Arrowood issued a liability policy insuring Greenwood Terrace, a nursing home and rehab center which was sued following the death of one of its residents, Joseph Mark. Under the parties’ reinsurance treaty, defendant Assurecare was responsible for the first $250,000 of Arrowood’s net liability and a percentage of loss adjustment expenses. Arrowood contributed $1,000,000, the policy limits, to a $1,750,000 settlement reached between Mark and its insured Greenwood Terrace. After the Mark settlement, Greenwood Terrace sued Arrowood for breach of contract, alleging that Arrowood should have paid a greater portion of the settlement because the Mark lawsuit involved more than one “medical incident” and that Arrowood had acted in bad faith. Arrowood settled with Greenwood Terrace for $325,000.

Assurecare paid Arrowood $250,000 plus a portion of loss adjustment expenses associated with the settlement of the Mark litigation. It refused, however, to pay for any portion of the settlement of the subsequent suit by Greenwood Terrace against Arrowood. Arrowood sued Assurecare, alleging breach of contract and seeking a declaratory judgment that it was entitled to payment for the Greenwood Terrace settlement, including the first $250,000 of net liability. The district court granted Arrowood’s motion for summary judgment holding that the Greenwood Terrace settlement constituted a covered “loss settlement” under the parties’ treaty, an interpretation that the court stated was supported by the treaty’s follow-the-fortunes clause. Arrowood Indemnity Co. v. Assurecare Corp., Case No. 11 CV 5206 (USDC N.D. Ill. Sept. 19, 2012).