Illinois Appellate Court Finds in Favor of Insurance Company in Failure to Settle Case

In a case that involved a “duty to settle” claim, the Illinois Appellate Court affirmed a decision dismissing a claim made by the insured, Randy Powell against his auto insurance company, American Service Insurance Co. (ASI). It was alleged in the lawsuit by Randy Powell that Katie Linares broadsided his van when he stopped in front of her vehicle and started turning left to make a U-turn. Powell demanded the $20,000 limit of the auto policy that Linares had purchased from ASI.

ASI rejected the demand and Powell continued on to a jury trial, which returned a verdict of $47,951. Linares assigned her rights against the insurer to Powell who then sued for breach of duty to settle against ASI.

According to paragraph 6 of the complaint, “Linares was operating her vehicle on northbound Medline Drive, a private street or corporate driveway, in Mundelein, Illinois, behind the van being operated by Powell, saw him make a left turn attempting to make a U-turn and stopping in front of the Linares vehicle either perpendicular or at a northwest angle to the northbound roadway, and, rather than apply her brakes or attempt to veer behind the van driven by Powell, veered directly into the van striking it broadside with a strong impact.”

ASI moved to dismiss arguing that Powell failed to adequately allege there was a reasonable likelihood that the jury would conclude Linares was liable and was 50% or less at fault.

The Cook County Circuit Court judge granted the motion and this appeal to the Illinois Appellate Court was taken. The appellate court concluded that the “complaint does not plead sufficient facts to establish reasonable probability as opposed to possibility, of liability in the underlying case.”

Illinois has recognized that insurers have a duty to act in good faith when responding to settlement demands. The Illinois Supreme Court has held that the duty to settle arises because the policyholder has relinquished defense of the suit to the insurer. The policyholder depends upon the insurer to conduct the defense properly. “The duty was imposed to deal with the specific problem of claim settlement abuses by liability insurers where the policyholder has no contractual remedy.” Cramer v. Insurance Exchange Agency, 174 Ill.2d 513 (1996).

This case involves a third-party claim against the insurer to recover damages in excess of the policy limits following an offer to settle the underlying claim against the policyholder for an amount equal to the policy limits. Here the insurer may believe that it can win a verdict in its favor. The policyholder may prefer to settle within the policy limits and avoid the risk of trial. However, the insurer may ignore the policyholder’s interest and decline to settle. Haddick v. Valor Insurance, 198 Ill.2d 409 (2001).

In the Haddick case, the Illinois Supreme Court set out the elements required to establish a bad-faith claim. To sustain a cause of action for bad faith, the plaintiff must allege: (1) the duty to settle arose; (2) the insurer breached the duty; and (3) the breach caused injury to the insured.

The appellate court found that the allegations of plaintiff’s complaint were both vague and conclusory at best. The plaintiff pled that it made a U-turn in front of Linares’ vehicle and that Linares, “rather than apply her brakes or attempt to veer behind the van driven by the plaintiff, veered directly into the van striking it broadside with strong impact.” The “reasonable probability” standard set forth in the Haddick case requires pleading facts that demonstrate liability is “probable,” as opposed to merely “possible.”

Given the facts in this case and the fact that plaintiff admitted that he made a U-turn in front of Linares’ vehicle, the court held that it could not conclude that plaintiff sufficiently pled facts demonstrating a reasonable probability of liability against Linares.

Accordingly, the Illinois Appellate Court found that the plaintiff’s claim was properly dismissed because of his failure to plead the necessary elements of a bad-faith claim alleging sufficient facts to establish a reasonable probability as opposed to a possibility of liability in the underlying case.

Powell v. American Service Insurance Co., 2014 IL App (1^st) 123463 (Feb. 18, 2014).

Kreisman Law Offices has been handling automobile accidents, insurance claims and truck accident cases for individuals and families who have been harmed, injured or died as a result of the carelessness or negligence of another for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Northbrook, Northfield, Highwood, Hinsdale, Western Springs, Rolling Meadows, Rosemont, Richton Park, Steger, Crete, Alsip and Olympia Fields, Ill.