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O'Neill v. Gallant Insurance Co.

April 23, 2002

MARGUERITE A. O'NEILL, PLAINTIFF-APPELLEE,
v.
GALLANT INSURANCE COMPANY, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Madison County. No. 98-L-697 Honorable George J. Moran, Judge, presiding.

Justices: Honorable Clyde L. Kuehn, J., Honorable Philip J. Rarick, J., and Honorable Thomas M. Welch, J., Concur

The opinion of the court was delivered by: Justice Kuehn

UNPUBLISHED

In this case, an insurance company took its small stake in the outcome of a personal-injury claim, $20,000 worth of liability coverage purchased by one of its customers, and transformed it into a multimillion-dollar judgment against the carrier. For reasons that are not entirely clear, John Moss, executive vice president of Warrior Insurance Group *fn1 , the person primarily responsible for this action, bypassed a chance to settle an insured's obvious liability for catastrophic personal injuries, and to do so within the insurance policy limits. His decision turned $20,000 worth of contractual duty into a $3,010,063 judgment for a bad-faith refusal to settle within the policy limits.

This remarkable wizardry had its origins on October 31, 1996. On that Halloween day, a Gallant Insurance Company customer named Christine Narvaez drove her insured automobile onto the parking lot of a busy Granite City supermarket. Christine had her two-year-old grandchild with her. The youngster was riding, unconstrained, in a booster seat. Christine saw a friend and decided to stop for a brief chat. She parked and exited the car, leaving the keys in the ignition and the motor running. Thus, circumstances awaited the mischief that her unattended two-year-old grandchild could glean from being left alone in a car with its engine running.

Gallant Insurance Company's insured played quite a Halloween trick on shoppers in the vicinity of her car. The trick treated Marguerite O'Neill to lifelong confinement in a nursing home. It only took a moment for Christine's little nipper to crawl behind the wheel, slip the car into gear, and set it into motion. As the car rolled out of control, it collided with two other cars and two pedestrians. Mrs. O'Neill was the most severely damaged victim of Christine's negligence.

Mrs. O'Neill was in her eighties and could not physically evade the slow-moving car as it approached her. The insured's vehicle pinned her between it and another car and slowly crushed her trapped body. Mrs. O'Neill was pried loose and airlifted to St. Louis University Hospital Trauma Center, where she spent the next month in the intensive care unit. Her body suffered a crushed hip, a broken arm, four cracked ribs, and two fractured fingers. She lost more than 40% of her blood supply as a result of internal bleeding. The blood loss triggered respiratory shock. Mrs. O'Neill was given a tracheotomy and was placed on a respirator for 24 days.

The accident had lasting consequences. It deprived Mrs. O'Neill of the ability to live life independently of others. It placed her into a nursing home, where she remains to this day.

Gallant Insurance Company (Gallant) insured Christine with the statutory minimum amount of coverage against liability arising out of the operation of her car. Consequently, there was only $20,000 worth of coverage to address the catastrophic damages that Christine's negligence wrought. Not including her other damages, Mrs. O'Neill's medical bills amounted to $105,000.

Mrs. O'Neill's attorney demanded the policy limits in settlement of her claim. He offered a complete release from liability for Christine, provided that Gallant would promptly tender its check for Christine's $20,000 liability coverage. Gallant was given 30 days to decide. Confronted with a case of obvious liability with potential damages far in excess of the policy limits, Gallant did not dignify the demand with a response. The 30 days passed and Gallant remained silent. It did not try to negotiate. It did not attempt a counteroffer. It did not even tell Christine that the elderly lady that she hurt was willing to forego a personal judgment for more than the amount with which Christine was insured. Gallant simply ignored the offer to settle, and a window of opportunity to protect its customer from an excess judgment closed.

Moss bypassed the chance to authorize the payment of the coverage that Christine had purchased from Gallant. As a result of his decision, Christine suffered a large excess judgment. Gallant's refusal to even respond to an invitation for settlement occurred under baffling circumstances.

Gallant's initial adjuster noted in the claims diary that Christine was clearly negligent and that Gallant was responsible for the damages that she caused. His opinion was reviewed by an immediate supervisor and a claims director, and both concurred in his liability evaluation. Based upon that opinion, Gallant paid the two property-damage claims that stemmed from the accident. When Mrs. O'Neill registered her claim through a lawyer, the claim was forwarded to a more seasoned adjuster. She examined her younger counterpart's work, conducted her own independent investigation of the claim, and before a demand was even made, recommended the payment of the $20,000 policy limits. A claims manager reviewed this recommendation. She wrote to Moss and conveyed her opinion that the policy limits should be tendered.

Gallant did not have a claims department. It was one of two subsidiaries of Warrior Insurance Group, the company that handled all claims. Moss was the executive vice president of Warrior Insurance Group (Warrior). None of Warrior's 12 claims adjusters had the authority to settle a claim for $20,000. Warrior's two claims directors lacked such authority. Even Warrior's claims manager could not authorize a $20,000 settlement. Only Moss and Warrior's chief executive officer could authorize any Gallant settlement payment in excess of $15,000.

Warrior's claims manager, someone with a decidedly conservative approach to the settlement of automobile liability claims, wrote and advised Moss that the tender of the policy limits was a necessary step "in order to make sure that the policyholder's interests were treated with equal weight as the company's interests."

Moss also heard from the lawyers Gallant hired to defend against Mrs. O'Neill's lawsuit. At the time, Gallant so valued their work that it had the firm handling 500 active files, all on a flat-fee billing basis. Two weeks prior to the settlement demand's expiration, those lawyers wrote to Moss with an evaluation and a recommendation. Christine's lawyers told him that liability was clear. They also told him that the verdict potential on that obvious liability rested within a dollar range 15 to 30 times the amount of coverage. Two weeks before the chance to settle within the policy limits was forever lost, Christine's lawyers urged Moss to tender those limits. In their professional judgment, it was clearly the prudent thing to do.

Moss decided to reject everyone's advice. His decision to disregard the adjusters' opinions, the director's opinion, his claims manager's opinion, and Christine's lawyers' opinions occurred without explanation or notation in the claims diary. Much later, at the trial of this case, Moss's testimony, the linchpin of the defense against the bad-faith claim, revealed the reason behind the decision. Moss actually testified, under oath, that he believed in good faith that Christine was not liable for anyone's injuries.

Almost a year after the demand to settle for the policy limits had expired, and only a few days before the trial on the underlying personal-injury action was to begin, Moss decided to authorize an offer of $20,000 in order to settle the case. By that time, Mrs. O'Neill had no interest in accepting such an offer. She had incurred more than $3,000 in costs readying the case for a trial, and there was no offer to defray them. Mrs. O'Neill's economic losses as a result of the accident had nearly doubled since the demand expired, and her contingency-fee structure had also increased. On the eve of trial, Mrs. O'Neill was intent on seeing what kind of an award a jury would return. Hopefully, Christine would personally satisfy the amount by which the jury's award might exceed Christine's insurance coverage.

Moss preferred a last-minute offer of the policy limits to a jury test of his good-faith belief that liability was lacking. Unfortunately, he made the decision to forego his belief too late. The chance to obtain a release in return for $20,000 had come and gone.

A few days after Mrs. O'Neill's refusal of Gallant's offer, a jury found for her and against Christine and awarded $731,063 in damages. The verdict came as no surprise to anyone in Gallant who was ever entrusted with the task of evaluating the claim. We are not even sure that it surprised Moss. Gallant's lawyers asked him to send a $20,000 company check, and he complied, before the verdict was even returned. Christine owed Mrs. O'Neill $711,063. The only reason that she owed it was her carrier's decision not to meet the demand for the policy limits. Moss's good-faith belief that there was no liability on Christine's part proved to be misplaced. The mistake resulted in Christine's financial ruin.

A supplementary action was commenced in order to enforce the judgment against Christine. Her potential claim against Gallant for its failure to settle Mrs. O'Neill's claim within the policy limits was assigned to Mrs. O'Neill, who then brought this lawsuit against Gallant. The case was tried to a jury. The jury found in Mrs. O'Neill's favor and awarded actual damages in the sum of $710,063 *fn2 and punitive damages in the sum of $2.3 million. Interest was also awarded.

A significant part of the evidence presented against Gallant consisted of the pattern of conduct engaged in by Gallant over the five years leading up to this bad-faith action. Mrs. O'Neill presented 44 known cases where Gallant's Illinois customers suffered excess judgments after Gallant passed up the opportunity to settle within the policy limits. Most of the excess judgments occurred on John Moss's watch. The dollar amount by which the excess judgments exceeded policy limits totaled $10,849,313. This staggering total was accumulated through jury awards on automobile accident cases, a class of personal injury generally known for miserly jury verdicts. All but $449,313 of this amount was awarded after Moss took over control of the settlement process in June of 1997.

Gallant argues that the jury's verdict, based upon the finding that Gallant acted in bad faith in its handling of Mrs. O'Neill's claim, is contrary to the manifest weight of the evidence. This is a question that we review with deference to the jury. Its findings will not be overturned unless they are "manifestly erroneous." Fritzsche v. Union Pacific R.R. Co., 303 Ill. App. 3d 276, 287, 707 N.E.2d 721, 729 (1999).

Where an insurer is pursued for its refusal to settle a claim, "bad faith" lies in an insurer's failure to give at least equal consideration to the insured's interests when the insurer arrives at a decision on whether to settle the claim. See Mid-America Bank & Trust Co. v. Commercial Union Insurance Co., 224 Ill. App. 3d 1083, 1087, 587 N.E.2d 81, 84 (1992). This is precisely the standard set forth by Donna Hedl, Warrior's claims manager, when she wrote Moss and gave her opinion of how Mrs. O'Neill's claim should be handled. She wrote that the policy limits should be tendered "in order to make sure that the policyholder's interests were treated with equal weight as the company's interests." Her admission, standing alone, provides ample evidence of bad faith. However, there was other evidence of bad faith to support the jury's verdict.

We have identified seven factors pertinent to the assessment of bad faith, and every one of them supports this jury's verdict.

I.

The advice of the insurance company's own adjusters is a factor to be considered. See Phelan v. State Farm Mutual Automobile Insurance Co., 114 Ill. App. 3d 96, 104-05, 448 N.E.2d 579, 585 (1983).

Moss, Gallant's decision-maker and the only one authorized to advance a settlement offer in this case, was urged by every level of claims department employee to tender the policy limits. The claim's initial adjuster, his supervisor, and a claims director all concurred in their evaluation of the insured's liability. As a consequence, Gallant paid the property-damage claims in full within 30 days of the occurrence.

The next adjuster who reviewed the file concurred in the conclusions already reached by three other claims department employees. She recommended the payment of the policy limits before Mrs. O'Neill even made a demand. Her supervisor, the claims manager, also recommended the payment of the policy limits. Her recommendation was particularly damaging to Gallant.

Donna Hedl had adjusted claims for Gallant and other nonstandard insurance companies for more than 25 years. Historically, she conceded the payment of claims grudgingly. She subscribed to the conservative philosophy that no claim should be paid absent clear negligence on the part of the insured. Moss had to admit at the trial that he appreciated how she employed this philosophy and that she served the company well. He found her to be a most able and competent adjuster. This left little to offer in support of why he would not follow her advice and tender the policy limits.

II.

A refusal to negotiate is a factor to be considered. Cernocky v. Indemnity Insurance Co. of North America, 69 Ill. App. 2d 196, ...


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