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Phelan v. State Farm Mut. Auto. Ins. Co.

OPINION FILED APRIL 11, 1983.

JOAN PHELAN, A MINOR, BY HER FATHER AND NEXT FRIEND, HUGH PHELAN, PLAINTIFF-APPELLANT,

v.

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. David Cerda, Judge, presiding.

JUSTICE CAMPBELL DELIVERED THE OPINION OF THE COURT:

Plaintiff, Joan Phelan, the assignee of defendant State Farm Mutual Automobile Insurance Company's insured, brought this action to recover an amount in excess of the limits of the insurance policy of defendant's insured. Plaintiff appeals from an order of the circuit court of Cook County which entered judgment n.o.v. in favor of defendant and granted alternative relief of a new trial. Plaintiff contends that: (1) the trial court erred in entering judgment n.o.v. in favor of defendant; and (2) the trial court erred in granting the alternate relief of a new trial.

Plaintiff, Joan Phelan, was injured on December 26, 1971, when the automobile in which she was a passenger was struck by an automobile operated by Paul Santelli. The collision occurred in Grundy County. As a result of the collision, plaintiff, an 11-year-old, was rendered a quadriplegic. Santelli was insured by defendant State Farm Mutual Automobile Insurance Co. The insurance policy required State Farm to defend any lawsuits arising out of the operation of an automobile. The policy limits of liability were $100,000 per person and $200,000 per occurrence.

Plaintiff's father retained Roger B. Gomien, an attorney from Morris, Illinois, to handle plaintiff's claim against Santelli. On January 10, 1972, Jerry Pitstick, a field claim representative for defendant, investigated the collision. Pitstick's report of January 26, 1972, indicated that Santelli had "little regard for the safety of his passengers and little regard for traffic proceeding in a southerly direction" when Santelli backed up his automobile on a highway at the base of a hill. The report indicated that the negligence of Santelli would stem from his violation of two sections of the Illinois Vehicle Code.

On April 13, 1972, plaintiff instituted an action against Santelli. Defendant retained the law firm of Black and Black of Morris, Illinois, to defend Santelli. During the course of discovery, Gomien determined that the limits of liability for the insurance policy which covered Santelli was $100,000 per person and $200,000 per occurrence. On July 27, 1972, Gomien made a verbal settlement demand of $100,000 to August Black, who conveyed plaintiff's settlement demand to defendant. According to Gomien, he informed Black that plaintiff was a quadriplegic and that she required constant care. On September 26, 1972, Gomien wrote to Black and again demanded $100,000 to settle the lawsuit against Santelli. The letter indicated that the $100,000 demand would be in force until November 1, 1972, after which date "we will proceed to move the matter to trial as rapidly as possible, and after which date we will no longer be in a position to accept the $100,000 in full settlement" of plaintiff's claim. Gomien enclosed with this demand letter a report from one of plaintiff's physicians which indicated that plaintiff was a "vegetable" and that her prognosis was "absolutely hopeless." On September 27, 1972, Gomien spoke with Black and there was a discussion about plaintiff giving a covenant not to sue which would allow plaintiff to proceed against the driver of the automobile in which she was a passenger.

During discussions with Temple Burger, a claims superintendent for defendant, Black recommended that defendant make the best possible settlement up to the policy limits of $100,000. In the opinion of Burger, a jury would find Santelli negligent. In mid-October 1972, defendant's claim committee reviewed its file in order to make a final settlement recommendation. The committee gave Burger authority to authorize $100,000 for settlement. On October 24, 1972, Burger informed Black of the final authorization to offer up to $100,000. Burger requested that Black offer $85,000 to Gomien, although Burger knew that the demand was $100,000. On October 26, Black requested a medical report from a neurosurgeon who examined plaintiff. The following day, Gomien told Black that he was stalling and that after November 1, "we will proceed to trial." The neurosurgeon's report was forwarded to Black by Gomien. On October 30, plaintiff was examined in her home by Dr. Seng. Seng concluded that plaintiff had a severe brain injury with quadriplegic paralysis and that her prognosis for recovery was practically nonexistent.

On October 31, Black offered to settle the case for $85,000. Gomien declined the offer, but agreed to talk with plaintiff's parents. After discussing defendant's offer with plaintiff's parents, Gomien told Black that he would accept $97,500 for a covenant not to sue or $100,000 for a release. Gomien informed Black that if the case was settled on November 1 for $100,000, he would reduce his fee from 33 1/3% to 20% and that if the case were settled for $97,500, he would reduce his fee by an additional $2,500. On November 1, Black informed Gomien that the $85,000 offer still stood. Gomien then told Black that plaintiff's demand would remain in force until November 6, after which time it would be necessary to hire a trial specialist. On November 6, Black confirmed the $85,000 offer of settlement in a letter to Gomien. Gomien subsequently informed Black in a letter dated November 6 that the $85,000 offer was rejected. Gomien subsequently referred plaintiff's case to a Jerome Mirza.

On November 29, 1972, Bruce Buckley, who replaced Burger as the field claim superintendent, met with Gomien. Gomien did not discuss the case because the case had been referred to Mirza. Gomien indicated to Buckley that he thought State Farm had improperly conducted negotiations and that there was the possibility of an excess liability claim against defendant. In a December 1 memorandum, Buckley indicated that there was a concern with "excess judgment." Buckley contacted Black and informed Black that there could be an excess judgment claim against defendant and that Black should offer Mirza $97,500 for a covenant not to sue or, if rejected, the policy limits of $100,000. On December 4, Black spoke with Mirza and offered $97,500 for a covenant not to sue. Mirza rejected the offer in a letter dated December 5. Following a deposition on December 18, Black offered Mirza and Gomien $100,000 to settle the case. The offer was refused.

In January 1973, plaintiff's motion for a change of venue was granted and in May 1973, the case was set to be tried in mid-September 1973. Prior to the commencement of the trial on September 12, 1973, Black's offer of $100,000 to settle the case was refused by Mirza. At trial, the jury returned a verdict against plaintiff and in favor of Santelli. The appellate court reversed and ordered a trial on the sole issue of plaintiff's damages. (Phelan v. Santelli (1975), 30 Ill. App.3d 657, 334 N.E.2d 391.) Following the denial of Santelli's petition for leave to appeal to the Illinois Supreme Court and the issuance of the mandate by the appellate court on January 19, 1976, Black sent defendant's check in the amount of $100,000 to Mirza. Mirza did not accept the check. On June 7, 1976, prior to the beginning of the trial on damages, Black tendered to Mirza defendant's check for $100,000, which Mirza declined to accept. On June 10, the jury returned a verdict finding for plaintiff and assessing damages in the amount of $350,000. On June 30, 1976, defendant paid $100,000 to plaintiff in partial satisfaction of the judgment against Santelli.

In August 1976, Mirza requested that Santelli execute an assignment of his bad-faith claim for excess liability against defendant. Santelli did not respond to Mirza's request. On November 15, Santelli appeared in a citation-to-discover-assets proceeding and, at that time, he was ordered by the court to execute an assignment of his claim against defendant to plaintiff. On December 6, 1976, plaintiff, as assignee of defendant's claim, brought this action against defendant in the circuit court of Cook County. In April 1981, the jury returned a verdict for plaintiff in the amount of $250,000 plus 6% interest and on April 6, the court entered the judgment order.

On June 10, defendant filed its post-trial motion in which it sought the entry of a judgment n.o.v. In the alternative, defendant sought a new trial because of 29 alleged trial errors. On August 13, 1981, the trial court granted defendant's motion. The court set aside the jury verdict and entered judgment n.o.v. in favor of defendant. The court also conditionally granted the alternate relief sought by defendant. Plaintiff appeals.

Prior to determining whether the court properly granted defendant's motion for judgment n.o.v., we shall first consider whether plaintiff had standing to maintain this action. In support of her contention that she has standing, plaintiff cites Brown v. State Farm Mutual Automobile Insurance Association (1971), 1 Ill. App.3d 47, 272 N.E.2d 261. Plaintiff argues that Brown permits the assignment of a bad-faith claim against an insurer in a citation-to-discover-assets proceeding brought against the insured. Defendant argues that Roundtree v. Barringer (1981), 92 Ill. App.3d 903, 416 N.E.2d 675, precludes the involuntary assignment of a bad-faith claim.

In Brown, plaintiff recovered a $40,000 judgment against the administrator of the estate of defendant's insured. Defendant had issued an automobile liability policy to the insured in the amount of $20,000. After discovery, plaintiff offered to settle the case for the $20,000 policy limits. Defendant refused the offer and no counteroffer was made. A citation-to-discover-assets proceeding was commenced against the estate of the insured. The court found that the assets of the estate were $5,500 and a potential chose in action against defendant for its bad faith in settling the claim within the insured's policy limits. The administrator of the insured's estate assigned the bad-faith claim to plaintiff, reserving the right to obtain for the insured's heirs any amount received over $14,500, attorney fees and costs. In Brown, the trial court dismissed the action upon the basis that plaintiff did not acquire any legal right to maintain the insured's bad-faith claim. The Fourth District of this court considered the various cases from other jurisdictions in which assignability was and was not permitted. The court in Brown concluded that there was "no valid reason in public policy why the cause of action should not be assignable" and reversed the trial court's dismissal of the action.

In Roundtree, plaintiff obtained a $75,000 judgment against defendant. Defendant was the administrator of the estate of the insured who was covered under an automobile insurance policy with limits of $50,000. Plaintiff then brought a citation-to-discover-assets proceeding against the administrator of the insured's estate. At the citation proceedings, plaintiff alleged that the bad-faith claim arose out of the insurer's negligence, bad faith or fraud in the insurer's refusal to settle plaintiff's claim. The court refused to order the assignment of the bad-faith cause of action. The Fifth District of this court upheld the trial court's order which denied plaintiff's motion to compel the assignment of the cause of action. The court in Roundtree concluded that to compel the assignment of a cause of action in circumstances raised in the case would violate public policy. Roundtree cautioned that to permit involuntary assignments, a plaintiff could go on a "fishing ...


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