Insurer Not Liable for Verdict in Excess of Limits After Declining Pre-Trial Settlement Within Limits

The Appellate Court of Illinois, First District, in an opinion written by Justice Coghlan, applying Illinois law, affirmed the trial court’s grant of Illinois Casualty Company’s (“ICC”) motion to dismiss, holding that the plaintiff Valdez failed to allege ICC’s breach of a duty to settle, a conflict of interest between ICC and the insured, and “vexatious or unreasonable” conduct by ICC under §155 of the Illinois Insurance Code.

Valdez was injured in a bar owned by ICC’s insured, Rojas, after a patron threw a beer bottle at him. Rojas trained, hired, and oversaw security at the bar who allowed the patron to enter the bar and drink until intoxicated, despite Rojas’s knowledge of the patron’s previous violent incidents. Valdez originally offered ICC a settlement demand of $1M, which was Rojas’s policy limit. ICC rejected this offer and countered with $100k, which it then increased to $200k. Valdez refused both offers and the claim went to trial where Valdez won a $2M judgment. Valdez and Rojas then entered an agreement transferring any of Rojas’s remaining claims to Valdez, in exchange for nonenforcement of the judgment amount that exceeded Rojas’s policy limit.

Valdez brought suit against ICC, arguing that ICC breached a duty to settle by rejecting his original $1M offer and created a conflict of interest between ICC and Rojas, waived the policy limit by not sending a reservation of rights letter to Rojas informing him of potential settlement offers, and committed “vexatious or unreasonable” conduct under § 155 of the Illinois Insurance Code.

The trial court held that Valdez failed to allege facts in support of any of the three claims, and the Appellate Court agreed. The Appellate Court reasoned that ICC’s refutation of Valdez’s original offer did not constitute breach of a duty to settle because there was no reasonable probability of a judgment in excess of the policy limits. Valdez’s medical bills were less than $50k, and the court stated that rejecting the $1M offer with counteroffers of $100k and $200k was reasonable, and thus did not show ICC rejected the offer in bad faith. Valdez also failed to provide sufficient facts in support of his allegation that ICC failed to adequately defend Rojas and created a conflict of interest. Additionally, Valdez argued that ICC’s failure to provide a reservation of rights letter, rejection of his initial settlement offer, withdrawal of a posttrial motion, and failure to provide post-judgment interest and costs constituted “vexatious or unreasonable” conduct under § 155, which the Court refuted. The Appellate Court stated that there were no facts in support of these allegations, and ultimately affirmed the trial court’s grant of ICC’s motion to dismiss. Valdez v. Illinois Cas. Co., 2022 IL App (1st) 201121-U (Aug. 1, 2022).