Insured May Not Target Tender Defense to Excess Insurer Until Primary Coverage Is Exhausted

In Vedder v. Cont’l Western Ins. Co., 2012 IL App (5th) 110583, the court held that an insured may not target tender defense to an excess insurer until its primary coverage has been exhausted. The facts involved a crash between a motorcyclist and a woman, Heather Vedder, who was driving her own vehicle as a volunteer driver for Nokomis/Witt Area Ambulance Service. The motorcyclist sued both Vedder and Nokomis/Witt. A coverage disagreement subsequently arose between Standard Mutual (which insured Vedder’s vehicle) and Continental (which insured Nokomis/Witt), regarding which policy provided primary coverage. The circuit court granted summary judgment to Continental, finding that Standard Mutual was the primary insurer for both Vedder and Nokomis/Witt.

In an opinion by Judge Jarman, the appellate court affirmed. The court held that both the plain language of the policies as well as public policy supported a finding that Standard Mutual was the primary insurer. The Standard Mutual policy listed Vedder as named insured, and Vedder owned the vehicle that she was driving at the time of the crash. Continental’s policy, meanwhile, insured Vedder only by definition and not as a Named or Additional Insured. (The policy “who is an insured” included volunteer drivers, which Vedder was), and it explicitly provided that coverage was excess for vehicles not owned by the named insured, Nokomis/Witt. Finally, it would violate Illinois public policy to construe a policy covering a vehicle involved in an accident as other than the primary insurance for that vehicle.

The court further held that Standard Mutual’s targeted tender to Continental was invalid and ineffective. The principle of horizontal exhaustion does not allow an insured to target tender a defense to an excess insurer while the primary coverage remains unexhausted. Nor does an insured have a paramount right to deselect its own insurer in favor of another insurer when the insured is not a named insured by the other insurer and when the insured did not pay a premium for or bargain for the other insurer’s coverage.