Sta-Rite Industries, Inc. v. Zurich Re (U.K.) Ltd.
| Decision Date | 17 May 1999 |
| Docket Number | No. 98-4259,STA-RITE,98-4259 |
| Citation | 178 F.3d 883 |
| Parties | INDUSTRIES, INC., Plaintiff-Appellant, v. ZURICH RE (U.K.) LTD., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Michael R. Wherry (argued), Davis & Kuelthau, Milwaukee, WI, for Plaintiff-Appellant.
J. Ric Gass, Kravit, Gass, Hovel & Leitner, Milwaukee, WI, James P. Davenport, Baach Robinson & Lewis, Washington, DC, for Defendant-Appellee.
Before BAUER, FLAUM and MANION, Circuit Judges.
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.
In June 1993 five year-old Valerie Lakey was playing in a wading pool in North Carolina when she was trapped by suction 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, 1996, several weeks into the trial, the trial court granted the Lakeys' motion to amend their complaint to include a claim for punitive damages. In late December, after the plaintiffs' case in chief was completed, settlement discussions resumed. At this point, Zurich, through Kreger, took the lead role in attempting to negotiate a settlement with the Lakeys.
On December 20, 1996, Zurich offered to settle the case for $8.5 million. On December 30, plaintiffs rejected the $8.5 million settlement offer and made a "non-negotiable" settlement demand of $22.5 million, a sum equal to Sta-Rite's self-insured retention and AIG's and Zurich's combined policy limits, plus an additional $1 million from Sta-Rite. Sta-Rite asked Zurich to contribute the full $20 million and to settle the case.
Zurich made a counteroffer to the Lakeys of $17.5 million, of which $15 million would be contributed by Zurich. Before communicating this offer, Zurich reminded Sta-Rite that it was obligated to indemnify Sta-Rite after Sta-Rite paid a covered claim and that Sta-Rite could settle at a sum it deemed appropriate and later seek reimbursement from Zurich. Zurich then communicated its offer to the Lakeys. The Lakeys rejected the offer.
On January 13, 1997, after six weeks of trial, the jury rendered a compensatory damage verdict in favor of plaintiffs in the amount of $25 million. Before commencement of the punitive damages portion of the trial, the parties settled the case. Sta-Rite agreed not to appeal the compensatory damage award, and the Lakeys agreed to forgo their claim for punitive damages. AIG paid $2 million, its policy limit. Zurich paid $20 million, its policy limit. Sta-Rite paid its self-insured retention of $500,000 plus $2.5 million to cover the difference between its total insurance coverage of $22.5 million and the jury verdict of $25 million.
Sta-Rite then brought suit in federal court against Zurich, claiming that Zurich owed a fiduciary duty of good faith to Sta-Rite which Zurich breached by refusing to pay its policy limits of $20 million in response to the December 30 offer. Sta-Rite claimed damages of $2.5 million, the difference in its liability for the December 30 offer and the post-judgment settlement. The district court concluded that under Wisconsin law Zurich did not owe a duty of good faith to Sta-Rite and granted summary judgment to Zurich.
We review de novo the award of summary judgment, construing the evidence in the light most favorable to the non-moving party. See Drake v. Minnesota Mining & Mfg. Co., 134 F.3d 878, 883 (7th Cir.1998). Summary judgment is appropriate "if there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Salima v. Scherwood South, Inc., 38 F.3d 929, 932 (7th Cir.1994). As a court sitting in diversity, we apply the law of Wisconsin and attempt to predict how the Wisconsin Supreme Court would decide the issues presented here. Lexington v. Rugg & Knopp, Inc., 165 F.3d 1087, 1090 (7th Cir.1999).
A traditional liability insurance policy confers the right to settle and defend any claims on the insurer and prevents the insured from participating in the defense of a claim. A traditional indemnity policy, by contrast, leaves the duty to settle and defend on the insured, requiring the insurer to indemnify the insured for claims paid within the policy's coverage. See General Casualty Co. of Wisconsin v. Hills, 209 Wis.2d 167, 561 N.W.2d 718, 722 n. 11 (1997). Sta-Rite's insurance contract with Zurich was a hybrid, allowing Zurich, the insurer, to associate with the defense and settlement of claims within the policy coverage, without excluding Sta-Rite from participating in the defense of claims.
An insurer with a defined policy limit usually evaluates risk...
To continue reading
Request your trial
-
Liberty Mut. Ins. Co. v. American Home Assur. Co.
...insurance policy where both the insurer and insured had the right to participate in the defense and settlement of the claim. 178 F.3d 883, 885 (7th Cir.1999). When the insured attempted to sue the insurer for failing to settle the claim within its limits, the court granted summary judgment ......
-
Mutual Ins. Co., Ltd. v. Murphy
...insured, requiring the insurer to indemnify the insured for claims paid within the policy's coverage. Sta-Rite Indus., Inc. v. Zurich Re (U.K.) Ltd., 178 F.3d 883, 885 (7th Cir.1999). See generally 1 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 1:34 (3d ed. 2005) (explaining the di......