation and (a) told Southtrust that

Tsai was involved in a dispute concerning other properties purchased by Tsai and disputes



       1
        Viceroy has been dismissed from this action and is not a party to this appeal.

                                                2
involving the operation of other golf courses; (b) informed Viceroy of Tsai's financial

problems and Viceroy then used that information against Tsai's interest; and (c) represented

Viceroy against Tsai's interest; and (8) Cook's conduct continued after he left Page Mannino

and joined Beard, Raines and Cook.

¶4.    Cook notified his insurer, ATLA, of the Tsai lawsuit on November 22, 1996. ATLA

sent a reservation of rights letter to Cook on March 5, 1997, reserving its right to deny

coverage as well as its right to seek arbitration. ATLA noted that the policy had a retroactive

date exclusion of January 31, 1996. On March 5, 1997, ATLA sent a detailed reservation

of rights letter to Cook, once again reserving its rights as to the retroactive date policy

exclusion and its right to seek arbitration pursuant to the policy.

¶5.    Almost two years later, based in part on the policy's retroactive date exclusion, ATLA

declined coverage for the Tsai lawsuit. ATLA once again reserved its right to seek

arbitration.

¶6.    The parties settled. Page Mannino paid Tsai $350,000, and Tsai and Cook entered

into an settlement agreement wherein Cook's claims against ATLA were assigned to Tsai.

Tsai and Cook also stipulated to the entry of a consent judgment in the amount of $1,000,000

and agreed that the judgment would not be enrolled.

¶7.     After Tsai served ATLA with a writ of garnishment based on the consent judgment,

ATLA demanded arbitration with Cook. Although he was notified of the arbitration

proceedings, Cook did not participate in the arbitration proceedings. The arbitrator ruled that

the policy afforded no coverage for Tsai's lawsuit.



                                              3
¶8.    After a bench trial, the circuit court held that the substantive issues were to be

determined applying Illinois law, but that the procedural issues of the garnishment actions

were controlled by Mississippi law. It noted that the burden of proving that the garnishee

is liable is on the plaintiff and that the case turned on three issues: whether ATLA had a

duty to defend, whether it breached that duty, and whether it is estopped from asserting a

policy defense.

¶9.    The circuit court found the policy language2 to be ambiguous:

                      While the policy states in section IV(6)(e) that it does not
              have a right or duty to defend a suit against its insured, after that
              initial statement, all language lends itself to ATLA's virtually
              complete control of all aspects of the defense. The insured
              under this policy is at ATLA's mercy as to their choice of
              defense counsel and the overall management of the defense.

The circuit court stated that the "ambiguity is rightfully resolved in favor of the insured, thus

placing a definite duty to defend upon ATLA," and concluded that ATLA had breached its



       2
        Section IV(6)(e) provides as follows:

               The Company shall not have the right nor shall it be called upon to
       assume charge of the defense of any claim made or suit brought or proceeding
       instituted against an INSURED, but the INSURED shall act in good faith in
       defending against any such claim, suit or proceeding, keeping the Company
       fully informed as to the conduct of such defense. In addition, the Company
       shall have the right and be given the opportunity to approve in advance
       counsel selected by the INSURED to defend in any such claim, suit or
       proceeding and to require the INSURED to revoke such counsel's
       appointment. In considering whether counsel selected by the INSURED
       should be approved, or whether such approval should be revoked, the
       Company may take into account all factors which it deems to be relevant,
       including counsel's projected and actual fees and whether counsel has been
       cooperative in keeping the Company fully informed with respect to the claim
       in question or other claims. . . .

                                               4
duty when it initially defended the suit under a reservation of rights and when it dropped the

defense two years into the litigation without having a judicial determination of its coverage

issues.

¶10.      The circuit court found that the amount of the settlement ($1,000,000) was reasonable

in light of the allegations in part because ATLA offered no evidence that would challenge

or refute the judgment's reasonableness.

¶11.      Finally, the circuit court set off the $350,000 paid by Page Mannino and the defense

costs advanced by ATLA ($28,179.57), bringing the total amount of the judgment to

$621,820.43. Aggrieved by the circuit court's judgment, both ATLA and Tsai appeal.

                                  STANDARD OF REVIEW

¶12.      A circuit judge sitting without a jury is accorded the same deference with regard to

his findings of fact as a chancellor, and his findings are safe on appeal if they are supported

by substantial, credible, and reasonable evidence. Maldonaldo v. Kelly, 768 So. 2d 906, 908

(Miss. 2000). Questions of law are reviewed de novo. Consolidated Pipe & Supply Co. v.

Colter, 735 So. 2d 958, 961 (Miss. 1999).

                                     APPLICABLE LAW

¶13.      We agree with the circuit court that this case is governed by Illinois substantive law

and Mississippi procedural law because the insurance policy in question was issued in

Illinois, and this case involves questions of interpretation of the policy. See Boardman v.

United Services Auto. Ass'n, 470 So. 2d 1024, 1034 (Miss. 1985).

                                         DISCUSSION



                                                5
              WHETHER TSAI WAS BOUND BY THE
              ARBITRATOR'S DETERMINATION THAT THE ATLA
              POLICY AFFORDED NO COVERAGE TO COOK WITH
              RESPECT TO THE TSAI LAWSUIT.

¶14.   ATLA first argues that Tsai was a judgment creditor and had only the same rights that

Cook had. As a general rule, "the rights of a judgment creditor to recover from a garnishee

depend upon the subsisting rights between the judgment debtor and the garnishee, and a

garnishee's liability to the judgment creditor is measured by the former's liability to the

defendant." 30 Am. Jur. 2d Executions and Enforcement of Judgment § 653, at 429 (2000).

A judgment creditor's rights are derived from and no greater than the insured's rights, and

if the insured did not comply with the terms of the policy the judgment creditor had no rights

to the policy. Courtney v. Stapp, 232 Miss. 752, 758, 100 So. 2d 606, 608 (1958); see also

Parker v. Standard S.S. Owner's Protection & Indemnity Ass'n Ltd., 1993 WL 557902 *

3 (N.D. Miss. 1993) (assignee takes it with whatever limitations it had in the hands of the

assignor); Schuler v. Murphy, 91 Miss. 518, 44 So. 810 (1907) (judgment creditor stands

in the same position as the judgment debtor). We therefore agree with ATLA that Tsai did

not have any rights greater than those afforded to Cook.

¶15.   ATLA contends that Tsai was equitably estopped from pursuing his garnishment

claims against ATLA because Tsai was bound by arbitration which began and ended

unfavorably for Tsai some twenty months after ATLA’s declination of coverage and only

after ATLA had received a writ of garnishment. Under Illinois law, the insurer’s duty to

defend under a liability insurance policy is so fundamental an obligation that a breach of that

duty constitutes a repudiation of the contract. Chandler v. Doherty, 702 N.E.2d 634 (Ill.


                                              6
App. Ct. 1998) (citing Kinnan v. Charles B. Hurst Co., 317 Ill. 251, 257, 148 N.E. 12

(1925)). Additionally, it is well-settled that an insured contracts for and has a right to expect

two separate and distinct duties from an insurer: (1) the duty to defend him if a claim is

made against him; and (2) the duty to indemnify him if he is found legally liable for the

occurrence of the covered risk. Chandler, 702 N.E.2d at 637 (citing Conway v. Country

Cas. Ins. Co., 442 N.E.2d 245, 247 (Ill. 1982)). In this context, a liability insurer’s breach

of its duty to defend and unjustifiable refusal to do so combined with its failure to file a

declaratory action to determine its obligations before trial of the original tort action precludes

the insurer from asserting a policy defense. Id. at 639 (citing Murphy v. Urso, 430 N.E.2d

1079, 1082 (Ill. 1981) & Thornton v. Paul, 384 N.E.2d 335, 340 (Ill. 1978)). The Supreme

Court of Illinois has held that the aforementioned rule is likewise applicable where the

insurer’s duty is to indemnify. Waste Management, Inc. v. Int'l Surplus Line Ins. Co., 579

N.E.2d 322, 335 (Ill. 1991). Thus, whether Tsai is bound by the arbitration ruling depends

on whether a duty to defend existed.

¶16.   Any doubts about potential coverage and the duty to defend are to be resolved in

favor of the insured. Chandler, 702 N.E.2d at 638 (citing West Bend Mut. Ins. Co. v.

Sundance Homes, Inc., 606 N.E.2d 326, 328 (Ill. 1992)). Additionally, if an insurance

policy is clear and unambiguous, a trial court should apply its provisions as written. Am.

States Ins. Co. v. Action Fire Equip., Inc., 509 N.E.2d 1097 (Ill. App. Ct. 1987). A court

should give effect to the intent of the parties as expressed in the contract using the plain and

ordinary meaning of the words in the policy. Weeks v. Aetna Ins. Co., 501 N.E.2d 349, 352

(Ill. App. Ct. 1986). A policy provision is ambiguous only if it is subject to more than one

                                                7
reasonable interpretation. United States Fid. & Guar. Co. v. Wilkin Insulation Co., 578

N.E.2d 926 (Ill. 1991). A liability insurer’s duty to defend arises when the insured tenders

defense of a suit against him that alleges facts which, when taken as true, raise the potential

for coverage occurring during the effective policy period. Chandler, 702 N.E.2d at 638

(citing West Bend Mut. Ins. Co. v. Sundance Homes, Inc., 606 N.E.2d at 328). It is the law

of the State of Illinois that in determining whether it has a duty to defend a suit, an insurer

is limited to comparing the bare allegations of the complaint with the face of the policy of

insurance. Id.

¶17.   Where an insurer has a duty to defend, it has the right to assume control of the

litigation. The standard duty to defend policy is one in which the insurer selects counsel and

assumes control of the defense, paying all fees and costs directly. Goodheart-Willcox Co. v.

First Nat’l Ins. Co. of Am., Inc., 2001 WL 501194 (N.D. Ill. 2001). Although ATLA

argues that the policy did not contain a duty to defend and expressly disavowed any duty to

defend, the language in the clause was so oppressive, ambiguous, and contradictory that it

bordered on the unconscionable if enforced according to ATLA’s liking. It is reasonable

to infer that the applicable clause was a blatant attempt by ATLA to disclaim a duty to

defend while retaining all control over any claims brought. This attempt by ATLA created

the ambiguity referred to by the circuit court.

¶18.   The clause which ATLA contends constitutes an express disavowal of the duty to

defend confers the following rights on ATLA: (1) advance approval of counsel; (2) the right

to fire the insured's counsel; (3) the right to be fully informed of said defense; (4) the

unconditional right to direct, approve, or withhold approval of any settlements; and (5) the

                                              8
right “to select counsel to defend in such claim, suit or proceeding” where the insured has

failed to defend or select counsel approved or directed by the Company. In essence, ATLA

has drafted clauses expressly disavowing a duty to defend while still retaining the right to

defend as it pleases where it does not approve of the insured’s choice of counsel, handling

of the defense, or after it has amassed enough information to satisfy itself that it is in its best

interest to deny a claim. ATLA seemingly contradicts itself by asserting that an insurer has

a duty to defend where it has the right to control the litigation but then claiming that the

substantial rights afforded ATLA and the specific language allowing them to “defend in such

claim, suit, or proceeding” in the aforementioned clause does not give rise to a duty to

defend or amount to a near total control of the defense by ATLA. ATLA did in fact approve

counsel, made its reservations of rights, and paid all the fees and costs of the defense

directly. The ambiguity of this clause enabled the ATLA to act as defender at whim. ATLA

wanted the benefit of defending the case according to its liking when it suited its interests

but also wanted to disclaim a duty to defend when it decided to go forward with arbitration

after it was presented with a writ of garnishment without ever seeking a declaratory

judgment or requesting a stay of the case pending arbitration. By its drafting of the policy

and its actions subsequent to the presentment of a writ of garnishment, ATLA wanted to

have its proverbial cake and eat it too.

¶19.   After timely notice of the claim from Cook on November 22, 1996, ATLA’s counsel

responded with a letter dated December 11, 1996, in which Cook was advised that no

coverage determination had yet been made. ATLA counsel requested additional information

to develop his coverage opinion. Notwithstanding this letter, ATLA assumed the defense

                                                9
of the case on March 5, 1997, reserving its rights to contest coverage and setting forth

specific policy provisions which it contended could result in a denial of coverage. Nearly

two years after it had assumed the duty of paying for Cook’s defense costs, ATLA denied

coverage and abandoned its insured. Once ATLA assumed the defense of the case, it did not

do what Illinois law commanded it to do; that is, either: (1) defend the case until its

conclusion, reserving its right to contest its duty to pay any potential judgment or settlement;

or (2) file a declaratory judgment action wherein it could have sought relief from the burdens

of its obligations to Cook. State Farm Fire & Cas. Co. v. Martin, 710 N.E.2d 1228, 1231

(Ill. 1999) (quoting Clemmons v. Travelers Ins. Co., 430 N.E.2d 1104, 1107 (Ill. 1981)).

It is the thus clear, under Illinois law, the insurer cannot simply abandon its insured.

Employers Ins. of Wausau v. Ehlco Liquidating Trust, 708 N.E.2d 1122, 1135 (Ill. 1999).

Even where no duty to defend is found, ATLA’s duty to indemnify remained and also

required the insurer to file a declaratory judgment action wherein it could have sought relief

from the burdens of its obligations to Cook. ATLA did not do this nor did it ask for a stay

of Tsai’s action pending arbitration. ATLA retained control over nearly every aspect of

Cook’s defense, even retaining the right “to defend in such claim, suit, or proceeding,” paid

all costs of the defense, made reservations of rights, remained intimately involved in the

litigation until enough information was gathered to deny coverage, and then denied coverage

at its own behest without seeking approval of this determination by a court of law as required

whether they had a duty to defend or a duty to indemnify. Accordingly, Illinois law

precludes ATLA from asserting a policy defense such as an arbitration clause where it has

failed to either defend the action to its conclusion or seek a declaratory judgment. Finally,

                                              10
when the circuit court approved the writ of garnishment against ATLA, the company did an

end-run around the court's authority by initiating arbitration two years after declining

coverage then attempted to make it binding on Tsai because Tsai “stands in the shoes” of

Cook. Indeed, Tsai “stands in the shoes” of Cook and as such Cook’s claims that ATLA had

a duty to defend or at least a duty to indemnify, breached its duties, and should be estopped

from asserting a policy defense may be imputed to Tsai.

¶20.   Given the facts of this case, ATLA had a duty to defend, and at the very least had a

duty to indemnify, and therefore was required to: (1) defend the case to conclusion,

reserving its right to contest its duty to pay potential judgments or settlements; or (2) file a

declaratory judgment wherein it could have sought relief from the burdens of its obligations

to Cook. Because ATLA failed to do so, it is now estopped from arguing that the arbitration

decision is binding.

¶21.   Because this issue is dispositive, we will not address the other issues raised by ATLA

in its direct appeal and by Tsai in his cross-appeal.

                                      CONCLUSION

¶22.   We find that ATLA had a duty to defend and a duty to indemnify. We therefore

affirm the judgment of the Jackson County Circuit Court.

¶23.   AFFIRMED ON DIRECT APPEAL AND CROSS-APPEAL.

    SMITH, C.J., COBB, P.J., CARLSON AND GRAVES, JJ., CONCUR.
EASLEY, J., DISSENTS WITHOUT SEPARATE WRITTEN OPINION. DIAZ,
DICKINSON AND RANDOLPH, JJ., NOT PARTICIPATING.




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