On May 22, 2012, Illinois’ Fifth District issued an opinion that insurers across the state should take immediate notice. The opinion, entered in Kirk v. Allstate Insurance Co., No. 5-10-0573 (Ill. App. 5th Dist. 2012), highlights the importance of securing proper releases which fully protect their insureds from personal liability in matters involving policy limit payments.
In Kirk, Steven Kirk (“Plaintiff”), as assignee of Enver Hamiti (“Hamiti”) filed suit against Allstate Insurance Company (“Allstate”) for bad faith notwithstanding the fact that Allstate had previously tendered its policy limits to Kirk after Kirk was injured in a motorcycle accident involving the vehicle Hamiti was operating. After suit was filed, Allstate filed a partial motion for summary judgment which was granted by the lower court. Upon review, the Fifth District reversed and remanded the case further proceedings. Specifically, the higher court found that there were questions of fact as to the parties’ intentions at the time Hamiti’s name was removed from the settlement release that Kirk executed before Allstate’s policy limits were ultimately tendered.
The underlying case in this matter arose after Hamiti ran a stop sign while he was driving a vehicle owned by Lindsey Skenderi (“Skenderi”). The vehicle Hamiti was driving struck Kirk’s motorcycle. Kirk was severely injured in the accident and ultimately had to have his leg amputated. Allstate insured Skenderi’s vehicle with liability limits of $100,000 per person. Hamiti also had liability insurance of his own through Mercury Insurance with limits up to $50,000.
Two weeks after the accident, Allstate’s representative, Rick Green (“Green”) secured a recorded statement from Hamiti wherein Green was advised of Hamiti’s current address. After meeting with Hamiti, Green concluded Hamiti was liable and that Hamiti qualified as an insured under Allstate’s policy.
Shortly thereafter, Kirk retained counsel and his counsel made policy limit demands to both Allstate and Mercury in the amount of $150,000. During the policy limit settlement negotiations, Kirk’s counsel reportedly informed Green that Kirk’s medical bills exceeded $100,000 and Green allegedly advised that he and Allstate were aware of the fact the claim exceeded the applicable liability limits. During this same conversation, Kirk’s counsel indicated that her firm was considering a pursuit of Skenderi’s personal assets as Skenderi appeared to have assets through various business ventures in the restaurant industry. Counsel made no indication that she would pursue recovery from Hamiti personally.
Green advised Skenderi of Kirk’s policy limit demand and recommended that Skenderi may want to hire independent counsel in order to protect her personal assets. Green also sent a similar letter to Hamiti, but the letter never reached Hamiti because it was sent to Hamiti’s prior address, and not the address Hamiti provided to Allstate during his recorded statement.
During the course of the claim’s handling, Green and his supervisor had multiple conferences wherein Green was reminded to double check on the status of the limit’s demand, to ensure that the insureds had copies of the demand and to notify the insureds that they had a right to independent counsel in light of Kirk’s threat that he might seek recovery beyond the applicable policy limits. Green was also told to ensure that a release was signed by Plaintiff absolving the insureds of further liability exposure before he issued any settlement drafts.
Less than four months after the accident, Allstate, through Green, tendered Allstate’s $100,000 policy limits to Kirk’s counsel. The offer was accompanied with a proposed settlement release which effectively released both Skenderi and Hamiti. Kirk’s counsel responded that she was planning to sue Skenderi and the driver and wanted to settle the case, but that the release needed to be changed. Specifically, Kirk’s counsel suggested the release to include only Allstate’s insureds and should provide an exception to allow Kirk to pursue his claims against any other insurers, i.e. Mercury. In response, Green amended the release by removing Hamiti’s name and sent Kirk’s counsel the amended release the next day. Plaintiff ultimately signed off on this amended release, which effectively did not release Hamiti.
Green later acknowledged that he had no discussions with Hamiti about the release or his decision to have Kirk sign the release without Hamiti’s name on it. In fact, Green admitted that the only conversation he had with Hamiti was during the recorded statement he secured from him two weeks after the accident in question.
About a year to the day the amended release was signed, Kirk filed suit against Hamiti for the personal injuries he sustained in the accident. The next month, Allstate was informed of the lawsuit and again inadvertently sent notice of the lawsuit to Hamiti’s prior address. Ultimately, Hamiti was not provided with counsel by Allstate until a year later when it was learned that the suit notification letter was sent to Hamiti’s prior, not current, address. The case was eventually tried and Kirk obtained a $1.375 million verdict, with a $100,000 set off for the money Allstate previously paid to Kirk.
Kirk settled with Mercury in rather short order and then obtained an assignment of rights from Hamiti to sue Allstate for bad faith. In its lawsuit, Kirk as the assignee of Hamiti claims in part that Allstate violated its duties to Hamiti by obtaining a settlement release which did not include Hamiti’s name, thereby, exposing Hamiti to personal liability.
Allstate moved for partial motion for summary judgment. The lower court granted the motion by holding that Allstate was improperly induced by Kirk into sending over a release which excluded Hamiti. Kirk appealed from that order.
The ultimate issue on appeal was whether the trial court erred in granting Allstate’s motion for summary judgment, which effectively released Allstate from bad faith exposure. Kirk contends the lower court erroneously failed to consider the status of the parties. Because Kirk stood in Hamiti’s shoes, Kirk’s status in the underlying case was not relevant according to Kirk. Kirk further argued that Allstate acted in bad faith by failing to take the necessary steps to protect Hamiti when it secured the signed release from Kirk. Kirk claimed that Allstate also failed to inform Hamiti of the settlement in question. Allstate countered Kirk’s arguments by contending that Kirk essentially orchestrated how the release was to be worded and induced its execution. Consequently, Allstate argued it could not be liable. Allstate also argued that there was no evidence of bad faith because Allstate tendered its entire policy limits as part of its settlement.
Upon reviewing the law and the facts of the case, the Kirk court determined that Hamiti properly assigned his right to recover from Allstate for any bad faith that may have occurred during the settlement process of Kirk’s claim against Hamiti. Because a proper assignment of rights had taken place, all Hamiti’s rights and interests were effectively transferred over to Kirk. Interestingly, since the court found that Kirk was now standing in Hamiti’s shoes, the issue of inducement was somehow deemed irrelevant. Oddly, while stating this, the court also mentioned that had Kirk “coerced or tricked Allstate in removing Hamiti’s name from the release, that might be reason for entering partial summary judgment in favor of Allstate.” However, it was the court’s position that there was no such evidence to support that conclusion.
At the end of the day, the court determined there were questions of fact in regard to the inducement issue which should have precluded the entry of partial summary judgment at the lower court level. Moreover, according to the court, the mere fact that Kirk’s attorney sought the exclusion of Hamiti’s name in the release, without any evidence of coercion or trickery, would not absolve Allstate’s duties owed to Hamiti. As the court stated, an insurer cannot “clear itself from exposure in an excess case at the expense” of its insured.
The court next addressed whether Allstate’s policy limit payment automatically protects the company against potential bad faith exposure. Allstate contended it did, yet the appellate court disagreed. In support of its position, the Kirk court relied on longstanding Illinois law suggesting that “an insurer [could not] discharge its duty to defend simply by paying policy limits.” See Conway v. Country Casualty Insurance Co., 92 Ill.2d 388 (1982), Douglas v. Allied American Ins., 312 Ill.App.3d 535 (2000).
The Kirk court opined that in cases such as this one, where recovery may exceed policy limits, its insurer must provide “at least as equal consideration to the insured’s interest as it does to its own.” The Kirk court concluded that “did not happen" in this case.
Green admitted he settled the underlying case without communicating the settlement and its terms to Hamiti. The court also found that Allstate never provided Hamiti with notice of the offers and demands made in this case despite the fact Allstate attempted to provide such notice, albeit to an inadvertent incorrect address. Green allegedly admitted he should have talked to Hamiti before finalizing the settlement agreement and its execution with Kirk. The record reflects that Green’s direct supervisor reminded him to do this, yet Green decided, after talking to Kirk’s counsel, that he would remove Hamiti’s name from the settlement release. After considering the totality of the facts presented, the court held there were questions of fact present thus to preclude entry of summary judgment in Allstate’s favor from being proper. As a consequence, Allstate’s favorable ruling at the trial court lever was short lived and the ruling was reversed and the case was remanded back to the lower court for further proceedings.
This decision underscores the importance of insurers in fully protecting their insured’s rights in excess liability exposure cases. Here, while Allstate seemingly properly evaluated the claim and expeditiously tendered its policy limits to the injured party, its decision to remove the party ultimately responsible for causing the plaintiff his injuries from the release, has opened the door to potential, and unnecessary, bad faith exposure. While it remains to be seen whether bad faith damages will ultimately be awarded, this case is an unfortunate reminder that one poor decision may lead to significant and undesirable consequences down the road.