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Malcom v. National American Insurance Co.

United States District Court, N.D. Illinois, Eastern Division

February 13, 2018




         In February 2008, Kala Holtkamp (“Kala”), her two-year old son K.H., a minor, and Christopher Davis were traveling on U.S. Highway 218 in Iowa and collided with a truck owned by Venture One, Inc., driven by Vanya Atanasova. Davis died in the crash, Kala broke her neck, and K.H. suffered a brain injury. Following the accident, Kala, Davis' mother Tia Hamm (“Hamm”), K.H.'s father Nicholas Finley (“Finley”), and Two Rivers Bank and Trust (“Two Rivers”), as conservator for K.H., (collectively, the “Iowa Plaintiffs”), filed a lawsuit in the United States District Court for the Southern District of Iowa (the “Iowa Lawsuit”) against Venture One and others seeking to recover for their injuries resulting from the crash. After several unsuccessful attempts to settle the matter with Venture One's insurance carrier, Defendant National American Insurance Company (“NAIC”), the case proceed to trial, where the Iowa Plaintiffs won a jury verdict of $3, 679, 325.60, well in excess of the $1, 000, 000 insurance coverage Venture One had with NAIC. The Iowa Plaintiffs obtained a judicial lien on the assets of Venture One, including an assignment of all of Venture One's claims, including its rights against NAIC.

         Pursuant to that assignment of rights, the Plaintiffs in this case, Kala, Hamm, and Karen Malcom, the current conservator for K.H., bring this lawsuit alleging that NAIC acted in bad faith by failing to settle the claims against Venture One within the policy limits (Count I) and that NAIC acted in a vexatious and unreasonable manner in its handling of Venture One's insurance claim, in violation of 215 Ill. Comp. Stat. 5/155 (Count II). NAIC now moves for summary judgment [69] on both Counts, arguing that the bad faith claim fails as a matter of law because the Iowa Plaintiffs never made an offer of settlement that would have settled all claims against Venture One within the policy limits and that the lawyer for the Iowa Plaintiffs did not have authority to make the settlement offers in question. Because the Court finds that there is a genuine dispute of fact as to whether NAIC acted in good faith in responding to the Iowa Plaintiffs offers of settlement, and because NAIC lacks standing to challenge the validity of the Iowa Plaintiffs' settlement offers based on the authority granted to their attorney and also fails to show by clear and satisfactory proof that the Iowa Plaintiffs' lawyer lacked settlement authority, the Court denies the motion for summary judgment on Count I. However, the parties agree to dismiss the portion of Count I seeking consequential damages, lost profits, and business disruption to Venture One and Count II in its entirety. Therefore, the Court grants the motion for summary judgment with respect to the request for those damages to Venture One and Count II.


         On February 20, 2008, Kala, K.H., and Davis were traveling on U.S. Highway 218 in Iowa, when they crashed into a truck driven by Vanya Atanasova from behind. The crash resulted in Davis' death and severe injuries to both Kala and K.H. After the crash, Kala, Hamm, K.H.'s father, and the conservator for K.H., Two Rivers, filed a lawsuit against Atanasova and her employer Venture One, in federal court in Iowa. Cory Gourley and Robert Rehkemper from the law firm Gourley, Rehkemper, Lindholm, P.L.C. represented all of the Iowa Plaintiffs except for Finley in the Iowa Lawsuit. John Gajdel represented Finley. Venture One carried a liability insurance policy with NAIC, which covered Venture One for up to $1, 000, 000 per incident. As Venture One's insurer, NAIC hired attorney Dennis Ogden to defend the lawsuit and controlled the settlement discussions during the litigation.

         On January 17, 2011, Ogden prepared a case evaluation and sent it to Tony Gulley, a claims manager at NAIC. In the evaluation, Ogden noted that any potential settlement would likely need to consider the interests of Medicare and Medicaid because K.H. would require care over time funded in part by these programs. From April 4, 2011 through the trial, Iowa Medicaid had a lien or subrogation interest for K.H.'s medical bills ranging from $91, 772.58 to $106, 043.80. Additionally, as of April 4, 2011, Blue Cross Blue Shield had a lien or subrogation interest for Kala's accident-related medical bills in the amount of $9, 561.14.

         Before the case went to trial, Gourley made three settlement offers to Ogden. The first, on April 4, 2011, offered to settle the case on behalf of his clients for the limit under the insurance policy, i.e., $1, 000, 000. This offer did not initially include Finley because he was represented by Gajdel, but on April 13, Gajdel contacted Ogden and informed him that Finley joined in that demand. However, John Walz, the Rule 30(b)(6) representative for Two Rivers testified that he was not aware of this offer before Gourley made it. On May 6, 2011, the day the Iowa Plaintiffs' settlement offer expired, Ogden contacted Gourley and rejected the offer without making a counteroffer.

         On May 24, 2011, Walz sent an email to Gourley authorizing him to “settle all claims for the limits of [Venture One's] insurance policy(ies), which I understand to be one million dollars.” Doc. 70-5, Depo. Ex. 204. The Iowa Plaintiffs again offered to settle the case on May 27, 2011 for $1 million. This offer included all Iowa Plaintiffs, including Finley, but did not specifically reference third-party lienholders. This offer did not include a definitive deadline for acceptance. On June 1, 2011, Ogden called Gourley to ask if the Iowa Plaintiffs would entertain a counteroffer less than the policy limits. Gourley stated that they would. On June 16, 2011, Gourley spoke with Ogden by phone. During this conversation, Gourley reduced the Iowa Plaintiffs' settlement demand to $950, 000. The next day Odgen sent an email to Gourley offering to settle the case for $350, 000 for all claims by all Iowa Plaintiffs, including Finley.

         From January 17, 2011, when Odgen submitted his case evaluation report, through the end of the trial, the defendants' case deteriorated steadily, increasing the likelihood that they would face a jury verdict well in excess of the policy limit. In his case evaluation report, Odgen noted that the testimony of the only independent witness is “so much different” than the testimony of the driver of the truck and her passenger, which could cause a credibility issue for the defendants. Doc. 70-5, Depo. Ex. 6 at 8236-37. Additionally, he noted that one of the defense experts, “if pressed, ” would agree that the independent witness' testimony that the Venture One driver was stopped on the side of the road prior to the crash is accurate and that this could affect the credibility of the driver, who firmly states that she did not stop. He recommended that because there was a risk of a significant damage award, the defendants should explore settlement, and that a settlement within the bounds of the insurance limits would be good.

         On February 1, 2011, Gulley prepared a Claim Review Memo in which he noted that the issue of liability was highly questionable, but that the potential exposure was “extremely high.” Doc. 70-5, Depo. Ex. 7.

         On March 3, 2011, the parties deposed Atanasova, the driver of the truck. During the deposition, Atanasova admitted to falsifying her driving logs the day before the crash further compounding her credibility issues. Ogden noted in an email to NAIC that the deposition did not go well after this admission.

         On June 3, 2011, Odgen emailed NAIC noting that according to Atanasova's phone records, she was on the telephone with her husband at the time of the crash and that this was not consistent with the testimony Atanasova, her son, and her husband gave, again compounding her credibility issues.

         On June 14, 2011, two days before Ogden received the Iowa Plaintiffs' third settlement offer, the judge in the Iowa Lawsuit issued several rulings favorable to the Iowa Plaintiffs on the motions in limine. The judge denied the defendants' motion to exclude evidence regarding the falsification of the log books. The judge barred evidence of Kala's traffic citation related to the accident, evidence that Atanasova was not issued a citation, Kala's previous traffic violations, evidence of settlements between Kala and the other Iowa Plaintiffs, and evidence of Kala's past drug use, inpatient treatment, and mental health issues.

         The trial began on June 20, 2011. By the third day of the trial, the defendants decided to withdraw their experts and not have them testify. Ogden stated in an email that he did not think he ...

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