Cook County Record

Sunday, February 23, 2020

Chicago State says insurer committed fraud by denying coverage for $4.2M verdict in whistleblower case

By Jonathan Bilyk | Feb 8, 2017

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Chicago State University has sued an insurance company, saying a court should force the insurer to help the school pay more than $4.2 million to satisfy a judgment resulting from a lawsuit brought by a former who claimed the university had wrongly fired him for exposing an attempt by the university's former president to improperly collect a pension.

On Feb. 3, Chicago State filed suit in Cook County Circuit Court against Illinois National Insurance, asking the court to declare the school’s policy through AIG-affiliated Illinois National requires the insurer to pay toward the judgment awarded by a Cook County court to former Chicago State lawyer James Crowley.

The university also asked the court to find the insurer had committed fraud by attempting to deny the coverage, alleging the insurer charged CSU an enhanced premium for the insurance, when it had no intention of paying a claim.

The lawsuit centers on court orders requiring Chicago State to pay Crowley for retaliating against him after he blew the whistle on some of the alleged misdeeds of former CSU President Wayne Watson.

In February 2014, a Cook County jury sided with Crowley, awarding him $480,000 in back pay and punitive damages of $2 million. Cook County Judge James P. McCarthy then doubled Crowley’s back pay award to $960,000 and ordered CSU to pay Crowley’s attorneys $318,000, plus interest.

The verdict and judge’s orders were upheld on appeal in March, and on Jan. 31, 2017, the judge again boosted the damages owed to Crowley and his attorneys, ordering CSU to pay an additional $252,552 in “front pay,” further attorney fees of $167,112 and post-judgment interest of $513,400.

In all, CSU is now on the hook for more than $4.27 million in damages in the case.

Crowley had been fired in 2010, allegedly for mishandling his duties to oversee the university’s convocation center. However, Crowley had asserted that was merely a pretense to retaliate against him for releasing documents, requested under the Freedom of Information Act, which exposed Watson’s attempt to wrongly draw a pension for his work heading up the City Colleges of Chicago, even as he assumed the reins at Chicago State. State pension rules had required Watson to wait three months between jobs to begin drawing his pension.

With the information public, the State Universities Retirement System denied Watson’s pension request.

Crowley also alleged the university had then professionally hounded him, filing a complaint with the Illinois Attorney Registration and Disciplinary Commission. The ARDC rejected that complaint.

But that was another element in the university’s treatment of Crowley which state appellate justices declared was ““thoroughly reprehensible.”

Following the court actions, Chicago State had filed claims with Illinois National, seeking coverage for the judgment.

However, the lawsuit alleged, Illinois National declined the coverage. Mediation to end the dispute failed in December 2016.

Chicago State argued the denial of coverage was improper, as the policy included coverage for losses from “damages (including front pay and back pay), judgments … [and] statutory attorneys’ fees…”

The policy also included supplemental coverage for punitive damages, for which the university paid an “additional premium,” the lawsuit said.

Further, the university said the insurer’s denial of coverage violated Illinois state fraud law, as the denial means the school “paid premium for illusory punitive damages coverage that Illinois National had no intention of honoring.”

Chicago State is represented in the action by attorneys with the firm of Neal Gerber & Eisenberg LLP, of Chicago.

Chicago States’s action comes even as Illinois National is pursuing a legal malpractice action against the law firm of Pugh Jones & Johnson P.C., of Chicago. In that lawsuit, the insurance company has alleged the Pugh Jones firm’s mistakes in defending the university, including rejection of purported settlement offers from Crowley’s counsel, led to the hefty judgment against CSU.

Illinois National has asked the court to order Pugh Jones to refund all fees paid to the insurer and repay Illinois National for any coverage it may provide to Chicago State to cover the Crowley judgment.

That lawsuit is pending in Cook County court.

Illinois National is represented by the firm of Lewis Brisbois Bisgaard & Smith LLP, of Chicago.

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Organizations in this Story

Chicago State UniversityNeal Gerber & Eisenberg LLPLewis Brisbois Bisgaard & Smith LLPPugh, Jones & Johnson, PC.