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R.C. Wegman Construction Co. v. Admiral Insurance Co.

March 20, 2009

R.C. WEGMAN CONSTRUCTION CO., PLAINTIFF,
v.
ADMIRAL INSURANCE COMPANY, AND BRIAN BUDRIK, DEFENDANTS.



The opinion of the court was delivered by: James B. Zagel United States District Judge

Judge James B. Zagel

MEMORANDUM OPINION AND ORDER

I. BACKGROUND

Defendant Admiral Insurance Company ("Admiral") seeks dismissal of a complaint by Plaintiff R.C. Wegman Construction Company ("Wegman") alleging a breach of duty of good faith for failing to notify Wegman that the liability limits of its policy might be insufficient to cover potential damages in a pending lawsuit, and failing to advise Wegman to seek independent legal counsel when such conditions arose. Wegman alleges that, had Admiral not breached this duty, it would have retained independent counsel and promptly notified its excess carrier of the potential for liability. Wegman claims that instead, since it was unaware of the possibility of an excess judgment until a few days before the trial began, it missed its opportunity to notify its excess carrier and thus was liable for the amount of the judgment exceeding its coverage under its policy with Admiral. For the following reasons, Admiral's motion to dismiss is granted.

II. STANDARD OF REVIEW

A Rule 12(b)(6) motion tests the sufficiency of a complaint, not the merits of a case. Autry v. Northwest Premium Servs., Inc., 144 F.3d 1037, 1039 (7th Cir. 1998). Admiral's motion to dismiss should be granted only if Wegman cannot prove any set of facts in support of its claim that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Furthermore, I must accept all well-pleaded factual allegations in the complaint as true, drawing all reasonable inferences from those facts in Wegman's favor. Cleveland v. Rotman, 297 F.3d 569, 571 (7th Cir. 2002). Stated another way, I should not grant Admiral's motion "unless no relief could be granted 'under any set of facts that could be proved consistent with the allegations.'" Nance v. Vieregge, 147 F.3d 589, 590 (7th Cir. 1998) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)). That said, Wegman's "obligation to provide the grounds of [its] entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level." Bell Atl., Corp. v. Twombly, 550 U.S. 544 (2007).

III. STATEMENT OF RELEVANT FACTS

In 2003, Brian Budrik sued Wegman alleging that he was injured in 2001 at a construction project at which Wegman served as the construction manager. At the time of the injury, Budrik was employed by Standard-Hayes Boiler & Tank, LLC. Wegman was named as an "additional insured" under the terms of a commercial general liability insurance policy issued by Admiral, with Standard-Hayes as the named insured. Liability coverage under the policy was limited to one million dollars for each occurrence. Wegman was also covered by an excess liability insurance policy issued by American International Specialty Lines Insurance Company ("American") which provided liability insurance coverage in the amount of ten million dollars in excess of the coverage provided under the terms of Admiral's policy.

Admiral selected and retained legal counsel to represent Wegman in the Budrik lawsuit. Wegman claims that Admiral learned no later than Budrik's deposition in May 2005 that there was a realistic probability that the award in the lawsuit would exceed the limits of Wegman's liability coverage. At the deposition, Admiral became aware of substantial losses sustained by Budrik as a result of his injuries, including considerable medical expenses, loss of income, and permanent physical disabilities. Wegman also states that in April 2007, Admiral knew that Budrik's demand for settlement was almost $6,000,000.00.

At no time did Admiral notify Wegman that there was a possibility that its liability coverage would be insufficient to cover the potential damages resulting from the lawsuit. Wegman claims that because of Admiral's failure to notify, it had no reason to believe that the possible judgment against it might be in excess of its primary insurer's coverage. It was only a few days prior to the start of the trial, Wegman claims, that it learned of the possibility of excess liability when a company executive had a chance conversation about the suit with a relative who happened to be a lawyer. It was this conversation that prompted Wegman to notify its excess insurance carrier about the lawsuit.

The Budrik suit proceeded to trial and a judgment was entered on the verdict against Wegman for $2,039,059.10, more than twice the limit of coverage under Admiral's policy. American refused to indemnify Wegman for the excess liability, contending that Wegman had failed to give timely notice of the potential for exposure.

Wegman claims that Admiral's failure to provide Wegman with notice of potential excess liability constitutes a breach of its obligation to deal with Wegman in good faith. Wegman claims that this breach was the direct and proximate cause of its damages, including the depravation of opportunity to provide earlier notice to its excess carrier, deprivation of the excess insurance coverage and indemnification which would have been afforded by the excess carrier, exposure to liability in the amount of $1,039,059.10, and substantial attorneys' fees.

IV. DISCUSSION

Wegman asserts that Admiral breached its duty of good faith and fair dealing by failing to notify Wegman of the possibility of an excess judgment and to recommend that Wegman seek independent counsel. The parties do not dispute that Illinois has not expressly recognized an insurance company's duty to notify an insured party of the possibility that a judgment could exceed the policy limits of the insured's protection or to recommend that an insured party consider retaining its own independent legal counsel when such occasion arises. However, Wegman claims specifically that Admiral's duty of good faith and fair dealing includes ...


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