Bad Faith Refusal to Settle
April, 2002
The issue in Haddick v. Valor Insurance, 2001 WL 1475209 (Illinois Supreme Court) is at what point in time does a liability insurer’s duty to settle arise? In a brief note at the conclusion of a previous column (Volume 4, 2001), I expressed concern because the Haddick Court had condoned a practice of the plaintiffs’ bar, arrogant in my opinion, placing a time limit upon the plaintiff’s demand for a liability insurer’s payment of policy limits in settlement of the plaintiff’s claim. The Court held that the duty may arise at a point in time when the injury plaintiff has not yet filed a lawsuit. Further, it may be breached notwithstanding that the insurer offered to pay the limits in settlement prior to trial.
Notwithstanding the foregoing, the decision viewed in the context of the extreme facts of the case, is reasonable.
The plaintiff demanded the policy limits (only $20,000) at a point in time when the insurer knew that the plaintiff’s decedent’s medical bills exceeded $80,000 – and further that the police report indicated that the insured had admitted that he had been driving the car at the time of the accident. There were two further points: the insured owned the car and ownership raises a presumption of control of the vehicle; also, the insured had been under the influence of alcohol at the time of the occurrence.
The question was not whether the insurer had acted in bad faith: the case was presented upon defendant’s motion to dismiss the plaintiff’s complaint and the rule is that well pleaded facts are taken as true. The Court held that the plaintiff’s complaint stated a cause of action, creating a jury issue as to whether the defendant insurer had acted in bad faith. The Court held that the duty to settle in good faith arises not at the time the parties enter into the insurance contract (as urged by plaintiff) but when the claim has been made against the insured, there is a reasonable probability of recovery in excess of policy limits, and there is a reasonable probability of a finding of liability against the insured.
The rule that there is no absolute liability for failure to settle within policy limits remains inviolate. An insurer has no obligation to give paramount consideration to the insured’s interest – but only consideration at least equal to its own. There must, to support recovery, be fraud, negligence or bad faith.
James T. Ferrini
jferrini@clausen.com
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