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In Re Liquidation of Legion Indemnity Corporation v. Robert Rohlwing

April 16, 2013

IN RE LIQUIDATION OF LEGION INDEMNITY CORPORATION ANDREW BORON, DIRECTOR OF INSURANCE OF THE STATE OF ILLINOIS, AS LIQUIDATOR OF LEGION INDEMNITY INSURANCE COMPANY, PETITIONER-APPELLEE,
v.
ROBERT ROHLWING, NANCY ROHLWING, ROBERT PAHLKE, AND PAULETTE PAHLKE, CLAIMANTS-APPELLANTS.



Appeal from the Circuit Court of Cook County, Illinois. No. 02 CH 06695 Honorable Mary Mikva, Judge Presiding.

The opinion of the court was delivered by: Justice Simon

JUSTICE SIMON delivered the judgment of the court, with opinion.

Presiding Justice Harris and Justice Quinn, concurred in the judgment and opinion.

OPINION

¶ 1 On October 7, 1998, 10-year-old Kristie Talley suffered substantial injuries that caused her death when the bicycle she was riding was caught between a curb and a school bus owned and operated by Barrington Transportation Co., Inc. (Barrington). Kristie's parents, James and Melanie Talley, brought an action against Barrington, Barrington School District 220 and the driver of the bus, Ralph H. Toppel, Jr. The Talleys pleaded counts seeking compensation for: wrongful death; a survival action; and recovery under the Rights of Married Persons Act (750 ILCS 65/15 (West 1998)). Prior to trial, Legion Indemnity Company (Legion), Barrington's primary and excess insurer, was declared insolvent and placed into liquidation and the Deputy Director of the Office of the Special Deputy Receiver of the State of Illinois Department of Insurance was affirmed as the statutory liquidator of Legion (Liquidator).

¶ 2 As a result of the loss of coverage, Barrington had insufficient resources and was unable to reach a settlement with the Talleys. In response, Barrington filed for bankruptcy on the eve of trial. This effectively halted the trial and the Talleys filed a proof of claim with the bankruptcy court.

¶ 3 Thereafter, Barrington and the Talleys entered into mediation and reached a settlement. Under the relevant terms of the settlement agreement, the Talleys received $1.2 million from Barrington, $250,000 from the Illinois Insurance Guaranty Fund (Fund) and $50,000 from uninsured motorist coverage. In return, the Talleys assigned to Barrington their rights to any payment from Legion. The former principals of Barrington and their next generation, the Pahlkes and Nancy and Robert Rohlwing (collectively Claimants), submitted a claim in the liquidation of Legion seeking the remaining $5,750,000 limits in Barrington's two policies with Legion. The Liquidator recommended the claim be approved for $1.2 million, the amount Barrington paid to the Talleys apportioned among the two policies.

¶ 4 Claimants objected to the recommendation and the Liquidator filed a petition in the circuit court to approve the claim in the amount recommended. The circuit court entered an order on October 5, 2011, approving the Liquidator's recommendation. On February 27, 2012, the circuit court denied Claimants' motion for reconsideration.

¶ 5 On appeal, Claimants contend that the circuit court erred in determining that the assignment between the Talleys and Barrington was void because it was not one for a personal injury claim but, rather, a contractual right pursuant to the settlement agreement for an accrued right of payment. Claimants contend that the Liquidator had ample opportunity to challenge the reasonableness of the agreed upon amount of the settlement, but failed to do so, and that the circuit court should have recognized and approved the established value of the claim. Claimants assert that it follows that the Liquidator's determination that the claim was worth $1.2 million, and not the full amount of the assignment, is not supported by the record. Alternatively, Claimants argue that, if the assignment is void and may be disregarded, it does not erase the evidence of record that the Talleys possessed a sizable survival claim. Additionally, Claimants argue that Barrington's motion for partial approval of its claim in the amount paid out was not a compromise or offer to negotiate, but a concession that it was an out-of-pocket sum certain and that its claim was worth no less than that amount. For the following reasons, we affirm the judgment of the circuit court.

¶ 6 I. BACKGROUND

¶ 7 On October 7, 1998, Kristie Talley suffered substantial injuries and was killed near Woodland Elementary School in Carpentersville, Illinois, when the bicycle she was riding was caught between a curb and a school bus owned and operated by Barrington. Kristie's parents brought a wrongful death and survival action against Barrington, the school district and the driver of the bus, Ralph H. Toppel, Jr. Barrington and Toppel denied liability and the matter advanced toward trial.

¶ 8 At the time of the accident, Barrington had primary and excess insurance policies having a combined limit of over $6 million. However, on April 9, 2003, the circuit court entered a liquidation order against Legion, Barrington's primary and excess insurer. Attorneys were provided by the Fund to represent Barrington, but the statutory limit of $250,000 was insufficient to settle the Talleys' claims. Therefore, on September 16, 2003, the eve of trial, Barrington filed a petition for bankruptcy and the trial was postponed because the circuit court had lost jurisdiction over Barrington pursuant to the federal bankruptcy code.

¶ 9 During the bankruptcy proceedings, the Talleys and Claimants entered into mediation over the Talleys' claims. During mediation, the Talleys, Claimants, and the Fund negotiated a settlement. The parties stipulated, and the Talleys submitted a proof of claim, that the claims against Barrington were valued at $7.5 million. The bankruptcy court approved the settlement and the Talleys received $1.2 million from Barrington. Relevant portions of the settlement agreement provided:

"The Bankruptcy Court has allowed the Talleys['] Claim in the amount of $7,500,000.00 (Seven Million and Five Hundred Thousand Dollars), and judgment entered thereon, which sum represents the fair and reasonable value of the Action, had the bankruptcy of ...


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