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Insurance Class Action Defense Cases-Record-A-Hit v. National Fire Insurance: Illinois Court Reverses Dismissal Of Third-Party Complaint Against Insurance Companies Seeking Defense Of Class Action Complaint Against Insured

Third-Party Complaint Against Insurers Seeking Declaratory Relief as to Duty to Defend and Indemnify Class Action Defendant Adequately Stated a Claim under State Law Illinois Court Holds

Plaintiff filed suit in Illinois state court against various insurance companies alleging they owed a duty to defend and indemnify their insured, Tri-State Hose and Fitting, against the class action plaintiff had filed against Tri-State. Record-A-Hit, Inc. v. National Fire Ins. Co. of Hartford, 880 N.E.2d 205, 2007 WL 3377263, *1 (Ill.App. 2007). The class action complaint against Tri-State, also filed in Illinois state court, alleged violations of the federal Telephone Consumer Protection Act (TCPA) and the state’s Consumer Fraud and Deceptive Practices Act, as well as conversion. Id. Defense attorneys moved to dismiss the lawsuit, arguing that plaintiff’s effort to secure defense of the class action “constitutes an impermissible direct action against liability insurance carriers” (a claim abandoned on appeal, see id., at *2), and that the complaint fails to adequately plead a claim for declaratory relief, id., at *1. The defense also argued that the lawsuit should be dismissed because there was “another action pending between the same parties for the same cause” and because plaintiff lacked standing to bring a third party action seeking defense of the class action on behalf of Tri-State. Id. The trial court granted the motion on the ground that it failed to state a claim, id. The Appellate Court reversed.

The gravamen of the underlying class action was that Tri-State sent junk faxes in violation of the TCPA, and the class action complaint alleged that Tri-State’s conduct caused “property damage.” Record-A-Hit, at *1. Plaintiff’s lawsuit against the insurers alleged that that had insured Tri-State against claims for property damage and advertising injury, but that they had wrongly refused to defend or indemnify Tri-State against plaintiff’s class action. Id. Tri-State had not filed suit against its insurers, and plaintiff was not a party to any other action seeking to establish Tri-State’s rights against its insurers with respect to the class action complaint. Id. The only issue before the court of appeal was whether the complaint against the insurers stated a claim for declaratory relief. Id. The Appellate Court held that under Illinois state law a claim for declaratory relief adequately had been pleaded.

The Court explained that a “tort-claimant in an underlying action has a substantial right in the viability of a policy of insurance that might be the source of funds available to satisfy the tort claim, and such a claimant possesses rights in the insurance contract which vest at the time of the occurrence giving rise to the underlying claim.” Record-A-Hit, at *2 (italics added) (citations omitted). Plaintiff thus had standing to establish the defense and indemnity obligations of Tri-State’s insurers with respect to its class action complaint. Further, plaintiff adequately alleged that Tri-State had tendered its defense of the class action to its insurers, but that coverage had been denied. Id. The Court rejected defense claims that the insurers’ action for declaratory relief against Tri-State precluded plaintiff’s third-party complaint seeking that same relief, see id., at *2-*5, holding at page *5 that “a tort-claimant need not allege that neither the insured-tortfeasor nor the insurance carrier has filed a declaratory judgment action to determine the scope of coverage afforded to the tortfeasor under a policy of insurance.” Accordingly, it reversed the trial court order dismissing the complaint.

Download PDF file of Record-A-Hit v. National Fire Insurance