Businesses with liability insurance coverage governed by Illinois law should be mindful to take advantage of Illinois’ “targeted tender” rule, which provides insureds a unique strategy for maximizing insurance recoveries for claims triggering multiple different policies. This rule recognizes an insured’s right to “target tender” one or more concurrent insurance policies from a group of policies that potentially apply to a claim against the insured, regardless of insurer efforts to offset their insuring obligations through “other insurance” or contribution.  Kajima Constr. Svsc., Inc. v. St. Paul Fire & Marine Ins. Co., 227 Ill.2d 102 (2007); John Burns Constr. Co. v. Indiana Ins. Co., 189 Ill.2d 570 (2000). Once an insured targets its tender to a particular insurer, “[t]hat insurer may not in turn seek equitable contribution from the other insurers who were not designated by the insured,” who may knowingly forgo an insurer’s involvement. John Burns, 189 Ill.2d at 575.

Illinois insureds can “target tender” away from policies with high retentions or deductibles

The “targeted tender” rule thus is particularly powerful for insureds trying to avoid or minimize the amount of risk they must absorb from “fronting” coverage or policies with substantial self-insured retentions or deductibles. For example, assume a construction company is sued in a wrongful death lawsuit after one of its truck drivers hauling heavy equipment to a job site runs over a pedestrian. The underlying complaint alleges liability triggering the construction company’s commercial auto coverage, which provides dollar-one defense coverage outside of policy limits, as well as the company’s professional liability coverage, which is subject to a $2 million retention before any coverage attaches.  After the construction company notifies both insurers of the lawsuit, they agree to split the insured’s defense costs 50/50, but the professional liability insurer refuses to reimburse any of its 50% share of the defense costs until the $2 million retention has been satisfied. Working with knowledgeable coverage counsel, the insured construction company can obtain a fully funded defense of these lawsuits by “targeting” its tender solely to the commercial auto insurer.

Experienced insurance recovery counsel can activate and deactivate targeted policies to maximize coverage

After receiving a claim or suit, an insured should promptly notify all insurers under any and all policies that might provide coverage, even those policies that are subject to substantial retentions, deductibles, or other limitations on coverage.  Amer. Nat’l Fire Ins. Co. Nat’l Union Fire Ins. Co., 343 Ill.App.3d 93 (Ill. App. Ct. 2003) (targeted insurer had no duty to provide coverage where suit not tendered until 3 years after it was filed).  Once all potentially available coverage is notified, the insured can “target” its tender to a particular insurer.  Illinois law permits only the insured to make a “targeted tender” – insurers may not invoke this rule.

Although targeting the tender does not require the insured to use any particular “magic words”, experienced insurance recovery counsel can assist insureds in advising which of the notified insurers are being “targeted” to provide coverage. A best practice is to submit written correspondence that unequivocally communicates the insured’s intent to solely target the selected insurers and forego coverage from other insurers who previously may have been notified.

Illinois law also permits an insured to “deactivate” coverage with an insurer previously targeted in order to invoke exclusive coverage with another insurer.  John Burns, 189 Ill.2d at 577-78; Alcan United, Inc. v. West Bend Mut. Ins. Co., 303 Ill.App.3d 72, 82 (1st Dist. 1999). By being able to “deactivate” a tender, insureds can keep deactivated insurers on “standby” and call upon them later to provide coverage – a “targeted tender is not negated merely by an expressed desire to keep the deactivated insurer on notice as standby coverage in the event that the selected insurer refuses the tender.” Chicago Hosp. Risk Pooling Program v. Illinois State Medical Inter-Ins. Exch., 397 Ill.App.3d 512 (1st Dist. 2010).  This rule gives insureds the power and flexibility to adjust their insurance recovery strategy should a previously targeted insurance policy become insolvent or exhausted.

Most Illinois courts limit “targeted tender” to concurrent – not consecutive – policies  

The Illinois Supreme Court suggests that insurance policies must be concurrent for the “targeted tender” rule to apply, rather than policies issued across successive policy periods spanning multiple years.  Kajima, 227 Ill.2d at 117 (“targeted tender can be applied to circumstances where concurrent primary coverage exists”). The Illinois Court of Appeals for the First District has since held that “targeted tender” applies only to concurrent policies.  Illinois School Dist. Agency v. St. Charles Community Unit School Dist. 303, 2012 IL App (1st) 100088 (refusing to apply rule to 30-year consecutive span of policies triggered by mold-related bodily injury claims). In so ruling, the First District noted that the Illinois Supreme Court has applied “targeted tender” only to concurrent policies, and the Appellate Court was disinclined to “extend” the rule.  Recent Illinois decisions have continued this trend of limiting “targeted tender” only to concurrent policies, but a lone appellate decision from the Second District applied the rule to consecutive insurance policies.  Richard Marker Assocs. v. Pekin Ins. Co., 318 Ill.App.3d 1137 (2d Dist. 2001).  Insureds should assume that only concurrent policies issued during the same or overlapping policy periods can be targeted.

Other limitations to the “targeted tender” rule

Insureds should be mindful of several additional significant limitations to applying the “targeted tender” rule.  First, an insured must exhaust all concurrent primary coverage before it may “target tender” any excess coverage.  Kajima Constr. Servs., 227 Ill.2d at 116 (“Extending the targeted tender rule to require an excess policy to pay before a primary policy would eviscerate the distinction between primary and excess insurance”).

Second, if a statute imposes an obligation on the insured to maintain a particular type of insurance, Illinois courts have employed a public policy rationale to hold that the insured cannot make a “target tender” to avoid the mandated coverage.  See, e.g., Pekins Ins. Co. v. Fidel. & Guar. Ins. Co., 357 Ill.App.3d 891 (4th Dist. 2005) (insured could not deselect tow truck liability insurer); Shelter Gen. Ins. Co. v. Zurich Direct, 2008 WL 4449873 (S.D. Ill. 2008) (insured could not deselect car dealer liability insurance).

Third, and importantly, at least two decisions from Fourth and Fifth Districts of the Illinois Appellate Court have held that only a named insured or insured who negotiated for the contracted right to be named on another’s policy has the right to target tender.  Vedder v. Cont’l Western Ins. Co., 2012 IL App (5th) 110583, ¶ 22 (5th Dist. 2012) (“because Vedder neither paid a premium nor bargained for coverage under the Continental policy, she cannot target tender her defense to Continental”); State Auto Prop. & Cas. Ins. Co. v. Springfield Fire & Cas. Co., 394 Ill.App.3d 414, 419 (4th Dist. 2009).  Under these decisions, an entity named as an additional insured under another’s insurance policy, or an entity qualifying as an insured under an omnibus “insured” provision, has no right to target a tender of those policies.  State Auto explained that “[w]hether an individual is a named insured is significant because the rationale for allowing an insured to deselect coverage is that it vests the named insured with the right to choose between two policies for which that named insured has (1) paid the premium or, (2) as in John Burns, negotiated for the contracted right to be named on another’s policy.”  State Auto, 394 Ill.App.3d at 419.  Further, the State Auto court reasoned that “when a party has only contracted with, and paid the premium for, one policy and attempts to deselect its policy in favor of a policy on which it has not paid the premium or negotiated to be the named insured, this rationale is inapplicable.” Id.

Look out for insurer attempts to eliminate target tender rights in the policy

Illinois is one of only a handful of jurisdictions that recognizes the “targeted tender” rule, but that has not stopped insurers from wording their policies with language specifically seeking to eliminate an insured’s right to take advantage of the rule.  For example, insurers have inserted language in policies requiring the insured to “[p]romptly tender the defense of any claim made or ‘suit’ to any other insurer which also has available insurance for a loss which we cover under Coverage A or B of this coverage part.”  Am. Country Ins. Co. v. Kraemer Bros., 298 Ill. App. 3d 805 (1st Dist. 1998) (policy condition was valid, enforceable, and not contrary to public policy).  Insureds with rights to insurance assets governed by Illinois law should be on the lookout for such conditions or limitations to coverage when placing and renewing their insurance policies. Experienced insurance recovery counsel can assist insureds in reviewing and negotiating favorable policy language to preserve rights to “target tender” to specific policies.