The Illinois Supreme Court’s recent decision in Sanders v. Illinois Union Insurance Co., 2019 IL 124565 (2019), announced the standard for triggering general liability coverage for malicious prosecution claims under Illinois law. In its decision, the court construed what appears to be a policy ambiguity against the policyholder in spite of the longstanding rule of contra proferentem, limiting coverage to policies in place at the time of the wrongful prosecution, and not the policies in effect when the final element of the tort of malicious prosecution occurred (i.e. the exoneration of the plaintiff). The net result of the court’s ruling for policyholders susceptible to such claims is that coverage for jury verdicts for malicious prosecution – awarded in today’s dollars – is limited to the coverage procured at the time of the wrongful prosecution, which may (as in this case) be decades old. Such a scenario can have costly consequences for policyholders given that the limits procured decades ago are often inadequate due to the ever-increasing awards by juries as well as inflation. Moreover, it may be difficult to locate the legacy policies and the insurers that issued such policies may no longer be solvent or even exist. A copy of the decision can be found here.
The Sanders case arose out of the wrongful conviction of Rodell Sanders in 1994 by the City of Chicago Heights (the “City”). Mr. Sanders sought recompense for, among other things, malicious prosecution through a federal civil rights action against the City. In September 2016, Mr. Sanders obtained a consent judgment for $15 Million; however, at the time of the wrongful conviction, seventeen years earlier, the City’s only applicable insurance policy provided just $3 million in coverage. The City contributed another $2 million towards the judgment and, in exchange for Mr. Sanders’s agreement not to seek the $10 million balance from the City, assigned its rights under the policies for the 2012 to 2014 period.
The City’s primary insurer from 2012 to 2014 was Illinois Union Insurance Company (“Illinois Union”). Starr Indemnity & Liability Company was the follow form umbrella carrier. The Illinois Union policy provided coverage for Personal Injury arising from an Occurrence during the policy period. Personal Injury was defined to include “one or more of the following offenses … [f]alse arrest, false imprisonment, wrongful detention or malicious prosecution ….” (Emphasis added.)
In the coverage dispute, the court observed that the central issue concerned whether the “offense of malicious prosecution” occurred during the insurers’ policy period, which hinged on the interpretation of the undefined term “offense.” Sanders asserted that the offense took place upon the satisfaction of the final element of the tort claim for malicious prosecution – the exoneration of the plaintiff. The insurers argued that the focus should be on the requisite act and injury, which occurred at the time of the wrongful conviction, rather than the accrual of a completed cause of action.
The court noted that the parties each proffered competing dictionary definitions of the word “offense.” According to Black’s Law Dictionary (10th ed. 2014), offered by Sanders, an “offense” means a “violation of the law; a crime, often a minor one.” Comparatively, the insurers cited Merriam-Webster’s Online Dictionary, which provides that “the term is primarily used to mean something that outrages the moral or physical senses.” Based on these definitions alone, the term “offense” appears susceptible to two reasonable interpretations and, thus, is ambiguous, entitling the policyholder to the interpretation that favors coverage pursuant to the rule of contra proferentem.
Nonetheless, the court concluded “that the word offense in the insurance policy refers to the wrongful conduct underlying the malicious prosecution.” The court stated that its ruling was based on “the meaning of the word offense and the contractual requirement that the offense must both happen and take place during the policy period” and that a “malicious prosecution neither happens nor takes place upon exoneration.” The court further noted that the fact that the policy was an occurrence-based policy weighed heavily in its decision because such a policy “reflects the intent to insure only for the insured’s acts or omissions that happen during a policy period.” The court stated:
If we were to deem exoneration the trigger for coverage of a malicious prosecution insurance claim, liability could be shifted to a policy period in which none of the acts or omissions giving rise to the claim occurred. That would violate the intent of the parties to an occurrence-based policy.
The court added that “the language of the policy does not require that the elements of the tort be satisfied” and that it “cannot read into it the requirements of a tort claim for malicious prosecution.” The court did not discuss the fact that the policy language did not preclude such a reading or how the rule of contra proferentem applied in the context at issue.
The court’s ruling could be problematic for Illinois policyholders seeking “personal injury” coverage under standard form policy wording. With respect to claims like Sanders’s, the National Registry of Exonerations, which compiles statistics concerning exonerations from wrongful convictions, states that exonerations have grown tremendously since 1989, the first year of the database. Similarly, jury awards have also generally risen year over year. These conditions, combined with the tendency of policyholders of yesteryear to procure less coverage than policyholders of today and the uncertainties of even locating or obtaining coverage under legacy policies, creates a perfect storm that could leave the policyholder on the hook for a significant portion of an award for malicious prosecution. This is especially notable considering that, in light of the Sanders decision, plaintiffs will likely not accept a consent judgment and assignment of rights to pursue coverage from the insurers on the risk at the time of exoneration.