UNITED STATES DISTRICT COURT
MARK A. PETERSON, and
RESS ENTERPRISES, INC. d/b/a
Army Trail Tire & Service Center,
an Illinois corporation,
Plaintiffs Mark A. Peterson ("Peterson") and Ress Enterprises, Inc. d/b/a Army Trail Tire & Service Center ("Ress") for their complaint against defendant, American Family Mutual Insurance Company ("American Family") allege as follows:
1. This is an action for money damages, the amount of which exceeds $75,000 exclusive of interest and cost.
2. Jurisdiction is conferred upon this Court pursuant to Section 1332 Title 28 of the United States Code in that there exists diversity of citizenship between plaintiffs and defendant. Plaintiffs are each citizens of Illinois and defendant is a citizen of Wisconsin.
3. Venue is proper in the United States District Court for the Western District of Wisconsin in that Defendant American Family's principal place of business is in this district.
4. Plaintiff Mark A. Peterson is an individual residing at 2155 Estes, Des Plaines, Illinois 60018.
5. Plaintiff Ress is an Illinois corporation with its principal place of business located at 980 Army Trail Road, Carol Stream, Illinois 60188; it is in the auto repair business operating as a Goodyear Certified Auto Service Center.
6. Defendant American Family is an insurance company with its principal place of business located at 6000 American Parkway, Madison, Wisconsin 53783.
7. On or about May 8, 1988, American Family issued to Ress a comprehensive general liability insurance policy, No. 12X23735, which was in effect for the period of May 8, 1988, through May 8, 1989, which policy was purchased, issued and delivered to Ress.
8. Under the terms of its insurance policy, American Family agreed to pay on Ress' behalf up to the amount of One Million and 00/100 Dollars ($1,000,000.00) for each occurrence and One Million and 00/100 Dollars ($1,000,000.00) as an aggregate umbrella for a total of Two Million and 00/100 Dollars ($2,000,000.00) for all bodily injury liability that Ress was legally obligated to pay arising out of accidents involving its garage operations and to defend Ress in any civil action seeking such damages without regard to the amount of damages sought.
9. On March 19, 1989, Peterson was rendered a quadriplegic when he was ejected from a Ford Bronco during a rollover accident. The Bronco rolled over when its left rear tire failed. On September 28, 1990, Peterson filed a complaint for personal injuries in a case captioned Sean T. Jerding, Mark A. Peterson, plaintiffs. v. Ress Enterprises, Inc. d/b/a Army Trail Tire & Service Center, et al., defendants. ("Peterson action"), Case No. 90 L 15224 in the Circuit Court of Cook County, Illinois County Department, Law Division naming Ress and the Goodyear Tire & Rubber Company ("Goodyear"), among others, as defendants. Ress was served with the complaint and with subsequent amended complaints in the Peterson action; Ress answered the original complaint on January 16, 1991.
10. American Family was notified of the complaint and subsequent amended complaints by Ress. On December 13, 1990, American Family acknowledged its policy covered the Peterson action. Shortly thereafter, Ress was made aware of American Family's engagement of the law firm of Kiesler & Berman by and through Attorney Al Miller to defend Ress in the Peterson action.
11. On or about January 10, 1991, American Family was made aware that the law firm of Levin & Ginsburg was corporate counsel for Ress.
12. In the Peterson action, Peterson sought damages from Ress resulting from his quadriplegia at the C-5-6 vertebra level. Among other damages, he sustained a loss of normal life, past pain and suffering, future pain, suffering and disability, past medical expenses, future medical and attendant care expenses, past loss of earnings and future loss of earnings. These damages were reasonably estimated to exceed Ten Million and 00/100 Dollars ($10,000,000.00).
13. In the American Family insurance policy referenced in paragraph 7 above, the Goodyear Tire & Rubber Company ("Goodyear") was named as an additional insured.
14. Ress, at all times pertinent to the issues in this case, was a Goodyear Certified Auto Service Center, and franchisee of Goodyear. Under the terms of the insurance policy referenced in paragraph 7 above, American Family agreed to pay on Goodyear's behalf up to One Million and 00/100 Dollars ($1,000,000.00) for each occurrence and One Million and 00/100 Dollars ($1,000,000.00) as an aggregate umbrella on all bodily injury liability that Goodyear was legally obligated to pay arising out its vicarious liability for Ress' garage operations and to defend Goodyear in any civil action seeking such damages without regard to the amount of damages sought.
15. In the Peterson action, plaintiffs sought to hold Goodyear vicariously liable for Peterson's injuries based on the principal-agency relationship between Ress and Goodyear and also alleged claims of independent negligence. On March 27, 1995, the Illinois circuit court entered an order dismissing Peterson's claims for recovery based on the theory of vicarious liability. Consequently, the only claims remaining in the Peterson action against Goodyear were claims that Goodyear was independently causally negligent as a result of its failure to inspect and warn concerning proper tire repair procedures.
16. Immediately following the entry of the order referenced in the preceding paragraph, American Family notified Goodyear that the policy referenced in paragraph 7 of this complaint did not provide coverage for the claims remaining against Goodyear. American Family further notified Goodyear that it would no longer provide Goodyear's defense in the Peterson action. Goodyear then threatened to sue American Family if it did not continue to defend Goodyear. Thereafter, American Family sent a letter to Goodyear asserting its right to subsequently contest coverage and its duty to defend Goodyear and continue to pay for Goodyear's defense.
17. Six to twelve months prior to April 12, 1995, counsel for plaintiffs in the Peterson action periodically informed counsel for Ress, Al Miller of Kiesler & Berman, that plaintiffs were willing to settle with Ress for policy limits.
18. American Family, through the counsel it provided for Ress repeatedly refused to explore any settlement on Ress' behalf. Instead American Family conditioned any settlement on inclusion of Goodyear.
19. On March 10, 1995, American Family offered Peterson what it represented as the aggregate amount of its policy limits of One Million Nine Hundred Ninety-Five Thousand Two Hundred Eighty-Three and 00/100 Dollars ($1,995,283.00) in settlement for the full release of Ress and Goodyear.
20. In subsequent settlement discussions between Peterson and American Family through counsel it provided for Ress, American Family steadfastly conditioned settlement between Peterson and Ress on inclusion of Goodyear. Plaintiff rejected this offer, stating that he was willing to settle for policy limits, with Ress and Ress alone.
21. On May 11, 1995, during jury deliberations, Peterson confirmed in writing, to counsel for Ress, his willingness to settle all claims against Ress in exchange for the remaining policy limit.
22. American Family advised counsel for Goodyear of this demand, and Goodyear immediately directed American Family to re-offer its claimed policy limits of approximately Two Million and 00/100 Dollars ($2,000,000.00) on behalf of both Ress and Goodyear.
23. By facsimile letter dated May 11, 1995, American Family again re-offered its remaining policy limit to Peterson in return for a full release of both Ress and Goodyear.
24. Also, on May 11, 1995, by facsimile letter, corporate counsel for Ress, Levin & Ginsburg, Ltd., directed that American Family immediately accept Peterson's offer to settle all claims against Ress, and Ress alone, for the remaining policy limit.
25. Peterson's demand to settle his claims against Ress for the remaining policy limit was reasonable in light of the probable liability of Ress for the serious injuries to Peterson, and in light of the substantial likelihood Peterson would be awarded damages greatly exceeding American Family's policy limits.
26. Ress demanded that American Family accept Peterson's settlement offer for policy limits of approximately Two Million and 00/100 Dollars ($2,000,000.00), and even though American Family estimated Peterson's damages in excess of Two Million and 00/100 Dollars ($2,000,000.00), and knew the probability of a ten to twenty million dollar compensatory damage award existed, which increased Ress' exposure to an excess judgment. American Family wrongfully conditioned the acceptance of any and all settlement offers on including Goodyear in the settlement and release.
27. American Family failed to accept this reasonable demand to settle Peterson's action against Ress. American Family never explored or acted to settle Peterson's claims against Ress and Ress alone. All settlement offers by American Family were conditioned on inclusion of Goodyear in any settlement with Peterson.
28. As a result of American Family's unreasonable refusal to accept the settlement demand of Peterson, which settlement would have resulted in the release of Ress from any further liability, the jury, on May 12, 1995, returned a verdict against Ress and in favor of Peterson in the amount of Twelve Million Six Hundred Fifty Thousand and 00/100 Dollars ($12,650,000.00); Two Million and 00/100 Dollars ($2,000,000.00) was for loss of normal life, Three Million and 00/100 Dollars ($3,000,000.00) was for present value of future medical expenses, Two Million and 00/100 Dollars ($2,000,000.00) was for past pain and suffering, Four Million and 00/100 Dollars ($4,000,000.00) was for future pain and suffering, One Hundred Fifty Thousand and 00/100 Dollars ($150,000.00) was for past lost earnings and One Million Five Hundred and 00/100 Dollars ($1,500,000.00) was for the present value of future lost earnings.
29. In the Peterson action, several settlements were reached prior to trial and accordingly, the court reduced the judgment nunc pro tunc on August 30, 1995.
30. Following the verdict, American Family tendered its policy limits to the court, and those funds were distributed to Peterson leaving a balance of Eight Million One Hundred Eighty-Eight Thousand Fifty and 00/100 Dollars ($8,188,050.00) due on the judgment plus interest at the legal rate for which Ress was liable to Peterson.
31. On April 16, 1997, Peterson and Ress entered into an agreement which provided, among other things, that Ress assign, transfer and set over unto Peterson a part of Ress' right, title and interest to any and all claims that Ress has or may have against American Family under Policy No. 12X 23735 or any other policies which may provide coverage in connection with the litigation and relating to obligations of American Family to Ress .
FIRST CAUSE OF ACTION - BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING-FAILURE TO RESOLVE THE CONFLICT OF INTEREST BETWEEN RESS AND GOODYEAR - ALLOWING GOODYEAR TO DIRECT ITS SETTLEMENT POSITION TO THE DETRIMENT OF RESS
32. Plaintiffs reallege and incorporate herein the allegations of paragraph 1 through 31.
33. Ress has duly performed each and every of its duties under the insurance policy issued by American Family to Ress.
34. American Family, at all times pertinent, had a duty to Ress to act fairly and in good faith in carrying out its obligations under its insurance Policy No. 12X 23735.
35. Included in American Family's obligation to act fairly and in good faith, was its duty to resolve the conflict between Ress and Goodyear as to settlement. American Family recognized this conflict; however, it failed to take steps or propose means of resolving the conflict.
36. Since American Family did not believe it had any duty to pay anything on behalf of Goodyear, it had a duty to place Ress' interest ahead of Goodyear's. By making settlement contingent on inclusion of Goodyear, it gave itself and Goodyear greater consideration then Ress. At a minimum, American Family had a duty to propose settlement within policy limits that protected Ress without prejudice to Goodyear if it was found liable and if there was coverage.
37. American Family represented to Ress and Goodyear that under all circumstances there was a maximum policy limit of approximately Two Million and 00/100 Dollars ($2,000,000.00) available for both Ress and Goodyear in the Peterson action. American Family misrepresented the coverage. In fact there was a total of approximately Three Million and 00/100 Dollars ($3,000,000.00) of coverage for the Peterson claims.
38. American Family breached its duty to act in good faith towards Ress (1) by allowing Goodyear to direct settlement positions when it had already determined Goodyear was not covered under its policy; (2) by failing to seek a declaratory judgment regarding its coverage dispute with Goodyear; (3) by failing to investigate settlement between Peterson and Ress; and (4) by misrepresenting the nature and extent of coverage.
39. American Family knew, or as a prudent insurer should have known, there was a conflict of interest between Ress and Goodyear with respect to settlement and liability defense issues in the Peterson action. American Family should have implemented procedures to insure that Ress' liability defense and settlement interests were considered and acted upon solely for Ress' interest and benefit.
40. American Family breached its duty of good faith and fair dealing towards Ress by allowing Goodyear to control liability defense and settlement decisions by not exploring the possibility of a settlement between Ress and Peterson in the Peterson action, and in not implementing procedures to insure that the counsel it provided for Ress in the Peterson action would act solely for the benefit and interest of Ress.
41. As a direct and proximate result of defendant American Family's breach of its duty to act fairly and in good faith towards its insured, Ress suffered damages at date of entry of judgment in the Peterson action in the amount of Eight Million One Hundred Eighty-Eight Thousand Fifty and 00/100 Dollars ($8,188,050.00) for which Ress and Peterson, through his receipt of a partial assignment of Ress' claim, are entitled to recover.
42. As a direct and proximate result of American Family's bad faith and in addition to such excess judgment, Ress is further damaged by the accrual of interest on the amount of the excess judgment at the legal rate.
SECOND CAUSE OF ACTION - BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING - REFUSAL TO ACCEPT REASONABLE SETTLEMENT OFFER
43. Plaintiffs reallege and incorporate herein the allegations of paragraph 1 through 42.
44. Ress has duly performed each and every of its duties under the insurance policy issued by American Family to Ress.
45. American Family at all times material had a duty to Ress to act fairly and in good faith in carrying out American Family's obligations under its insurance Policy No. 12X23735.
46. Implicit in American Family's obligation to act fairly and in good faith, was its duty to accept a reasonable settlement offer to protect its insured Ress from suffering a judgment exceeding policy limits applicable to Ress.
47. American Family knew, or as a prudent insurer should have known, at all times that there was a substantial risk of a recovery against Ress greatly in excess of policy limits. Robert Levin of the law firm of Levin & Ginsburg informed American Family it was in Ress' interest to settle without regard to the claims against Goodyear. American Family failed to reasonably evaluate Ress' risk.
48. American Family failed to accept Peterson's settlement offer within policy limits, despite the fact that under the circumstances existing at the time the offer was made and thereafter during the continuing pendency of such offer, a prudent insurer in American Family's position would have accepted the Peterson settlement offer to Ress.
49. In failing to accept Peterson's settlement offer to Ress, American Family acted in bad faith by failing to give at least as much consideration to Ress' interest in settling the Peterson action as it gave to its own interest and the interest of Goodyear; if any.
50. Despite its obligation to act fairly and in good faith towards Ress, American Family breached its obligation by failing and refusing to accept Peterson's reasonable settlement demand which was within the limits of American Family's Policy No. 12X 23735.
51. As a direct and proximate result of American Family's breach of its obligation to act fairly and in good faith toward its insured, Ress suffered damages at the date of entry of judgment in the amount of Eight Million One Hundred Eighty-Eight Thousand Fifty and 00/100 Dollars ($8,188,050.00) for which Ress and Peterson, through his receipt of a partial assignment of Ress' claim, are entitled to recover.
52. As a direct and proximate result of American Family's bad faith and in addition to such excess judgment, Ress is further damaged by the accrual of interest on the amount of the excess judgment at the legal rate.
BREACH OF COVENANT OF GOOD FAITH AND FAIR DEALING-
53. Plaintiffs reallege and incorporate herein the allegations of paragraphs 1 through 52.
54. American Family rejected Peterson's settlement offer in conscious disregard of Ress' right to be protected from the risk of an excess judgment through a reasonable settlement. Even though the Peterson action could have been settled for policy limits, American Family refused to settle, and in fact never offered any monies for the settlement of the claims pending against Ress. Moreover, when corporate counsel for Ress directed that American Family accept the Peterson offer, American Family refused and instead followed the direction of Goodyear by again conditioning settlement on inclusion of both Ress and Goodyear as a party of any settlement of Peterson's claims. American Family engaged in its actions, even though it knew that Ress could be damaged to an extent far in excess of American Family's policy limits. American Family consciously chose to gamble with Ress' money and business and exposed Ress to what American Family knew, or as a prudent insurer ought to have known, would be an excess judgment.
55. American Family failed to resolve the settlement conflict between Ress and Goodyear; it did not investigate a settlement for Ress; and it followed the settlement direction of Goodyear while ignoring Ress' interests and direction. In committing these acts, American Family acted with oppression and malice. All the alleged acts were performed or ratified by American Family's managerial employees or agents who acted with the knowledge that American Family's conduct would cause Ress harm. Plaintiffs Ress and Peterson are therefore entitled to recover punitive damages in an amount to be determined at trial.
WHEREFORE, plaintiffs Ress Enterprises, Inc. and Mark A. Peterson demand judgment for the full amount of the judgment rendered in the Peterson action in the sum of Eight Million One Hundred Eighty-Eight Thousand Fifty and 00/100 Dollars ($8,188,050.00) plus interest from the date of the judgment at the legal rate and punitive damages and such further relief as the court deems appropriate.
Dated this ___ day of ______________________, 1997.
LAW OFFICE OF JOHN C. CABANISS
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