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Insurer not Liable for Bad Faith Failure to Settle Absent Reasonable Probability of Plaintiff Verdict
November/December 2019Surgery Ctr. at 900 N. Mich. Ave., LLC v. American Phys. Assurance Corp., Inc., 2019 WL 1855397 (7th Cir. Apr. 25, 2019).
The Seventh Circuit Court of Appeals held that an insurer was not liable for bad faith failure to settle a personal injury case against its insured absent evidence there was a reasonable probability of a plaintiff’s verdict in the case.
Here, Gwendolyn Tate suffered complications that led to paralysis after undergoing surgery at the Surgery Center at 900 North Michigan Avenue, an outpatient surgical center. She later filed a medical malpractice suit against the center and a physician. American Physicians Assurance Corp., Inc., and American Physicians Capital, Inc. (APA), hired an outside law firm to defend the surgery center under the parties’ $1 million insurance policy. Despite the plaintiff’s settlement demand, APA did not settle; the jury returned a verdict for more than $5 million.
Surgery Center sued APA, alleging it had acted in bad faith by failing to settle with Tate for policy limits. At the close of Surgery Center’s case, APA moved for judgment as a matter of law. The trial court granted the motion.
Affirming, the Seventh Circuit found that the mere possibility of liability does not give rise to a duty to settle. The court noted that Surgery Center failed to provide evidence that its liability was reasonably probable and that the center’s president had repeatedly asked the defense attorneys to focus on favorable evidence in the case, not its potential for significant damages. The court also rejected the center’s argument that the insurer’s increase in its reserve during the litigation was evidence of reasonable probability of liability. That the insurer protected itself by placing $1 million into reserve in the event of an adverse judgment does not indicate the insurer had evaluated the case as being a likely plaintiff’s verdict, the court said.
Because a reasonable jury would not have a legally sufficient basis for finding a duty to settle had arisen here, the court concluded that summary judgment for the defense was proper.