This is the case of North American Elite Insurance v. Menard Inc., case number 21-1813, in the U.S. Court of Appeals for the Seventh Circuit, involving excess insurance coverage, and claims by the insurer that Menard’s home improvement chain acted in bad faith by not accepting a lower settlement offer in a separate lawsuit.

In the underlying case, an employee of Menards, Julian Andrades, sued the home improvement chain, alleging negligence involving a forklift accident in August 2016 at its Illinois store.

On Friday, the excess insurance provider, in that case, North American Elite asked the Seventh Circuit to restore its claim that it does not owe coverage for a $6 million dollar settlement that Menards agreed to payout in the Andrades’ personal injury lawsuit. North American says the home improvement giant had a duty to reasonably settle the case when Andrades made a $2 million dollar offer to settle.

North American Elite Insurance Co. said in its opening brief to the appellate court, that the implied covenant of good faith and fair dealing is implied into every contract in Illinois, and that no court in the State has ever found that the covenant applies in every contract, except with regard to an insured.

North American Elite Insurance is represented by Robert T. Conlon and Scott T. Stirling of Walker Wilcoz Matousek LLP, who said on Friday that “Menard erroneously argues it owed no duties at all and therefore it held the undisputable right to refuse to settle claims within its layer and proceed to verdict, however unreasonable.”

North American said that “Menard’s ‘heads I win, tails you lose’ position is not, and cannot, be the law.” Those were terms used by the Seventh Circuit when it considered this issue in a prior case, the Twin City Fire Ins. Co. v. Country Mut. Ins. Co. suit. North American noted, in that case, the court held that if the insured “was acting irresponsibly in pressing the case to trial,” the excess insurance provider would have a contractual remedy against it under the implied duty of good faith and fair dealing, and based on that ruling, North American is seeking a reversal of the $6M payout to Menard Inc.

Attorneys for North American argued that “The Seventh Circuit’s legal analysis in Twin City aligns with the first part of NAE’s argument in this case: that foundational Illinois contract law requires an implied covenant of good faith and fair dealing, which is applicable in the situation where an insurer unreasonably rejects settlement.” North American said, “Twin City remains the only case under Illinois law to address this issue head-on, and there is no reason to stray from its clear reasoning.”

North American said that the excess policy at issue also includes a cooperation clause, which states that Menards must “cooperate with us in the investigation or settlement of the claim or defense against the ‘suit.” North American said that Menard “affirmatively assumed” the role of a primary insurer when it made the decision to self-insure for $2 million and control its own defense.

However, North American argued that when considering a settlement offer below the self-insurance layer, Menards decided to take a chance at winning at trial and it wanted North American to assume all the risk of a potential loss.

The insurer said that Menard’s decision to defend itself as a self-insured party does not release it from a duty to settle as outlined in the policy and the implied covenant of good faith and fair dealing.

North American claims that the lower court was wrong to conclude otherwise. NAE lawyers said “The fact that Menard is a large enough company that it self-insured its primary layer of insurance and therefore maintained exclusive control of its own settlement and defense is no basis to allow Menard to escape from acting in good faith.” “If anything, Menard’s duty of good faith in controlling its own settlement is more apparent given the contractual privity between Menard and NAE.”

North American first filed its lawsuit in October 2019, alleging it paid in excess of $3 million dollars to cover a part of the verdict in the underlying suit but it claims that it never should have had to pay anything in the first place because Menard owed North American a duty to reasonably settle the litigation when an offer for a little less than $2 million dollars was put forth by Andrades.

According to North America’s complaint, they then wrote to Menard and spoke to their legal counsel and demanded that it accept the settlement, going so far as to tell the company that if it didn’t settle, it would be acting in bad faith.

In spite of this warning, North American claims the home improvement giant refused to settle, believing instead that it could prevail at trial, a decision made against the advice of Menard’s own attorney.

A jury awarded Andrades a $13 million verdict against Menard Inc., but it was later reduced to $6 million pursuant to the terms of an agreement that Menard entered into with Andrades. Right before a verdict was announced, wherein Menard agreed to pay Andrades at least $500,000 regardless of the verdict, but no more than $6 million even if the jury verdict was more.

North American is seeking to reverse a September 2020 ruling by an Illinois federal judge which partially granted Menard’s motion to dismiss, which found that a policyholder does not owe an excess carrier a duty to settle.

Although the court initially allowed North American to proceed with a breach of contract claim based on the implied covenant of good faith and fair dealing, the court later reversed course and found that since it did not find that there was a common law duty to settle, likewise there was no contractual duty to settle on the basis of their covenant.

In re North American Elite Insurance v. Menard Inc., case number 21-1813, in the U.S. Court of Appeals for the Seventh Circuit.