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Cernocky v. Indemnity Ins. Co. of N. America

APRIL 14, 1966.




Appeal from the Circuit Court of McHenry County; the Hon. JAMES H. COONEY, Judge, presiding. Reversed and remanded with directions.


Rehearing denied May 13, 1966.

This is an action instituted by Louis and Clara Cernocky against the Indemnity Insurance Company of North America, their public liability insurer, to recover $20,000. This sum represents the excess above the plaintiffs' policy limits which they were compelled to pay to obtain a release of a judgment obtained against them. The plaintiffs' complaint alleged that the defendant insurance company was guilty of bad faith in refusing to enter into settlement negotiations initiated or sought by Theodore and Jeannette Marquardt, claimants in the personal injury suit resulting in the judgment in excess of the policy limits.

The case at bar was tried before a jury. At the close of plaintiffs' evidence, the trial court directed a verdict in favor of the defendant. The plaintiffs appealed and urge that the trial court erred in directing the verdict and in excluding certain testimony.

The test, in determining whether the trial court acted properly in directing the verdict for the defendant at the close of plaintiffs' case, is whether there was a total failure on the part of plaintiffs to prove any essential element of their case. Tucker v. New York, C. & St. L.R. Co., 12 Ill.2d 532, 534, 147 N.E.2d 376 (1958); Lindroth v. Walgreen Co., 407 Ill. 121, 130, 94 N.E.2d 847 (1950). The rather narrow issue before this court is whether, under the evidence, there was a total failure to establish any element of bad faith on the part of the defendant in its failure to achieve a settlement of the earlier lawsuit within the limits of the applicable insurance policy. In resolving this question, we must examine the evidence, together with all reasonable inferences which may be drawn therefrom, in its aspect most favorable to the plaintiffs. Watts v. Bacon & Van Buskirk Glass Co., 18 Ill.2d 226, 229, 230, 163 N.E.2d 425 (1960); Bartolucci v. Falleti, 382 Ill. 168, 173, 46 N.E.2d 980 (1943); Carlson v. New York Life Ins. Co., ___ Ill App.2d ___, ___ N.E.2d ___ (2nd Dist 1966).

The facts giving rise to the original suit against the plaintiffs, wherein they were defendants, are detailed in the opinion of this court in the case of Marquardt v. Cernocky, 18 Ill. App.2d 135, 151 N.E.2d 109 (2nd Dist 1958). Briefly, the plaintiffs owned a picnic ground and charged admission of those who wished to use it. On July 4, 1955, Jeannette Marquardt, one of the claimants in the original suit, and her family, went to this picnic ground, as did Anthony Orlowski, another defendant in the original suit, and his family. There were several thousand persons there on the day in question.

A part of the picnic ground was rolling and hilly, and a number of cars were parked on a hill. There were no fences, guardrails, logs or other safeguards between where the cars were parked and the lower levels where persons were picnicking. Orlowski had parked his car near the crest of the hill. One of his small daughters who was noticed playing in the car, apparently took the car out of gear, and it rolled down the hill striking Mrs. Marquardt, pinning her between a picnic bench and a tree. One of her legs was badly crushed and had to be amputated.

At the time of the accident, Mrs. Marquardt was employed, 38 years of age, married and had children. She incurred medical bills of approximately $3,800 and, at the date of the trial, had suffered a loss of wages in the sum of $5,100. Mrs. Marquardt recovered judgment against the plaintiffs here and against Orlowski in the sum of $60,000, and Mr. Marquardt recovered judgment against the same parties in the sum of $5,000. After the judgment, Orlowski was relieved of further liability by paying the Marquardts the sum of $18,000. The limits of plaintiffs' insurance policy was $25,000 for injuries to one person and $50,000 for injuries to more than one person. After an unsuccessful appeal, the defendant insurance company paid out its policy limit of $25,000 to the Marquardts, which, together with the $18,000 previously paid by Orlowski, left a balance of $22,000 due on the judgment. The plaintiffs compromised this sum with the Marquardts for $20,000 and they then instituted this suit against the defendant insurance company for that amount.

Before instituting the original lawsuit, the attorneys for the Marquardts wrote the defendant insurance company and the insurance carrier for Orlowski seeking a conference. The defendant replied that a Mr. Mahoney would contact the attorney. He never did. On November 14, 1955, a copy of a letter addressed to the insurance carrier for Orlowski, was sent to the defendant. It itemized the special damages and again invited a discussion of the case. Again, on December 14, 1955, the Marquardts' attorneys wrote the defendant that they would be in Chicago on December 22 and desired to discuss the case with the defendant and Orlowski's insurance carrier. A representative of Orlowski's company met with the Marquardts' attorneys, but no representative appeared on behalf of the defendant.

On January 11, 1956, the Marquardts' attorneys again wrote the two insurance companies relative to the damages sustained. This letter concluded with these words: "That $125,000 is a fair figure for all claims which we submit for your consideration." The defendant did not respond and the Marquardts filed their suit in April, 1956 seeking $175,000.

The defendant insurance company retained the Chicago law firm of Vogel and Vogel to answer the complaint on behalf of the plaintiffs, who were defendants therein. The insurance policy contained the usual provisions relative to the insurance company defending any such action and reserving unto itself the right to "make such investigation, negotiation and settlement of any claim or suit as it deems expedient." C. Russell Allen also joined in the answer as the plaintiffs' personal attorney.

In the suit at bar, the trial court excluded testimony of Allen relative to a number of conversations he had with Vogel — one of the attorneys for the defendant insurance company — in which he disclosed to Vogel the desire of the Marquardts' attorneys to attempt to settle the suit. This testimony was excluded on the grounds that it was hearsay. The first conversation was in September of 1956, at which time Allen told Vogel that the Marquardts' attorneys had asked him if he would either disclose or obtain authority to disclose the limits of the insurance coverage; and that if the limits were reasonable, the Marquardts would be willing to settle within the limits. Vogel replied that Allen was neither to disclose the policy limits nor to discuss settlement with the Marquardts' attorneys.

In October of 1956, Allen again reported to Vogel that the Marquardts' attorneys had asked him whether the case could be settled, and that they would like to discuss settlement. Allen stated to Vogel that there was considerable danger of a verdict in excess of the policy coverage, and again sought ...

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