U.S. District Court Upholds Summary Judgment in Bad Faith Excess Insurance Claim

West Side Salvage had insurance coverage from RSUI Indemnity that included $12 million in liability insurance and a secondary level of $11 million in coverage. The underlying lawsuit involved the injuries to John Jentz and Robert Schmidt who were severely injured when a grain elevator exploded. ConAgra was the owner of the storage grain elevator and hired West Side Salvage to eliminate explosive hazards. When Jentz and Schmidt sued ConAgra and West Side, ConAgra sued the independent contractor.

During trial, it seemed that the defense witnesses were ineffective. There was a “scramble” to settle the case.

“It is clear from the record that every attorney who worked on this case thought at one time or another that there should have been a way to settle the case,” wrote Chief U.S. District Court Judge Michael J. Reagan. “Emails and letters during the trial showed the insistence of various parties on finding a way to settle, and the deposition testimony and declarations of lawyers reflect almost a sense of remorse that settlement never was achieved in the underlying litigation.”

With an excess judgment against West Side, it sued RSUI alleging the insurer breached its duty to settle under Illinois law.

The problem for West Side, the judge explained while granting RSUI’s motion for summary judgment, was that the excess insurer reasonably believed that none of the midtrial settlement offers would have “completely relieved West Side of all claims against it. Under Illinois law, there is no bad faith if an insurer did not have an opportunity to settle all claims against the insured.”

“An insurer must act as a fiduciary to its insured and may not act negligently nor in bad faith towards the best interests of the insured.” Kavanaugh v. Interstate Fire, 35 Ill.App.3d 350 (1975).

As a general principle, an insurer cannot be forced to initiate settlement discussions with a plaintiff; however, there is “a well-recognized exception to the general principle when the probability of an adverse finding on liability is great and the amount of probable damages would greatly exceed the coverage.”

The advice of trial counsel to the insurer that settlement should be accepted or pursued is not controlling in establishing bad faith as in the insurer’s refusal to settle a case. Olympia Fields Country Club v. Bankers Indemnity Insurance Co., 325 Ill. App. 649 (1945).  “And the fact that the insurance company refuses an offer of settlement, contrary to the advice of its trial attorney, with a bad result, it is not proof of bad faith on its part, it is merely proof that the judgment of the trial attorney was better than its own as to what would be the final outcome of the case.”

The law in Illinois is that absent a showing by the plaintiff that the defendant could have ended its potential liability to all relevant parties within the policy limits, there is no grounds for a claim that a defendant acted in bad faith. Sanders v. Standard Mutual Insurance Co., 142 Ill.App.3d 1082 (1986).  In Sanders, the court noted that the impossibility for the insurer of settling all claims within the insurance policy limits between multiple conflicting parties made a claim of bad faith untenable.

In this case, it was said that the fatal flaw in the evidence presented on behalf of the plaintiffs is that it does not establish beyond a merely speculative level that RSUI ever had a realistic opportunity to settle all claims against West Side within the policy limits. At the point that the case for the defendants looked very poorly, ConAgra and its insurance carrier approached RSUI with at least two offers to potentially resolve the case. RSUI’s failure to take either of these offers is not bad faith for at least three reasons.

First, as the evidence shows, RSUI believed that neither of the offers completely relieved West Side of all claims against it.  Under Illinois law, there is no bad faith if an insured did not have an opportunity to settle all claims against the insured.

Second, Illinois law cited that the parties invoke a duty to negotiate or settle between an insurer and plaintiffs in the underlying litigation, but authority is sparse for the notion that an insurer would have any duty to work out a settlement with co-defendant, or with only one group of plaintiffs.

The defendants lacked the united front in making a settlement offer. RSUI did not ignore the offers but instead drew up counteroffers and related inquiries by which it endeavored to craft a settlement that would resolve all claims by all parties against West Side.

The record contains evidence that all sides believed settlement was appropriate at some point in time, and the record contains evidence that at some time RSUI became aware that its insured may be on the hook for more than its policy limits. The court thus concluded that there was no evidence that RSUI acted in bad faith in granting summary judgment.

West Side Salvage v. RSUI Indemnity Co., No. 15-cv-0442 (Oct. 17, 2016).

Kreisman Law Offices has been handling catastrophic injury cases, wrongful death cases, construction site injury cases, chemical exposure cases and truck accident cases for individuals and families who have been harmed, injured or died as a result of the carelessness or negligence of another for more than 40 years in and around Chicago, Cook County and its surrounding areas, including Chicago Ridge, Palos Heights, Palos Hills, Hickory Hills, Western Springs, Willowbrook, Lemont, Orland Park, Bensenville, Rolling Meadows, Northbrook, Willow Springs, Roselle and Crete, Ill.

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