Court Opinion

ID: 770868
Source: CourtListenerOpinion
Date Created: 2012-04-18 10:40:47+00
Date Added: 2024-06-11T09:01:57.464103
License: Public Domain

230 F.3d 335 (7th Cir. 2000)
Jeffrey Meixell, Plaintiff-Appellant,v.Superior Insurance Company, Defendant-Appellee.
No. 99-3827
In the  United States Court of Appeals  For the Seventh Circuit
Argued April 7, 2000Decided September 6, 2000

Appeal from the United States District Court  for the Central District of Illinois.  No. 99-CV-3123--Richard Mills, Judge.
Before Bauer, Easterbrook, and Rovner, Circuit Judges.
Bauer, Circuit Judge.

1
On October 22, 1999, the  district court dismissed Jeffrey Meixell's  amended complaint with prejudice. Meixell appeals  contending that the complaint sufficiently  alleged that Superior Insurance Company engaged  in bad faith for refusing to settle.

2
On July 5, 1995, Meixell was a passenger in  Terry Whitworth's vehicle when it collided with  a utility pole. No other vehicles were involved.  The accident rendered Meixell a quadriplegic and  caused him to incur medical bills in excess of  the insurance policy limits. On August 30, 1995,  Meixell sent his medical bills and records to  Whitworth's insurance, Superior.

3
After review of the facts surrounding the  accident and Meixell's injuries and damages,  Superior sent a draft of $20,000 to Meixell along  with a general release of all claims. On  September 21, 1995, Meixell's attorney informed  Superior that they would release Whitworth in  exchange for the policy limits and a covenant not  to sue. Meixell refused to give a general release  to potential third parties. On October 12, 1995,  Superior rejected the covenant not to sue and  asked for the return of the settlement draft. The  opportunity to settle was not communicated to  Whitworth.

4
On January 30, 1996, an attorney retained by  Superior agreed to tender the $20,000 in exchange  for the covenant not to sue Whitworth,  withdrawing its demand for a general release.  Meixell rejected the offer and filed suit against  Whitworth, the Township of New Berlin, and  Sangamon County on March 29, 1996. Two years  later, New Berlin and Sangamon County settled for  $1,400,000 in return for a covenant not to sue.  On December 1, 1998, a jury returned a verdict  against Whitworth for $4,537,791.38 and judgment  was entered on the jury verdict for $3,137,791.28  after reduction for the monies paid by the co-  defendants.

5
On December 14, 1998, Meixell was assigned this  cause of action against Superior by Whitworth and  filed suit based upon Illinois common law for  breach of the duty of good faith owed by an  insurer to its insured. The district court  dismissed his amended complaint with prejudice.  Meixell now appeals.

6
Motions to dismiss are reviewed de novo. Under  Illinois law there is a duty on the part of the  insured to give at least equal consideration to  the insured's interests as it's own where the  insured is a defendant in a suit in which the  policy limits may be exceeded. Adduci v. Vigilant  Insurance Co. Inc., 98 Ill.App.3d 472, 476, 424  N.E.2d 645 (1st Dist. 1981). Where the insurer  fails to settle resulting in an excess judgment  due to fraud, negligence or bad faith, the duty  is breached. Id. The insurer may then be held  liable for the full amount of the judgment  irrespective of the policy limits. Id. Meixell  must sufficiently show a breach of duty and  demonstrate that the breach was the legal cause  of the harm to the insured. Id. The court in  Phelan v. State Farm Ins., 114 Ill.App.3d 96,  104, 448 N.E.2d 579 (1st Dist. 1983), determined  that the plaintiff must allege sufficient facts  to demonstrate why the offer of settlement after  the deadline could not have been accepted. In  dismissing the complaint, the district court  found that Meixell could not show that Superior's  conduct proximately caused the excess verdict.

7
Meixell's argument is that Superior breached its  duty when it failed to convey his counteroffer to  settle for the $20,000, the policy limits, and  the covenant not to sue to Whitworth. Because  Superior rejected the offer to settle, Meixell  believes that bad faith was demonstrated. Three  months later however, Superior did offer to  settle for the policy limits. When an insurance  company offers to settle and is refused for no  reason, it does not constitute bad faith. Without  a showing of bad faith Meixell cannot state a  valid cause of action on that basis. Brocato v.  Prairie State Farmers Ins. Assoc., 166 Ill.App.3d  986, 520 N.E.2d 1200 (4th Dist. 1988).

8
In Adduci the plaintiff rejected a settlement  offer because it came 40 days after their self-  imposed deadline. Adduci, 424 N.E.2d at 647. The  court found that these allegations were  insufficient as a matter of law to demonstrate  that the Insurer acted in bad faith and breached  its duty to the insured Id. While Superior  initially rejected Meixell's offer in October,  they returned three months later with an offer to  settle. Meixell rejected it. Meixell offers no  explanation as to why he could not accept the  offer of settlement or how he would be prejudiced  if he had accepted the offer. Meixell claims that  once he returned the settlement draft on November  9, 1995, negotiations ceased. At no time did  Meixell's attorney establish a timeline for the  settlement negotiations. Superior believed that  negotiations were ongoing and finally offered to  settle on Meixell's terms. It was less than two  months since their last exchange, and before  Meixell filed suit.

9
Finally, Meixell has not established that  Superior failed to protect Whitworth's interests.  Superior's conditional offer of the policy limits  and a general release was in the best interests  of Whitworth. By responding with a counteroffer,  Meixell demonstrated that he believed the  negotiation process was ongoing. Although Meixell  did not like the initial terms of the offer or that Superior at first rejected his offer, at no  time was Whitworth harmed by Superior's actions.  Meixell's failure to present evidence that  Superior placed its interests above Whitworth's  left the district court with no other option than  to dismiss the complaint.

10
Superior can not be accused of bad faith for  failing to settle. The allegations of the  complaint do not show why the offer to settle was  not accepted on January 30, 1996 or that Superior  failed to protect Whitworth's interests. The  district court correctly dismissed the amended  complaint with prejudice.

11
Affirmed.

12
ROVNER, Circuit Judge, dissenting.

13
This case is  before us on appeal from the grant of a motion to  dismiss. In affirming, the majority necessarily  holds that it is impossible for Meixell to  prevail under any set of facts that could be  proven consistent with the allegations. Albiero  v. City of Kankakee, 122 F.3d 417, 419 (7th Cir.  1997). Because I think the complaint is  sufficient to state a claim under Illinois law,  I respectfully dissent.

14
The majority properly recognizes that under  Illinois law an insurer has a duty to give at  least equal consideration to the insured's  interest as to its own where the insured is a  defendant in a suit in which the policy limits  may be exceeded, Adduci v. Vigilant Insurance  Co., Inc., 424 N.E.2d 645, 648 (1st Dist 1981),  and that the duty is breached if the insurer due  to negligence, fraud or bad faith, fails to  settle resulting in an excess judgment. Id.  Relying solely on Adduci and Phelan v. State Farm  Mutual Automobile Insurance Co., 448 N.E.2d 579  (Ill. App. 1983), however, the majority upholds  the dismissal of the complaint because the  plaintiff failed to demonstrate why the  settlement offer which the insurer rejected could  not have been accepted at a later date when the  insurer attempted to resurrect it. I do not  believe that Adduci or Phelan imposes such a  requirement in a case such as this one, and our  application of it here could prove an  insurmountable burden to insured persons in  future cases.

15
A short discussion of Adduci and Phelan may  clarify my concerns. In Adduci, the court  recognized "as a general principle of law" that  an insurer may breach its duty to the insured  when it fails to respond to settlement overtures  made by the party proceeding against the insured.  424 N.E.2d at 649. The Adduci court upheld the  dismissal of the complaint, however, because the  insured had failed to adequately plead such a  failure to respond, and in fact pleaded facts  demonstrating that the insured did respond to the  claimant's settlement demand. Id. The settlement  demand itself had provided that it would be  withdrawn after 28 days, but anticipated the  possibility of an extension based upon any  reasonable ground during the time period. It is  unclear whether it was actually withdrawn; the  insured alleged only that it was withdrawn by its  express terms. Although the insured responded  after the claimant's self-imposed deadline, it  was only 40 days after the time provided for a  response and merely 72 days after the offer was  first made. Id. No facts indicated why the offer  could not be accepted at that time, and therefore  the court held that the blame for the failure of  settlement could not be placed on the insured.  Id.

16
In Phelan, the court construed Adduci narrowly  as based solely on the pleading inadequacies. The  Phelan court declared that

17
we do not view Adduci to stand for the  proposition that as a matter of law, a settlement  offer forty days after expiration of plaintiff's  demand is insufficient to establish the bad faith  of the insurer; rather, Adduci involved pleadings  which allege insufficient facts to sustain a  cause of action and, therefore, even if the  allegations in the complaint were proved,  plaintiff would not be able to recover.

18
448 N.E.2d at 584. Thus, Phelan did not interpret  Adduci as establishing any sweeping, per se rule  for the conduct of settlement negotiations. See  also VanVleck v. Ohio Casualty Ins. Co., 471  N.E.2d 925, 961 (Ill. App. 1984) (setting forth  elements as defined in Phelan). Adduci merely  recognized that where a proposed settlement offer  set a deadline that was extendable for any good  reason within the self-imposed time period, and  the insurer responded beyond that unilateral  deadline but within 40 days of it (and within 72  days of the original offer), and no facts were  pled indicating why the extra 40 days would  impact the decision to settle on those terms,  there was no basis to find that the insurer  breached its duty to the insured. Id. at 583-84.  Thus, the negligence asserted in Adduci was the  failure to act more promptly, but the insurer  responded appropriately with only a reasonably  short delay. The Adduci holding would presumably  prevent the scenario in which an unreasonably  short deadline is imposed unilaterally in order  to "set up" a future bad faith claim when the  insurer is unable to respond in an expeditious  manner. It is consistent with the law in other  jurisdictions as well. See 14 Couch on Insurance sec.  206:28 (3d ed.) (whether an insurer's delayed  response to an offer constitutes negligence or  bad faith depends on the circumstances of the  case) and cases cited therein.

19
In the present case, however, we are not faced  with a failure to respond quickly enough to meet  a unilateral deadline. Superior did respond  timely to the offer in this case--by rejecting it  outright without even informing its insured that  the offer had been tendered.1 That, as they  say, is a horse of a different color. That act of  rejecting a settlement offer that was beneficial  to the insured (as evidenced by Superior's later  attempt to turn back the clock) was itself a  breach of duty.

20
In fact, an analogous sequence of events was  deemed sufficient to support a jury verdict in  Mid-America Bank & Trust Co. v. Commercial Union  Insurance Co., 587 N.E.2d 81 (Ill. App. 1981). In  Mid-America, a truck insured by Commercial Union  hit a 13-year-old causing brain damage. The  plaintiff's attorney sent a letter offering to  settle for the policy limits of $50,000, but the  offer was never accepted. Id. at 82. Almost three  years later, the plaintiff again offered to  settle for the policy limits. Commercial Union's  attorney responded by instead offering $30,000,  "'take it or leave it.'" Id. Offended by the  response, the plaintiff withdrew all offers. A  mere six days later, Commercial Union's attorney  offered to pay the $50,0000, stating that he was  always authorized to settle for that amount. The  plaintiff refused the offer, and a jury awarded  the plaintiff $911,536.50. Id. at 82-83. After  receiving an assignment of claims from the truck  owner, the plaintiff sued Commercial Union  alleging negligence and bad faith in settling the  original claim, and the jury ruled in the  plaintiff's favor. Id.

21
On appeal, Commercial Union argued that the  plaintiff failed to prove a cause of action  because there was no change in circumstances that  justified the plaintiff's refusal to accept the  offer made six days later. Id. at 83-84. Although  there was no evidence that the plaintiff could  not have accepted the offer, the Mid-America  court nevertheless affirmed. The court refused to  focus solely on that six days, but instead looked  at the totality of the circumstances.  Specifically, the court noted that

22
Commercial Union was aware of the offer, the  extent of the injury, the possible personal  liability of the owner of the truck, and the risk  of excess liability if the case were tried. For  almost three years there was a clear opportunity  to settle within the policy limits, but  Commercial Union refused. We conclude that the  circuit court properly denied the motion for  directed verdict.

23
Id. at 84.

24
Mid-America thus rejected any rule that a  plaintiff, in order to succeed on a negligence or  bad faith settlement claim, must plead facts  demonstrating that a later settlement offer could  not have been accepted. In Mid-America, it was  assumed that the offer indeed could have been  accepted, but that was not determinative of  whether the insurer acted reasonably. Many of the  factors supporting the jury verdict in Mid-  America are present here as well the insurer was  aware of the offer; the extent of the injury was  clear and the insurer had in fact requested and  received medical records documenting the severity  of the injury; the personal liability was evident  given that it was a one-car accident and the  insured was driving too fast and collided with a  utility pole; and the risk of excess liability if  the case were tried was unquestionable given that  the accident rendered Meixell a quadriplegic (in  fact, medical bills provided to the insurer had  already exceeded the policy limits.) We do not  have a three-year period in which settlement  could have occurred, but the evidence in Mid-  America did not include any rejection of offers  during that time period, and the Mid-America  plaintiff in fact proved willing to settle after  that time. As in Mid-America, the insurer in this  case was presented with an offer that fully  protected the interests of the insured and  limited the insured's damages to the limits of  the policy. The insurer here rejected it and  demanded a return of the check because Meixell  refused to waive his right to bring claims  against other parties whose interests were  unrelated to the insured (namely, the township  and county for the failure to maintain an  adequate sign warning of the approaching "T"-  intersection). Moreover, the rejection came only  after a number of phone calls in which Meixell  explained that the interests of the insured were  fully protected and that the issue was only his  ability to sue third parties. Taking all  inferences in the light most favorable to the  plaintiff, that complaint is sufficient to allege  that Superior acted unreasonably and breached its  duty to its insured.

25
Those principles identified in Mid-America are  well-recognized in other Illinois decisions as  well. LaRotunda v. Royal Globe Insurance Co., 408  N.E.2d 928, 935-36 (Ill. App. 1980), contains the  oft-quoted test for negligence or bad faith  settlement claims

26
If an opportunity appears to settle within the  policy limits, thereby protecting the insured  from excess liability, the insurer must  faithfully consider it, giving the insured's  interests at least as much respect as its own.  [citations omitted] The insurer need not submit  to extortion; it may reject a bad deal without  waiving the protection the policy limit gives it  against the vagaries of lawsuits. But if the  honest and prudent course is to settle, the  insurer must follow that route. If it deviates  from that course, it will be liable for the whole  judgment, so as to give the insured the  protection that the policy was intended to  provide. . . . If the insurer by its own fault  converts such a case--one the insurer could have  disposed of for a fair sum within the policy  limits--into a case beyond the policy limits, the  insurer cannot complain of the size of the  judgment, a consequence of its own bad faith,  fraud or negligence.

27
Superior deviated from that prudent course of  settlement, and its actions can render it liable  under Illinois law. See also Stevenson v. State  Farm Fire & Casualty Co., 628 N.E.2d 810, 813  (Ill. App. 1993) (Illinois rule is that "an  insurance company may be liable . . . where it  has not taken advantage of opportunities to  settle the matter upon reasonable terms"); 14  Couch on Insurance sec. 206:6 (3d ed.) (citing  Illinois cases, states that a number of courts  have held that there may be liability for  negligence in rejecting a reasonable compromise  offer). The imprudent rejection of the  advantageous settlement offer, in this case of  high potential liability and damages, is enough  evidence of breach of a duty to survive a motion  to dismiss.

28
In addition, Superior's failure to communicate  the settlement offer to its insured was an  independent breach of duty. In Rogers, M.D. v.  Robson, Masters, Ryan, Brumund and Belom, 392  N.E.2d 1365, 1371 (Ill. App. 1979), the court  held that an attorney retained by the insurer to  defend the insured assumes all the duties imposed  by the attorney-client relationship, including  the duty to inform the insured of any settlement  offers that affect him so that the insured may  take proper steps to protect his own interests.  That principle was affirmed by the Illinois  Supreme Court on appeal. Rogers v. Robson,  Masters, Ryan, Brumund and Belom, 407 N.E.2d 47,  49 (Ill. 1980). Superior failed to inform its  insured of the settlement offer and thus deprived  him of the opportunity to protect his own  interests by accepting it. Therefore, on that  independent basis the complaint adequately  alleges a breach of duty sufficient to survive a  motion to dismiss. See also Bailey v. Prudence  Mutual Casualty Co., 429 F.2d 1388, 1390 (7th Cir.  1970) (failure to advise insured of settlement  offers below policy limits might alone establish  liability); see also 14 Couch on Insurance sec.  206:33 (3d ed.) ("Since an insurer is bound to  communicate settlement offers to its insured, the  failure of an insurer to do so may render the  insurer liable, unless such failure did not cause  an excess verdict against the insured."  (footnotes omitted)).

29
The damages from the failure to settle are  apparent, a $3,137,791.28 verdict instead of a  $20,000 settlement covered by insurance, and are  not contested by the parties. The final element  of proximate cause is also sufficiently pled.  Superior devotes its brief to arguing that  proximate cause is not met under the reasoning of  Adduci and Phelan. Those cases, however, did not  address proximate cause, analyzing only the  element of breach of duty. In apparent  recognition of that misuse of the cases, the  majority discusses those cases in the context of  breach of duty.

30
The Illinois Supreme Court recently defined the  term "proximate cause" as encompassing two  questions "Was the defendant's negligence a  material and substantial element in bringing  about the injury, and, if so, was the injury of  a type that a reasonable person would see as a  likely result of his or her conduct?" First  Springfield Bank & Trust v. Galman, 720 N.E.2d  1068, 1072 (Ill. 1999). That traditional  definition has governed Illinois for "the better  part of this century," id. at 1072-73, and is  adequately pled here. A defendant's conduct is a  substantial and material factor in the injury if,  absent that conduct, the injury would not have  occurred. Id. at 1072. That is established here  because if Superior had accepted rather than  rejected the offer, or informed the insured and  allowed him to do so, the jury award in excess of  the policy limits would not have occurred. In  addition, given the massive injuries to Meixell  and the high likelihood of individual liability,  the potential for the jury award above the policy  limits was apparent if a settlement was not  obtained. Moreover, we cannot hold as a matter of  law that it was unforeseeable that Meixell would  later decide not to settle a multi-million dollar  claim for $20,000. Under those circumstances,  Meixell adequately pled facts to support his  claim that the negligent rejection of the  settlement offer proximately caused the injury.

31
I note briefly that Superior's attempt to graft  the Adduci analysis into the proximate cause  context would render the analysis unrecognizable.  Under Superior's approach, Meixell would have to  demonstrate that the injury could not have been  avoided by the actions of another party, namely  the acceptance of a subsequent settlement offer.  Rather than focus on whether an insurer's actions  caused the injury, Superior would have us ask  whether a third party could have taken action  that would have prevented the injury. Superior  makes no effort to ground its argument in the  traditional definition of proximate cause, and it  is in fact unsupported in Illinois law.

32
Finally, I am concerned about the implication  of this decision on future litigants. In this  case, the insured assigned his right to sue for  bad faith to Meixell, and thus the party that  rejected the insurer's later offer was the one  bringing this lawsuit. The assignee, however,  stands in the same position as the assignor with  respect to the claim. Thus, the principles set  forth in this opinion apply equally to an action  brought by the insured herself. Where the insured  does not assign her rights, the holding today  puts her in the unenviable position of proving  why a person not a party to the action could not  have acted differently and accepted a later  offer. That adds an element not heretofore seen  in Illinois cases. It may be an appropriate  question in those few cases in which the issue is  whether a short delay in responding should be  considered negligence, because the surrounding  circumstances may affect the reasonableness of  the delay. Where, however, an affirmative act by  the insurer is unreasonable on its face, I find  no support for the addition of an extra element  to the cause of action, and many cases imply that  no such element exists. If Illinois indeed  intended such a sea change in the law, I would  expect it to be set forth explicitly. I therefore  would allow this case to proceed at least beyond  this initial stage of the proceedings.  Accordingly, I respectfully dissent.

Notes:

1
 Superior had offered to settle for the policy  limits and a general release, and it refused to  accept Meixell's offer of a covenant not to sue  rather than a general release that would have  included third parties. This is not a case in  which an insurer made another counteroffer as  part of an ongoing effort at negotiation.  Superior rejected Meixell's offer of the policy  limits and the covenant not to sue, and  instructed Meixell to return the settlement draft  if it did not agree to Superior's condition of a  general release. That "take it or leave it"  rejection of Meixell's offer did not leave open  further avenues of settlement, and effectively  terminated the negotiations. At least that is  what we must assume taking all inferences in  Meixell's favor. Superior does not argue on  appeal that its insistence on the general release  was reasonable or necessary to protect the  interest of its insured.