Fifth District Says Plaintiff Should Have Been Permitted to Argue Equitable Estoppel Against Settlement Tainted By Misrepresentation of Insurance Adjustor

This is an entry from my Illinois Personal Injury Trial Book blog addressing some pitfalls when there are multiple policies in play on a respondeat superior case:

Ahle v. D. Chandler, Inc. – 5-10-0346 (Goldenhersh)

Facts:  Plaintiff was injured by a pizza delivery vehicle.  The driver of the vehicle was insured by Allstate, while the pizza parlor was insured by State Farm.  Plaintiff’s attorney made a joint demand to both insurers for $400,000.  In response to this demand, and adjustor for State Farm wrote :

“As I previously explained the State Farm policy would be excess to the liability coverage provided by Allstate Insurance.  Insurance follows the car in the state of Illinois.  If and when the Allstate liability insurance is exhausted, will I then be required to review for additional consideration and payment as an excess policy.”

Shortly after, Allstate tendered it’s policy limits of $100,000.  When Plaintiff’s attorney contacted State Farm to advise them of Allstate’s position, he was requested to send written proof of the amount of Allstate’s policy and confirmation that the limits had been tendered, which were sent immediately along with several follow-up letters with medical records and other materials for evaluating the claim.  For the next two months, State Farm was silent, so Plaintiff’s counsel accepted Allstate’s offer and had Plaintiff sign a release for the claims for the delivery driver insured by Allstate, but reserving all claims against the pizza parlor insured by State Farm.    After another month of silence from State Farm, Plaintiff filed suit against the pizza parlor.  State Farm retained counsel for its insured who ultimately filed a motion for summary judgment on the basis that Plaintiff’s settlement with the delivery driver extinguished all vicarious liability claims against the pizza parlor.  Plaintiff then substituted counsel and his new attorneys argued that the defendant should be equitably estopped from asserting this defense on the basis that State Farm’s adjuster had misrepresented that it’s policy was excess and that Plaintiff’s former counsel detrimentally relied upon their assertion that they would evaluate the claim only after the Allstate policy had been exhausted.  The defendant denied that the State Farm adjustor had made any misrepresentation or concealment and argued that the issue was solely whether in a respondent superior case the plaintiff can make a claim against the principal after having already released its agent.  The trial court ruled in favor of the defendant and  granted summary judgment against the plaintiff.

Holding:  Summary judgment is improper because genuine issues of material fact exist regarding State Farm’s conduct prior to the settlement and release of the delivery driver such that equitable estoppel could preclude the defendant employer from raising the defense that the Allstate settlement extinguished Plaintiff’s claim for compensation from the State Farm policy.

Filed in Trial Book Under:  Equitable Estoppel; Settlements; Respondeat Superior

Analysis:  In Gilbert v. Sycamore Municipal Hospital, 156 Ill.2d 511, the Supreme Court held that the release of an agent serves to extinguish the vicarious liability of the principal, even if the agent expressly reserves the plaintiff’s right to seek recovery from the principal.  As a result, it was clearly a mistake on the part of the plaintiff’s counsel to release the agent on the assumption that State Farm would continue to negotiate the remainder of the claim with him.  Under these circumstances, it’s nice to see the appellate court see through the technically correct legal defense raised by State Farm and apply some common sense and principles of equity in order to save this badly injured plaintiff from the misadventure of his first attorney.  As the opinion points out, there were two separate policies that applied to two separate insured’s and therefore both policies were primary, not one primary and the other excess.  Certainly, the plaintiff’s attorney didn’t see it that way, and at the outset of the claim the State Farm adjustor didn’t either.  It seems as if they were both treating the case like an underinsured claim, rather than a third party case involving respondeat superior.  Clearly, the release never should have been signed, but, then again, State Farm never should have told the plaintiff that it would only negotiate after the Allstate policy was exhausted.  In a circumstance like this, when the law is clearly against you, the only avenue is to seek an equitable remedy.  And, of course, pray.  (As a child of the Star Wars era, the image I have in my head is a hologram of Princess Leia repeating “Help me Equitable Estoppel, You’re my only hope!”)  What clinched the case for me was the two months of silence after the adjustor asked for proof that Allstate had tendered it’s limits.  If the adjustor was being sincere about how the claim would be handled, then you would have expected her to begin immediately negotiating the remainder of the claim with plaintiff’s counsel, which isn’t what happened here.  On the other hand, if the adjustor was being insincere and trying to mislead the plaintiff, then you would expect her to go silent in the hope that plaintiff’s counsel would do exactly what he ended up doing.  But, there is also a third possibility, which in my opinion is most likely, and that is that the adjuster was sincere when she initially made the statement, but then subsequently learned that her position was wrong.  If that is the case, then State Farm should have simply owned up to the misrepresentation, albeit inadvertent, and not tried to benefit from a mutual mistake.  That didn’t happen here, and rather than trying to negotiate a fair settlement, they tried to get out of the case without paying anything.  The majority position in this case did what was fair under these unfortunate circumstances and allowed the plaintiff his day in court.