178 F.3d 883 (7th Cir. 1999), 98-4259, Sta-Rite Indus., Inc. v. Zurich Re (U.K.) Ltd.

Docket Nº:98-4259
Citation:178 F.3d 883
Opinion Judge:FLAUM, Circuit Judge.
Party Name:STA-RITE INDUSTRIES, INC., Plaintiff-Appellant, v. ZURICH RE (U.K.) LTD., Defendant-Appellee
Attorney:For STA-RITE INDUSTRIES, INCORPORATED, Plaintiff - Appellant: Michael R. Wherry, DAVIS & KUELTHAU, Milwaukee, WI USA. For ZURICH RE (U.K.) LIMITED, Defendant - Appellee: J. Ric Gass, KRAVIT, GASS, HOVEL & LEITNER, Milwaukee, WI USA. James P. Davenport, BAACH ROBINSON & LEWIS, Washington, DC USA.
Judge Panel:Before BAUER, FLAUM and MANION, Circuit Judges.
Case Date:May 17, 1999
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
FREE EXCERPT

Page 883

178 F.3d 883 (7th Cir. 1999)

STA-RITE INDUSTRIES, INC., Plaintiff-Appellant,

v.

ZURICH RE (U.K.) LTD., Defendant-Appellee

No. 98-4259

United States Court of Appeals, Seventh Circuit

May 17, 1999

Argued April 21, 1999

As Amended May 18, 1999.

Appeal from the United States District Court for the Eastern District of Wisconsin. No. 97 C 100. Lynn S. Adelman, Judge.

For STA-RITE INDUSTRIES, INCORPORATED, Plaintiff - Appellant: Michael R. Wherry, DAVIS & KUELTHAU, Milwaukee, WI USA.

For ZURICH RE (U.K.) LIMITED, Defendant - Appellee: J. Ric Gass, KRAVIT, GASS, HOVEL & LEITNER, Milwaukee, WI USA. James P. Davenport, BAACH ROBINSON & LEWIS, Washington, DC USA.

Before BAUER, FLAUM and MANION, Circuit Judges.

OPINION

FLAUM, Circuit Judge.

In this diversity case governed by Wisconsin law, the question is whether an insurer owes an insured a duty of good faith by virtue of the insurer's non-exclusive right to associate in the settlement and defense of a claim. The district court concluded that an insurer owes no such duty under Wisconsin law and granted summary judgment. We affirm.

Background

In June 1993 five year-old Valerie Lakey was playing in a wading pool in North Carolina when she was trapped by suction

Page 884

from water being pumped through the drain in the bottom of the pool. The drain cover, manufactured by Sta-Rite Industries, Inc. (" Sta-Rite" ), was not properly screwed in place. Before the pump was turned off, Valerie's intestines were almost completely destroyed, leaving her alive, but dependent on tube feedings.

The Lakeys filed suit in state court in Raleigh, North Carolina against Sta-Rite and three other defendants: the community pool association, the county government responsible for the pool, and the pump manufacturer. The claim against Sta-Rite was based on theories of defective design and failure to warn. The Lakeys settled with the community pool association for $ 500,000, with the county for $ 2.5 million, and with the pump manufacturer for $ 2.9 million. Only Sta-Rite chose to go to trial.

Sta-Rite was covered by two insurance policies. The primary policy was a comprehensive general liability policy issued by National Fire Insurance Co. (" AIG" ) with a limit of $ 2 million. Under this policy, AIG had a duty to defend any claim within its policy coverage. In addition to the AIG policy, Sta-Rite had a $ 500,000 self-insured retention and an excess policy issued by Zurich Re (U.K.) Ltd. (" Zurich" ) with a limit of $ 20 million.

Sta-Rite selected an attorney to represent it in pretrial matters and at trial. Zurich hired its own attorney, Mark Kreger, who participated in pretrial discussions with Sta-Rite regarding settlement strategy and who, along with two other Zurich attorneys, monitored developments at the trial in North Carolina. Immediately prior to trial, plaintiffs made a settlement demand of $ 4.1 million. AIG, however, refused to tender its policy limit of $ 2 million, and Zurich offered to contribute only $ 500,000. No settlement was reached.

The trial went badly for Sta-Rite. On December 16...

To continue reading

FREE SIGN UP