Seventh Circuit upholds dismissal of suit seeking to collect punitive damages over wrongful arrest from Will County's insurance company

A Will County man wrongfully charged in 2004 with the sexual assault and drowning of his three-year-old daughter will not be allowed to press his claim against an insurance company to collect millions of dollars in punitive damages.

The Seventh Circuit Court of Appeals on July 7 determined Kevin Fox's attempt to shift liability for damages from the police detectives who investigated his daughter's murder to the company that insured them stood as “an impermissible end run around” prohibitions on precisely that kind of maneuver.

The ruling upholds U.S District Court Judge John W. Darrah's decision to dismiss Fox's suit against American Alternative Insurance Co. (AAIC). Judge Ilana Diamond Rovner wrote the panel's opinion, with judges William J. Bauer and Daniel A. Manion concurring.

The suit arose out of the 2004 death of Fox's three-year-old daughter, Riley, who was taken in the pre-dawn hours of June 6, 2004 from her Wilmington home, where she was sleeping, to a forest preserve a few miles away, where she was sexually assaulted and drowned in a creek.

During the subsequent investigation, detectives with the Will County Sheriff’s Department pinned the blame for Riley's murder on her father, and allegedly coerced a false confession from him that he had accidentally killed his daughter in the middle of the night, and with his wife out of town, had concocted the ruse of sexual assault to cover up his actions.

Will County prosecutors sought the death penalty against Fox, who was cleared of the crime thanks to DNA evidence after spending eight months behind bars. In 2010, Scott Eby confessed to killing Riley and is now serving a life sentence for the crime.

In 2004, Fox and his now ex-wife, Melissa, sued several of the detectives in federal court, alleging wrongful arrest and malicious prosecution.

After the defendants rejected settlement offers, a jury awarded Fox $15 million in damages, including $6.2 million in punitive damages against the police officers. The award was later reduced to $8.17 million, including $3.4 million in punitive damages.

The compensatory damages of roughly $4.76 million were paid by insurance companies representing the detectives, including AAIC, which had issued a supplemental policy to Will County.

But rather than press his claim for the remaining punitive damages against the individual detectives, Fox agreed in a deal with them to try to collect the damages from AAIC through a lawsuit alleging the insurer had “breached its duty to defend the detectives.”

AAIC asked Chicago's federal court to dismiss Fox’s lawsuit on its contention he failed to state a valid claim.

Darrah agreed and tossed the suit, finding AAIC “never had any control over the detectives’ defense before judgment” since it did not become involved until after the defendants had exhausted a policy from the county’s primary insurer.

The federal appeals panel affirmed the dismissal, but indicated in its recent ruling that Fox may not have had standing to bring his suit at all, because public policies in Illinois prohibits insurers from being held liabile for “punitive damages that arise out of the misconduct of” insured public officials, like the detectives in this case.

While Illinois courts have not addressed the issue, Rovner noted for the panel that three other states with policies similar to Illinois’ have rejected similar attempts to shift the responsibility to pay punitive damages from individual defendants to insurance companies.

In their ruling, the judges questioned whether Fox’s claim would even be able to proceed under Illinois law.

But, even if it could, they said they, like the lower court, did not believe AAIC had failed in its duties to defend the detectives in the original suit, essentially thwarting any of Fox’s claims against the insurer.

The panel heard arguments in the case in October. Chicago lawyer Michael W. Rathsack argued on behalf of Fox and Robert Joseph Bates Jr. of Bates Carey & Nicolaides LLP in Chicago represented AAIC.