                                          2016 IL App (1st) 143336
                                               No. 1-14-3336
                                              February 2, 2016

                                                                                 SECOND DIVISION



                                                  IN THE

                                  APPELLATE COURT OF ILLINOIS

                                             FIRST DISTRICT


     ILLINOIS MUNICIPAL LEAGUE RISK                   )      Appeal from the Circuit Court
     MANAGEMENT ASSOCIATION, as                       )      Of Cook County.
     Assignee and Subrogee of the Village of          )
     Lynwood and Roel Valle,                          )
                                                      )      No. 11 CH 32393
                   Plaintiff-Appellant,               )
                                                      )      The Honorable
                   v.                                 )      David B. Atkins,
                                                      )      Judge Presiding.
     STATE FARM FIRE AND CASUALTY                     )
     COMPANY, an Illinois Mutual Insurance            )
     Company,                                         )
                                                      )
                   Defendant-Appellee.                )



                  JUSTICE NEVILLE delivered the judgment of the court, with opinion.
                  Presiding Justice Pierce and Justice Hyman concurred in the judgment and opinion.


                                               OPINION


¶1         This case involves the interplay between an umbrella insurance policy and a contract for

        pooled self-insurance. The trial court found enforceable a clause in the umbrella policy that

        made its coverage apply only after exhaustion of the limits of all applicable "insurance and self

        insurance." The self-insurance pool appeals, arguing that the umbrella policy should count as
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        primary insurance because the self-insurance pool uses public funds. We find the umbrella

        policy enforceable as written, and therefore we affirm the trial court's order.

¶2                                          BACKGROUND

¶3         State Farm Fire & Casualty Company issued an insurance policy to Roel Valle, who

        worked as the city clerk for the Village of Lynwood. Lynwood belonged to the Illinois

        Municipal League Risk Management Association (Association), a municipal risk-pooling

        organization.

¶4         On February 4, 2011, a car owned by Lynwood and driven by Valle collided with a car

        driven by Manuel Little. Little sued Valle and Lynwood. Valle and Lynwood notified the

        Association and State Farm about the lawsuit.          The Association invited State Farm to

        participate in the defense of the lawsuit and settlement negotiations. On August 16, 2011, the

        Association agreed to pay Little and his passengers a total settlement amount of $5,822,500 for

        a release of all their claims against Valle and Lynwood. State Farm did not contribute to the

        settlement amount. The Association, as subrogee of Valle and Lynwood, then filed the lawsuit

        at issue before this court, alleging that State Farm breached its contract by failing to contribute

        its policy limits to the settlement. Both parties presented their contracts to the court and

        moved for summary judgment.

¶5         State Farm's insurance policy, titled "Personal Liability Umbrella Policy," required Valle

        to purchase automobile liability insurance and other forms of primary insurance. The policy

        states, "Other Insurance.    The coverage provided by this policy is excess over all other

        insurance and self insurance."



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¶6          The Association's contract with Lynwood provided that the Association would pay on

        Lynwood's behalf "all sums which [Lynwood] shall become legally obligated to pay ***

        because of 'bodily injury' *** to which this form applies, caused by an 'occurrence' and arising

        out of the ownership, maintenance or use *** of any 'automobile,' " up to a limit of $8 million.

        The contract required Lynwood to notify the Association of any occurrence, and the contract

        established the Association's right and duty to defend Lynwood. The contract did not require

        Lynwood or its employees to purchase any underlying insurance to make its coverages come

        into effect.

¶7          The Association admitted that the contract expressly covered the liability of Lynwood and

        "any other person while using an 'owned automobile' *** with the permission of [Lynwood],"

        but not "the owner of a 'non-owned automobile.' " The Association also admitted that Valle,

        as an employee of Lynwood permitted to drive Lynwood's automobile, qualified as a person

        covered under the Association's contract with Lynwood. The contract included the following

        clause:

                  "Other Coverage Or Insurance:      If any other valid and collectible coverage,

                  whether by commercial insurance, self-insurance or other funding mechanism,

                  applicable to any loss or expense covered by the Association is available to the

                  Members, the coverage afforded by the Association shall be in excess of and shall

                  not contribute with such other coverage."

¶8          The trial court found that the Association, by contract, agreed to pay the liability of

        Lynwood and Valle, up to the contract limits of $8 million, and State Farm's umbrella policy

        provided coverage for the accident only if the liability exceeded $8 million. Because the

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          Association settled the lawsuit for less than $8 million, the trial court held that State Farm

          owed the Association nothing. The trial court entered a judgment in favor of State Farm. The

          Association now appeals.

¶9                                             ANALYSIS

¶ 10         We review de novo the order granting a motion for summary judgment. Hooker v.

          Retirement Board of the Firemen's Annuity & Benefit Fund, 2013 IL 114811, ¶ 15. State

          Farm's provision concerning "Other Coverage Or Insurance" appears to conflict with the

          "Other Insurance" clause in the Association's contract. The appellate court considered a

          somewhat similar conflict in Illinois Emcasco Insurance Co. v. Continental Casualty Co., 139

          Ill. App. 3d 130 (1985), which also involved an automobile accident. In Emcasco, Kolber was

          driving King's car, with King's permission, when he was involved in an accident in which his

          two passengers suffered injuries. Continental insured King under an umbrella policy which,

          like State Farm's policy here, required King to purchase underlying primary automobile

          insurance. Emcasco insured Kolber, under a policy that made its insurance " 'excess over any

          valid and collectible insurance' " whenever Kolber drove a car he did not own. Emcasco, 139

          Ill. App. 3d at 132.

¶ 11         The appellate court said:

                  "There are various recognized differences in general between an umbrella policy

                  and a primary policy containing an excess insurance clause and specifically

                  between the policies before us. Instead of examining the individual other

                  insurance clauses, we believe we must construe the policies as a whole and the

                  underlying policy considerations.

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                  First, an umbrella policy, in contrast to a primary policy that contains an

          other insurance clause, has been recognized as providing unique and special

          coverage. The synonym 'catastrophe' that is used to identify this type of policy

          supports this assertion. (See 8A Appleman, Insurance Law & Practice sec. 4906

          (1981).) Umbrella or catastrophe coverage has been defined as '*** [A] needed

          form of coverage which picks up, above the limits of all other contracts, such as

          automobile and homeowners coverages, to give the security and peace of mind so

          necessary today where jury verdicts, or court awards, may be very substantial, to

          discharge the unexpected, but potentially bankrupting, judgment.'

                 'The courts are not ignorant of [these] desirable socio-economic consequences

          attendant upon the providing of umbrella or catastrophe coverages.' 8A

          Appleman, Insurance Law & Practice sec. 4906, at 348; sec. 4909.85, at 452

          (1981).

          ***

                *** [T]he [Continental] policy remains an umbrella policy in all instances

          except under limited circumstances where the policy provides for primary

          coverage. The Emcasco policy, however, provides primary coverage in almost all

          regards. In only one instance, namely, with respect to a judgment involving a

          nonowned automobile, does the Emcasco policy provide excess coverage.

          Moreover, unlike the Emcasco policy, a condition to coverage under the

          [Continental] policy was the procurement of underlying insurance coverage,

          which in this case was supplied by State Farm.

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                       For these reasons, we believe that the two policies cannot be considered on

                  the same level nor can the general rules regarding excess and escape clauses be

                  applied. Rather, taken as a whole, we find that the umbrella policy issued by

                  [Continental] should be required to contribute only after the limits of the Emcasco

                  policy have been reached. We are in agreement with the Appleman treatise on

                  insurance where, in discussing 'other insurance' clauses, he states: 'There is,

                  however, a unique form of excess contract which always remains excess over and

                  above all other applicable forms of contract, except as to the specific risks upon

                  which it may elect to carry the primary burden. That is the umbrella or

                  catastrophe policy. *** [U]mbrella coverages, almost without dispute, are

                  regarded as true excess over and above any type of primary coverage, excess

                  provisions arising in regular policies in any manner, or escape clauses.' 8A

                  Appleman, Insurance Law & Practice sec. 4906, at 348; sec. 4909.85, at 453-54

                  (1981)." Emcasco, 139 Ill. App. 3d at 132-34.

¶ 12         Here, State Farm issued an umbrella liability policy to Valle. The Association provided

          primary coverage to Lynwood. Thus, if we treat the Association's contract with Lynwood as

          an insurance policy, the umbrella policy would provide coverage only if Valle's liability

          exceeded the limits of the Association's coverage. See Emcasco, 139 Ill. App. 3d at 132-34.

¶ 13         But the Association's contract is not an insurance policy. In Antiporek v. Village of

          Hillside, 114 Ill. 2d 246 (1986), our supreme court held that a contract like the Association's

          contract with Lynwood "is pooled self-insurance, through formal agreement, of governmental

          entities which share the risks and costs of civil liabilities." Antiporek, 114 Ill. 2d at 251.

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          Lynwood and other participating municipalities form "a risk-management pool in which only

          Illinois municipalities may participate." Antiporek, 114 Ill. 2d at 247-48. The Antiporek court

          held that municipalities that participate in such risk-management pools do not waive municipal

          immunities from liability. Antiporek, 114 Ill. 2d at 250-52.

¶ 14         The Association argues that this court should not apply the reasoning of Emcasco here

          because (1) the Association's contract with Lynwood does not qualify as "other insurance and

          self insurance" within the meaning of State Farm's policy, and (2) even if the contract could

          qualify as self-insurance, the court should, on grounds of public policy, refuse to enforce that

          clause and instead permit the municipality to recover from State Farm.

¶ 15         Under Antiporek, the Association's contract with Lynwood qualifies as a kind of "pooled

          self-insurance." Antiporek, 114 Ill. 2d at 251.       The Association asks us to limit the

          interpretation of "self-insurance" in State Farm's policy to privately-funded self-insurance risk

          pools. See Chicago Hospital Risk Pooling Program v. Illinois State Medical Inter-Insurance

          Exchange, 325 Ill. App. 3d 970 (2001) (CHRPP). When we construe insurance policies, we

          must "ascertain and give effect to the intentions of the parties as expressed by the words of the

          policy." Rich v. Principal Life Insurance Co., 226 Ill. 2d 359, 371 (2007). We see no grounds

          to believe State Farm or Valle intended to limit the reach of the other insurance clause in the

          manner the Association suggests. We construe the umbrella policy to provide insurance

          coverage only when the loss exceeded available limits of insurance and self-insurance,

          including pooled self-insurance.

¶ 16         The Association relies primarily on State Farm Mutual Automobile Insurance Co. v. Du

          Page County, 2011 IL App (2d) 100580, for its argument that we should require State Farm to

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          pay to the Association the limits of State Farm's umbrella policy.        In Du Page County,

          Radostits, a county employee, drove a county-owned car into another car. State Farm covered

          Radostits under an umbrella policy that provided it was " 'excess over all other valid and

          collectible insurance.' " Du Page County, 2011 IL App (2d) 100580, ¶ 14. The county insured

          itself for all losses up to $2 million, with any greater liability covered by an excess insurance

          policy. Du Page County, 2011 IL App (2d) 100580, ¶ 15. State Farm sought to recover from

          the county $400,000, the amount State Farm paid to Radostits's heirs, plus $100,000 for the

          amount State Farm paid to cover Radostits's liability to another person injured in the accident.

          Du Page County, 2011 IL App (2d) 100580, ¶¶ 20, 57.

¶ 17         The Du Page County court applied the reasoning of Aetna Casualty & Surety Co. of

          Illinois v. James J. Benes & Associates, Inc., 229 Ill. App. 3d 413 (1992), in which the

          appellate court held that the Intergovernmental Risk Management Agency (IRMA), "a pool of

          self-insured municipalities *** was not a private insurance carrier." Du Page County, 2011 IL

          App (2d) 100580, ¶ 38. The Du Page County court held that "the County, like IRMA, is not

          an insurer or an insurance company, nor does it provide insurance coverage." Du Page

          County, 2011 IL App (2d) 100580, ¶ 40. Because the county did not qualify as an insurer, it

          could not count as a primary insurer. The Du Page County court distinguished CHRPP, in

          which the court treated a risk-management pool like an insurer, on grounds that private money

          funded the risk-management pool in CHRPP, while public funds would pay all losses the

          county covered under its self-insurance plan. But the Du Page County court emphasized that

          "[a]n insurance policy is a contract ***. [Citation.] If the words in a contract are unambiguous,

          we must give them their plain and ordinary meaning." Du Page County, 2011 IL App (2d)

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          100580, ¶ 51. The court added, "because the County was not an insurer and the State Farm car

          policies did not provide coverage, there was no 'other valid and collectible insurance.' " Du

          Page County, 2011 IL App (2d) 100580, ¶ 58.

¶ 18         We find State Farm's umbrella policy here unambiguous. The policy makes the insurance

          "excess over all other insurance and self insurance."      Because the Association provides

          coverage for the accident here under the contract for pooled self-insurance, we find that the

          Association provided coverage for the losses up to $8 million, and State Farm's policy would

          cover losses in excess of that amount. Because the Association settled the claims for less than

          $8 million, State Farm did not owe the Association any reimbursement for the loss.

¶ 19                                          CONCLUSION

¶ 20         The Association's contract with Lynwood qualifies as self-insurance within the meaning of

          the other insurance clause in State Farm's umbrella liability policy. Public policy does not

          make the State Farm contract unenforceable. The trial court correctly held that State Farm's

          umbrella policy provided coverage only if the damages exceeded the limits of other available

          self-insurance. Because the damages here did not exceed those limits, the trial court correctly

          entered judgment in favor of State Farm.

¶ 21         Affirmed.




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