Court Opinion

ID: 9819681
Source: CourtListenerOpinion
Date Created: 2023-09-01 06:30:56.788944+00
Date Added: 2024-06-11T12:27:02.775538
License: Public Domain

JUSTICE GREIMAN, specially concurring in part and dissenting in part: I must respectfully dissent from the majority’s conclusions as to count II of U.S. Fire’s complaint. Our courts have long provided that a primary insurer has a duty to act in good faith towards its own insured and that such duty to act in good faith extends to the settlement and disposition of cases generally. Admittedly, it is less clear whether the primary carrier has a corresponding duty of good faith to an excess carrier. However, contrary to the majority’s suggestion, this court in Schal Bovis, Inc. v. Casualty Insurance Co., 314 Ill. App. 3d 562 (1999), held that such a duty exists in Illinois. Although the majority opinion states that Schal Bovis merely predicted that the Illinois courts would impose such a duty, the clear implications of Schal Bovis is that such a duty, in fact, exists. There the court opined: “[T]here is a duty that runs from [the primary insurer to the excess insurer] to act reasonably and in good faith in attempting to settle claims within their respective policy limits.” Schal Bovis, 314 Ill. App. 3d at 572. It is difficult to imagine how the Schal Bovis court (of which the authoring judge here was a concurring member) could have been more explicit. They further cite a California case, Transit Casualty Co. v. Spink Corp., 94 Cal. App. 3d 124, 134, 156 Cal. Rptr. 360, 366 (1979), which “recognized a three-way relationship between the policyholder, the primary insurer and the excess insurer.” Additionally, Schal Bovis noted that two previous federal decisions predicted that Illinois would recognize such a duty. American Centennial Insurance Co. v. American Home Assurance Co., 729 F. Supp. 1228 (N.D. Ill. 1990); Ranger Insurance Co. v. Home Indemnity Co., 714 F. Supp. 956 (N.D. Ill. 1989). The only limitation expressed in Schal Bovis was that it be remanded to the trial court to allow the plaintiff to file an amended complaint setting out the evil facts of which the primary insurer was accused. Illinois is not alone in recognizing a cause of action for the primary insurer’s failure to exercise good faith with respect to the interest of the excess carrier. California, Florida, Louisiana, Massachusetts, Michigan and Texas have so held.2  It is interesting to note that the majority gives more credence to a federal district court case, Walbrook Insurance Co. v. UNARCO Industries, Inc., than it does to a decision of this court such as Schal Bovis. The Walbrook case, however, is distinguished by its facts and the acts of the primary insurer. U.S. Fire alleges in count II, among other things, that during the mediation process, extensive mediation summaries and voluminous exhibits were provided to Zurich showing damage exceeding $39 million and that the insured was a primary target of the defendants. Additionally, Zurich had in its possession a substantial number of other documents indicating the insured’s likely exposure to the claim including inspection reports, expert opinions, complaints, letters from representatives of the insured, correspondence from various subcontractors, and reports from experts. Additionally, U.S. Fire alleges that internal liability reports of Zurich estimated the verdict potential against the insured between $1.8 million and $3 million, none of which was shared with U.S. Fire prior to the mediation conference. U.S. Fire further alleges that although the insured was joined as a defendant in December 1992, U.S. Fire received no notice from Zurich of the pendency of the lawsuit until June 1993. U.S. Fire repeatedly requested that Zurich provide it with periodic status reports regarding the progress of litigation and evaluations of the insured’s exposure. These requested items were not appropriately forthcoming and Zurich failed to apprise U.S. Fire of the nature and extent of the insured’s potential exposure. At the time of the mediation conference, U.S. Fire claims Zurich stated it would offer no more than $250,000 and the mediator essentially threw it out of the mediation process. All of these matters were not passed on to U.S. Fire. In reliance upon Zurich’s evaluation and its direct suggestion, U.S. Fire did not attend or participate in the mediation conference. At the conclusion of the mediation conference, the plaintiffs in the underlying case entered into settlements with all of the defendants except the insured. All of the claims against the other defendants were assigned to the underlying plaintiff. Finally, apparently realizing its difficult position, Zurich arranged for a settlement of claims against itself and exoneration of the primary insured by paying about $1 million on its behalf and $6 million by the insured with a covenant not to levy and execute upon their property, leaving U.S. Fire with a huge, unsuspected and unexpected liability. Talk about “good faith”! Zurich sought to control the entire defense without providing U.S. Fire with appropriate information and, in fact, lulling U.S. Fire to be misled with respect to the course of mediation. The $250,000 Zurich believed would settle the case turned into a settlement of $7 million. Some writers have suggested: “Extending an insurer’s fiduciary duty to include an excess carrier is a logical step. Although only the first district has expressly done so, primary insurers would be wise to assume that Schal Bovis will be followed and extended. Exactly what constitutes bad faith will be defined and further developed as more courts address this issue.” B. Boggs & D. McLaughlin, Primary Insurers’ Duty to Exercise Good Faith Toward Excess—Insurance Carriers, 90 Ill. B.J. 18, 23 (2002). I believe liability in this case is that logical step and that U.S. Fire has adequately alleged bad faith in count II. I would affirm with respect to the other counts.  Peter v. Traveler’s Insurance Co., 375 F. Supp. 1347 (C.D. Cal. 1974); Phoenix Insurance Co. v. Florida Farm Bureau of Mutual, 558 So. 2d 1048 (1990); Ranger Insurance Co. v. Travelers Indemnity Co., 389 So. 2d 272 (Fla. App. 1980); Great Southwest Fire Co. v. CNA Insurance Co., 547 So. 2d 1339 (La. App. 1989); Hartford Casualty Insurance Co. v. New Hampshire Insurance Co., 417 Mass. 115, 628 N.E.2d 14 (1994); Commercial Union Insurance Co. v. Medical Protective Co., 426 Mich. 109, 393 N.W.2d 479 (1986); American Centennial Insurance Co. v. Canal Insurance Co., 843 S.W.2d 480 (Tex. 1992).