After a surgery went horribly awry at a private surgical center, and the center was sued by the patient, it could not recover the full amount of judgment against it from its insurer an appellate court found. The court found that the surgery center had urged its insurer, who was defending it in the patient’s lawsuit, not to settle, as it believed its case to be highly defensible. Because of this, the panel found that the insurer had behaved appropriately even though it eventually lost and the jury awarded damages that were more than quintuple the surgical center’s policy limit.

Surgery Center at 900 North Michigan Avenue, LLC is an outpatient surgical center that permits outside physicians to perform day surgery at its facility. American Physicians Assurance Corporation, Inc. is a medical malpractice insurance company that insured Surgery Center. The insurance policy that Surgery Center purchased from APA limited APA’s liability to $1 million per claim and provided that APA would defend and indemnify Surgery Center for claims that fell within the policy’s coverage.

In November 2002, Dr. Harrith Hasson performed outpatient laparoscopic surgery on Gwendolyn Tate at Surgery Center. Four days after surgery, Tate checked into the hospital with surgical complications in the form of a perforated bowel that eventually rendered her a quadriplegic. Tate sued Dr. Hasson and Surgery Center in Cook County Illinois state court in May 2003 for medical malpractice. APA hired an outside law firm to defend Surgery Center. APA rejected several settlement demands for the maximum of Surgery Center’s policy limit. A jury eventually returned a verdict for Tate for $5.17 million. APA eventually paid the policy limit of $1 million.

In May 2015, Surgery Center sued APA in federal court, alleging state law claims of negligence, breach of fiduciary duty, and concert of action. Surgery Center claimed APA had acted in bad faith by failing to settle Tate for the policy limit. The case went to a jury trial. Surgery Center presented evidence that in 2005 APA had promoted a new Vice President of Claims who implemented a company-wide strategy, the “Concrete Plan,” to promote aggressive defense of claims against its insured. APA introduced evidence that Guita Griffiths, Surgery Center’s president, had been in contact with the outside defense firm and implored the firm not to settle the case with Tate. APA also introduced evidence indicating that Griffiths was blind copied on Tate’s settlement demands to APA, and that after APA rejected the settlement offers, Griffiths thanked the lawyers for “standing behind us and not settling.”

APA also had several witnesses testify that Tate’s case, though significant from a damages perspective, was weak when it came to proving Surgery Center’s liability. The witnesses pointed to Tate’s lack of a nursing expert, which led them to estimate Surgery Center’s chance of prevailing at trial at 90%. At the close of Surgery Center’s case, APA moved for judgment as a matter of law. The district court granted the motion, finding that the evidence presented at trial showed APA believed the Tate case to be highly defensible and that Surgery Center agreed with APA’s decisions not to settle. The court granted APA’s motion and entered judgment in its favor. Surgery Center then appealed.

The appellate panel began by stating that, in Illinois, an insurer has a duty to act in good faith when responding to a settlement offer. The panel noted that Griffiths did little to help Surgery Center prove its case that APA breached its duty. The panel stated that document after document showed that Griffiths also believed that the case was defensible and that Surgery Center would not be found liable. The panel further found that APA repeatedly reminded Surgery Center of its policy limit and that Surgery Center would be responsible for any judgment in excess of the limit. The panel determined that Surgery Center did not present any evidence that anyone involved in litigating the Tate case believed there was more than a mere possibility Surgery Center would be found liable, and the mere possibility of liability was insufficient to trigger APA’s duty to settle. The panel determined that the district court properly granted APA’s motion for judgment as a matter of law, and it, therefore, affirmed the decision of the district court.

You can review the decision here.

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