The commonly cited reason behind the policy is to prevent the jury in the personal injury action from becoming aware that the defendant tort-feasor is insured and thereby possibly awarding a larger verdict under the "deep pockets" theory. E.g., Loeber Motors, Inc. v. Sims (1975), 34 Ill. App.3d 342, 351, 340 N.E.2d 132; see Gianinni v. Bluthart (1971), 132 Ill. App.2d 454, 460-61, 270 N.E.2d 480. In the pending case, Zegar attempts to distinguish her claim for medical expense reimbursements from the legal "damages" she may be able to recover from Sears in a negligence action.
Surely there is a substantial likelihood that Illinois law would treat an enforceable agreement for settlement as the equivalent of a judgment for that purpose. In fact, Loeber Motors, Inc. v. Sims, 34 Ill.App.3d 342, 340 N.E.2d 132 (1st Dist.1975) did just that: It affirmed a summary judgment against an insurer and in favor of the injured party who had settled with the insured after the insurer breached its contract. In return for a dismissal without prejudice, the insured had assigned its rights to plaintiff, the injured party.
The rationale for this policy is to prevent the jury in the claimant's personal injury action against the tort-feasor from becoming aware that the defendant tort-feasor is insured and thus to avoid larger awards under a "deep pockets" theory. Zegar, 211 Ill. App.3d at 1028, citing, e.g., Loeber Motors, Inc. v. Sims (1975), 34 Ill. App.3d 342. The policy against direct actions is not a completely mandatory and inflexible prohibition against "third party practice."
Thus, adherence to this policy is required when the issue of the insurer's liability would be intermingled with that of the liability of the insured and with the assessment of damages. (See Loeber Motors, Inc. v. Sims (1975), 34 Ill. App.3d 342, 350-51, 340 N.E.2d 132, 137-38.) Clearly, this is not the situation here.
However, where there is an actual controversy, such as over an insurer's duty to defend, both declaratory relief, Sears, Roebuck and Co. v. Zurich Insurance Co., 422 F.2d 587, 589 (7th Cir. 1970), and joining the insurer as a third party, Colton v. Swain, 527 F.2d 296, 302-303 (7th Cir. 1975), are proper. See also Gianinni v. Bluthart, 132 Ill.App.2d 454, 460-461, 270 N.E.2d 480, 484-485 (1971); Loeber Motors, Inc. v. Sims, 34 Ill.App.3d 342, 351-352, 340 N.E.2d 132, 138-139 (1975); Wright Miller, §§ 1444, 1449. In the present case the liability of the defendants had already been established and Hartford denied liability under the insurance policy.
An insurer's wrongful refusal to defend permits the insured to negotiate a reasonable settlement. La Rotunda, supra, 42 Ill.Dec. 219, 408 N.E.2d at 936; Loeber Motors, Inc. v. Sims, 34 Ill.App.3d 342, 340 N.E.2d 132, 136 (1975). There is no indication that the amount of the settlement in this case was unreasonable.
When he in good faith settles a claim covered by insurance, the amount paid in settlement is recoverable from the insurer. Kinnan v. Charles B. Hurst Co., 317 Ill. 251, 256-260, 148 N.E. 12, 14-16 (1925); Loeber Motors, Inc. v. Sims, 34 Ill.App.3d 342, 348-349, 340 N.E.2d 132, 136-137 (1st Dist. 1975); Crest v. State Farm Mutual Automobile Insurance Co., 20 Ill.App.3d 382, 387, 313 N.E.2d 679, 683 (2d Dist. 1974). The net cost to CMD of the settlement with Prudential is the amount of CMD's loss caused by fire.
Under these circumstances, where “the injured party has no rights under the policy until and after judgment has been entered in his favor against the policyholder,” plaintiff does not, as of yet, have a cognizable injury on which standing for this suit can be based. Loeber Motors, Inc. v. Sims, 34 Ill.App.3d 342, 340 N.E.2d 132 (1975). Accordingly, the Court will dismiss this case for lack of standing.
But that point apart, this Court decided the same issue in its November 13, 1986 opinion, 113 F.R.D. 527. Illinois law does not prohibit direct actions by an injured party against an insurer once the injured party has settled its claim with the insured. Loeber Motors, Inc. v. Sims, 34 Ill.App.3d 342, 340 N.E.2d 132 (1st Dist.1975). As for the other argument, regarding the assignability of insurance coverage under the D & O policies, that is really premature.
Because fault is not an issue with respect to medical expenses benefits, there is no danger that the liability of the insured and the liability of the insurer would become intermingled. See Loeber Motors, Inc. v. Sims, 34 Ill. App. 3d 342, 353 (1975) (Simon, J., concurring in part and dissenting in part). As we have explained, the obligation of the injured party to the insured is separate and direct, as the insurer undertook, through its contract, to make payment directly to the injured party.