Illinois Court Finds No Breach in Insurance Company’s Decision Not to Defend

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Last week, the Illinois Appellate Court affirmed the lower court’s ruling in Illinois Emcasco Insurance Company v. Nationwide Mutual Insurance that Emcasco did not breach its duty to defend a construction contractor against a personal injury suit. This appellate court panel did, however, reverse the lower court’s ruling that Nationwide Mutual Insurance Company breached its duty to settle this personal injury suit within its policy limits.

The underlying injury lawsuit stemmed from a 1998 construction accident filed against Triumph Development Corporation, the project’s general contractor, and Midwestern Steel, a subcontractor. For this project, Nationwide issued to Triumph a primary CGL with a $2 million limit and an umbrella policy limit of $10 million. Triumph was also named an additional insured on Midwestern Steel’s $1 million policy and $5 million umbrella issued by Emcasco. Emcasco agreed to defend Triumph under a reservation of rights for the underlying suit but later withdrew its reservation.

Prior to trial, the injured steelworker offered to settle the case for $1.9 million. Emcasco offered its $1 million primary limit and requested that Nationwide cover the remaining $900,000. Nationwide, however, offered only $250,000. The jury returned a $7.2 million verdict in favor of the injured steelworker. Emcasco paid Midwestern’s 5 percent verdict apportionment and filed suit against Nationwide to partially recover the remaining judgment against Triumph.

After completion of a bench trial, the lower court ordered Nationwide to pay Emcasco nearly $1.6 million for breaching its duty to settle the underlying action, while the appellate panel agreed that Nationwide failed to demonstrate that Emcasco had a conflict in defending Triumph. The panel also ruled, however, that the lower court erred in finding that Nationwide owed a duty to settle to Emcasco as an excess insurer because Nationwide did not control the defense of the underlying suit. Finally, this court finalized its decision, ruling that Nationwide’s primary policy must pay out after Emcasco’s primary limits are exhausted.