Reasonable Probability Standard Applies at Time of Settled Demand when the Duty to Settle Arises
In Powell v. American Service Insurance Company, Randy Powell (“Powell”) sustained injuries in an automobile accident involving American Service Insurance’s (“ASI”) insured, Katie Linares (“Linares”). Powell brought suit against Linares, alleging that she negligently operated her vehicle. ASI defended Linares in accordance with the terms of her automobile policy, which had an indemnity limit of $20,000 per person. Powell’s counsel made a demand for settlement for $20,000, which ASI rejected. The case proceeded to trial where the jury awarded Powell $47, 951.15 plus costs. After the trial, Linares assigned her rights under the policy to Powell, who filed a complaint for bad faith against ASI.
Powell claims that his complaint adequately alleged facts to establish a claim for bad faith to settle. ASI alleges that Powell failed to plead sufficient facts to show a reasonable probability that Linares was at least 50 percent at fault.
The court reviewed whether a complaint adequately alleged facts to establish a claim for bad faith against an insurance company in failing to settle.
Under Illinois law, courts had recognized that insurers have a duty to act in good faith when responding to a settlement offer. The insurer may have an incentive to decline the settlement offer and proceed to trial. The insurer may believe that it can win a verdict in its favor. In contrast, the policyholder may prefer to settle within the policy limits and avoid the risk of trial. The insurer may ignore the policyholder’s interest and decline to settle. Under this ruling, a complaint needs to establish a reasonable probability of liability. The reasonable probability standard applies at the time of the settlement demand because this is when the duty to settle arises.
Powell v. Am. Serv. Ins. Co., 2014 IL App (1st) 123643.
