The Illinois Appellate Court recently in Stonecrafters, Inc. v. Wholesale Life Insurance Brokerage, Inc. (2d Dist. July 13, 2009) held that a liability insurer that breaches its duty to defend its insured an underlying lawsuit and is estopped from raising coverage defenses may challenge a trial court’s finding of the reasonableness of the underlying settlement between the insured and the underlying plaintiff and may take discovery in furtherance of its challenge. Here, the insured settled a class action lawsuit alleging violations of the Telephone Consumer Protection Act arising out of the sending of blast faxes. The insured had tendered notice of the lawsuit to its insurer, Milwaukee Insurance Co. (“MIC”), but MIC had denied coverage. The trial court certified the settlement class, approved the settlement, and determined that the settlement was fair and reasonable.

Following the initiation of a third-party action against MIC, MIC moved for leave to issue discovery concerning the reasonableness of the settlement. The class plaintiffs refused to comply. The trial court ultimately granted the class plaintiffs’ motion for partial summary judgment, finding that MIC had owed a duty to its insured in the class action, that MIC had breached its duty to defend, and that MIC was estopped from raising policy defenses to coverage.

On interlocutory appeal, the appellate court agreed with MIC that in order to avoid the possibility of collusion to defraud the insurer, a plaintiff must prove that its settlement with the insured is reasonable before the settlement can have a binding effect upon the insurer. In interpreting Guillen v. Potomac Insurance Company of Illinois, 203 Ill. 2d 141 (2003), the appellate court found that the burden to establish the reasonableness of the settlement remains on the parties to the settlement even when the insurer is found to be estopped from asserting policy defenses to coverage. Since MIC was not given notice of the motion to approve the underlying settlement and was not able to participate in the hearing on the fairness of the settlement, the appellate court found that the trial court erred in holding that the settlement was fair and reasonable.

This decision may be found at:
http://www.state.il.us/court/Opinions/AppellateCourt/2009/2ndDistrict/July/2080865.pdf

The Illinois Appellate Court recently in Federal Insurance Co. v. Binney & Smith, Inc. (1st Dist. June 30, 2009) found that Federal Insurance was obligated to pay a settlement between its insured, a manufacturer of asbestos-containing crayons, and a class of purchasers of said crayons. The class plaintiffs alleged in part that the insured violated the Illinois Consumer Fraud Act and Uniform Deceptive Trade Practices Act because the subject crayon packaging was falsely labeled that the product was “Certified Non-Toxic” and “safe for children.” Ultimately, the insured and the class plaintiffs settled the lawsuit for approximately $1 million. The trial court, after conducting a fairness hearing, approved the settlement.

The insured tendered to Federal Insurance the defense and indemnity of the lawsuit under the “advertising injury” provisions of the policies. Federal Insurance filed the instant declaratory action against its insured. The trial court found in the insured’s favor.

On appeal, the appellate court considered whether the settlement was reasonable, i.e., whether the settlement was for a covered loss and was reached in “reasonable anticipation of liability.” The insured contended that while it believed that the class plaintiffs’ allegations were not meritorious, it did not want to risk putting the issues before a jury, in light of juries’ tendency to render adverse verdicts against manufacturers whose products contain even trace amounts of asbestos. The insured thus believed it potentially faced significant liability. The appellate court was not compelled by Federal Insurance’s response that its insured had an absolute defense to the consumer fraud claims. The lack of evidence that the insured was “specifically authorized” by statute or regulation to use the term “Certified Non-Toxic” on its packaging indicated that the insured’s defense could not have been absolute. Accordingly, the appellate court agreed with the trial court that the settlement was reasonable. It also agreed with the trial court that the alleged false labeling was sufficient to trigger Federal Insurance’s indemnity obligations under its “advertising injury” provisions. The appellate court thus affirmed this aspect of the trial court’s ruling.

This decision may be found at:
http://www.state.il.us/court/Opinions/AppellateCourt/2009/1stDistrict/June/1080843.pdf

In CITGO the Seventh Circuit advised that district courts not only retain discretion when applying the Daubert factors to asserted expert testimony, but they also retain discretion in determining the manner in which the Daubert issue may be presented to the court. CITGO involved a personal injury action alleging exposure to hydrogen sulfide gas while working at CITGO. The plaintiffs sought to establish injury causation through expert testimony from treating physicians. CITGO did not challenge the testimony by a traditional motion to bar or Daubert hearing. Instead, CITGO brought a motion for summary judgment challenging plaintiff’s ability to establish causation because the experts were not qualified based on a lack of training or experience in toxicology or epidemiology. Other challenges were also asserted, such as faulty methodology and failure to consider alternative causes. Plaintiffs argued that this was an improper approach by which to challenge the experts’ testimony. The district court disagreed and entered summary judgment in favor of CITGO. The Seventh Circuit affirmed noting that the law grants the district court great discretion regarding the manner in which it conducts Daubert evaluations. Sua sponte consideration of the admissibility of expert testimony by a district court was also held to be proper.

The Northern District of Illinois provides a detailed analysis of the Daubert requirements and expert testimony with respect to lost future profits in the Euro Holdings case. Euro Holdings sought to recover from Harris Trust based on a tortious interference with contract claim. Harris Trust had allegedly caused the failure of a transaction resulting in Euro Holdings’ loss of a 90% equity stake in LFG. To attempt to put forward evidence of significant lost future profits, Euro Holdings relied an expert witness. The retained expert determined actual past performance of LFG and then modified that performance to reflect Euro Holdings’ intention to modify the structure of LFG’s business after the sale. The expert then made projections regarding LFG’s likely future performance based on certain assumptions. The district court found the expert’s methodology as to past losses to be sufficient for purposes of denying a motion in limine. However, the district court granted defendants’ motion in limine regarding future profit testimony because the modifications to the structure of the purchased company hadn’t occurred and thus the “new company” was never actually in existence. The damage calculation was held to be too speculative, and the court found that the claim itself likely was barred by the “New Business Rule” (recovery for lost profits of a new business generally is not allowed because such a loss is “too uncertain, specific and remote to permit recovery.”) In Solomonic fashion, the court split the baby.

The First District Appellate Court has ruled in Grabs v. Safeway (6/17/09) that an employer may not rely on it retained physician’s favorable IME “fit for duty” report (when conflicting medical opinions exist) to terminate an employee for failing to return to work before the Industrial Commission issues its ruling.

In a case of first impression, the Second District Appellate Court has ruled that anti-stacking language in a UIM policy will not limit multiple wrongful death beneficiaries to a single UIM limit.  In Economy Premium Assurance Company v. Jackson, 393 Ill.App.3d 929 (2nd Dist. 2009), the son of divorced parents was killed in a collision caused by an underinsured motorist.  Each parent had a separate automobile policy containing UIM coverage, and both insurers contended that the parents’ recoveries for the death of their son must be limited to a single UIM limit by virtue of the anti-stacking language in the policies.

The insurers reasoned that under Illinois law, the parents’ claims for the death of their son could only be brought under the Wrongful Death Act, and that the Act provided for only a single claim that must be brought in the name of the decedent’s estate.  They reasoned that since there was only one claim, it was governed by the anti-stacking provisions of the policies and the estate could not aggregate the limits of both policies.

The Appellate Court disagreed, finding that each parent had a right to seek recovery for his or her own damages under the Wrongful Death Act.  Based on this analysis, the Appellate Court concluded that the anti-stacking provisions would not apply; rather, the decedent’s mother and father each had a separate claim and were entitled to recover the full UIM limit of their respective policies.

The Appellate Court’s opinion in this case is without precedent in Illinois law.  Although the Court decided the issue within the somewhat narrow context of UIM insurance, a similar analysis could potentially be applied to trigger multiple policy limits under other liability policies in wrongful death cases.