Appeal from the Circuit Court of Cook County; the Hon. EDWARD
G. SCHULTZ, Judge, presiding. Reversed and remanded with
MR. JUSTICE CRAVEN DELIVERED THE OPINION OF THE COURT.
Rehearing denied September 17, 1968.
This appeal arises from an order entered in the circuit court of Cook County granting defendant's motion to dismiss plaintiff's complaint and dismissing the complaint by the estate of an insured against an automobile insurer based on negligence and bad faith of the insurer in handling the defense and negotiation of the claims of third parties against the insured arising out of an automobile collision.
The order was based upon the failure of the complaint to state a cause of action in failing to allege that plaintiff-estate was damaged by the payment of the judgment recovered against it or its ability to pay such judgment.
The genesis of this litigation was in an automobile collision on November 23, 1957, when insured's automobile collided with two other automobiles, killing the insured and a passenger and seriously injuring four other occupants of his car. Charles Henry Johnson, plaintiff's intestate, was insured by a policy issued by Prudence Mutual Casualty Company in the sum of $20,000. Suits were brought against the administrator of the estate of the insured on behalf of the deceased passenger and the other injured passengers. These suits were consolidated. Offer of settlement by the claimants in such suits was made for the balance remaining unpaid on the policy $17,490, another claim against the insured having been settled. Also, a written demand that the insurer settle within the policy limits sum remaining was made by the administrator. *fn1 The insurer refused to settle or negotiate. Upon jury trial, verdicts totaling $55,500 were rendered and judgment entered. The insurer deposited $17,500 with the clerk of the court who, pursuant to court order, distributed the same among the claimants. Thereafter execution was issued and served upon Wolfberg, the insured's administrator, and returned "no funds."
Plaintiff administrator of the insured filed this suit against the insurer seeking recovery of the excess of $38,000, alleging negligence and bad faith on the part of the insurer in failing to negotiate and compromise the suits for $17,500. Upon motion of the defendant-insurer, the court entered a final order of dismissal.
That an insurance company may so conduct itself as to be liable for an entire judgment recovered against its insured, irrespective of its policy limits, is well-settled in this state. Olympia Fields Country Club v. Bankers Indemnity Ins. Co., 325 Ill. App. 649, 60 N.E.2d 896 (1st Dist 1945); Cernocky v. Indemnity Ins. Co. of North America, 69 Ill. App.2d 196, 216 N.E.2d 198 (2nd Dist 1966). Thus, in Cernocky, the court said:
"It is beyond question that an insurance company, although it acts under a policy which contains limits as to its liability, may so conduct itself as to be liable for the entire judgment recovered against its insured irrespective of its policy limits. General Cas. Co. of Wisconsin v. Whipple, 328 F.2d 353, 355 (CA 7th, 1964).
"While the various jurisdictions differ as to the conduct which may subject an insurance carrier to liability for the excess of a judgment over its policy limits, in this jurisdiction conduct constituting fraud, negligence or bad faith may render the insurer so liable. (Citing cases.)" Cernocky v. Indemnity Ins. Co. of North America, 69 Ill. App.2d 196, 204, 216 N.E.2d 198, 203 (2nd Dist 1966).
An inquiry into the nature of such liability discloses that the insurance policy or contract itself contains no terms placing an express agreement or duty on the insurer to compromise claims. Rather, the contract leaves it to the insurer to determine the conduct of defense of actions brought against the insured, the matter of negotiation and settlement. By the contract of insurance, the insured agrees that the insurer has the right to conduct the defense of litigation and settlement negotiations. Since the nature of the contractual relation between insured and insurer requires the insured to give up these rights, the law places upon the insurer the duty of giving the interests of the insured equal consideration with its own interests and it must in all respects deal fairly with the insured, certainly where an action arises which may exceed the policy limits. Cernocky v. Indemnity Ins. Co. of North America, supra, quoting with approval from Ballard v. Citizens Cas. Co. of New York, 196 F.2d 96, 102 (CA 7th, 1952).
We find no decided cases in Illinois as to whether, as conditions precedent to such a recovery, it must be alleged in the complaint and borne out by factual proof that there has been payment of the excess judgment by the insured or his estate, or ability to pay the same. The authorities in other jurisdictions seem to be in disagreement on this issue.
Appellee cites the case of Dumas v. Hartford Accident & Indemnity Co., 92 N.H. 140, 26 A.2d 361, 362 (1942), where the court said:
"A right of action for negligence accrues only when the plaintiff has suffered an injury. . . . The mere existence of an outstanding judgment, which may never be paid, is not a legal injury, for the essence of the injury in such a case is pecuniary loss. (Citing case.)"
Also, in Harris v. Standard Accident & Insurance Co., 297 F.2d 627 (CA 2nd NY, 1961), the Court of Appeals affirmed dismissal of an action brought by a trustee-in-bankruptcy of the insured. In State Automobile Ins. Co. v. York, 104 F.2d 730 (CA 4th NC, 1939), the court reversed judgment for plaintiff where ...