922 F.3d 778
7th Cir.2019Background
- Surgery Center purchased malpractice insurance from APA with a $1,000,000 per-claim limit; APA agreed to defend and indemnify claims within policy limits.
- Patient Gwendolyn Tate became a quadriplegic after outpatient surgery; she sued the surgeon and Surgery Center. Tate twice demanded settlement for Surgery Center’s $1,000,000 policy limit (2007 and 2010); APA rejected both demands.
- After appellate remand, APA increased its reserve on the file from $560,000 to the $1,000,000 policy cap; APA did not tell Surgery Center the reserve was increased but repeatedly reminded Surgery Center of the policy limit and advised it could retain personal counsel for excess exposure.
- Jury ultimately found Surgery Center liable and awarded $5.17 million; APA paid its $1,000,000 policy limit and Surgery Center personally settled for the remainder with its own counsel.
- Surgery Center sued APA for bad faith failure to settle. The district court denied summary judgment pretrial but, after a six-day jury trial, granted APA judgment as a matter of law under Rule 50(a). The Seventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether APA owed a duty to settle (i.e., whether there was a "reasonable probability" of a judgment against Surgery Center exceeding policy limits) | APA’s post-remand increase in the reserve to the policy limit and failure to notify Surgery Center show APA knew liability was reasonably probable and thus breached a duty to settle | Attorneys, claims personnel, and the insured’s president consistently believed the case was defensible; mere possibility of liability is insufficient to trigger the duty to settle | No duty to settle arose; evidence showed APA and defense counsel believed plaintiff’s proof of Surgery Center liability was unlikely, so JMOL for APA affirmed |
| What the “reasonable probability” standard requires (more-likely-than-not vs. lower threshold) | Surgery Center urged a less-than-preponderance standard (above mere possibility) | APA argued the standard requires more-likely-than-not; alternatively, APA said it prevails under either standard here | Court avoided deciding the precise Illinois standard because APA prevailed under either formulation; required showing of more than mere possibility, which Surgery Center did not provide |
| Whether APA’s increase of the reserve and the company-wide “Concrete Plan” supported an inference of bad faith | Reserve increase to $1,000,000 and APA’s aggressive-defense policy show APA knew of heightened liability risk and applied an unreasonable refusal to settle | Reserve increase reflected potential damages exposure (not assessed probability of liability); insured’s president had repeatedly urged APA not to settle; no causal link shown between company policy and refusal to settle | Increase in reserve and Concrete Plan did not prove reasonable probability of liability or bad faith; evidence showed reserve assessed damages potential and not likelihood of liability |
Key Cases Cited
- Haddick ex rel. Griffith v. Valor Ins. , 763 N.E.2d 299 (Ill. 2001) (establishes insurer's duty to settle when there is a reasonable probability of liability and excess recovery)
- Reeves v. Sanderson Plumbing Prods., Inc. , 530 U.S. 133 (2000) (JMOL standard parallels summary judgment inquiry)
- Anderson v. Liberty Lobby, Inc. , 477 U.S. 242 (1986) (evidentiary standard for summary judgment/JMOL)
- Ruark v. Union Pac. R.R. Co. , 916 F.3d 619 (7th Cir. 2019) (standard of review for Rule 50(a) JMOL rulings)
- Powell v. Am. Serv. Ins. Co. , 7 N.E.3d 11 (Ill. App. Ct. 2014) (Illinois appellate court’s interpretation that "reasonable probability" requires liability more likely than not)