No Deference For Trial Court In Review Of Insurer’s Declaratory Judgment Case

Pekin Insurance Company and Hallmark Homes disputed insurance coverage for a personal injury lawsuit filed by Bremer, the employee of another contractor at a construction site. Bremer sued Hallmark and MC Builders. Hallmark was named as an additional insured on MC’s insurance policy with Pekin.

Hallmark asked Pekin to defend Hallmark in Bremer’s case. Pekin refused, sued Hallmark, and asked the trial court for a judgment declaring that Pekin did not have to defend the case. Hallmark counterclaimed, seeking the opposite conclusion. Pekin asked for summary judgment, but the trial court instead ruled the insurance company had a duty to defend Hallmark in Bremer’s lawsuit. Pekin appealed.

The parties disputed the appellate standard of review. Hallmark argued that an “abuse of discretion” standard applied to rulings on declaratory judgment motions. Pekin asserted that the “law is unclear on this point, with different cases stating that a declaratory judgment received review ranging from the deferential standard of “abuse of discretion” to the nondeferential de novo standard.”

The Second District Illinois Appellate Court agreed that “Pekin is correct that the case law regarding the proper standard of review for declaratory judgments is full of contradictory statements and is ‘disturbingly rich in … misapplications of sound precedent.’”

The appellate court acknowledged that trial courts get greater deference on matters that are within their “special competence” — e.g., admissibility of evidence, credibility determinations, and the weighing of conflicting evidence. But the facts concerning the application of the insurance policy to Hallmark were not disputed. The appellate court was left with a question of law, for which the trial court got no deference. Here’s how the appellate court explained it:

Here, the sole basis for the trial court’s declaratory judgment was the legal arguments raised by the parties in the course of supporting or responding to Pekin’s motion for summary judgment. No factual determinations were involved. Accordingly, we review the trial court’s decision de novo.

In the end, the appellate court ruled that Pekin had a duty to defend and affirmed the judgment in favor of Hallmark. Read the whole case, Pekin Insurance Company v. Hallmark Homes, No. 2-08-0380 (6/23/09), by clicking here.