Developers Sur. & Indemn. Co. v. Lipinski, No. 1-15-2658, 2017 Ill. App. LEXIS 545 (Ill. App. 1st Dist., Aug. 22, 2017).
The collateral source rule is a rule that allows an injured party to recover undiminished damages from the tortfeasor even if the injured party recovered benefits from independent sources for the loss. The question in this case was whether a reinsurance recovery arising out of a failed construction project was a collateral source that applied in a subsequent legal malpractice action brought by the surety company.
The original underlying dispute resulted in the surety paying a large settlement amount. The surety sued its retained counsel for legal malpractice because of a lost opportunity to settle the case for much less. The lawyer sought information about the surety's reinsurance recoveries on the underlying settlement. The court granted discovery and the surety was forced to admit that it had recovered 100% of the provable damages.
The trial court dismissed the complaint with prejudice and denied a motion to amend the complaint to add a subrogation count because the surety, as cedent, had an obligation to seek a recovery from the lawyer for amounts paid by the reinsurers.
Unfortunately, on appeal, the issue of whether reinsurance was a collateral source was never reached because the court affirmed the motion to dismiss. The affirmance, however, was based on a statutory provision that required the joinder of the real parties in interest the reinsurers where the action is being brought based on subrogation.
A concurring opinion did get into the collateral source issue, but never resolved it. The open question was whether the collateral source rule applied in legal malpractice cases. Because there was no possibility that the surety could obtain a windfall recovery, it argued that the collateral source rule should apply and it should recover its damages even if it did receive a reinsurance recovery. While the concurrence stated that the surety had a meritorious argument, because the surety resisted until the eve of trial disclosing that it had received reinsurance recoveries, dismissal was proper.