Insurers are required to defend their clients per the terms of the liability policies they carry. In doing so, they bear a legal duty to act in good faith in defending their client's cases and responding to any settlement offers that may be received. This is true even if the insurance provider is providing coverage to both parties on opposite sides of a personal injury lawsuit.
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This August, the Illinois Court of Appeals determined in Illinois Emcasco Insurance Co. v. Nationwide Mutual Insurance, Co, that no conflict exists if an insurance company provides insurance to both parties of a personal injury lawsuit. Further, the court ruled that the excess party to a case isn't owed the same duty as a primary policy holder.
The case at hand arose from a construction accident occurring in 1998 which was filed against Triumph Development Corporation and Midwestern steel, a company that they subcontracted work to. Both companies carried considerable levels of insurance; Through Nationwide Insurance, Triumph had secured a primary policy for $2 million, coupled with an excess policy of $10 million. Midwestern Steel carried insurance policies totaling $1 million primary policy, and $5 million excess issued by Emcasco Insurance Co.
Triumph was named as an additional insured by Midwestern's primary and excess policies. When Triumph filed their personal injury case, Emcasco agreed to defend Triumph while at the same time also defending Midwestern. In order to do this, they appointed separate internal counsel to represent both parties. Further, they assigned different claims handlers, however, these were supervised by the same manager in their claims department.
However, all did not go smoothly. Conflict between Nationwide, Emcasco, Midwestern, and Triumph quickly arose. Nationwide in particular believed that Emcasco's representation of both Triumph and Midwestern created a conflict of interest. Specifically, Nationwide argued that in doing so they would leave Emcasco bearing the liability for Midwestern, and would share this liability with Nationwide for Triumph's losses.
Before trial, the injured worker filing the case had offered to settle for $1.9 million. Countering this offer, Emcasco offered $1 million based on their primary limit and put it to Nationwide to bear responsibility for the additional $900,000 from the excess policy. This deal fell through when Nationwide offered to cover only $250,000. When the case went to trial, the jury awarded the worker a $7.2 million verdict. They divided responsibility for this at 95% to Triumph, and 5% to Midwestern. In response, Emcacso paid Midwestern's share then sued Nationwide to cover a portion of the remainder of the judgment filed against Triumph.
What ensued was more than a decade of litigation between the parties. At the heart of this litigation was Nationwide's argument that Emcasco had breached their duty during their defense of Triumph and had created a conflict of interest in doing so.
The trial court rejected this argument in March of 2013 and ordered Nationwide to pay Emcasco $1.6 million for breaching their duty to settle per the terms of the initial settlement offer filed by the injured worker. Naturally, Nationwide appealed this decision, and upon appeal the appellate court reversed the decision of the trial court and relieved Nationwide of the judgment stating that Nationwide was not responsible for the defense of the lawsuit filed by the injured worker.
In their decision, the Illinois Court of Appeals determined that this case did not represent a conflict of interest and that the parties involved acted in good faith on behalf of their clients. For workers and personal injury lawyers in Crystal Lake, Illinois, this means that the possibility exists for them to conduct work for an employer whose contractual partners are insured by the same insurance providers. This means that should an injury occur on the job, workers could find themselves not only dealing with considerable frustration as their attorney will be working alongside the opposing attorney regardless of whether a primary or excess policy is involved.
As shown by this case, this could leave workers bearing a considerable level of exposure should the attorneys collude to reduce settlement for a worker's injuries. This ruling effectively puts the insuring parties and the worker's employer on their honor to both defend the claim and settle the claim in good faith. Ultimately, the appellate court's ruling in this case, shows what personal injury lawyers in Crystal Lake know, that while it is legal to do this, there exists the strong potential for conflict between the insurers and their primary policy holder(s).
Bearing the brunt of this internal conflict are workers who could be caught between insurers who are effectively arguing with themselves in the process of determining a fair settlement for the injured worker. And, as was demonstrated in this case, that conflict can exist long after the initial claim for compensation has been filed and settlement offered.