Haddick v. Valor Insurance, 198 Ill. 2d 409

Summary

The Illinois Supreme Court held that an insurer’s duty to settle arises when a third-party claimant demands settlement within policy limits and there is a reasonable probability of both an excess recovery and liability against the insured. The court further held that the plaintiff’s withdrawal of the settlement demand did not, at the pleading stage, defeat her bad-faith refusal-to-settle claim. The court affirmed the appellate court’s reversal of the dismissal and remanded for further proceedings.

Holdings

1. An insurer's duty to settle in good faith arises when a third-party claimant demands settlement within the policy limits and, at the time of the demand, there is a reasonable probability of recovery in excess of the policy limits and a reasonable probability of a finding of liability against the insured.
2. The complaint sufficiently alleged that Valor's duty to settle arose on March 7, 1997, when the estate demanded settlement within the policy limits.
3. Withdrawal of the settlement demand did not prevent the estate from maintaining its bad-faith failure-to-settle claim.

Questions Presented

1. When does an insurer's duty to settle a third-party claim in good faith arise under Illinois law?
2. Did the complaint sufficiently allege that Valor's duty to settle arose when the estate demanded settlement within the policy limits?
3. Can an insured or assignee maintain a bad-faith failure-to-settle claim after withdrawing the settlement demand and filing suit?

Disposition

affirmed