Court: District Court, S.D. Illinois; October 17, 2016; Federal District Court
The litigation originates from a jury trial in spring 2012 concerning a grain elevator explosion on April 27, 2010, at Con Agra's facility. The jury awarded individual plaintiffs John Jentz and Robert Schmidt $21 million and Con Agra $3 million, totaling $24 million, which exceeds the combined insurance limits of West Side's $1 million primary coverage from Colony and $11 million excess coverage from RSUI, amounting to $12 million. West Side claims RSUI's failure to settle the underlying dispute resulted in greater financial liability. RSUI counters that it had no obligation to settle because Con Agra's property damage claims were outside its coverage, seeking a declaratory judgment to disclaim liability based on its interpretation of the insurance contract. The Court is currently addressing multiple motions, including motions in limine, choice of law disputes, and motions for summary judgment.
Factual background indicates that Con Agra engaged West Side for services regarding a ‘hot bin’ situation, leading to an explosion on April 20, 2010, injuring three workers: Becker (West Side's employee), and Jentz and Schmidt (employees of subcontractor A. J.). Jentz and Schmidt pursued claims jointly against West Side and Con Agra, while Becker sought separate counsel. Various parties were involved in the trial, including West Side executives and their legal representation, Colony Insurance, and RSUI.
Lee Shuman managed Limber from RSUI and received settlement proposals. William Kautter and Mike Knippen were involved in negotiations, while John Schultz and his firm acted as trial counsel for RSUI. Con Agra was represented by Siobhan Murphy, who appeared to hold settlement authority, and Leo Knowles, its general counsel. ACE, covering Con Agra’s liability beyond $3 million, was represented by Kimberly Moody, Joseph Ortlet, and John Patton. Plaintiffs included Jentz and Schmidt, represented by Robert Clifford, and Becker, represented by Marc Taxman. Many individuals were deposed or provided declarations, which were included in summary judgment briefs.
Settlement attempts were made throughout the litigation, with a failed initial mediation on January 17, 2012, that lasted only one day. Ortlet urged ACE to offer its policy limit of $25 million alongside Con Agra’s $3 million to settle, but no evidence indicated any settlement discussions occurred between the mediation and trial. After the mediation, West Side’s counsel estimated its exposure at around $5 million. Shuman noted that Magistrate Frazier suggested RSUI front $12 million for settlement, but RSUI hesitated without Con Agra's willingness to participate.
Settlement discussions resumed on April 9, 2012, after the judge denied Con Agra’s summary judgment motion, prompting Schultz to reassess West Side's liability, now believed to exceed $5 million. The following day, Visser urged Shuman to offer $12 million to settle, given the increased valuation of claims.
Clifford, trial counsel for Jentz and Schmidt, indicated in his deposition that he was open to settling with West Side and RSUI for policy limits until the completion of motions in limine and jury seating. However, no evidence exists to support that Clifford made a formal demand or that RSUI provided a formal offer. Once the trial commenced, no specific offers were exchanged, and Clifford refused a $12 million offer from RSUI, feeling focused on the trial due to perceived negotiations among ACE, Con Agra, RSUI, and West Side obstructing settlement. As the trial progressed, witness performances deteriorated, prompting a renewed discussion of settlement options. On May 15, 2012, Moody proposed a settlement offer regarding the Jentz claims to Limber, which was later revised to include Schmidt. Limber engaged in negotiations, consulting RSUI members and preparing a counter-proposal for ACE/Con Agra. On May 22, 2012, Siobhan Murphy presented two settlement options, but Limber found them flawed due to a lack of guarantee for RSUI’s release from all claims if it paid the full $12 million. Limber’s counter-proposal on May 24, 2012, aimed to address these concerns but was promptly rejected by Murphy, who stated that Con Agra would cease negotiations with RSUI. Throughout this period, attorneys involved speculated on potential settlement formulas, indicating a collective belief that a resolution was possible. Correspondence during the trial revealed a persistent desire among various parties to settle, coupled with a sense of regret reflected in depositions and declarations regarding the failure to achieve settlement in the litigation.
Explicit communications during the underlying litigation indicated a potential bad faith failure to settle claim, acknowledged by Limber, who advised RSUI to tender its limits to avoid such a claim. While case law generally defers to trial attorneys in predicting trial outcomes, Limber's concerns about a bad faith claim were accurate. The current matter involves RSUI’s motion for summary judgment against West Side's bad faith failure to settle claim.
The choice of law issue is governed by Illinois law, with a dispute over whether tort or contract law principles apply. The tort analysis follows section 145 of the Restatement (Second) of Conflict of Laws, evaluating factors such as the injury location, conduct causing the injury, the parties' domiciles, and the relationship's center. The court must assess the significance of these factors and then apply the policy considerations from section 6 of the Restatement, which include forum policies and the protection of justified expectations.
For a contract-centric approach, section 188 of the Restatement outlines factors such as contracting location, negotiation place, performance site, and the parties' domiciles and business locations. The court must also consider the same section 6 policy factors. The Defendants advocate for a contract analysis, arguing that the economic injury, while technically a tort, is fundamentally linked to contractual obligations, citing relevant case law that supports the intertwining of tort claims with contractual duties.
The court has chosen to apply Illinois contract choice of law principles to evaluate a tort claim for bad faith seeking punitive damages, emphasizing that the claim arises from a contractual obligation of good faith. The court asserts that contract interpretation is central to determining tort liability, despite potential state court characterizations of the tort as independent. The plaintiffs referenced cases where tort choice of law principles were applied in similar insurance contexts, notably ACE Am. Ins. Co. v. Sandberg, which highlighted the similarity between tort and contract choice of law analyses.
The current dispute centers on alleged harm from bad faith failure to settle, categorized as a tort. The court analyzes tort choice of law principles, noting that although economic loss is generally felt where the consequence occurs, no payment has been made by West Side for the claimed damages, rendering this factor neutral. The conduct leading to the injury occurred in Illinois, where the litigation and settlement attempts transpired. Although the parties are located in different states, the relationship formed during trial in Illinois is deemed significant.
Applying the Restatement section 6 factors, the court concludes that they favor Illinois law. The forum's policies regarding a duty to settle support applying Illinois law, as the court aims to ensure good faith in case resolutions. While other jurisdictions may also have interests, Illinois's interest is stronger given the out-of-state injury context. Additionally, expectations are best managed by the forum where litigation occurs, reinforcing the rationale for applying Illinois law. Finally, the predictability and finality of outcomes are enhanced when an Illinois court applies its own law. Consequently, the court decides to apply Illinois law to the tort aspect of the dispute.
The Court will apply contract choice of law principles, specifically favoring Iowa law for the interpretation of the insurance coverage claims due to the contract being entered and presumably negotiated in Iowa, with one party located there. The application of Iowa law is deemed appropriate as other section 188 factors are neutral. For summary judgment, the movant must demonstrate no genuine material fact disputes and entitlement to judgment, after which the burden shifts to the non-moving party to present specific facts indicating a trial issue. The Court's analysis will focus on the Commercial General Liability (CGL) insurance contract, with reference to a framework established by the Iowa Supreme Court in Pursell Const. Inc. v. Hawkeye-Security Ins. Co. This framework involves first examining the insuring agreement for coverage, then reviewing any exclusions, and finally considering exceptions to those exclusions. A key issue is whether the explosion at the Con Agra grain elevator qualifies as an "occurrence" under the CGL policy, as RSUI contends it does not, based on the policy's definitions. Iowa courts have previously defined "occurrence" in the context of CGL insurance, which broadly includes accidents and continuous exposure to harmful conditions.
The Defendants argue that the explosion is not an "occurrence" under their CGL policy, referencing Yegge v. Integrity Mut. Ins. Co., where the court ruled that faulty workmanship was not covered as it did not qualify as an occurrence. However, the court finds the Iowa Supreme Court's decision in Nat’l Sur. Corp. v. Westlake Inv. LLC more relevant, which states that an unexpected act resulting in property damage can qualify as an occurrence if the insured did not intend or expect the act or its consequences. Since it is uncontested that West Side did not intend for an explosion to occur, the Defendants cannot succeed in their summary judgment claim that the CGL policy is entirely inapplicable.
RSUI claims that a specific exclusion in the policy, regarding damage to property arising from operations performed by the insured or its contractors, absolves them of liability for the damage to the grain elevator. They cite Spirtas Co. v. Nautilus Co. and several Illinois cases supporting the interpretation of this exclusion to deny coverage. RSUI contends that the damage to the grain elevator resulted from operations intended to address a “hot bin” situation, thus falling under the exclusion. However, the Plaintiffs argue that they were not working on the physical structure of the elevator but rather managing the material within the bin. The court notes that while work on the structure would be excluded, work on the contents would only fall under the exclusion if it involved repairs or replacements of the contents themselves.
The claim focuses on damage to the bin itself rather than loss of grain, enabling the Plaintiffs to support their argument against summary judgment effectively. The Defendants assert that a contractual liability exclusion in the CGL policy applies, which excludes coverage for bodily injury or property damage for which the insured is liable due to a contract. They reference an Illinois case that discusses this exclusion but ultimately does not apply it to the facts at hand since it found no coverage initially. On the other hand, the Plaintiffs cite an Iowa case that suggests an exception to the exclusion might restore coverage because the policy does not exclude liabilities the insured would have without a contract. The Defendants challenge this interpretation, claiming the Plaintiffs were not sued for negligence, but this is incorrect, as negligence claims persisted until the jury favored contractual claims. Under Iowa law, ambiguous policy language favors the insured, supporting the conclusion that coverage may exist and the exclusion does not apply, negating the need to address the Defendants' argument regarding bad faith failure to settle.
RSUI contends it did not breach any duty to settle since no firm offer was made, while West Side argues that RSUI had multiple settlement opportunities as the trial approached, indicating a duty to settle. Illinois law governs the bad faith claims due to the original trial's location, establishing that insurers must act as fiduciaries and cannot act negligently or in bad faith towards the insured's interests, as shaped by several Illinois appellate court decisions.
An insurer is not obligated to initiate settlement discussions with a plaintiff, except in situations where the likelihood of an adverse finding on liability is high and potential damages exceed coverage limits. The insurer must consider the interests of the insured equally alongside its own and deal fairly with them. A loss at trial or refusal to settle does not automatically indicate negligence or bad faith. The advice from trial counsel regarding settlement does not determine bad faith, nor does a refusal to settle contrary to that advice. In Illinois, a claim of bad faith requires the plaintiff to demonstrate that the insurer knew the claims could exceed policy limits, had the opportunity to settle, and failed to value both parties' interests fairly. The Illinois Court of Appeals has ruled that without evidence that the defendant could have settled all claims within policy limits, a bad faith claim is not viable. In the Sanders case, it was noted that conflicting claims made settling impossible, which undermined a bad faith claim. Plaintiffs must show a timeline where the insurer's knowledge of the need to settle coincided with opportunities to do so, and these opportunities should resolve all claims against the insured. The evidence presented by the plaintiffs does not demonstrate that RSUI received any concrete settlement offers that could have settled all claims within policy limits, thus precluding a finding of bad faith. The timeline reveals no instance where RSUI was aware of an excessive potential liability while having the opportunity to settle all claims against the insured.
Numerous depositions and communications regarding settlement were submitted by the parties involved in the case related to claims from a grain elevator explosion. At different times, both parties indicated a willingness to settle. However, the evidence presented by the Plaintiffs fails to establish that RSUI had a genuine opportunity to settle all claims against West Side within policy limits. Initially, RSUI's trial counsel believed RSUI bore less fault than other parties, reducing the incentive for RSUI to offer its full coverage for settlement.
Following the first settlement conference in January 2012, Con Agra's counsel expressed concern about a potentially high jury verdict and urged ACE to utilize its full $25 million limits to settle. However, there is no evidence that ACE made its policy limits available before trial, and even during trial, ACE did not offer its full limits outright.
In March 2012, a letter indicated that West Side's exposure was underestimated, prompting its counsel to request that RSUI consider contributing its policy limits for settlement. Despite these requests, the record shows limited communication regarding offers from April 9 until the trial, consisting solely of three letters urging RSUI to front its limits in light of the evolving situation.
Counsel for Jentz and Schmidt, Clifford, indicated a willingness to settle with West Side for $12 million prior to trial; however, there is no written evidence of such negotiations. Testimony from Con Agra representatives suggests they would have released claims against West Side before trial, but again, there is no documentary proof of any explicit offer made. The verbal assertions regarding the possibility of settlement remain speculative without written documentation. Once the trial commenced, issues arose as witnesses did not perform as anticipated. Limber, plaintiffs' counsel, stated that no settlement offer was made by Clifford during the trial. As the trial progressed, West Side’s legal team became anxious and sought to negotiate a settlement. On May 15, 2012, Moody demanded that West Side tender its full limits to settle, but Limber rejected this, claiming that Schultz lacked authority and expressing a willingness to negotiate further. Following this, Con Agra and ACE made at least two settlement offers to RSUI via email on May 18, 2012, which included resolutions for both Jentz and Schmidt but did not address workers' compensation or other liabilities. On May 22, a modified settlement offer was presented, still excluding workers' compensation claims. RSUI's rejection of these offers is not deemed bad faith for three reasons: it believed the offers did not fully resolve all claims against West Side, Illinois law does not require insurers to negotiate settlements with co-defendants, and RSUI was not presented with a unified settlement offer from all parties involved. Instead, the offers were solely from Con Agra, meaning RSUI did not have a genuine opportunity to settle all claims. Furthermore, RSUI did not ignore the offers but actively engaged in trial proceedings.
RSUI attempted to negotiate a settlement to resolve all claims against West Side, as evidenced by communications from Limber. On May 24, 2012, Limber communicated West Side's willingness to share costs up to $12 million with Con Agra and ACE, excluding workers' compensation claims. However, Siobhan Murphy terminated settlement discussions that same day, opting to negotiate independently with plaintiffs and West Side, which indicated a lack of willingness to settle from a key party. This refusal hindered RSUI's ability to achieve a comprehensive settlement.
Despite this, on May 29, 2012, Limber sought to engage in settlement discussions within RSUI’s limits, which were rejected by counsel Jentz and Schmidt. Additionally, Clifford stated during deposition that he would not accept a straightforward offer of RSUI’s limits once the trial commenced, further illustrating the challenges RSUI faced in settling all claims during the trial.
The complexity of the case involved numerous stakeholders, including multiple counsel from West Side, Con Agra, and their respective insurers, leading to difficulties in reaching a satisfactory settlement. The depositions of various lawyers reflected frustration over the overwhelming number of competing interests, indicating that any potential for a last-minute settlement was complicated by the diverse legal representation. Overall, the depositions provided speculative insights but did not substantiate claims that RSUI had genuine opportunities to settle before or during the trial.
Key players, including Natalie Limber, actively worked towards a settlement, as evidenced by emails and letters submitted to the Court, which offer stronger support than speculative deposition remarks. The depositions, taken years after the trial, reveal significant memory issues among deponents who often relied on general practices or assumptions about the case rather than recalling specific events. This memory gap complicates the Plaintiffs’ ability to counter a motion for summary judgment since the timeline of events is crucial. The absence of evidence from Moody or Murphy, who had settlement authority for Con Agra and ACE, is noted; there is no indication they would have settled with RSUI before or during the trial. Although the Plaintiffs reference depositions from Ortlet and Knowles, these attorneys lacked settlement authority, rendering their opinions ineffective. Limber's email and letter urging RSUI to front its policy limits suggest an effort to mitigate potential liability but do not demonstrate that such actions would have led to a full release of claims against West Side. Evidence of RSUI's active consideration of settlement strategies during trial undermines claims of bad faith. The pressure from West Side’s counsel for RSUI to settle is less relevant under Illinois law, which emphasizes the insurer's duty to respond to direct settlement offers from plaintiffs. Additionally, while an expert assessment by Allan Windt was retained by the Plaintiffs regarding RSUI's settlement obligations, the Court finds Windt's conclusions overly burdensome compared to the legal standards in Illinois, diminishing their persuasive value.
Evidence indicates that all parties involved initially regarded settlement as appropriate. RSUI became aware that its insured might face liabilities exceeding policy limits. However, the record lacks substantial evidence of RSUI's bad faith in the handling of claims. Although the outcome of the underlying trial was unfavorable for all involved, and settlement appeared preferable, it did not occur. The Court analyzed the facts favorably for the non-movants, interpreting the insurance contract in a way that suggested potential coverage for West Side. Upon reviewing extensive evidence, including depositions and correspondence, the Court found no specific instance where RSUI simultaneously recognized the risk to its insured while having the opportunity to settle all claims. Additional testimonies would likely be just as vague as existing depositions, failing to provide a reasonable basis for a jury to find RSUI liable for bad faith. Consequently, the Court concluded that there were no genuine material facts warranting the case to proceed beyond summary judgment. The Court partially granted and denied RSUI's Choice of Law Motion, fully granted RSUI’s Motion for Summary Judgment, and dismissed other pending motions as moot, directing judgment in favor of RSUI. The document also notes ongoing litigation involving West Side's employee Becker, whose claims were more aligned with workers' compensation rather than tort. The jury's verdicts in the underlying case were significantly higher than some amounts later overturned on appeal. The involvement of numerous attorneys and parties in the litigation is acknowledged, underscoring the complexity of competing interests. Lastly, it is noted that the Jentz and Schmidt claims were settled post-trial by exhausting RSUI's policy limits, with those claims fully satisfied.
