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LLC v. American Physicians Assurance Corporation, Inc.

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

June 26, 2018

THE SURGERY CENTER at 900 NORTH MICHIGAN AVENUE, LLC, Plaintiff,
v.
AMERICAN PHYSICIANS ASSURANCE CORPORATION, INC., and AMERICAN PHYSICIANS CAPITAL, INC., Defendants.

          Hon. Sharon Johnson Coleman

          DEFENDANTS' MOTION FOR JUDGMENT AS A MATTER OF LAW

          Jon T. Neumann One of the Attorneys for Defendants

          Jon T. Neumann (admitted pro hac vice)

          Floyd P. Bienstock (admitted pro hac vice)

         Pursuant to Federal Rule of Civil Procedure 50, APAC moves for judgment as a matter of law because no reasonable jury could find that TSC has met its burdens of proof on any claim. APAC therefore requests judgment on the entirety of Plaintiff's Second Amended Complaint or, alternatively, on Counts II and III, which, respectively, allege “Institutional Liability Punitive Damages” and “Concert of Action.”

         The Illinois Supreme Court has narrowly defined the common-law cause of action for “bad faith.” As this Court has recognized, “to sustain a successful claim for bad faith, TSC must prove that: (1) a duty to settle existed; (2) the insurer breached that duty; and (3) the breach caused injury to the insured.” (Doc. 304 at 5.) “The duty [to settle] does not arise at the time the parties enter into the insurance contract, nor does it depend on whether or not a lawsuit has been filed.” Haddick ex rel. Griffith v. Valor Ins., 763 N.E.2d 299, 304 (Ill. 2001). The duty also does not arise until a third party demands settlement within limits. Id. at 305. Even when a demand is made, the duty arises only if there is “a reasonable probability of a finding of liability against the insured.” Id. at 304 (emphasis added). Consistent with its plain meaning, a “reasonable probability” means “at least more likely than not.” Powell v. Am. Serv. Ins. Co., 2014 IL App (1st) 123643, ¶ 36, 7 N.E.3d 11 (emphasis added); Hana v. Illinois State Med. Inter-insurance Exch. Mut. Ins. Co., 2018 IL App (1st) 162166, ¶ 35, - N.E.3d - (affirming these standards for a failure-to-settle claim).[1]

         This is an objective assessment of the probability of an adverse verdict. See, e.g., Ill. Pattern Jury Instr. - Civil § 710.00 (“The conduct of the insurer is tested against an objective - not a subjective - standard”). Again, this inquiry “applies at the time of the settlement demand, ” and after-the-fact evidence cannot be used retrospectively to decide whether there was a “reasonable probability” of a finding of liability against the insured. Powell, ¶ 42.

         Before trial, this Court denied APAC's Motion for Summary Judgment based on a finding of disputed facts as to the likelihood that TSC would be found liable and the amount of potential damages to which TSC would be exposed. (Doc. 304 at 6.) To the extent any such fact issue previously precluded judgment as a matter of law, it has now been resolved. There is no dispute that the Tate case presented - and that TSC knew - from the outset that the likely damages would exceed TSC's policy limit if the jury were to find liability. And TSC has offered no evidence whatsoever that, at the time of Ms. Tate's settlement demands, it was objectively more likely than not that TSC would lose at trial on liability. Instead, TSC has endeavored to confuse the jury with unfounded assertions about collateral issues, such as APAC's reserving and reinsurance information, a New Mexico meeting with no nexus to the Tate claim, and nonexistent conflicts of interests. Even if the jury were to believe those assertions, they are irrelevant to TSC's failure-to-settle claim. What Plaintiff's case-in-chief at this trial has demonstrated, however, is that everyone - Ms. Griffiths, TSC's clinical staff, all of the lawyers, and APAC - thought the Tate case was highly defensible as to both standard of care and causation. As such, the Tate case simply never triggered a duty for APAC to settle within TSC's policy limit.

         Second, punitive damages are only a derivative penalty, and TSC's prayer for such an award falls with its untenable bad-faith claim. However, even if TSC's bad faith claim is permitted to continue to the jury, judgment should be granted on its punitive damages claim because it has failed to show that APAC engaged in the kind of outrageous conduct and reckless disregard that is required for the jury to consider the imposition of punitive damages, which is the only relief requested under TSC's Count II.

         Third, TSC's concert-of-action claim in Count III cannot survive independently of its bad-faith claim unless APAC knowingly and substantially assisted defense counsel in breaching their professional obligations to TSC. Again, however, even if TSC's bad faith claim is permitted to continue, judgment should be entered on TSC's concert-of-action claim because TSC has failed to show that the lawyers at Lowis & Gellen breached any duty in defending TSC, much less that APAC knowingly and substantially assisted in such a breach. Indeed, defense counsel are presumptively independent contractors, and TSC faces a high bar in imposing liability on APAC for the conduct of these third parties.

         One of the core purposes of judgment as a matter of law is to speed up litigation and avoid unnecessary trials. Weisgram v. Marley Co., 528 U.S. 440, 451 (2000). Given TSC's failure to carry its burdens in its case-in-chief, and the likely jury confusion caused by TSC's introduction of collateral issues into this case, this Court should grant judgment as a matter of law to save the parties, the jury, and itself the time and expense of trying this unsupported case to a verdict. APAC requests that the Court enter judgment as a matter of law in its favor.

         Argument

         Judgement as a matter of law is appropriate because TSC has been fully heard and the jury lacks “a legally sufficient evidentiary basis to find for [TSC].” Fed.R.Civ.P. 50(a). The standard for judgment as a matter of law “mirrors” summary judgment under Rule 56. Reeves v. Sanderson Plumbing Prod., Inc., 530 U.S. 133, 150 (2000). As such, a “mere scintilla” of evidence does not suffice; rather, TSC must come forward with enough evidence for a reasonable jury to derive a verdict in TSC's favor. Massey v. Blue Cross-Blue Shield of Illinois, 226 F.3d 922, 924 (7th Cir. 2000). TSC has failed to do so.

         I. The Tate case never triggered the Haddick duty to settle within TSC's policy limit.

         A. At the time of Ms. Tate's pretrial settlement demands, it was objectively more likely than not that TSC would prevail.

         As the Illinois Supreme Court established in 2001 through Haddick, TSC may not recover against APAC for failing to settle the Tate case unless it proves that: “(i) the duty to settle arose; (ii) the insurer breached the duty; and (iii) the breach caused injury to the insured.” Powell, 2014 IL App (1st) 123643, ¶ 18, 7 N.E.3d 11. TSC cannot satisfy these elements because it has not even attempted to show that there was ever “a reasonable probability of a finding of liability against the insured.” Haddick, 763 N.E.2d at 304 (emphasis added). Again, a “reasonable probability” means “at least more likely than not.” Powell, ¶ 36; Hana, ¶ 35. This standard “applies at the time of the settlement demand, ” and the fact that TSC ultimately lost the Tate case cannot be used retrospectively to conclude that, at the time of the pretrial demands, there was a “reasonable probability” of liability. Powell ¶ 42; see Kavanaugh v. Interstate Fire & Cas., 342 N.E.2d 116, 121 (Ill.App. 1975) (ultimate adverse outcome does not establish bad faith refusal to settle).

         This Court previously ruled that summary judgment was not appropriate “because APAC's true assessment of the likelihood that TSC would be found liable and the amount of potential damages to which TSC would be exposed remain disputed material issues of fact.” (Doc. 304 at 6.) Specifically, the Court found that “[t]he purpose behind APAC's decision to increase the Reserve amount before trial, and the meaning behind the figures used to calculate the Reserve amount, remain in dispute.” (Id.) There is no longer any factual dispute about APAC's reserve calculations or why it increased the reserve amount on the Tate case.

         As Ms. Shutack explained, APAC's 2004 Reserve Evaluation Form factored into its damages analysis a “chance of losing.” (Ex. A, Tr. 389:11-25.)[2] Without that “chance of losing” in the reserve calculation, APAC's reserve would have been set at $1 million - the same reserve APAC later set after the Tate case had been remanded by the appellate court. (Tr. 390:1-8.) Ms. Shutack further explained that there was a “change in the methodology, ” and that APAC “took out the liability portion” on the reserve form - meaning the “chance of losing” - because the old form made it “too difficult to get an accurate number” and APAC “wanted to be more conservative.” (Tr. 391:9-17.) Correspondingly, APAC's updated Reserve Evaluation Worksheet does not have a place to factor “chance of losing” into the analysis. (Pltf. Ex. 38.) The change in reserve on the Tate case was a result of this change in methodology, not in APAC's assessment of any chance of loss, which was not part of the reserving methodology in 2010.

         In addition, Ms. Oblak, APAC's claims representative, testified in detail to each of the categories of damages that APAC used in setting its reserve in 2010. (Tr. 126:25-132:11.) Like Ms. Shutack, she explained that the “million-dollar reserve is just what we put aside in the event of an adverse verdict.” (Tr. 189:16-19). Because of the potential damages and the fact that Dr. Hasson was no longer in the case, the reserve was set at TSC's policy limit. (Tr. 189:1-22 (Oblak)). Mr. Reed, APAC's former claims litigation manager, also confirmed that the reserve form he and Ms. Oblak used in 2010 to reset APAC's reserve amount (referring to the copy at Dfdt. Ex. 185) “does not take into account chance of loss … it's simply a damages assessment.” (Tr. 546:6-16 (emphasis added).) As Mr. Reed made clear, “Liability is not assessed on this form.” (Tr. 546:16 (emphasis added).)

         Accordingly, APAC increased its reserve on the Tate case after remand because it had, by then, adopted a more conservative methodology for setting reserves, and TSC was then the sole defendant. The reserve increase had nothing to do with APAC's assessment of the reasonable probability of a finding of liability against TSC. No. witness has offered a contrary view of APAC's 2010 reserve setting and Reserve Evaluation Worksheet.

         The evidence before this jury, therefore, is that TSC was objectively more likely than not to win the Tate case when Ms. Tate demanded settlement. For example, the jury heard that:

• “There was nothing that would warrant us settling the case…. The case only got stronger as the case ...

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