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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.