Excess Insurer’s Policyholder Had No Duty to Settle Suit that Resulted in $13M Verdict

By Jim Sams | August 5, 2022

An insurer cannot escape liability for its share of a $6 million payout because the retailer it insured refused to accept a settlement offer by a customer who who was struck by a forklift, a panel of the 7th Circuit Court of Appeals ruled Thursday.

The appellate panel rejected an argument by North American Elite Insurance Co. that under Illinois contract law, Menard Inc. had a duty to settle the injured customer’s lawsuit within its $2 million self-insured retention.

“The duty of good faith does not transmute North American’s actual insurance policy into one it would have preferred in hindsight,” the panel’s opinion says.

Menard operates warehouse-style home-improvement stores throughout the Midwest. On Aug. 10, 2016, Julian Andrades was visiting a Menards store in the Chicago suburb of Morton Grove when he was struck by a forklift.

The appellate panel’s opinion doesn’t give any detail about the accident, but a Cook County jury found that Andrades deserved $13 million in damages, minus 5% because of his own negligence.

Before trial, Menard had rejected an offer by Andrades to settle the lawsuit for $1,985,000. After the trial but before a verdict was reached, it did agree to a high-low settlement offer whereby Andrades would receive a minimum of $500,000 but a maximum of $6 million, depending on the jury’s decision.

Menard had a policy with Greenwich Insurance Co. that covered the first $1 million of liability that exceeded the $2 million retention. North American’s policy covered liability exceeding $3 million, up to $25 million per occurrence.

After the verdict, North American paid its $3 million share, but reserved its right to seek reimbursement. It then filed a lawsuit against Menard in US District Court for Northern Illinois to recoup the payment.

North American said in the civil complaint that it warned Menard before Andrades’ case went to trial that it should settle for up to $2 million. Menard failed to even respond to the settlement offer.

The employee who operated the forklift had violated multiple policies, the suit says. Its claim handlers said they believed they would get a defense verdict. That belief was “unreasonable if genuine,” North American’s complaint says.

US District Court Judge Sara L. Ellis dismissed North American’s lawsuit. North American appealed.

North American pointed to the terms of Menard’s policy with Greenwich, which required it to negotiate in good faith for settlements of less than $2 million. The insurer argued that the duty of good faith and fair dealing implied in all Illinois contracts required Menard to give North American the same consideration it promised Greenwich.

But the appellate panel said the two policies are very different. The North American policy did not have a “follow form” clause that would have included the same terms as the Greenwich policy.

“Respect for the parties’ agreements requires us to take seriously the different bargains they consented to,” the opinion says.

What’s more, nothing in Illinois contract law creates a common-law duty for an insured to settle a lawsuit, the panel said.

“North American did not exercise its right to participate in the defense, which exposed it to the risk that Menard would make litigating choices that it did not like,” the opinion says. “Menard’s negotiation of a high-low settlement agreement with the plaintiff in the underlying trial shows that it took some steps to limit its insurers’ eventual liability rather than gambling with their money.”

The panel affirmed the District Court’s order dismissing the insurer’s lawsuit.

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