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Kavanaugh v. Interstate Fire & Casualty Co.





APPEAL from the Circuit Court of Cook County; the Hon. IRVING R. NORMAN, Judge, presiding.


Rehearing denied February 11, 1976.

Defendants appeal from a judgment for plaintiff (hereinafter Kavanaugh) in the amount of $20,000 representing Kavanaugh's excess liability above his combined insurance policy limits. Defendant, Royal Indemnity Company (Royal), also appeals from a separate judgment of $25,000 in punitive damages in Kavanaugh's favor. Both defendants contend that the trial court erred when it did not grant a directed verdict or a judgment n.o.v. since Kavanaugh's evidence did not prove that defendants breached any duty owed him under their insurance policies. Royal additionally contends that the court erred when it: (1) refused to withdraw Kavanaugh's willful and wanton count from the jury's consideration, (2) allowed Kavanaugh to admit Royal's balance sheet in evidence, (3) commented during the direct examination of one of Royal's witnesses, and (4) admitted the testimony of Kavanaugh's expert witness.

Interstate additionally contends that the trial court erred when it: (1) imposed a duty upon the insurance company to settle within the policy limits when there was no opportunity to settle, (2) found that it caused Kavanaugh's loss, (3) allowed Kavanaugh to amend his complaint at trial and gave certain prejudicial instructions based upon those amendments, and (4) restricted their cross-examination and refused to admit certain documentary evidence.

In September, 1965, prior to the instant action, Kavanaugh had been a co-defendant in a suit brought by Carol Sheehan in the United States District Court for the Northern District of Illinois, Eastern Division. (Carol Sheehan v. Verne F. Dennis, et al., No. 62 C 588.) Sheehan was the injured passenger in Kavanaugh's automobile when it collided from behind with a truck on the East-West Tollway on August 9, 1961. At the time of the collision the truck was itself being towed by another co-defendant's tractor. The Sheehan suit alleged negligence on the part of the trucking and towing companies, and willful and wanton conduct on the part of Kavanaugh in violation of the Illinois Guest Statute. Sheehan was represented at trial by her attorney, James Dooley.

At the time of the collision, Kavanaugh had personal liability insurance coverage with Royal covering losses to one person in the amount of $10,000. In addition to this primary coverage, Kavanaugh also had $15,000 excess coverage from Interstate. Under the terms of its policy, Royal's counsel, Donn Johnson, represented Kavanaugh in the Sheehan case. While Interstate did not represent Kavanaugh in that case, the record discloses that its attorney, Clark King, was aware of the progress of the trial.

The jury in the bifurcated Sheehan case returned a finding of liability against Kavanaugh alone on September 30, 1965. On October 4, 1965, the jury assessed damages against Kavanaugh in the amount of $45,000, thus exposing Kavanaugh to personal liability for $20,000 in excess of his combined insurance coverage.

On November 2, 1967, Kavanaugh commenced the instant suit in the circuit court of Cook County against Interstate alone. It went to trial on his amended complaint against both Royal and Interstate. In Count I of his amended complaint Kavanaugh alleged that Royal knew or should have known that Sheehan's claims exceeded the $10,000 policy limit; that it was Royal's duty to attempt to settle the claim within policy limits; that Royal's attorney wrongfully represented Kavanaugh's coverage to be only $10,000 to Sheehan's attorney, Dooley, and then refused to settle for more than $7,500 despite Dooley's offer to settle for $10,000; that both Royal and Interstate tendered $25,000 in settlement after the finding on Kavanaugh's liability and before the $45,000 damages verdict was returned, but Sheehan refused to settle; that Royal's failure to settle was deliberate, willful and arbitrary in breach of its obligation to Kavanaugh. In Count II of his amended complaint, Kavanaugh alleged that Interstate knew or should have known that Sheehan's claims exceeded the policy limits; that it was Interstate's duty to settle this claim on Kavanaugh's behalf within policy limits; that Interstate's liability arose on September 30, 1965, when Royal tendered the full amount of its primary coverage in open court, but Interstate failed to accept or otherwise respond to a settlement; that Interstate's failure to tender its $15,000 limit prior to a finding on liability was deliberate, willful and arbitrary entitling Kavanaugh to punitive and exemplary damages. In both counts Kavanaugh prayed for $20,000 in actual damages and $250,000 in punitive damages.

Royal filed a motion to dismiss Kavanaugh's amended complaint on the grounds that Kavanaugh's loss was occasioned by Interstate's, not Royal's, refusal to tender; that punitive damages were unprecedented; and that no cause of action was stated. Royal's motion was denied on November 6, 1970.

Interstate's answer denied that Sheehan offered to settle the case for $25,000 at any time and that it had breached its legal or contractual duties.

The following pertinent evidence was adduced at trial.

James Dooley

He is the attorney who represented Carol Sheehan in the personal injury suit against Kavanaugh. He summarized the circumstances of the accident as they appeared from the depositions of witnesses including the statement of Sheehan that Kavanaugh was only going 60 miles per hour and that she had not remonstrated him for improper driving. Sheehan suffered multiple lacerations on her face, a compound fracture of the left elbow joint, a compound fracture of the right femur, and injury to one clavicle. She lost $13,000-$21,000 in earnings and her medical expenses as of the time of trial were over $11,000. He first discussed a settlement with Royal's attorney, Donn Johnson, in July, 1965. Johnson stated that Kavanaugh only had a policy for $10,000 with Royal. When he asked why Royal would not pay on the policy, Johnson said he could only pay $8,500. A second offer to settle was made at the pretrial conference. At that time, he demanded $60,000 from all defendants to settle the case. After some discussion, the $60,000 offer was rejected. However, Royal did offer ...

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