Delatorre v. Safeway Insurance Company, 2013 IL App (1st) 120852 (Hyman)
Facts: Plaintiff was injured in a car accident in September 1991 while a passenger in a vehicle. The driver and passenger of the other vehicle were also injured, resulting in 3 claims against plaintiff’s driver, who carried a policy of insurance with defendant Safeway Insurance Company with limits of $20,000 per person and $40,000 per occurrence. Like all insurance policies, the Safeway policy required the carrier to defend its insured in the event of a claim or lawsuit brought against its insured. Plaintiff made a policy demand in December 1991, which was refused by defendant. Plaintiff then filed suit against the driver of his vehicle and after its insured was served Safeway agreed to defend under a reservation of rights and informed its insured that it retained attorney I.R. Strizak to defend the case. Strizak filed an appearance and answer on December 15, 1992, and then apparently did nothing further. On October 4, 1994, the plaintiff obtained sanctions against the defendant driver for his failure to answer discovery and an order of default was entered by the trial court. Plaintiff forwarded the default order to Safeway Insurance Company who in return forwarded a copy to Strizak, and then did nothing to follow-up on whether the default was being addressed by Strizak. In November 1995, the plaintiff obtained a default judgment against the driver for $250,000.00.
Concurrently with the personal injury case set forth above, a declaratory judgment action was also pending whereby Safeway claimed that the policy was void as a result of the driver misrepresenting his marital status on his insurance application. The trial court granted summary judgment against Safeway, finding that the carrier was bound by the actual knowledge of its agent who knew that the driver was married at the time the policy was issued. Safeway appealed this ruling and lost its appeal on March 20, 1998. Several days after the appellate court ruling, Safeway attempted to tender its limits to plaintiff, which was rejected. Safeway then paid its policy limits to the remaining 2 claimants. In the meantime, plaintiff received an assignment from the Safeway insured and filed suit against Safeway, which was non-suited and then later re-filed.
Plaintiff brought a 3 count complaint against Safeway: one count for breach of contract, one count for vexatious delay and one count for punitive damages. The breach of contract count alleged that Safeway breached its duty to defend under the contract when it ignored notice that Strizak was not providing its insured with a meaningful defense and that as a result of the inadequate defense, the insured became subject to a default judgment in the amount of $250,000. Plaintiff moved for summary judgment on count I, which was granted, and then filed a supplemental summary judgment motion on the issue of damages. Safeway filed a cross motion for summary judgment on the damages, arguing that it had exhausted its limits and could not contractually be liable in excess of the limits. The trial court granted plaintiff’s motion and denied defendant’s cross motion and entered judgment against the defendant in the amount of $250,000.
Holding: “An insurer’s promise to defend entitles the insured to expect that its insurer will retain an attorney who will in fact take action to defend the insured in the face of a default order. The insurer’s duty, after all, is to defend, not merely to provide representation, and is an ongoing duty throughout litigation.”
Filed in Trial Book Under: Insurance Coverage, Duty to Defend
Commentary: One word that will come to mind for many in the plaintiffs bar when reading this opinion is “karma.” Safeway has ruffled some feathers over the years and I suspect that many attorneys in Chicago and beyond are rejoicing over the result in this case. Oddly, Safeway may also be one of the victims here because the conduct of the attorney retained to defend the case is really inexcusable. Although you’ll be hard pressed to find anyone crying for the injustice done to Safeway here, at the end of the day, it would appear that they have a pretty strong malpractice case against Strizak for the handling of the underlying case and they might not be left holding the bag after all, assuming, of course, that the statute of limitations has not tolled on this very old case. Schadenfreude aside, I think that the appellate court got it right by holding the insurance carrier responsible for its complete failure of oversight in the defense of the case. The duty to defend is not met simply by hiring an attorney and then burying your head in the sand. I can understand that the carrier has a right to assume that the attorney they have hired is going to do their job and actually defend the case, but this only flies up to a certain point. Over the three years between Strizak being retained and the default judgment being entered Safeway received no billing statements from him and he received no payments from them. This should have raised some red flags and triggered some type of inquiry on the part of the carrier to see what was going on with the defense. More importantly, the carrier had actual notice that something very unusual had occurred when the plaintiff’s attorney sent them a copy of the default order based upon discovery sanctions. You would think that the adjustor managing the claim would pick up the phone and find out why the court had taken such a drastic measure. Still, over one year went by between the initial order of the default and the $250,000 judgment being entered on the default and there was absolutely no inquiry into the status of the defense whatsoever. This is not fair to the insured and it simply does not meet the obligation of the carrier to defend him.
Another interesting part of the case was the attempted tender of the policy by the carrier after they lost the appeal on their declaratory judgment action. The time to settle the case was when the plaintiff made the initial demand. I think that many insurance carrier’s assume that they can get out of most binds simply by tendering their policy limits. In many cases, this is probably true, but here, the plaintiff had the resolve to pursue the case fully and was rewarded with a judgment that is over 20 times the policy limits. It’s cases like these that can serve to change the more indifferent practices of a carrier and the plaintiff’s attorneys that worked on this case should be commended for sticking to their guns and rejecting the late tender of the policy limits.