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Case Law Overview: Defense Dodges $8M Verdict in Negligent Misrepresentation of Insurance Coverage Lawsuit

May 1, 2020

The recent Seventh Circuit decision, Turubchuk v. Southern Illinois Asphalt Co., et al., No. 18 – 3507 (7th Cir. 2020), addressed the disclosure of available insurance coverage in discovery responses.  The case presents a good defense result in an unusual set of facts but is a reminder about the perils of providing incorrect insurance coverage information in responses to discovery.

The Seventh Circuit reversed an $8 million jury verdict on a negligent misrepresentation claim based on the alleged failure to disclose their individual insurance policies with higher limits when answering Rule 26 interrogatories. In the underlying lawsuit based on an automobile accident, defendants disclosed only a $1,000,000 joint venture insurance policy.   Plaintiffs claimed that they relied on this misrepresentation in making a $1,000,000 policy demand.  Plaintiffs later discovered that defendants had individual policies with higher limits and brought a second action for negligent misrepresentation.

The District Court granted summary judgment to Plaintiff on all but one of the elements of the negligent misrepresentation claims, barred defendant’s expert, and allowed Plaintiffs’ former attorney to testify on plaintiffs’ behalf as an expert.  The Seventh Circuit reversed all of these decisions, finding that the Federal Rules did not create a separate duty of care, and that there is no private right of action based on the failure to comply with Federal Rule 26 (even assuming it was violated in that case).   The Seventh Circuit also found error in usurping the role of the jury by granting partial summary judgment in favor of plaintiffs, including on the issue of whether the defendants were being sued as a joint venture.   The appellate court reversed the denial of a motion for a new trial and remanded the case for further proceedings, allowing the plaintiffs to proceed on a different theory.

While this case is good news in the world of insurance, one of the takeaways is that the defense attorney apparently did not inquire further with the client as to additional coverage, and reported the joint venture policy only.  Luckily the unusual facts of this case provided ample ground for reversal, but this opinion should remind all of us not to take disclosure of insurance lightly.

Defendants do not have a duty to opine on coverage issues, but must disclose the insurance that covers or potentially covers the named defendant.  Insurance clients and insureds should make sure to alert counsel to all potential policies in responding to discovery.

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