39. Tillery called Michael Ryan of Howell Electric to testify in the Heiples' case-in-chief. Just as in his deposition, Ryan testified that the Howell motor suffered from a manufacturing defect. Lawder later testified in his deposition in this case that Tillery's examination of Ryan "went about as bad as it could go."
40. After Ryan's testimony and learning that the Heiples rejected a $ 750,000 settlement offer, plaintiff hired private counsel, Robert Wilson, on October 23,1987, to monitor the trial.
41. On or about October 27, 1987, Wilson insisted that defendant turn over its $ 1,000,000 policy limits to plaintiff, and defendant tendered the $ 1,000,000 on October 29.
42. Wilson settled the claim against Howell for $ 2,000,000 on November 2, 1987. Plaintiff and defendant each provided $ 1,000,000 of the $ 2,000,000 amount.
43. The next day, November 3, 1987, co-defendant Bobst-Champlain settled for $ 500,000, Graymills for $ 50,000, and Lustour waived its $ 90,000 workers' compensation lien.
C. The Heiples' Willingness to Settle
44. Tillery testified that he had executed a settlement agreement with the Heiples to reject all offers below $ 2,000,000, and that he would not have recommended settlement with Howell for any amount less than $ 2,000,000. Tillery also testified that he would not have settled the claim against Howell for defendant's $ 1,000,000 policy limits. Tillery also testified that he had rejected an offer of $ 1,800,000 made by Robert Schmeider, a member of the Hinshaw law firm, before accepting Wilson's $ 2,000,000 offer.
45. Defendant also presented the deposition testimony of Laverne Heiple. Heiple's testimony regarding his deliberations and thought process during October 1987 was ambiguous, but he did not remember signing an agreement authorizing Tillery to reject all offers of less than $ 2,000,000. No written settlement authorization agreement between Heiple and Tillery was introduced into evidence, and the Court finds that there was no such agreement.
46. Heiple stated that he never really "talked money" with Tillery, and that Tillery did not communicate any settlement offers to him. However, Heiple admitted that he relied on Tillery's evaluation of the case.
47. Heiple stated that Tillery "told me he wanted to put a million dollars in my hands, and to get a million dollars the man would have had to have got two million because they got half of it to start with so I presume he had to go for two million."
48. Heiple's testimony does not unequivocally establish the smallest amount of money he would have accepted as a settlement from Howell, but the passage quoted above indicated that Heiple thought that a $ 2,000,000 settlement was necessary, and confirms Tillery's statement.
CONCLUSIONS OF LAW
Plaintiff's second amended complaint pleads theories of negligence and breach of the duty of good faith and fair dealing. To establish a negligence claim, a plaintiff must establish that the defendant owed a duty to the plaintiff, that defendant breached that duty, and that the breach proximately caused plaintiff's damages. Id. at 1425. The elements of a claim for breach of the duty of good faith and fair dealing are practically identical to the elements of a negligence claim, i.e. the defendant must owe plaintiff a duty to act in good faith and conduct fair dealing; the defendant must have breached that duty; and the breach of the duty must have proximately caused plaintiff's damages. See Ranger Ins. Co. v. Home Indem. Co., 714 F. Supp. 956 (N.D. Ill. 1989); Kavanaugh v. Interstate Fire and Casualty Co., 35 Ill. App. 3d 350, 342 N.E.2d 116 (Ill. App. 1975).
Under Illinois law, an insurer clearly owes a fiduciary duty to its insured to protect against negligence, and to act in good faith for the best interests of the insured. Kavanaugh, 342 N.E.2d at 120. However, the instant case requires the Court to determine the duty owed by a primary carrier (defendant) to an excess carrier (plaintiff). No Illinois court has addressed this precise issue. Plaintiff offers five theories supporting the imposition of a duty upon an excess carrier: equitable subrogation; direct duty; contractual subrogation; voluntary assumption of a duty; and a duty based on customs and practices within the insurance industry. One federal district court has ruled that under Illinois law, an excess carrier may be equitably subrogated to the insured's rights against the primary insurer, but that court refused to apply the equitable subrogation doctrine to the facts of the case before it. Ranger, 714 F. Supp. at 960. Three district court decisions have discussed the imposition of a direct duty on a primary insurer to a known excess insurer under Illinois law, and two have ruled that a direct duty exists, American Centennial Ins. Co. v. American Home Assurance Co., 729 F. Supp. 1228, 1231-33 (N.D. Ill. 1990); Ranger, 714 F. Supp. at 960-62, while one court ruled that no direct duty attaches. Walbrook Ins. Co. v. Unarco Indus., Inc., 1992 LEXIS 9447 (N.D. Ill. June 23, 1992). The Seventh Circuit has expressly reserved ruling on the viability of the equitable subrogation and direct duty theories, stating, "we express no opinion . . . [on the] equitable subrogation or the direct duty theory of liability." Certain Underwriters at Lloyd's, London v. Fidelity and Cas. Ins. Co., 4 F.3d 541, 544 (7th Cir. 1993). The Lloyd's of London court upheld a contractual duty by a primary insurer to an excess carrier, id., but the existence of a contractual duty hinges upon the particular contract at issue.
Even if the Court were to find that defendant owed plaintiff a duty of care, and a duty of good faith and fair dealing under any of plaintiff's theories, plaintiff must still prove that defendant breached a duty, and proximately caused plaintiff to contribute to the Heiple settlement. Plaintiff presented evidence that defendant failed to settle within its policy limits, engage in reasonable settlement negotiations, and failed to timely, adequately, or accurately inform plaintiff of a substantial portion of the proceedings central to the Heiples' claim. However, defendant notified plaintiff in 1985 that the verdict could be over $ 1,000,00. Plaintiff was obviously aware that its coverage could be affected, because plaintiff sent a letter to Howell on June 25, 1985, informing Howell that a verdict could exceed Howell's total coverage of $ 6,000,000. Even if plaintiff did not receive Lawder's correspondence at the same time defendant received the various letters, plaintiff had received nearly all relevant information over two months before trial. The Court concludes that defendant did not breach its duty to timely, adequately, or accurately inform plaintiff of its potential exposure.
Plaintiff also contends that defendant breached its duty to engage in reasonable settlement negotiations. Under Illinois law, an insurer has no duty to initiate settlement negotiations unless "the probability of an adverse finding on liability is great and the amount of probable damages would greatly exceed the coverage." Kavanaugh, 342 N.E.2d at 121. Defendant recognized the likelihood of a verdict greatly exceeding the $ 1,000,000 policy limit, thus defendant did owe such a duty. Lawder asked Tillery for a settlement demand as early as the spring or summer of 1987, but Tillery refused to make an offer until shortly before trial. Defendant could have placed a dollar figure on the negotiating table at an earlier juncture, but the failure to do so is not a breach of the duty to engage in reasonable settlement negotiations. Evidence established that when defendant attempted to talk about settlement, Tillery refused to make a demand. Defendant did make settlement offers near the beginning of trial, and the law does not impose a duty to make a large offer before trial commences. Thus, the Court concludes that defendant did not breach its duty to engage in reasonable settlement negotiations.
Even if plaintiff had established that defendant breached a duty, it must also prove that the breach proximately caused plaintiff to contribute $ 1,000,000 to the Heiple settlement. See National Union Fire Ins. Co. v. Continental Ill. Corp., 673 F. Supp. 267, 273 (N.D. Ill. 1987). The National Union court ruled that:
even if the insured [or excess insurer] then suffers a judgment [or settlement] in excess of the policy, it cannot collect that full amount from its [primary] insurer absent a showing that the [primary] insurer's breach also cost the insured an opportunity to settle below the policy limits. Such proof is insisted upon to meet the causation requirement: that the insurer's breach of its duty . . . was the but for source of . . . liability beyond the policy limits.