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Illinois: Current Insurer Must Pay Wrongful Conviction Award after Exoneration

The Seventh Circuit Court of Appeals has affirmed a federal district court’s determination “that, under Illinois law, the issuer of the policy in force on the date a convict is exonerated must defend and indemnify an insured whose law-enforcement personnel violate the constitution (or state law) in the process of securing a criminal conviction.”

The ruling came in an appeal by two insurance companies that sought to avoid liability for a verdict of approximately $9 million against Paul Hendley of the Waukegan, Illinois police department. That substantial award, to S. Alejandro Dominguez, was based on claims related to malicious prosecution and concealment of exculpatory evidence in his 1990 wrongful conviction in a home invasion and sexual assault case. [See: PLN, Jan. 2010, p.34; July 2007, p.28].

Dominguez was released on parole in 1993. He was exonerated by DNA evidence in 2002, and pardoned by the governor three years later. When Dominguez filed suit, the current and former insurance carriers for Waukegan refused to defend or indemnify the city, each claiming the other was responsible for doing so. Waukegan was left to “its own devices” to defend against the lawsuit, but when the $9 million verdict was rendered, American Safety Casualty Insurance – Waukegan’s insurer at the time of Dominguez’s exoneration – sued the city to avoid liability. Waukegan countersued and brought in other insurance carriers.

The district court concluded that National Casualty Co. v. McFatridge, 604 F.3d 335 (7th Cir. 2010) determined which insurance policy applied. McFatridge held that to prevail on claims for malicious prosecution or constitutional wrongs that led to a conviction, the plaintiff must be exonerated. That conclusion was supported by Security Mutual Casualty Co. v. Harbor Insurance Co., 65 Ill.App.3d 198 (1978), which held that under Illinois law, the victim has no claim until exoneration, as that is the relevant “occurrence” for the purpose of determining insurance coverage.

The Seventh Circuit noted that the Security Mutual decision “has now stood unquestioned for 34 years,” and it would not take a different view. The appellate court said insurance companies are free to “adjust their exposure by changing the language in their policies, defining the ‘occurrence’ as the misconduct rather than the completed tort.” That, however, would subject the companies to “trigger rulings,” such as those in asbestos litigation, that subject them to liability for years after policies expire.

Thus, under the city’s insurance policy at the time of Dominguez’s exoneration, American Safety Casualty Insurance was liable. The district court’s ruling was affirmed and the Seventh Circuit criticized the company for its “unreasonable and vexatious treatment” of Waukegan by failing to defend against the wrongful conviction suit. See: American Safety Casualty Insurance Co. v. City of Waukegan, Illinois, 678 F.3d 475 (7th Cir. 2012), rehearing and rehearing en banc denied.

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Related legal cases

American Safety Casualty Insurance Co. v. City of Waukegan, Illinois

National Casualty Co. v. McFatridge

Security Mutual Casualty Co. v. Harbor Insurance Co.