Tag Archives: Illinois
Don’t Gamble with My Money: When a Lawsuit Seeks Damages in Excess of Policy Limits, What Are the Insured’s Rights in Illinois?
In general, if a lawsuit is covered or potentially covered by a commercial general liability (CGL) insurance policy, the insurer has a duty to defend that claim. If the insurer provides that defense without reserving its rights to deny coverage, the insurer is entitled to select defense counsel and control the defense. But when the insurer defends under a reservation of rights, that reservation may create a conflict of interest between the insurer and the insured.
The leading Illinois Supreme Court case on this subject is Maryland Casualty v. Peppers, decided in 1976. According to Peppers, when an insurer defends an insured, but reserves the right to deny coverage based on an exclusion in the insurance policy (the applicability of which could be established during the course of defending the insured), there is a conflict of interest that gives the insured the right to select independent counsel to defend it at the insurer’s expense. But the Illinois Supreme Court did not say that this is the only conflict of interest that could give rise to the insured’s right to select independent defense counsel.
In R.C. Wegman Construction Company v. Admiral Insurance Company, decided in 2011, the United States Court of Appeals for the Seventh Circuit answered a question that has vexed Illinois insureds for a long time. Although the case involves a relatively uncommon set of facts, the court’s ruling in Wegman recognizes the conflicting interests that can arise between insureds and insurers when an insured faces a claim in which there is a “non-trivial probability” that there could be a judgment in excess of policy limits.
The Nuts and Bolts of Wegman
R.C. Wegman Construction Company was the manager of a construction site at which another contractor’s employee was seriously injured. Wegman was an additional insured under a policy issued by Admiral Insurance to the other contractor. When the worker sued Wegman, Admiral acknowledged its duty to defend, apparently without reserving any rights, and undertook the control of Wegman’s defense. The Admiral policy provided $1 million in per-occurrence limits of liability. Although it soon became clear that there was a “realistic possibility” that the underlying lawsuit would result in a settlement or judgment in excess of the policy limits, Admiral never provided this information to Wegman.
Shortly before trial, a Wegman executive was chatting about the case with a relative who happened to be an attorney. That relative pointed out the risk of liability in excess of policy limits, and mentioned that it was important for Wegman to notify its excess insurers. But by then it was too late, and the excess insurer denied coverage because notice was untimely. A judgment was entered against Wegman for more than $2 million. Wegman sued Admiral for failing to give sufficient warning of the possibility of an excess judgment so that Wegman could give timely notice to its excess insurer. According to the Seventh Circuit, the key issue was whether this situation—in which there was a risk of judgment in excess of the limit of liability, and where the insurer was paying for and controlling the defense—gave rise to a conflict of interest.
Admiral’s explanation for failing to inform Wegman was ultimately part of its downfall. Because there were other defendants in the underlying lawsuit, there was a good chance that Wegman would not be held jointly liable and that if a jury determined that Wegman was no more than 25% responsible for the worker’s injury, Wegman’s liability would have been capped at 25% of the judgment. Admiral’s trial strategy was not to deny liability, but to downplay Wegman’s responsibility. Admiral, however, never mentioned this litigation gambit to Wegman!
In the Seventh Circuit’s view, this was a textbook example of “gambling with an insured’s money.” And that is a breach of an insurer’s fiduciary duty to its insured.
When a potential conflict of interest arises, the insurer has a duty to notify the insured, regardless of whether the potential conflict relates to a basis for denying coverage, a reservation of rights, or a disconnect between the available limits of coverage and the insured’s potential liability. Once the insured has been informed of the conflict of interest, the insured has the option of hiring a new lawyer whose loyalty will be exclusively to the insured. In reaching its Wegman conclusion, the Seventh Circuit cited the conflict-of-interest rule established by the Illinois Supreme Court’s Peppersdecision. Thus, a potential conflict of interest between an insured and an insurer concerning the conduct of defense is not limited to situations in which the insurer has reserved its rights.
In rejecting Admiral’s arguments, the Seventh Circuit explained that a conflict of interest (1) can arise in any number of situations and (2) does not necessarily mean that the conflicted party—the insurer—has engaged in actual harmful conduct. A conflict of interest that permits an insured to select independent counsel occurs whenever the interests of the insured and the insurer are divergent, which creates a potential for harmful conduct.
The conflict between Admiral and Wegman arose when Admiral learned that a judgment in excess of policy limits was a “non-trivial probability.” When confronted with a conflict of this type, the insurer must inform the insured as soon as possible in order to allow the insured to give timely notice to excess insurers, and to allow the insured to make an informed decision as to whether to select its own counsel or to continue with the defense provided by the insurer.
Looking Beyond Wegman
The fact pattern discussed in Wegman, however, is not the only situation in which there may be a conflict of interest between an insurer and an insured concerning the control of the defense. Under the supplemental duty to defend in a CGL policy, an insured is entitled to be defended until settlements or judgments have been paid out in an amount that equals or exceeds the limits of liability. The cost of defense does not erode the limits of liability, which means that the supplemental duty to defend is of significant economic value to an insured.
The following hypothetical situations (involving an insured covered by a CGL policy with $1 million in per-occurrence and aggregate limits of liability and a supplemental duty to defend) illustrate the economic value of the duty to defend:
- The insured is sued 25 times in one policy year. In each instance, the insurer acknowledges coverage and undertakes to defend the lawsuits. Each lawsuit is dismissed without the insured becoming liable for any settlements or judgments. The total cost of defending these 25 lawsuits is $1.5 million. The limits of liability are completely unimpaired with $1 million in limits of coverage remaining available.
- The insured is a defendant in dozens of lawsuits alleging that one of the products it sells has a defect that has caused bodily injury. The insurer agrees to defend. The lawsuits are consolidated, and the costs of defense accumulate to more than $2.5 million. Eventually, there is a global settlement of the lawsuits for $1 million. Thus, a total of $3.5 million has been paid out on an insurance policy with a $1 million limit of liability.
- The insured is involved in a catastrophic accident for which he was solely responsible and in which four other people were permanently disabled. Each of the victims files a lawsuit and the realistic projected liability exposure to each victim is $1.5 million—or $6 million collectively. Shortly after the complaints are filed (and before there has been any significant discovery or investigation), three of the plaintiffs make a joint offer to settle their claims for a collective $1 million. The insurer and the insured both believe that this is an outstanding settlement opportunity, but the fourth plaintiff wants her day in court. If the insured agrees to this promising settlement opportunity, the limits of liability will be exhausted, the duty to defend will be extinguished, and the insured will be forced to pay for his own defense or rely on his excess insurance to reimburse him for defense costs.
Any insured who has been in the position of defending against either a serious claim or a multitude of smaller claims will understand that the supplemental duty to defend under a CGL policy may have much greater economic value than the limit of liability alone.
In these kinds of situations—when either the potential liability exceeds policy limits or there are multiple claims against the insured such that the economic value of the defense is worth more than the limit of liability—who should be allowed to control the defense of claims against the insured? In prior cases (Conway v. County Casualty Insurance Company [1992] and American Service Insurance Company v. China Ocean Shipping Co. [2010]), Illinois courts concluded that an insurer cannot be excused of any further duty to defend by paying out its remaining limits to the plaintiffs or by depositing its policy limits into court. But this rule does not address the conflict of interest when (1) it is in the insurer’s financial interest to avoid the potentially unlimited expense of defending its insured but (2) it is in the insured’s interest to continue receiving a defense that may have greater financial value than the limits of liability of a primary CGL policy.
Thanks to the Wegman decision, there is now some authority acknowledging that the insured’s right to select independent counsel may exist even if the insurer defends without a reservation of rights. The court recognized that the insurer-insured relationship and the right to control the defense is fraught with potential conflicts. Therefore, it is more important than ever for insureds to protect their interests.
Did I Really Sign That? When Signed Affidavits Are Altered Before Filing
Most law firm clients would assume that an affidavit, once signed, would remain unchanged when it is filed in court. Recently, however, certain affiants in Cook County would have been perfectly justified in asking, “Did I really sign that?”
This issue was brought to light by General Administrative Order No. 2011-01 (GAO 2011-01), entered in March 2011 by Judge Moshe Jacobius in the Chancery Division of the Circuit Court of Cook County. GAO 2011-01 illustrates the importance of a close working relationship between law firms and their clients. In particular, clients must know and understand the content of any affidavit they sign. Similarly, if an affidavit that was previously executed is changed, a law firm must make its client aware of the alteration, have the client approve it and execute the affidavit after the alteration is made. As can be seen from the synopsis that follows, failure to follow this protocol can have dire results for both the client and the attorney.
The entry of GAO 2011-01 came about because a well-known Chicago law firm that specializes in mortgage foreclosures informed Judge Jacobius that in certain instances it had filed affidavits that varied from what the affiant actually signed. According to GAO 2011-01, employees of the law firm would remove the signature page from the affidavit as executed by the affiant. They would then make changes to the document—by adding attorneys’ fees, insurance costs and preservation costs, among other things—and reaffix the original signature page to the altered affidavit. Upon receiving this information, Judge Jacobius felt he had to take steps to protect the integrity of the court, the Illinois Mortgage Foreclosure Law, the Illinois Code of Civil Procedure and the Illinois Supreme Court Rules. Because there were approximately 1,700 cases with questionable affidavits, he ordered specific procedures designed to ensure that the affidavits were true and correct when signed.
First, the court mandated a stay of all the cases in which the offending law firm was involved. After that, the court required the firm to file the following motions, at a minimum, in each of the cases:
- A motion to vacate judgment of foreclosure and sale;
- A motion for leave to file an amended affidavit;
- A motion to vacate judicial sale (if the sale had occurred);
- A motion to lift the stay, which at a minimum must verify that the most recent affidavit filed with the court was true and correct and based on the personal knowledge of the affiant;
- A motion to vacate confirmation of sale, if applicable.
Needless to say, the procedures mandated by GAO 2011-01 were time consuming and created a significant hardship for the law firm and its clients. GAO 2011-01 also sent a clear message to other law firms in Cook County: in addition to damaging a law firm’s reputation with its peers and the court, failure to properly prepare and execute affidavits can negatively affect an affiant’s credibility and give the court a basis to void or vacate a judgment. While it may seem like a needless and ministerial task, a client/affiant and its law firm should always review and re-sign an affidavit that has been modified since it was originally executed.
Personal Jurisdiction Lacking Despite Twenty Internet Users from Forum State Signing Up for Defendant’s Website
Considering whether a New Jersey website operator was subject to personal jurisdiction in Illinois, the U.S. Court of Appeals for the Seventh Circuit held that for personal jurisdiction to arise, a defendant must in some way target the forum state’s market in addition to operating an interactive website that is accessible from the forum state. be2 LLC v. Ivanov, Case No.10-2980 (7th Cir., Apr. 27, 2011) (Hamilton, J.)
The plaintiffs operated an international internet dating website at the domain name be2.com. The plaintiff’s U.S. affiliate was located in Delaware. Defendant Nikolay Ivanov, an individual alleged to be the co-founder of a competing internet dating website, was located in New Jersey. The plaintiffs brought a federal trademark infringement action against Ivanov in Illinois, based upon his operating of an internet dating website at the domain name be2.net. The district court entered default judgment against Ivanov after the defendant failed to answer the complaint and attend a scheduled status hearing. Ivanov appeared for the first time through counsel after the entry of default judgment against him, filing a motion to vacate the judgment as void for want of personal jurisdiction. Ivanov argued that he was not subject to personal jurisdiction in Illinois because, among other things, he was not the co-founder or CEO of the competing internet dating company and he had never set foot in Illinois. Ivanov’s sworn declaration, however, contained several unbelievable representations. For example, the defendant claimed that the website reference to him as “CEO” actually meant to communicate that he was the website’s “Centralized Expert Operator,” who merely translated content on the website from Bulgarian to English. The district court denied Ivanov’s motion, and he appealed.
Although the Seventh Circuit recognized that Ivanov’s declaration contained “preposterous” claims, the court nonetheless reversed the district court and remanded the case with instructions to vacate the judgment and dismiss the plaintiffs’ complaint for lack of personal jurisdiction. The court performed a “minimum contacts” analysis to determine whether personal jurisdiction was proper. Toward the “purposeful availment” factor, the court considered whether Ivanov had “purposely exploited the Illinois market” to determine if his contacts with the state were sufficient to confer personal jurisdiction. The plaintiffs had submitted evidence showing that 20 persons who listed Illinois addresses had at some point created free dating profiles on Ivanov’s website. Even assuming that those 20 individuals were active users of Ivanov’s website and were actually located in Illinois, the court determined that such contacts, without more, were attenuated contacts that did not subject the defendant to personal jurisdiction in Illinois. In so holding, the court noted that there was no evidence of any interactions between Ivanov and the 20 individuals. Further, the court reasoned that the evidence submitted showed that the 20 individuals may have created their dating profiles unilaterally by simply stumbling upon Ivanov’s website and clicking a button that automatically published their dating preferences online. Without additional evidence showing that the defendant targeted or exploited the Illinois market, the court could not find that Ivanov availed himself of the privilege of doing business in the state.
Seventh Circuit: Policyholder Is Entitled to Independent Counsel at Insurer’s Expense Where Excess Judgment Is Likely
Illinois courts have long held that a policyholder is entitled to retain independent counsel at the insurance company’s expense whenever there is a conflict between the interests of the insurance company and those of the policyholder. Such a conflict typically arises where the insurer reserves its right to deny coverage and insurer-retained defense counsel would have an opportunity to shift facts in a way that takes the underlying litigation outside the scope of policy coverage. American Family Mut. Ins. Co. v. W.H. McNaughton Builders, Inc., 363 Ill. App. 3d 505, 843 N.E. 2d 492 (2006). For example, where the underlying complaint alleges both negligent conduct (covered) and intentional conduct (not covered), insurer-retained defense counsel could provide a strong defense to the negligent-act allegations and a less vigorous defense to the intentional-act allegations, potentially resulting in the suit’s not being covered.
For the first time, an appellate court, applying Illinois law, has held that a conflict of interest also arises between the insurer and the policyholder when it becomes clear to the insurer that a judgment against the policyholder in excess of policy limits is a “nontrivial probability.” In R.C. Wegman Construction Co. v. Admiral Insurance Co., 629 F. 3d 724 (7th Cir. 2011), a worker at a construction site managed by the policyholder was seriously injured in a fall and sued the policyholder. The policyholder tendered its defense to its liability insurer under a policy that had a $1 million limit. The insurer accepted the defense and retained counsel to defend the policyholder. The worker’s suit proceeded to trial, and a judgment in excess of $2 million was entered against the policyholder.
The policyholder sued its insurer, alleging that the insurer was liable for the entire judgment due to its failure to inform the policyholder of the likelihood of an excess judgment. The policyholder alleged that, had it known of the likelihood of an excess judgment, it would have retained independent counsel to defend it in the underlying suit, notified its excess insurer and possibly settled the suit prior to trial. The policyholder alleged that its excess insurer denied coverage based on late notice, leaving the policyholder liable for the excess judgment.
The court found that the likelihood of an excess judgment gave rise to a conflict of interest because, due to the policy-limit cap on the insurer’s liability, it had less incentive to settle than the policyholder. As such, the court held that the insurer had an obligation to notify the policyholder of the probability of an excess judgment, disclose the resulting conflict of interest and afford the policyholder the option “of hiring a new lawyer, one whose loyalty will be exclusively to him.” By failing to do so, the insurer breached its fiduciary duty to the policyholder.
The Wegman decision is significant for policyholders in that it provides a strong basis for asserting a right to retain independent counsel at the insurer’s expense where an excess judgment is a real possibility. The Wegman decision is also significant for insurers because it dictates that insurers must notify a policyholder where an excess judgment is a possibility and afford the option of hiring independent counsel at the insurer’s expense. Where the insurer fails to do so, it may find itself liable for an excess judgment against the policyholder.
US District Court Upholds OSHA Subpoena in Grain Engulfment Case
CHICAGO — A U.S. district court has upheld a subpoena issued by the U.S. Department of Labor‘s Occupational Safety and Health Administration requesting documents from Grinnell Mutual Reinsurance Co. concerning inspections and reports the company prepared for Haasbach LLC. Two teenage workers were killed in a grain engulfment at Haasbach’s Mount Carroll, Ill., site in July 2010.
Grinnell contended that the subpoena would discourage businesses from allowing insurers to conduct safety inspections if the material contained in the inspection reports can be used against a business during later litigation or OSHA enforcement proceedings. The court ordered that the records be given to OSHA.
OSHA Assistant Secretary Dr. David Michaels praised the decision.
“The court affirmed OSHA’s authority to obtain relevant information from an employer’s workers’ compensation insurance company. This is not surprising legally, but it does illustrate that workers’ compensation and OSHA are not separate worlds divorced from each other,” he said. “Workers’ compensation loss control activities overlap with OSHA’s efforts to bring about safe and healthful workplaces, and in order to achieve a safe and healthful working environment for all Americans, all efforts of business, insurance, labor and government must move forward together.”
The court ruled that OSHA has jurisdiction to investigate the workplace fatalities, and further has the authority to require the production of relevant evidence and the ability to issue a subpoena to obtain that evidence. The requested documents, which included copies of site safety inspections, applications for insurance coverage for the site, and correspondence between Grinnell and Haasbach concerning the site, were found to “reasonably relate to the investigation of the incident and the question of OSHA jurisdiction,” according to the decision.
Haasbach was issued 25 citations by OSHA with a penalty of $555,000 following an investigation into the deaths of the two teenage workers at the company’s grain elevator in Mount Carroll. A 20-year-old man also was seriously injured in the July 2010 incident when all three became entrapped in corn more than 30 feet deep. At the time of the incident, the workers were “walking down the corn” to make it flow while machinery used for evacuating the grain was running.
OSHA’s Region V, which includes Illinois, Ohio and Wisconsin, initiated a Grain Safety Local Emphasis Program in August 2010, and has since conducted 61 inspections and cited grain operators/facilities for 163 violations. The violations cover hazards associated with grain engulfment, machine guarding, electricity, falls, employee training, combustible dust and lockout/tagout of energy sources on potentially dangerous equipment.
Under the Occupational Safety and Health Act of 1970, employers are responsible for providing safe and healthful workplaces for their employees. OSHA’s role is to ensure these conditions for America’s working men and women by setting and enforcing standards, and providing training, education and assistance.
Breach of Fiduciary Duty in the Context of Insolvency: Can Individual Creditors Seek Recovery?
In the context of today’s distressed financial markets, we have witnessed desperate people doing desperate things. Financial fraud (i.e., fraud committed against financial institutions) has risen dramatically. Owners and officers of companies are getting more than just a little creative with accounting functions, inventory controls and receivable reporting, to name just a few hot spots. As a result, they are more and more frequently becoming the target of suits by lenders and other creditors. These suits seek to hold the officers of the insolvent company responsible for fraud, and in some cases breach of fiduciary duties to creditors (primarily, in an effort to reach D&O policies).
Are these actions against officers and directors a source of potential recovery by an individual creditor? Though the Supreme Court of Illinois has yet to rule on this issue, a recent bankruptcy case holds that individual creditors lack standing to bring this type of action.
The Question of Insolvency
In the day-to-day operations of a going concern, officers and directors owe a fiduciary duty to their shareholders. But what happens when the company enters the “zone of insolvency”? The officers and directors then also owe a fiduciary duty to the company’s creditors. Companies often ask, “How do we know when are we in the zone of insolvency?” The answer is simple: if you are asking the question, you are likely in the zone. Of course, there are established legal assessments—such as the “balance sheet test,” the “cash flow test” and the “unreasonably small capital test.” But, in practice, if the board of directors is pondering the question of its own insolvency, then it’s a safe bet that the company is already there.
If an officer or director breaches his fiduciary duties in any number of ways, who may bring the action against that individual? May a creditor, on its own, successfully sue an officer or director for breaching his fiduciary duties? Judge Carol A. Doyle, former Chief Judge of the Northern District of Illinois Bankruptcy Court, predicted how the Illinois Supreme Court would handle this question in the context of insolvency.
In this recently published case (In Re John H. Netzel, et al., January 20, 2011), the court discussed the important distinction raised by the 7th Circuit Court of Appeals between claims based on liability owed to the general creditor body (which only a trustee in bankruptcy can assert) and claims that are more specific to an individual creditor (which only the creditor can assert). As a general rule, fiduciary duty is owed to shareholders, not creditors. That means a creditor may not sue an officer or director for a breach of fiduciary duty. The advent of insolvency, however, creates the exception to the general rule. Upon finding that the exception exists, the fiduciary owes a duty not only to the shareholders, but also to the general creditor body.
The state of the law in Illinois is that the winding up of an insolvent company’s affairs requires the officers and directors to marshal the assets and hold them in trust for the entire creditor body, pro rata. In this context, Judge Doyle made a small step of well-reasoned logic by holding that the Illinois Supreme Court would likely not permit an individual creditor to sue on its own behalf in order to obtain more than its pro ratashare of the insolvent company’s remaining assets. Therefore, according to this recent case, individual creditors lack standing to bring an individual action for breach of fiduciary duty by an officer or director of an insolvent company.
It appears that the exception to this standard would be a harm that was personal to the creditor—not injurious to the creditor body as a whole. However, it is difficult to imagine a scenario where a breach of fiduciary duty or a fraud committed by an officer or director would not also be injurious on some level to the entire creditor body.
A Primer on the Validity and Effect of Waiver of Subrogation Clauses
Waiver of Subrogation Clauses: An Overview
Pursuant to typical “waiver of subrogation” clauses, the parties to a contract will agree to waive any rights of recovery against each other if the damage is covered by insurance. Thus, the risk of loss gets shifted to the insurer.
Courts almost always hold that waiver of subrogation clauses are valid because they advance several important social goals, such as encouraging parties to anticipate risks and procure insurance covering those risks, thereby avoiding future litigation. Waiver of subrogation clauses have been validated even in the face of anti-indemnity, anti-exculpatory and anti-subrogation statutes. See Best Friends Pet Care, Inc. v. Design Learned, Inc., 77 Conn. App. 167, 823 A.2d 329 (2003); May Dept. Store v. Center Developers, Inc., 266 Ga. 806, 471 S.E.2d 194 (1996); 747 Third Ave. Corp. v. Killarney, 225 A.D.2d 375, 639 N.Y.S.2d 32 (1st Dep’t 1996). These courts held that waiver of subrogation clauses are not intended to relieve a party of liability for its own negligence, but are instead risk allocation clauses. Thus, the clauses did not violate the relevant statutes.
Illinois Law on Waiver of Subrogation Clauses
There is relatively little case law in Illinois regarding waivers of subrogation clauses. Although the case is over twelve years old, Intergovernmental Risk Management v. O’Donnell, Wicklund, Pigozzi & Peterson Architects, 295 Ill.App. 3d, 692 N.E.2d 739 (1st Dist. 1998) (“IRM”) remains the premier case in Illinois with regard to waiver of subrogation issues. In that case, the Village of Bartlett (“the Village”) was in the process of expanding its village hall (“the project”). Part of the project entailed constructing a new police station adjacent to the updated village hall. The Village contracted with Defendant O’Donnell, Wicklund, Pigozzi & Peterson Architects (“O’Donnell”) to provide architectural drawings and specification for the project. Pursuant to the contract, the Village purchased insurance from Travelers Insurance Co. through the IRM program. On January 28, 1994, a fire occurred at the newly constructed police station, which caused over $114,000 worth of damage. IRM and Travelers paid the Village that amount pursuant to their policies. IRM and Travelers then filed a subrogation action against O’Donnell, claiming that O’Donnell’s negligence caused the fire and sought reimbursement of the monies paid to the Village pursuant to the insurance policies.
In its motion to dismiss, O’Donnell argued that the plaintiffs’ claims were barred because the Village had waived its subrogation rights in the contracts for the project. The Owner-Architect Agreement between the Village and O’Donnell contained the following waiver of subrogation clause:
“The Owner and Architect waive all rights against each other and against the contractors, consultants, agents and employees of the other for damages, but only to the extent covered by property insurance during construction.”
The plaintiffs argued, inter alia, that the waiver of subrogation provisions could not apply to damage caused by the negligent and wrongful acts of the defendant. The plaintiffs contended that the waiver of subrogation clauses violated public policy by encouraging negligence. However, the court disagreed. It stated that “the purpose of waiver of subrogation provisions is to allow the parties to a construction contract to exculpate each other from personal liability in the event of property loss or damage to the work to the extent each party is covered by insurance.” IRM. at 792. The court noted that waiver of subrogation clause “shifts the risk of loss to the insurance company regardless of which party is at fault.” Thus, it did not matter whether the fire loss was caused by O’Donnell’s negligence so long as the loss was a covered loss that occurred during construction. Id. at 793.
The plaintiffs also argued that the waiver provisions violated of public policy in that they act as indemnity agreements holding the defendant harmless from its own negligence. The court rejected that argument as well. It noted that the waiver provisions do not involve injury suffered by a construction worker or a member of the general public but instead, damage suffered by one of the contracting parties due to the alleged negligence of another. Id. Thus, waiver of subrogation clauses do not violate the public policy considerations which outlaw indemnity agreements. Instead, they merely limit the parties’ recovery to loss sustained to the parties to the agreement and only to the extent that it was covered by insurance. Id. at 794.
The IRM court held that the waiver of subrogation clause was perfectly valid and that it applied to the insurers’ claims. Thus, the plaintiffs’ claims were barred and they could not recover the amounts that they paid to the Village. As mentioned above, IRM is still the preeminent case in Illinois with regard to the validity and effect of waivers of subrogation clauses. Insurers need to be mindful of the effect that such clauses may have on their rights.
Conclusion
Although courts nationwide consider waiver of subrogation clauses to be valid, there are circumstances under which these clauses will not be enforced. For example, in order to establish a waiver of subrogation, it is necessary to show by clear evidence an intentional relinquishment of the right. Thus, if the waiver of subrogation clause is ambiguous or confusing, if the clause conflicts with other contract provisions, or if the intention of the parties is not clear, then courts will not enforce it. See Sutton Hill Associates v. Landes, 775 F. Supp. 682 (S.D. N.Y. 1991); U.S. Fidelity and Guar. Co. v. Friedman, 540 So. 2d 160 (Fla. Dist. Ct. App. 4th Dist. 1989); Charter Oak Fire Ins. Co. v. National Wholesale Liquidators of Lodi, Inc., 2002 WL 519738 (S.D. N.Y. 2002) (applying New Jersey law).
Additionally, courts will not enforce waiver of subrogation clauses where the underlying insurance did not cover the loss at issue. See Gap, Inc. v. Red Apple Companies, Inc., 282 A.D.2d 119, 725 N.Y.S.2d 312 (1st Dep’t 2001);Chelm Management Co. v. Wieland-Davco Corp., 23 Fed. Appx. 430 (6th Cir. 2001) (applying Ohio law). This is of particular importance, as an insurer can craft a condition to coverage that protects its own subrogation rights. As indicated, it is common for insureds to include waiver of subrogation clauses in their contracts with other companies during the course of their business. Waivers under those circumstances will generally take place pre-loss. While these pre-loss waivers may be acceptable, it is important for insurers to make sure the insured does not do anything after a loss which would prejudice the insurer’s right to subrogation. A common condition to coverage that protects an insurer’s subrogation rights will read as follows:
“If the insured has rights to recover all or part of any payment we have made under this policy, those rights are transferred to us. The insured must do everything necessary to secure our rights and must do nothing after the loss to impair them.”
A condition like the one above added into the insurance contract will protect an insurer’s right to subrogation in the event that the insured, after a loss occurs, attempts to enter into an exculpatory agreement that includes a waiver of subrogation clause. While there is little an insurer can do about a pre-loss waiver of subrogation clause (aside from the defenses to enforcement discussed above), a provision similar to the one above will at least protect the insurer from post-loss waivers.
Seventh Circuit Expands on Illinois Law Regarding Insurer’s Duty to Provide Independent Counsel Due to Conflict of Interest
When insurers defend their insureds in liability actions, they have long had to be careful to protect the interests of the insured while still protecting their own interests. Illinois courts have addressed two scenarios where the conflicting interests of the insured and the insurer are particularly difficult to reconcile:
(1) where the insurer’s coverage defenses create an incentive for the insurer to defend the case in a way that would maximize the insurer’s potential to prevail on its coverage defenses, even though that might create more exposure to the insured; and
(2) where the verdict potential of the case substantially exceeds the insurer’s policy limit, so that the insurer might be inclined to try the case rather than settle it within its limit in the hope that it will obtain a defense verdict and therefore pay nothing rather than paying all or most of its limit to settle the claim.
Illinois courts have adopted two different approaches to reconciling these potential conflicts. For the first situation, Illinois courts have ruled that when the insurer’s coverage defenses create a conflict of interest with the insured, the insurer must give the insured the right to retain counsel of its own choosing, to be paid for by the insurer. E.g., Maryland Cas. Co. v. Peppers, 64 Ill.2d 187, 193, 355 N.E.2d 24, 28 (1976);Illinois Masonic Medical Center v. Turegum Ins. Co., 168 Ill.App.3d 158, 163, 522 N.E.2d 611, 613 (1st Dist. 1988). In the case where the verdict potential exceeds the policy limits, insurers generally maintain control over the defense of the case, but if the insurer acts in bad faith by unreasonably failing to settle the claim within its limit, the insurer will be liable for the full amount of the verdict or judgment entered against the insured, even though it exceeds the policy limits. E.g., Haddick v. Valor Insurance, 198 Ill.2d 409, 763 N.E.2d 299 (2001); O’Neill v. Gallant Ins. Co., 329 Ill. App. 3d 1166, 769 N.E.2d 100 (5th Dist. 2002).
Despite the clear demarcation between these two lines of cases, the Seventh Circuit Court of Appeals recently ruled that under Illinois law, an insured is entitled to independent counsel whenever there is a substantial likelihood that the verdict in the case will exceed the insurer’s policy limit. R.G. Wegman Constr. Co. v. Admiral Ins. Co., 2011 U.S. App. LEXIS 679 (7th Cir. Jan. 14, 2011). In Wegman, Admiral issued a policy to Wegman with limits of $1 million. A worker at one of Wegman’s construction sites was injured on the job, and sued Wegman. Admiral defended the case through trial and a judgment was entered against Wegman for $2 million, $1 million in excess of Admiral’s limits. The court acknowledged that when the case was first assigned to defense counsel, neither Admiral nor Wegman had any reason to believe the case would exceed the policy limit. However, according to the court, when the plaintiff was deposed and revealed the extent of his injuries, Admiral learned that a judgment or settlement could well exceed its $1 million limit. The court stated that this “likelihood created a conflict of interest by throwing the interests of Admiral and Wegman out of alignment.” The court went on to state that when such a conflict of interest exists, the insurer’s duty of good faith requires that it notify the insured. The court acknowledged that this usually occurs when the insurer denies coverage, but considered the principle to be the same when the conflict arises from the relationship between the policy limit and the insured’s potential liability.
The court carried this further by concluding that once notified of the conflict, the insured has the option to hire a new lawyer, whose loyalty will be exclusively to the insured, to be paid for by the insurer. According to the court, the new lawyer “would have tried to negotiate a settlement with [the plaintiff] that would not exceed the policy limit; and if the settlement was reasonable given the risk of an excess judgment, Admiral would be obligated to pay.”
Much of the court’s opinion seems to have been supported by the fact that the insurer not only failed to notify the insured of a conflict of interest, it failed to notify the insured that the judgment was likely to exceed the policy limits. As a result, the insured did not notify its excess carrier, so the excess verdict was not covered by excess coverage. Nevertheless, the import of the court’s decision cannot be overemphasized. If followed by Illinois state courts, it creates a right of independent counsel whenever there is a substantial likelihood of an excess verdict. Moreover, the court’s ruling that the independent counsel can negotiate a settlement, apparently without the insurer’s consent, which the insurer will have to pay if reasonable, takes control of the insurer’s funds and right to settle away from the insurer and gives it to the insured, in violation of the terms of the policy which give the power to settle to the insurer.
The decision in Wegman raises the question of why the court considered it necessary to mix up the concept of conflict of interest created by coverage defenses with the problems created by the potential for an excess verdict. Illinois insureds have long had a remedy for an insurer which gambles with the insured’s money in the face of a potential excess verdict: an action against the insurer for bad faith failure to settle. This protection has adequately protected the insured’s rights by ensuring that the insurer will consider the insured’s interests in avoiding an excess verdict at least equal with its own rights. However, the conflict of interest standard does not fit this situation. In a case presenting excess exposure, both the insured and the insurer have an interest in a strong defense that will result in a verdict of non-liability or a low settlement. There is no need for independent counsel. Nor is there any need to take away the insurer’s control of settlement, when the insurer’s obligations to the insured mandate that it consider the insured’s interests at least equally with its own when faced with a potential excess verdict.
No previous Illinois state court case has gone as far as the court did in Wegman. However, as long as Wegman stands without being challenged by an Illinois appellate court, insurers must be aware of the risk they face if they fail to appoint independent counsel when there is a substantial risk of an excess judgment. At the same time, insureds concerned about excess judgments should seek to have the insurer appoint an independent counsel to represent them and potentially settle the claim. Insureds must be cautious though, since a decision to settle without the agreement of the insurer could backfire if future courts do not follow Wegman.
Governmental Immunity May Be the End to a Plaintiff’s Medical Malpractice Case
Those filing medical malpractice actions in Illinois may not know that public hospitals and medical professionals are afforded immunity from tort liability in many circumstances. The Local Governmental and Governmental Employees Tort Immunity Act (hereinafter “the Act”) was enacted in Illinois as a means to protect local governmental agencies and public employees from liability for negligence committed during the exercise of their duties. See 745 ILCS 10/1-101 et seq. Article VI of the Illinois Tort Immunity Act specifically addresses certain immunities which apply to medical, hospital and public health activities. However, it is important to note that there are instances where the Illinois courts have made distinctions as to when this immunity will apply.
Section 6-105 of the Act provides immunity for “injury caused by the failure to make a physical or mental examination, or to make an adequate physical or mental examination of any person for the purpose of determining whether such person has a disease or physical or mental condition that would constitute a hazard to the health or safety of himself or others.” 745 ILCS 10/6-105. Of note, this immunity also applies to willful and wanton conduct. In the case of Grandalski v. Lyons Township High School Dist. 204, the court held that a school district was immune for alleged negligence of a teacher and school nurse in providing medical care for a student. 711 N.E.2d 372 (1st Dist. 1999). However, an Illinois court held that immunity did not apply to a school counselor’s failure to inform the mother of a student of that student’s suicide intentions. See Grant v. Board of Trustees of Valley View School District, 286 N.E.2d 705 (3rd Dist. 1997), appeal denied 684 N.E.2d 1335. Interestingly, the immunity would have applied had the plaintiff alleged failure to examine or diagnose the student.
Section 6-106(a) of the Act provides immunity for injury caused by diagnosing or failing to diagnose a person afflicted with mental or physical illness or addiction. In the matter of McQueen v. Shelby, 730 F.Supp. 1449 (C.D. Ill.1990), the court held that if a mental health organization was considered to be a public entity under the Act, the organization and its employees would be shielded from liability under the immunity afforded for failing to diagnose a jail inmate’s mental problems which led to the suicide of the inmate. However, Section 6-106(c) provides that public employees who have undertaken to prescribe treatment for mental, physical or addiction are liable for an injury proximately caused by the employee’s negligence or wrongful acts. 745 ILCS 10/6-106(c). Thus, the immunity from medical malpractice liability applies to public hospitals and employees if they fail to diagnose a condition present or fail to treat a patient. However, once there is an undertaking to prescribe for a mental or physical illness, the immunity does not apply to negligent acts or omissions.
In the case of Hemminger v. Nehring, 2010 WL 1509345, No. 3-08-0751 (Ill. App. 3d Dist. Apr. 8, 2010), an Illinois medical malpractice claim involving a failure to diagnose cancer was barred by the Illinois Appellate Court under the Act. Defendants in that matter were CGH Medical Center Auxiliary, d/b/a CGH Medical Center, a municipal entity, and a doctor and cytotechnician, employees of CGH. The plaintiff’s complaint alleged that the defendant’s employee was negligent when she failed to correctly interpret the decedent’s Pap smear, which showed that the decedent had cervical cancer. Plaintiff further argued that Pap smears are screening devices, and are not intended to diagnose cancer. See Hemminger, 2010 WL 1509345 at *2. The defendants filed motions for summary judgment and argued that they were immune from any liability or negligence under the Tort Immunity Act. Plaintiff argued that immunity did not apply, as the complaint did not allege failure to make an adequate examination or failure to diagnose the cancer. The trial court granted the defendants’ motions and plaintiff then appealed to the Illinois Appellate Court. The Illinois Appellate Court upheld the trial court’s decision and ruled that the defendants were acting in the scope of their employment when reviewing plaintiff’s Pap smear and could not be held liable for any failure to diagnose the decedent’s cancer. The court found that the defendants performed a Pap smear to help diagnose the patient’s condition, clearly part of the diagnostic process and specifically the conduct that sections 6-105 and 6-106 of the Tort Immunity Act immunize. See Hemminger, 2010 WL 1509345 at *6.
Clearly, the immunities afforded to certain hospitals and medical professionals in Illinois are a useful defense in many actions arising out of alleged medical malpractice. In cases of medical malpractice where plaintiff’s theory of liability is often based upon a doctor’s failure to correctly diagnose the medical condition of the patient and thus failure to provide appropriate medical care to treat the patient, if the action involved a public hospital, clinic or doctor, the Illinois courts may well determine that no such cause of action exists.
Survey of Wrongful Death Verdicts for the Very Young and Very Old
Cook County verdict values for wrongful death cases involving the very young and very old show that there is still large exposure for the right case despite the decedent’s age. Age has typically been a mitigating factor keeping down verdicts and settlements for cases involving the very young and elderly. However, after undertaking a review of all verdict results for Cook County in the last five years, the data reveals some very large verdicts despite the age.
It is difficult to make sweeping conclusions from verdict reports alone especially in Cook County because there is such a wide variation from case to case, and of course, each case is dependent upon its own facts and the quality of the defense. Additionally, it is important to note that the defense is still meritorious about two thirds more often than plaintiff at trial. Even in Cook County it is still an up hill battle for any plaintiff. There are also many, many reported settlements much lower than the values listed on the tables below. However, of the cases that actually went to verdict in the last five years, it is clear there is still significant exposure in the cases that end up as a plaintiff verdict. Below is a summary of the data for all wrongful death claims in a medical negligence case from 2005 to January, 2011, for children ages 0-9 and adults over the age of 80.
Wrongful Death Ages 0-9
| Year | Age | Type of Case | Verdict |
| 2010 | 7 Days | Failure to admit child from ER despite heart desaturations | $4,000,000 |
| 2010 | 2 | Failure to monitor during CT scan | $3,662,221 |
| 2009 | 9 | Failure to diagnose necrotizing blastomycosis | $4,016,929 |
| 2009 | Neonate, 14 days |
Failure to diagnose HELLP syndrome in mother (severe pre-eclapsia) | $6,171,119 |
| 2008 | 7 | Inappropriate conscious sedation | $3,000,000 |
| 2008 | 4 | Failure to diagnose meningitis | $7,000,000 (High/Low by doctor $985K – $1.8) |
| 2007 | 0, Stillbirth | Failure to admit and perform c-section secondary to placental abruption | $1,651,166 |
| 2007 | 0, Stillbirth | Failure to diagnose placental abruption | $1,800,000 |
| 2006 | 2 | Failure to advise mother of proper medication instructions | $75,000 |
Of forty-two verdicts reviewed that matched our search criteria of wrongful death between 2005 and 2011 of a child under 9, thirty-three had a not guilty verdict.
Wrongful Death Ages 80+
| Year | Age | Type of Case | Verdict |
| 2008 | 89 | Failure to administer proper hypothyroidism medication | $1,750,000 |
| 2007 | 84 | Failure to monitor while eating/choked | $500,000 |
| 2007 | 91 | Fall at nursing home/head trauma | $454,762 |
| 2007 | 88 | Negligence related to off label use of medication |
$75,000 (after 50% off $150,000 due to contributory negligence) |
Of thirteen verdicts reviewed that matched our search criteria of wrongful death between 2005-2011 of an elderly adult age 80 or older, nine were a not guilty verdict.
After review of these end of the spectrum wrongful death verdicts, it is encouraging to the defense that the majority of these verdicts were not guilty verdicts. Also, many more were settled in a range well under $1 million dollars. However, to dismiss a case as insignificant in value based upon the age of the decedent would be a mistake. As shown above, hospitals and other health care providers still face significant damage exposure, despite the age of the decedent, in certain scenarios. To best position our clients litigating these geriatric and pediatric cases, we make every effort to aggressively work up the cases from all angles and mount a reasoned defense supported by well qualified experts early in the litigation process. We find this aggressive litigation strategy best positions us to be able to resolve the case in a reasonable range and to obtain a not guilty verdict should the case be tried.
The Illinois Securities Law: The Remedy Is Rescission
When most people think securities regulation, they think federal jurisdiction. After all, the early 2000s saw several corporations thrust into the national spotlight as they dealt with securities improprieties and related investigations by the Securities and Exchange Commission. However, as a disgruntled holder of a security in Illinois, you may be able to find relief closer to home under a state act known as the Illinois Securities Law of 1953.
The purpose of this so-called blue sky law (a state regulation designed to protect investors against fraudulent sales practices and activities) is to ”protect innocent persons who might be induced to invest their money in speculative enterprises over which they have little control.”
How Does the Act Protect Purchasers?
Among other actions, the Illinois Securities Law makes it a violation for any person to offer to sell any security except in accordance with the act, to sell securities when not registered, to make any false or misleading material statements in any reports filed under the act, to obtain money or property through the sale of securities by means of an untrue statement, and to circulate a prospectus while knowing that a material representation contained in the prospectus is untrue. In addition, Illinois’ blue sky law protects sellers of securities by making it a violation to ”engage in any transaction, practice or course of business in connection with the sale or purchase of securities which tends to work a fraud or deceit upon the purchaser or seller thereof”or to ”employ any device, scheme or artifice to defraud in connection with a sale or purchase of any security, directly or indirectly.”
How Can a Disgruntled Purchaser Obtain Relief under the Act?
Under the Illinois Securities Law, the only private remedy for a violation of the act by a disgruntled purchaser is rescission. In essence, the seller must take back the security and refund the purchaser what was originally paid for it. Therefore, a disgruntled purchaser may void the sale, at his or her election. First, however, the purchaser must provide notice of the election to void the sale within six months after he or she has knowledge that the sale is voidable (i.e., that the seller violated the Illinois Securities Law). The purchaser must give notice to each individual against whom recovery is sought, by registered or certified mail, addressed to the person to be notified at his or her last known address.
Each individual involved in the sale will be jointly and severally liable to the purchaser for the full amount paid for the security, with interest, minus any income or other amounts received by the purchaser on the security. If the purchaser no longer owns the security, he or she will be paid the difference between the cost of the security at the time of the original purchase minus the amount received when he or she subsequently sold the security.
Can the Act Also Help a Disgruntled Seller?
Under Section 13(G) of Illinois’ blue sky law, ”a seller can conceivably seek a remedy. That section allows “any party in interest” to bring an action for prospective relief against any person who “has engaged or is about to engage in any act or practice constituting a violation” of the act. Therefore, if you are a disgruntled seller, and you are aware that a party has violated or is going to violate the Illinois Securities Law, you can ask the court to enjoin that party from violating the act in the future. However, the act does not provide disgruntled sellers with relief for harm that has already been done, only for prospective relief.Victory in New Mexico Voter Registration Case
Calculating Interest on Commercial Loans: Recent Legislation Expressly Permits Illinois Lenders to Use the “365/360″ Method
Lenders throughout Illinois can breathe a sigh of relief now that Governor Pat Quinn has signed Public Act 96-1421, which amends the Illinois Interest Act to expressly permit use of the “365/360″ method of calculating interest on commercial loans.
Leading up to this development, a flurry of class action lawsuits against financial institutions have called into question the legality of the well-established interest computation method, which has been routinely used by commercial lenders “since time immemorial,” according to one Cook County Circuit Court judge. Plaintiffs throughout the state have asserted that commercial promissory notes violate Illinois usury law when they specify that interest will be calculated according to a 360-day year and the actual number of days elapsed (i.e., 365). This claim is rooted in the Illinois Interest Act, which stipulates that interest must be calculated based on a year comprised of 12 calendar months (i.e., 365 days) whenever a promissory note specifies a “per annum” or “per year” interest rate—as virtually all commercial promissory notes do. Plaintiffs have also claimed that using the “365/360″ method constitutes common law fraud and violates the Illinois Consumer Fraud Act. Making matters worse for lenders, defendants in mortgage foreclosure cases—lacking any other way to extricate themselves from failing business deals and save their properties—have raised the illegality of the interest calculation method as an affirmative defense.
The economic underpinning of the borrowers’ claims is that use of the “365/360″ method results in a higher effective interest rate than the rate stated on the note. For example, if a promissory note establishes the interest rate at 5% per annum, with interest calculated according to a 360-day year and the actual number of days elapsed, then the effective interest rate will be 5.069444%, or 5% x (365/360). That means a borrower will pay an extra $694.44 a year in interest on a $1 million note. While trial court judges in Cook County have sided with the lenders in recent decisions, one downstate class action case resulted in a substantial settlement in favor of the plaintiffs.
Understandably, this rash of litigation put fear in the hearts of commercial lenders throughout Illinois and galvanized the industry to lobby for legislation. The result was Public Act 96-1421, which became law in August 2010 and amended the Illinois Interest Act to provide that “a rate of interest may be lawfully computed when applying the ratio of the annual interest rate over a year based on 360 days.” The act further states that the provisions of the amendment “are declarative of existing law.” Interestingly, however, the sponsor of the bill in the Illinois state senate remarked for the record that the “legislation will not dictate the outcome of any pending [litigation]. That will be up to the individual courts to apply the law.”
While it may be back to business as usual—at least with respect to calculating interest for commercial loans—lenders should take careful note that Public Act 96-1421 only applies to commercial loans and is silent with respect to consumer and residential mortgage loans. Lenders should also consider certain precautions to minimize the risk of future litigation. In addition to clearly setting forth in the loan documents that interest will be calculated on a “365/360″ basis, lenders should require borrowers to acknowledge that use of this method will result in an effective interest rate that is higher than the stated interest rate.
There’s Something Happening Here (What It Is Ain’t Exactly Clear)1: Is Illinois Non-Compete Law Changing?
For years, Illinois law regarding restrictive covenants, including both non-compete and non-solicitation agreements, has been relatively stable. Although the application of the law to particular facts was often difficult—and the results in court could vary wildly from one case to the next—the legal principles were well settled, well known and fairly easy to articulate. Most everybody knew that a court would enforce restrictive covenants only when they were reasonable in scope (i.e., time and geography) so as to protect a “legitimate business interest” of the employer.
In Illinois, only two types of legitimate business interests have been generally recognized: (1) near permanent relationships (a legal term of art) with customers/clients; and (2) trade secrets or other similar confidential information. Thus, if an employer did not have truly confidential information to protect or near permanent relationships with its customers, then it would not be able to enforce a restrictive covenant no matter how much that covenant was limited in scope.
In late 2009, however, along came Sunbelt Rentals, Inc. v. Ehlers. In Sunbelt, the Fourth District Appellate Court decided that, when determining the enforceability of restrictive covenants, courts should disregard the legitimate business interest test entirely and look only to the reasonableness of the provision’s scope. In so doing, however, the Appellate Court did not provide a particularly good explanation as to how a trial court would determine whether the time and geography involved were reasonable. Nevertheless, the Fourth District held that reasonableness was the only appropriate issue regarding enforceability, despite 30 previous years of law to the contrary.
Sunbelt caused much controversy, although most practitioners believed it would prove to be an anomaly, and no other Illinois Appellate Court has yet embraced Sunbelt‘s rationale. Having said that, two recent Second District cases have analyzed Sunbelt and prior decisions, and appear to be laying the groundwork for a real change in Illinois law. The November 2010 issue of the Litigation & Counseling Alert included a discussion of the first case, in which the Second District criticized the Sunbelt holding but acknowledged that its re-evaluation of the legitimate business interest test needed further examination.
That examination happened very recently in Reliable Fire Equipment Company v. Arredondo. Interestingly, this December 2010 case engendered separate and somewhat lengthy opinions from each member of the three-judge panel. While all three indicated that Sunbelt should not be followed in its entirety, the analysis by the dissenting judge came very close to doing just that. The other two judges, however, more clearly rejected Sunbelt, but at the same time they both essentially reinterpreted the legitimate business interest test.
According to the lead opinion, this test should not be applied mechanically. Rather, it is more flexible and could, in certain circumstances, encompass more than trade secrets and near permanent relationships. The concurring opinion agreed:
It would appear, however, that a careful reading of the three opinions in this case makes clear that this district is no longer committed to a strict application of the two restrictive prongs of the legitimate business interest test.
In other words, a court has the right to determine if there are other protectable interests involved in a particular case that could support a restrictive covenant. One such interest could be the goodwill between an employer and its customers/clients. Although it is certainly at the root of all near permanent relationships, goodwill was never viewed in the employment situation as protectable in and of itself. By opening the door to this consideration, Reliable Fire Equipment has at least made it potentially easier to enforce certain restrictive covenants.
While we still do not know where this is all going, the concurring opinion in Reliable Fire Equipment could be the beginning of a trend in Illinois that ultimately becomes the law. Under that reinterpreted test, a court would have to consider the existence of a protectable interest “in light of the totality of the circumstances,” recognizing that “there may be other interests that are comparable to the two [previously] identified in the legitimate business interest test.” Ultimately, the Illinois Supreme Court will have the final word.
In the meantime, businesses in Illinois should consider drafting language in their agreements that recognizes other potential interests as the bases for their restrictive covenants—in addition to the two well-recognized prongs. As Buffalo Springfield might say, what these other interests are “ain’t exactly clear” at the moment, but they should at least include goodwill.
