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Pietras v. Sentry Insurance Co.

September 10, 2007

NANCY PIETRAS, PLAINTIFF,
v.
SENTRY INSURANCE COMPANY AND CURFIN OLDSMOBILE, INC., D/B/A CURRY MOTORS DRIVER'S EDGE, DEFENDANTS.
PAUL BLAIR AND LINDA KILLINGSWORTH, PLAINTIFFS,
v.
SENTRY INSURANCE COMPANY AND RIDGEWAY CHEVROLET, INC., DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

This decision involves two consolidated cases that present the same issue: whether a liability insurer is required to pay a settlement that its insured entered into in a lawsuit in which the insurer had declined to defend the insured. The Court rules in each case that the insurer must pay the settlement.

Background

1. The Pietras case

The first of the two consolidated cases is entitled Pietras v. Sentry Ins. Co., Case No. 06 C 3576. In an earlier suit, Nancy Pietras sued Curfin Oldsmobile, Inc., alleging that Curfin violated the Fair Credit Reporting Act by accessing her credit information and that of other class members without a permissible purpose. 15 U.S.C. §§ 1681b(a)(3)(A) & 1681b(c)(1)(B). The penalty for such FCRA violations is the greater of either "actual damages . . . or damages of not less than $100 and not more than $1,000." Id. § 1681n(a)(1)(A). Sentry Insurance Company refused to defend Curfin against Pietras' suit, though Curfin's insurance policy with Sentry covered Curfin for liability incurred due to "personal and advertising injury caused by an offense arising out of your business." Def. LR 56.1 Stat. ¶ 21 (internal quotation marks omitted). Curfin settled the case on a class-wide basis for $420,000, paying $20,000 and assigning the plaintiff class its rights under the insurance policy to the remaining $400,000.

In the present case, Pietras has stepped into Curfin's shoes and sued Sentry, alleging there was coverage under the insurance policy and that Sentry was obliged to indemnify Curfin. The Court previously ruled that Sentry is obliged to indemnify Curfin. See Pietras v. Sentry Ins. Co., No. 06 C 3576, 2007 WL 715759 (N.D. Ill. Mar. 6, 2007). Pietras has moved for summary judgment against Sentry, seeking a determination that the settlement between Curfin and class members was reasonable and that judgment should be entered against Sentry in the amount of $400,000 plus prejudgment interest at 5% from May 31, 2006 and attorney's fees.

2. The Blair case

The second of the two consolidated cases is entitled Blair v. Sentry Ins. Co., Case No. 06 C 4769. In an earlier suit, Paul Blair and Linda Killingsworth sued Ridgeway Chevrolet, Inc., alleging the same type of FCRA violation claimed by Pietras in her suit against Curfin. Blair and Killingsworth were and are represented by the same lawyers who represented and still represent Pietras. Ridgeway had a liability insurance policy with Sentry that is indistinguishable from Curfin's insurance policy. Ridgeway settled the case on a class-wide basis for $400,000 pursuant to an agreement under which it assigned the plaintiff class its rights under the insurance policy to recover that amount and incurred liability on its own of up to $20,000 for costs of notice and class administration.

In the present case, Blair and Killingsworth have stepped into Ridgeway's shoes and sued Sentry, alleging there was coverage under the insurance policy and that Sentry is obliged to indemnify Ridgeway. The Court previously ruled that Sentry is obliged to indemnify Ridgeway. See Blair v. Sentry Ins. Co., No. 06 C 4769, Order of Apr. 16, 2007. Blair and Killingsworth have moved for summary judgment against Sentry, seeking a determination that the class settlement was reasonable and that judgment should be entered against Sentry in the amount of $400,000 plus prejudgment interest at 5% from November 15, 2006 and attorney's fees.

Facts

As the Court will discuss, in a situation like those presented in these cases, a settlement is binding on the insurer if it is reasonable in that it conformed to the standard of what a prudent uninsured party would have done under similar circumstances. For this reason, the relevant facts include not only the procedural histories recited above, but also class-wide FCRA settlements reached in comparable cases.

The Pietras case settled for $32 per class member; the Blair case settled for $20 per class member. As for comparable cases, the parties have focused their attention on a set of similar FCRA cases in this District in which the defendants paid settlements out of pocket. The parties have cited eighteen cases, which settled for an average of $34.59 per class member. As Sentry points out, however, the two largest settlements on a per capita basis were cases that settled after the plaintiffs had prevailed on summary judgment. See Kudlicki v. Farragut Fin. Corp., No. 05 C 2459 (N.D. Ill.); Murray v. Sunrise Chevrolet, Inc., No. 04 C 7668 (N.D. Ill.). Those cases arguably are not comparable to the present cases, in which liability had not been determined at the time of the settlements. After eliminating those cases, the average payment for comparable FCRA settlements by uninsured defendants was $28.26 per class member.

Eleven of the comparable cases involved lower per capita settlement amounts than Curfin agreed to in the Pietras case; only two of the comparable cases settled for a lower per capita amount than Ridgeway agreed to in the Blair case. This means that in five of the sixteen comparable cases, the per capita settlement amount was as large as or larger than Curfin's ...


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