California Union brought this suit against Liberty Mutual claiming that Liberty Mutual negligently and in bad faith breached its obligation to settle the Hauck case within policy limits, thereby obligating California Union to pay the excess verdict. Both parties have moved for summary judgment.
Summary judgment is proper only if the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). A genuine issue for trial exists only when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The court must view all the evidence in the light most favorable to the nonmoving party, Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 659 (7th Cir.), cert. denied, 484 U.S. 977, 98 L. Ed. 2d 486, 108 S. Ct. 488 (1987), and draw all inferences in the nonmovant's favor. Santiago v. Lane, 894 F.2d 218, 221 (7th Cir. 1990). However, if the evidence is merely colorable, or is not significantly probative or merely raises "some metaphysical doubt as to the material facts," summary judgment may not be granted. Anderson, 477 U.S. at 249-50; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986); Flip Side Prods., Inc. v. Jam Prods., Ltd., 843 F.2d 1024, 1032 (7th Cir.), cert. denied, 488 U.S. 909, 102 L. Ed. 2d 249, 109 S. Ct. 261 (1988). In making its determination, the Court's sole function is to determine "whether there is any material dispute of fact that requires a trial." Waldridge v. American Hoescht Corp., 24 F.3d 918 (7th Cir. 1994). Credibility determinations, weighing evidence, and drawing reasonable inferences are jury functions, not those of a judge when deciding a motion for summary judgment. Anderson, 477 U.S. at 255.
Where, as here, cross-motions for summary judgment have been submitted, the court is not obliged to grant judgment as a matter of law for one side or the other. Heublein, Inc. v. United States, 996 F.2d 1455, 1461 (2d Cir. 1993). The court must evaluate each party's motion on its own merits, resolving all factual uncertainties and drawing all reasonable inferences against the party whose motion is under consideration. Id.; Buttitta v. City of Chicago, 803 F. Supp. 213, 217 (N.D. Ill. 1992), aff'd, 9 F.3d 1198 (7th Cir. 1993).
Illinois recognizes a cause of action for the negligent or bad faith refusal of an insurer to settle a claim within policy limits when that refusal exposes the insured to a judgment in excess of the policy limits.
Steele v. Hartford Fire Ins. Co., 788 F.2d 441, 442 (7th Cir. 1986). Because the insurer generally has the right to control the defense of any litigation against the insured under the liability insurance policy, the insurer owes the insured a corresponding duty of care to conduct the litigation so as to avoid harming the insured--particularly, "a duty not to gamble with the insured's money by forgoing reasonable opportunities to settle a claim on terms that will protect the insured against an excess judgment." Twin City Fire Ins. Co. v. Country Mut. Ins. Co., 23 F.3d 1175, 1179 (7th Cir. 1994).
"Where the insurer fails to settle a case within policy limits through fraud, negligence or bad faith,
this duty is breached" and a cause of action exists. Adduci v. Vigilant Ins. Co., 98 Ill. App. 3d 472, 475, 424 N.E.2d 645, 648, 53 Ill. Dec. 854 (1st Dist. 1981). The insurer may then be held liable for the entire judgment, regardless of the policy limits. Id.
As a preliminary matter, we address some general arguments raised by the parties in their briefs. First, Liberty Mutual argues that California Union's claim against it should be barred through the operation of equitable estoppel--in essence, that California Union caused the harm of which it now complains. The basis for this argument is that California Union retained an attorney, Roadhouse, to monitor the case and report to it. Liberty Mutual claims that the presence of Roadhouse at the pretrial settlement conferences "altered the negotiating landscape" because it signaled Hauck's attorney that the excess carrier was concerned by the case, and therefore that more money might be forthcoming.
The case law does not support Liberty Mutual's contention that, by hiring counsel to monitor a case, an excess insurer is estopped to complain of the result obtained by the primary insurer. An excess insurer can be estopped from recovery if its own actions induced the defendant to try the case. See Sanders v. Standard Mut. Ins. Co., 142 Ill. App. 3d 1082, 1084-85, 492 N.E.2d 917, 918, 97 Ill. Dec. 258 (4th Dist. 1986). Likewise, if an excess insurance carrier participates in settlement negotiations and approves the settlement amount, it may have waived its right to challenge the settlement later. See Commercial Union Ins. Co. v. Medical Protective Co., 136 Mich. App. 412, 356 N.W.2d 648, 653 (Mich. App. 1984), aff'd, 426 Mich. 109, 393 N.W.2d 479 (1986).
Neither of those situations exists here, and the mere hiring of monitoring counsel does not create equitable estoppel. See Certain Underwriters of Lloyd's v. General Accident Ins. Co., 699 F. Supp. 732, 741 (S.D. Ind. 1988), aff'd, 909 F.2d 228 (7th Cir. 1990) ("[a] showing of some affirmative, misleading conduct" is required for estoppel).
Second, Liberty Mutual argues that California Union has no viable claim because it "suffered no damage": it set reserves at the full amount of its policy ($ 4 million), and the amount it was required to pay in satisfaction of the jury verdict was a little less than that. Liberty Mutual cites no support for the novel theory that an excess insurer's act of setting reserves waives the duty of care to avoid an excess verdict which the primary insurer owes to the insured. Under Illinois law, if a primary insurer breaches its duty to its insured or an excess insurer, the excess verdict itself constitutes damages: "the fact of the entry of the excess judgment against the insured itself constitutes the damage that permits the insured to recover for breach of the duty owed." Scroggins v. Allstate Ins. Co., 74 Ill. App. 3d 1027, 1030, 393 N.E.2d 718, 720, 30 Ill. Dec. 682 (1st Dist. 1979).
California Union also raises a general argument in support of its own motion for summary judgment: that to prevail at trial Liberty Mutual must have an expert witness, which it does not have because California Union has moved to strike the expert it did have. Aside from the fact that this argument incorrectly assumes that we will grant California Union's separate motion to strike the expert, the argument also fails because there is no requirement of expert testimony in failure-to-settle cases. The cases California Union cites for that proposition do not support it. Accordingly, none of these preliminary arguments
Before we turn our consideration to the evidence surrounding the claim itself, there is one final matter. In researching the issues raised by the parties in their motions, we became concerned about the possible effect of an Illinois statute that provides for certain penalties against insurers, 215 ILCS § 5/155, and asked the parties for additional briefing on this issue. After receiving the parties' briefs and researching the issue, we conclude that § 155 applies only to an insurer's failure to settle a claim of coverage by the insured against the insurer, not to the insurer's failure to settle a claim brought against the insured by a third party. See National Union Fire Ins. Co. v. Continental Illinois Corp., 673 F. Supp. 267, 271 (N.D. Ill. 1987). As this case is in the latter category, § 155 does not apply. We thus turn to the arguments regarding the failure-to-settle claim itself.
California Union argues that there is no genuine question of material fact that would prevent judgment in its favor on this cause of action. In contrast, Liberty Mutual claims that the evidence supporting several of the elements of this cause of action is missing, so that no reasonable jury could find for California Union. We examine each element separately, beginning with the duty owed.
Illinois courts have generally formulated the duty owed by the insurer as requiring the insurer "to give its insured's interests at least equal consideration with its own where the insured is a defendant in a suit in which the recovery may exceed [the] policy limits."
Adduci v. Vigilant Ins. Co., 98 Ill. App. 3d 472, 475, 424 N.E.2d 645, 648, 53 Ill. Dec. 854 (1st Dist. 1981). This duty is a fiduciary duty, Kavanaugh v. Interstate Fire & Cas. Co., 35 Ill. App. 3d 350, 356, 342 N.E.2d 116, 120 (1st Dist. 1975), and is often framed in terms of a concern for fairness:
If an opportunity appears to settle within the policy limits, thereby protecting the insured from excess liability, the insurer must faithfully consider it, giving the insured's interest at least as much respect as its own. The insurer need not submit to extortion; it may reject a bad deal without waiving the protection the policy limit gives it against the vagaries of lawsuits. But if the honest and prudent course is to settle, the insurer must follow that route. If it deviates from that course, it will be liable for the whole judgment, so as to give the insured the protection that the policy was intended to provide.