W. Side Salvage, Inc. v. RSUI Indem. Co., Case No. 15-cv-0442-MJR

Citation215 F.Supp.3d 728
Decision Date17 October 2016
Docket NumberCase No. 15-cv-0442-MJR
Parties WEST SIDE SALVAGE, INC., Plaintiff, v. RSUI INDEMNITY CO., Defendant.
CourtUnited States District Courts. 7th Circuit. Southern District of Illinois

Brad J. Brady, Matthew L. Preston, Brady Preston Brown PC, Cedar Rapids, IA, for Plaintiff.

Christopher A. Wadley, Robert P. Conlon, Ryan J. Rodman, Walker, Wilcox et al., Chicago, IL, for Defendant.

MEMORANDUM AND ORDER

REAGAN, Chief District Judge:

A. Introduction and Procedural Overview

The present litigation stems from the outcome of a jury trial before this Court in the spring of 2012. The underlying litigation concerned a grain elevator explosion on April 27, 2010, at a facility belonging to Con Agra. In the underlying suit—by individual plaintiffs (John Jentz and Robert Schmidt) and a corporation (Con Agra)—the jury returned verdicts in favor of the plaintiffs to the tune of $21 million dollars for the individual plaintiffs' and $3 million dollars for Con Agra.1 West Side carried traditional insurance from Colony ($1 million policy limit), and excess insurance from RSUI ($11 million policy limit). The verdicts rendered exceeded the combined policy limits of the coverage ($12 million). The present dispute, brought by West Side against the excess insurer, RSUI, contains a claim by West Side that RSUI's actions were injurious because RSUI failed to settle the underlying dispute—something West Side contends would have resulted in significantly less fiscal liability. RSUI argues in its counter-claim that it had no duty to settle the claims because the property damage claims by Con Agra fell outside the scope of its insurance coverage, and thus it had no duty to settle those claims. In accord with its argument, RSUI seeks a declaratory judgment disclaiming its liability to West Side in light of its proffered interpretation of the insurance contract.

The Court is faced with numerous motions at this juncture, including: motions in limine (Docs. 37, 38, 39, 49, 53, 54, 57), motions regarding the appropriate choice of law (35, 55, 58), and motions for summary judgment (36, 56, 59). The Court will first address the choice of law dispute, and it will then turn its attention to the summary judgment motion.

B. Factual Background

In April of 2010, Con Agra contacted West Side to inquire about services they offered to address a ‘hot bin’ situation at Con Agra's grain elevator. The parties reached some sort of agreement regarding the services West Side could provide, and work commenced shortly thereafter. West Side employed a subcontractor, A & J, to assist in the grain elevator operation. Though there were many individuals who physically worked on the Con Agra job site who were involved in the underlying trial, the important names for this case are Becker (West Side's employee), and Jentz and Schmidt, A & J's employees. On April 20, 2010, during West Side's work on the grain elevator an explosion occurred injuring these three men. Ultimately Jentz and Schmidt employed joint counsel to pursue a claim against West Side and Con Agra, while Becker utilized separate counsel. The cases were joined for trial.

Leading up to the trial, numerous parties became ensnared in the litigation. A brief list of parties is helpful:2

• West Side participants included:
John Voigt, an executive officer of West Side;
Kevin Visser and other members of his firm, as personal counsel to West Side;
Colony Insurance Company, West Side's primary insurer, represented by Kent Lawson
• RSUI, West Side's excess insurer was represented by—
Natalie Limber (attended trial and negotiated on behalf of RSUI);
Lee Shuman (oversaw Limber from RSUI and received correspondence regarding settlement proposals);
William Kautter (worked on late settlement negotiations);
Mike Knippen (worked on settlement negotiations);
John Schultz and members of his firm, as RSUI's main trial counsel;
• Con Agra was represented by:
Siobhan Murphy (Murphy's firm appeared to have settlement authority on behalf of Con Agra, though it is not actually clear from the record what role Murphy served);
Leo Knowles, as Con Agra's general counsel;
• ACE, Con Agra's insurer above its own $3 million contribution, was represented by:
Kimberly Moody (negotiated on behalf of ACE);
Joseph Ortlet and John Patton, as Con Agra's primary trial counsel;
Plaintiffs Jentz and Schmidt were represented by Robert Clifford and members of his firm; and,
Plaintiff Becker was represented by Marc Taxman.

Many of these individuals were deposed, or supplied declarations to the parties in the present litigation. Excerpts of those depositions were appended to the parties' summary judgment briefs.

Throughout the course of the underlying litigation, the parties at various times attempted, but failed to settle all of the claims pending. An initial mediation was held by Judge J. Phil Gilbert on January 17, 2012. Though the mediation was set to last for two days, talks were so unsuccessful that the mediation was terminated after a single day. Con Agra's trial counsel, Ortlet, sent a letter to Moody after the mediation urging ACE to attempt to resolve the matter by fronting its total policy limit of $25 million in addition to Con Agra's $3 million to attempt to reach a settlement. (Doc. 56-5 at 41-44). Despite this urging, the record does not contain concrete evidence of Con Agra or ACE approaching RSUI or West Side to settle in the months between the initial mediation and trial.

Following the January settlement conference, West Side's own trial counsel opined that West Side had relatively limited exposure. He valued the claims against West Side at approximately $5 million or less. RSUI's counsel, Lee Shuman, also wrote an email memorializing his perception of the settlement discussions. (Doc. 56-2 at 71-73). Shuman noted that Magistrate Frazier encouraged RSUI to front the full $12 million dollars to settle the case, though RSUI explained its hesitancy to offer anything without Con Agra expressing a willingness to participate in settlement, which Magistrate Frazier was apparently sympathetic to. (Doc. 56-2 at 71-72). From the time of the settlement until April 2012, the record is relatively silent as to the existence of any potential settlement progress.

Discussions began moving again on April 9, 2012. On that date the undersigned Judge (who presided over the underlying trial) denied Con Agra's motion for summary judgment as to certain issues, and reserved ruling on West Side's motion for summary judgment. The rulings prompted West Side's trial counsel, Schultz, to reassess his evaluation of liability in the case. Schultz sent a letter to Limber indicating that, in light of the developments, he was concerned that West Side's liability could well exceed $5 million dollars. (Doc. 56-2 at 74-76). On April 10, 2012, West Side's personal counsel, Visser, sent a letter to Shuman at RSUI urging RSUI to tender policy limits of $12 million to attempt settlement of the claims, which were now valued at far greater than $5 million. (Doc. 56-3 at 46-47).

Clifford, trial counsel for Jentz and Schmidt, stated in his deposition that he would have been willing to settle with West Side and RSUI for policy limits up until motions in limine were completed and the jury was seated. Despite this statement, there is no evidence in the record that Clifford made a firm memorialized demand, or that RSUI made any firm memorialized offers. Clifford also stated that once trial began, no specific offers were exchanged between RSUI and his clients. He stated that he would not have accepted a $12 million dollar offer from RSUI at that point. He also stated that as the trial got rolling he got "blinders on" and focused on trying the case because he had the sense that settlement was hung-up by behind the scenes negotiations between ACE, Con Agra, RSUI, and West Side.

A few days into the trial, witnesses began to perform much more poorly than anticipated by some accounts. This apparently gave rise to a scramble by all involved attorneys to begin discussing settlement options again. On May 15, 2012, Moody submitted a settlement offer concerning the Jentz claims to Limber. Moody subsequently revised the offer to include Schmidt. Emails and letters show that Limber was actively negotiating the deal by consulting other members of RSUI and by also putting together a counter-proposal for ACE/Con Agra. Those efforts culminated in at least one counter-proposal being submitted to Moody.

On May 22, 2012, Siobhan Murphy sent a letter with two settlement options to Limber. Limber again reviewed the proposal and consulted others about it. Limber determined that the proposal was potentially flawed because it still offered no guarantee that if RSUI fronted the full $12 million then it would be released from all claims. Limber replied to Murphy on May 24, 2012 with a counter-proposal shoring up the gaps she saw for West Side. Murphy immediately rejected the proposal and indicated that Con Agra would no longer engage in attempts to negotiate with RSUI regarding any of the matters (Jentz/Schmidt/Becker/Con Agra's own claims).

In the midst of the back and forth between Limber, Moody, and Murphy, many of the attorneys involved in this litigation were consulting and speculating as to possible formulas to resolve the matter. It is clear from the record that every attorney who worked on this case thought at one time or another that there should have been a way to settle the case. Emails and letters during the trial show the insistence of various parties on finding a way to settle, and the deposition testimony and declarations of lawyers reflect almost a sense of remorse that settlement never was achieved in the underlying litigation. During the underlying litigation, there were several explicit mentions in the parties' various communications of the possibility that a bad faith failure to settle claim could emerge from the underlying litigation. Limber herself acknowledged this possibility at one point, and...

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