An insurer is accused of pulling a policyholder's defense mid-litigation - 14 months in - without ever issuing a reservation of rights.
Country Mutual Insurance Company has taken Clear Spring Property and Casualty Company to federal court, alleging the insurer walked away from its duty to defend a construction contractor in the middle of active litigation — and did so without taking steps the filing describes as critical to protecting the policyholder's interests.
The case, filed on February 9, 2026, in the United States District Court for the Northern District of Illinois, stems from a July 2023 rooftop construction fire at a condominium building on North Stave Street in Chicago. The fire damaged a unit owned by Carey Koenitz, who was insured by Country Mutual. Country Mutual says it paid Koenitz $409,015.45 for his losses.
Country Mutual then pursued a subrogation action against Galian Painters & Remodeling Co., doing business as Galian Construction, in Cook County court. The suit alleged Galian either negligently performed the roof work itself or negligently hired a subcontractor - Mendez Garage Doors and Construction - without verifying whether Mendez was qualified to handle work involving open-flame torches.
Clear Spring, which had issued a commercial general liability policy to Galian, initially stepped in and provided defense counsel. That defense ran for more than 14 months. Then, according to the court filing, everything changed.
On September 24, 2025, Clear Spring's third-party claims administrator, Sedgwick Claims, sent Galian a disclaimer letter withdrawing coverage. The sole basis cited was the policy's Unlicensed Contractor Exclusion, which reads: "This insurance does not apply to and the Company shall have no duty to defend any 'suit' seeking damages for 'bodily injury,' 'property damage,' or 'personal and advertising injury' arising out of any work performed on your behalf by an 'Unlicensed Contractor,' including but not limited to 'bodily injury' to an 'Unlicensed Contractor.'"
What makes the allegations particularly notable for the insurance industry is what Clear Spring allegedly failed to do. The insurer never issued a reservation of rights letter, never filed a declaratory judgment action, never offered Galian independent counsel, and never addressed the negligent retention claim — which had nothing to do with whether Mendez was licensed. Defense counsel was allegedly told by Sedgwick to stand down, including forgoing depositions of Country Mutual's liability expert and declining to disclose Galian's own experts during active discovery.
The fallout, as alleged, was swift. Galian was left unable to mount a defense and faced the prospect of bankruptcy. The company retained its own counsel, and the parties entered a consent judgment on January 20, 2026, for $409,015.45 plus costs. Galian then assigned its rights against Clear Spring to Country Mutual.
Country Mutual now seeks a judicial declaration that Clear Spring must pay the judgment and is estopped from raising any coverage defenses. The case remains in its early stages, and no final determination has been made.
