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AMERICAN CENTENNIAL INS. CO. v. AMERICAN HOME ASSU

February 7, 1990

AMERICAN CENTENNIAL INSURANCE COMPANY, a Delaware Corporation, Plaintiff,
v.
AMERICAN HOME ASSURANCE COMPANY, a New York Corporation, and PARMELEE TRANSPORTATION COMPANY, an Illinois Corporation, Defendants. UNITED EQUITABLE INSURANCE COMPANY, an Illinois Corporation, Plaintiff, v. AMERICAN HOME ASSURANCE COMPANY, a New York Corporation, Defendant


George M. Marovich, United States District Judge.


The opinion of the court was delivered by: MAROVICH

GEORGE M. MAROVICH, United States District Judge.

 The plaintiffs in these consolidated cases are excess insurance carriers who are suing, inter alia, a primary carrier alleging that it breached certain duties owed to them as excess carriers. These cases are now before the court on the motions of defendant American Home Assurance Company ("American Home") to dismiss count two of each complaint for failure to state a claim upon which relief may be granted. For the reasons set forth below, American Home's motions are denied.

 BACKGROUND

 When deciding a motion to dismiss, this court must accept as true all well-pleaded facts alleged in the plaintiff's complaint and all inferences which may be reasonably drawn therefrom. Gray v. County of Dane, 854 F.2d 179, 182 (7th Cir. 1988). The alleged facts in these cases are straightforward. On November 25, 1979, Dr. Peter Bright-Asare was a passenger on an air transport bus which was involved in an accident while being operated by Continental Air Transport Company, Inc., the predecessor of Parmelee Transportation Co. ("Continental/Parmelee"). On May 19, 1980, Dr. Bright-Asare filed suit against Continental/Parmelee in the Circuit Court of Cook County, Illinois seeking recovery for personal injuries suffered in the accident. On December 14, 1988, a jury returned a verdict in favor of Dr. Bright-Asare in the amount of $ 7,746,200. A judgment in that amount plus costs and interest was subsequently entered.

 At all relevant times, American Home was Continental/Parmelee's primary liability carrier. The policy issued by American Home had a stated limit of $ 1,000,000. American Centennial Insurance Co. ("American Centennial") was one of Continental/Parmelee's excess carriers. United Equitable Insurance Company ("United"), pursuant to a Reinsurance and Assumption Agreement with United Fire Insurance Company, was another one of Continental/Parmelee's excess carriers. At all relevant times, American Home was aware that the policy which it had issued to Continental/Parmelee was primary to excess policies specifically identifying its policy as underlying insurance.

 On July 18, 1980 American Home advised Continental/Parmelee by letter that it had concluded that the amount recoverable in Dr. Bright-Asare's lawsuit against Continental/Parmelee could exceed the $ 1,000,000 limit of American Home's primary policy. At an October 31, 1988 pretrial conference, Dr. Bright-Asare's counsel made a $ 300,000 settlement demand. The attorneys which American Home had retained to defend Continental/Parmelee, Epton, Mullin & Druth, Ltd. ("Epton, Mullin"), countered with a $ 100,000 offer at American Home's direction. At a November 29, 1988 pretrial conference, Dr. Bright-Asare's counsel made a $ 1,500,000 settlement demand. American Home, through Epton, Mullin, countered with a $ 300,000 offer.

 The complaints allege eight "negative factors" of which American Home was aware by the time of the October 31, 1988 pretrial conference which point to the conclusion that American Home knew that Continental/Parmelee's liability to Dr. Bright-Asare could exceed the limit of American Home's policy.

 
"[American Home] carelessly and negligently failed to settle the [Dr. Bright-Asare] matter within [American Home's] policy limits when it had the opportunity to do so and when it knew that any reasonable and prudent evaluation of the facts and the circumstances known to it on and before October 31, 1988 would have led any reasonable insurer to accept the $ 300,000 settlement demand proposed by Bright-Asare through his counsel at the October 31, 1988 pretrial conference. The potential for exposure and negative factors militating in favor of the settlement demand proposed by Bright-Asare through his counsel were so overwhelming that the failure of American Home to settle the matter within its policy limit when the opportunity arose constitutes negligence . . . ."

 The complaints allege causation, i.e., that Dr. Bright-Asare's lawsuit would have been settled within American Home's policy limit but for American Home's negligent failure to settle, and damages, i.e., that "demands have been made" of United and American Centennial to pay their policy limits in satisfaction of Dr. Bright-Asare's judgment.

 The complaints seek a declaration that American Home is liable to American Centennial and United for any amounts which American Centennial and United may be deemed obligated to pay to or on behalf of Continental/Parmelee in satisfaction of Dr. Bright-Asare's judgment.

 ANALYSIS

 As a preliminary matter, this court notes that all parties to this diversity action have assumed, without arguing, that the substantive law of the forum state of Illinois applies to this case. In such a situation, this court will apply the forum state's substantive law. Checkers, Simon & Rosner v. Lurie Corp., 864 F.2d 1338, 1345 (7th ...


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