Steven Plitt, Expert Witness Steven Plitt, Expert Witness
Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

ILLINOIS LAW REQUIRES A TWO-PRONG DETERMINATION IN BAD FAITH FAILURE TO SETTLE CASES

Recently the 7th Circuit Court of Appeals held, interpreting Illinois law, that to establish a bad faith failure to settle case under Illinois law, the claimant must prove both reasonable probability of liability and reasonable probability of damages in excess of the policy limits. In Surgery Center at 900 North Michigan Avenue, LLC v. American Physicians Assurance Corp., 922 F.3d, 778 (7th Cir. 2019), the Court found that Illinois law required there to be both a reasonable probability regarding a liability finding, as well as a reasonable probability that a damages award would exceed the policy limits in order to establish a bad faith failure to settle case.

In Surgery Center, the trial court granted a directed verdict on the bad faith failure to settle claim because the evidence that was available to the insurance company before trial of the underlying lawsuit did not establish that there was a reasonable probability of the insured's liability, even though the evidence established a high probability of damages in excess of the insured's policy limits.

Prior to Surgery Center, the Illinois Supreme Court in Haddick Ex Rel. Griffith v. Valor Insurance, 198 Ill.2d 409, 261 Ill. Dec. 329, 763 N.E.2d 299 (2001) found that an insurance company's duty to settle arose when (1) a third party demands settlement within the policy limits; (2) there was a reasonable probability of recovery in excess of the policy limits; and (3) there was a reasonable probability of a finding of liability against the insured. The Supreme Court did not explain what was required to satisfy the "reasonable probability" standard in Haddick. An intermediate appellate court in Illinois had construed the Haddick requirement to mean "at least more likely than not, but not necessarily a certainty." See, Powell v. American Service Ins. Co., 379 Ill. Dec. 585, 7 N.E. 3d 11, 17 (Ill. App. Ct. 2014).

The Court in Surgery Center granted a directed verdict in favor of the insurer.

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