7th Circuit resolves insurance dispute over defense of suits brought by wrongfully convicted men

A reinsurance company must pay another insurer after it fell short of its obligation to cover the costs associated with defending Edgar County officials against lawsuits brought by two men who had been wrongly imprisoned for murders they did not commit, a federal appeals panel held.

A panel of the 7^th Circuit Court of Appeals late last month upheld a district court judgment that found the company formerly known as White Mountains Reinsurance Co., and now known as Sirius America Insurance Co., must pay the costs incurred by National Casualty Co. in defending the Edgar County officials – costs that the court determined should have been incurred by White Mountains.

Judge John Daniel Tinder of the 7th Circuit delivered the court’s opinion. He was joined in the decision by Judge Joel M. Flaum and U.S. District Judge John J. Tharp, the latter of whom sat on the panel by special designation.

The case arose as part of a series of lawsuits that followed the decision to release Randy Steidl and Herbert Whitlock from prison, in 2004 and 2008 respectively. The two men had been wrongly convicted of the 1987 murders of a married couple in Paris, which is located in Edgar County.

Steidl had served almost 17 years in prison, and Whitlock, almost 21 years.

The wrongful convictions of the two men "are a sad chapter in the history of Edgar County, Illinois," Tinder wrote for the federal appeals panel, noting "this unfortunate tale ... has provided the backdrop for much litigation in the years following their release from prison."

Shortly after they were released, Steidl and Whitlock each filed suit against the city of Paris; Edgar County; several police officers from the Illinois State Police and Edgar County; and former Edgar County State’s Attorney Michael McFatridge.

The two men alleged in their complaints that they had been framed, maliciously prosecuted, and falsely imprisoned for the murders in a conspiracy masterminded by McFatridge.

Those lawsuits were settled earlier this year, spurring the filing of other suits over who is responsible to pay the bills related to the defense of the public officials and public bodies that had been sued by the falsely imprisoned men.

"Although Steidl’s and Whitlock’s lawsuits have entirely settled, the involved parties have not yet been able to put this matter fully behind them," Tinder wrote. "Steidl’s and Whitlock’s suits proved to be only the tip of the litigation iceberg."

In 2010, a federal judge declared that National Casualty, through which Edgar County had held an insurance policy, was not required to pay the legal defense costs for McFatridge or Edgar County.

Before that ruling, however, National Casualty also had filed suit against White Mountains, a reinsurance company that National Casualty argued actually was obligated under the terms of its 1986 policy to pay for the defense of Edgar County and McFatridge.

Because National Casualty had borne those costs until the court ruled it was not required to do so, the company then asked the court to order White Mountains to reimburse those costs.

In 2011, a judge ruled in National Casualty’s favor, finding that White Mountains was obligated to defend Edgar County and McFatridge and that it was obligated to reimburse National Casualty. White Mountains then appealed.

In the two years since, White Mountains has settled with both Edgar County and McFatridge, and dismissed them from the appeal. The terms of those settlement agreements have not been made public.

But the federal appeals panel determined that those settlements do not excuse White Mountains from its obligations to reimburse National Casualty.

In its Oct. 30  opinion, the appeals panel found that White Mountains had “unjustly enriched” itself, at the expense of National Casualty, by allowing National Casualty to “do the right thing” and pay Edgar County’s legal bills, while White Mountains covered none of the county’s defense and only a portion of McFatridge’s.

“National Casualty has gone above and beyond its legal obligations,” Tinder wrote for the panel. “White Mountains has fallen short.”