BatesCarey LLP recently won an unprecedented ruling for its insurance company client in the Illinois Appellate Court. The liability insurer argued that it had not approved of the settlement of a claim against its insured and that, therefore, the settlement and dismissal order prepared by defense counsel was not binding. The Illinois Appellate Court agreed and the case has now been returned to the trial court for an evidentiary hearing to determine if the defense attorney had the insurer’s authority to settle the case. Robinson v. Ryan, et al., No. 1-06-1813 (March 29, 2007 1st Dist.)

In the original lawsuit, the parties appeared in court for a pretrial settlement conference. During the conference, the defense attorney telephoned the insurance company’s claim representative. According to the insurance company, the claim representative did not agree to settle the liability case for the proposed amount, but only to reevaluate the settlement proposal based on information the defense attorney would provide after the conference. The defense attorney prepared an order using language that the presiding judge ultimately determined to be evidence of a settlement and a non-contingent dismissal of the case with prejudice. A second order was entered two weeks later directing the defendant to appear in court with a check to pay the settlement amount referenced in the previous order.

After the trial court entered judgment against the insured, BatesCarey LLP intervened on behalf of the insurance company and filed a petition to vacate the orders and the judgment, on the basis that the insurance company had never agreed to pay the settlement amount reflected in the original order. The case and the petition were transferred to a new judge, who ruled that the insurance company did not have a valid basis to vacate the orders and the judgment.

On appeal, the Illinois Appellate Court reversed this decision in favor of the insurance company. First, the reviewing court held that affidavits submitted by the insurance company indicated that it had not given the defense attorney authority to settle the case and that this is a proper basis to vacate the dismissal orders and judgment. The Appellate Court further held that the insurance company and BatesCarey LLP had exercised due diligence in intervening and filing their petition.

The case has been returned to the trial court for an evidentiary hearing. If the evidence shows that the defense attorney did not have authority to settle for the amount shown in the order, or that the attorney had tried to prepare an order that was contingent on receiving final approval from the insurance company at a later time, then the dismissal will be reversed and the case returned to the status prior to the settlement. This is the first time in Illinois that an insurance company has successfully disputed the authority of a defense attorney to settle a claim against its insured and to seek the return of a case for trial on the merits.