Tuesday, May 7, 2013

Discoverability of insurance information a significant, but limited, exception to the general rules about what is discoverable in Illinois

In a personal injury case, a defendant is required to disclose all available insurance and the limits of the policies available. Illinois Supreme Court Rule 222(d)(8) requires disclosure of "relevant insurance agreements" in cases where it applies. The standard form PI interrogatories promulgated pursuant to Supreme Court Rule 213(j) all require disclosure of insurance policy information and limits.

However, Supreme Court Rule 201(b) requires "full disclosure regarding any matter relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking disclosure or of any other party, including the existence, description, nature, custody, condition, and location of any documents or tangible things, and the identity and location of persons having knowledge of relevant facts." Illinois courts have interpreted this rule to permit discovery of facts admissible at trial, and of facts that may lead to admissible evidence. Monier v. Chamberlain, 35 Ill.2d 351, 357, 221 N.E.2d 410 (1966).

Whether a defendant has $20,000 or $2 million in insurance coverage is vital information to a plaintiff thinking about settlement. But this fact is neither admissible (see, Illinois Rule of Evidence 411) nor something that's likely to lead to admissible evidence. Thus, disclosure of insurance information is really an exception to the general rule of discovery.

Actually, when you think about it, compelling disclosure of insurance information is a pretty significant departure. Ordinarily, information about the wealth or poverty of either plaintiff or defendant is not admissible for any purpose. See, Elliott v. Brown, 349 Ill. App. 428, 433, 111 N.E.2d 169 (1st Dist. 1953), a suit to recover attorney fees (the "question of the wealth or poverty of defendants was not in issue, and an argument designed to persuade the jury that the defendants were worth at least a quarter of a million dollars was calculated to influence a verdict by a consideration of improper factors").

If information about insurance coverage is so helpful to a plaintiff trying to evaluate settlement prospects, wouldn't detailed information about the defendant's personal, private (uninsured) finances be important?

Perhaps it would be helpful, the Appellate Court admitted in Manns v. Briell, 349 Ill. App. 3d 358, 364, 811 N.E.2d 349 (4th Dist. 2004), but, nevertheless, discovery of personal assets before judgment is not permitted. "The difference between a defendant's financial assets and a liability insurance policy was explained in [People ex rel. Terry v. Fisher, 12 Ill. 2d 231, 238, 145 N.E.2d 588, 593 (1957)], where the court noted that liability insurance exists solely for the purpose of protecting a party injured by the negligence of the policyholder."

Liability insurance policy proceeds are not personal assets and can not be accessed by an insured, but only on behalf of an insured, and only for the benefit of a person injured by the insured's fault. See generally, In re Liquidation of Legion Indemnity Corp., 2013 IL App (1st) 120980 (liquidator required to reimburse insured for only what injured party actually received in settlement agreement, not the larger, stipulated amount assigned to bankrupt insured for purposes of claim against liquidator) (although the reported opinion relies on the court's interpretation of §209 of the Insurance Code and on the principle that injury cases may not be assigned). In short, a liability insurance policy is a private contract with a public purpose. Injured members of the general public are beneficiaries of liability insurance policies (Barney v. Unity Paving, Inc., 266 Ill.App.3d 13, 23, 639 N.E.2d 592 (1st Dist. 1994)). See also, M.F.A. Mutual Ins. Co. v. Cheek, 66 Ill.2d 492, 363 N.E.2d 809 (1977). In M.F.A. Mutual, a case construing the cooperation clause of an auto liability policy, the Supreme Court noted that such a policy is "more than a private agreement between the insured and the insurer against losses sustained." (66 Ill.2d at 499-500.)

There are two takeaways from this, one specific and the other very general. Specifically, in an injury case, insurance coverage and policy limits are discoverable because they are not personal, private assets of a defendant who has not yet been found liable to anyone. Generally, although one often sees sweeping statements to the contrary, there are limits to what may be discovered in any case, limits which may be expanded or contracted as a matter of public policy and sound judgment.