United States District Court, N.D. Illinois, Eastern Division
KAREN MALCOM, AS CONSERVATOR FOR K.H., A MINOR, KALA M. HOLTKAMP, and TIA HAMM, INVIDIDUALLY AND AS EXECUTOR OF THE ESTATE OF CHRISTOPHER D. DAVIS, assignees of Venture One, Inc., Plaintiffs,
NATIONAL AMERICAN INSURANCE COMPANY, Defendant.
OPINION AND ORDER
L.ELLIS, UNITED STATES DISTRICT JUDGE
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.
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
 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.
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.
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.
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.
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,
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.
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.
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
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.
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.
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