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.”
