$1 Million Settlement, But No Recovery as Insurer is Placed in Liquidation

James Richardson was seriously injured in an auto crash at 53rd Street and Western Avenue in Chicago, which resulted in a settlement for $1 million against Night Dream Inc. and Shaun T. Small. However, their Nevada-based insurer, Spirit Commercial Auto RRG Inc., was placed in liquidation before it funded the $1 million settlement amount. Because Spirit was a “risk retention group, (RRG),” Richardson couldn’t collect from the insurance guaranty funds in Nevada or Illinois.

He asked for a $1 million judgment against Dream and Small based on the portion of the Illinois Code of Civil Procedure, Section 2-2301, aimed at insurance companies that slow walk settlement payments.

Richardson requested the judgment more than 30 days after he submitted an executed release and all other documents required by Section 2-2301. Subsection (d) says: “A settling defendant shall pay all sums due to the plaintiff within 30 days of tender by the plaintiff of the executed release and all applicable documents in compliance with subsections (a), (b), and (c) of this Section.”

Under Section 2-2301(e), “If, after a hearing, the court having jurisdiction over the parties finds that timely payment has not been made by a defendant pursuant to subsection (d) of this section, judgment shall be entered against that defendant for the amount set forth in the executed release, plus costs incurred in obtaining the judgment and interest[.]”

A Cook County judge denied Richardson’s motion for judgment, and the Illinois Appellate Court affirmed because there was no evidence that Night Dream or Small “(1) participated in their insurer’s settlement negotiations with the plaintiff, or (2) agreed to be personally responsible for the settlement amount drafted by their insurer.”

The court stated that these circumstances pose a great unfairness to Richardson. Richardson is unable to obtain relief from a state guaranty fund due to the fact that Night Dream and Small obtained a liability insurance policy from an RRG — an alternative source of insurance coverage that is prohibited from gaining any benefit from a state guaranty fund.

RRGs and members are protected by federal law. 15 U.S.C. Section 3902(a)(4). However, an explanation of RRGs is in order regarding why state guaranty funds are unavailable to potentially resolve this case. Congress encouraged the creation of RRGs with the Product Liability Risk Retention Act of 1981 in order to “reduce the problem of the rising cost of product liability insurance by permitting product manufacturers to purchase insurance on a group basis at more favorable rates or to self-insure through insurance cooperatives called risk retention groups.” Ophthalmic Mutual Insurance Co. v. Musser, 143 F. 3d 1062 (7th Cir. 1998). This statute permitted manufacturers to pool their resources into risk retention groups to provide those members of the group with insurance coverage.

In 1986, Congress enacted the Liability Risk Retention Act to broaden the 1981 statute to other professional groups and to “effectively attempt to preclude most state regulation of risk retention groups.” Id.; see 15 U.S.C. Sec. 3901.

This 1986 statute exempts RRGs from a wide range of state laws and orders, including any rule that would “otherwise, discriminate against a risk retention group or any of its members,” with the exception of “state laws generally applicable to persons or corporations.” 15 U.S.C. Sec. 3902(a)(4).

Significantly, an RRG cannot join, contribute to, or benefit from a state insurance guaranty fund. See 15 U.S.C. Sec. 3902(a)(2).  In accordance with federal laws, section 123B-5(A) of the Illinois Insurance Code provides:

“No risk retention group shall be required or permitted to join or contribute financially to the Illinois Insurance Guaranty Fund, or any other plan, pool, association or guaranty or insolvency fund or any similar mechanism, in this state, nor shall any risk retention group, or its insureds or claimants against its insureds, receive any benefit from any such fund or any such plan, pool, association or guaranty or insolvency fund for claims arising under the insurance policies issued by such risk retention group.”

Nevada is where Spirit is domiciled. Nevada has a similar provision, providing that an RRG shall not “join or contribute financially to the Nevada Insurance Guaranty Association, or to any similar organization or fund in this state.” Nev. Rev. Stat. 695E.200(5). The Illinois Insurance Code further mandates that every application for insurance from an RRG not organized in this state must include a notice that provides:

“This insurance policy is issued by your risk retention group and that your risk retention group is not subject to all of the insurance laws and regulations of your state. State insurance insolvency guaranty fund protection is not available for your risk retention group.”

The very purpose of an insurance guaranty fund is “to place claimants in the same position that they would have been in if the liability insurer had not become insolvent. Skokie Castings, Inc. v. Illinois Insurance Guaranty Fund, 2013 IL 113873. However, because Night Dream and Small are covered by an RRG, they have no access to an insurance guaranty fund, and Richardson cannot enjoy any benefits from such fund.

In this case, Richardson unfortunately had failed to present a record showing that Night Dream and Small took part in settlement negotiations and agreed to be personally responsible to pay the settlement amount.  Thus, Richardson has not shown that the settlement agreement is enforceable against Night Dream and Small personally.

Having determined that Richardson’s counsel failed to preserve a record showing that Night Dream and Small are personally obligated to pay the settlement agreement, the appeals panel turned to the central issue on appeal which was whether Section 2-2301 applied to Night Dream and Small.  Because the Illinois Appellate Court could not conclude that Night Dream and Small accepted personal responsibility for the settlement amount, the appeals panel found that it could not determine that Section 2-2301 applied to them.  Accordingly, the Illinois Appellate Court affirmed the circuit court’s judgment declining to enforce the settlement agreement against Night Dream and Small.

Richardson v. Night Dream, 2020 IL App (1st) 191351-U (Feb. 18, 2020).

Kreisman Law Offices has been handling catastrophic injury lawsuits, traumatic brain injury cases, spinal cord injury lawsuits, nursing home abuse cases, car accidents and truck crash cases for individuals, families and loved ones who have been injured, harmed or killed by the carelessness or negligence of another for more than 40 years in and around Chicago, Cook County and its surrounding areas, including Evanston, Elmhurst, Melrose Park, Mount Prospect, Prospect Heights, Wheeling, Waukegan, Joliet, Romeoville, University Park, Country Club Hills, Lansing, Des Plaines, Chicago (Logan Square, Bronzeville, Hyde Park, Wrigleyville, Rogers Park, Albany Park, Jefferson Park, Uptown, Lincoln Square, Lakeview, River North, Old Town Triangle), Naperville, New Lenox and Arlington Heights, Ill.

Robert D. Kreisman has been an active member of the Illinois and Missouri bars since 1976.

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