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Vol. 11 - Issue 5

October 15, 2022


Insured Can Bind Excess Insurer To “High-Low” Settlement When The “High” Is In Its Layer


Even when there are no coverage issues – which can add a whole other dynamic – settlements of underlying cases can be challenging.  And this can be even more so when the settlement, or potential verdict exposure, can reach an excess layer.  And what about when a third layer is potentially in play – which was the situation in North American Elite Ins. Co. v. Menard, Inc., No. 21-1813 (7th Cir. Aug. 4, 2022), a published opinion by Judge Easterbrook.

At issue was coverage for a claim involving injury to a customer of Menards, a home improvement store, who was hit by an employee driving a forklift.  Menards had a $2 million self insured retention, a $1 million primary policy with Greenwich Insurance Company and a $25 million umbrella policy on top of the $3 million with North American Elite Ins. Co.

The case went to trial and on the first day the plaintiff offered to settle for $1.985 million, a hair under the SIR.  Menards did not respond to it.  North American, not surprisingly, urged Menards to settle.  Just before the verdict, the parties entered into a high-low settlement – with a range between $500,000 and $6 million.  The verdict came in at $13 million.  It was reduced to $6 million pursuant to the high-low arrangement.  North American paid its $3 million share and then sought to recover this amount from Menards, arguing that the retailer violated duties by rejecting the $1.985 million settlement offer. 

The Illinois district court dismissed North American’s claims.  The Seventh Circuit affirmed.  First, it concluded that Menards’ SIR is not insurance.  Therefore, Menards owed no special responsibilities regarding settlement to North American.

The appeals court also approached it from a policy language standpoint.  Specifically, the court cited provisions from the Greenwich policy and North American policy to demonstrate how they differ. 

Under the North American policy, the insurer “will have no duty to defend any ‘suit’ against [Menard]. [North American] will, however, have the right, but not the duty, to participate in the defense of any ‘suit’ and the investigation of any claim to which this policy may apply.”

Then the court pointed out the “more expansive duties” that Menards took on in the policy with Greenwich: “[Menard] shall exercise utmost good faith, diligence and prudence to settle all claims and ‘suits’ within the Self-Insured Retention ... . In the event of a claim or ‘suit’ which in our reasonable judgment may result in payments ... in excess of the Self-Insured Retention, we [Greenwich] shall have the right and the duty to defend and may, at our sole discretion, assume control of the defense or settlement of such claim or ‘suit.’”

Comparing these provisions, the court concluded that Menards only owed Greenwich – and not North American -- a duty to act in good faith to try to reach settlements below $2 million: “Contracts are usually enforceable only by the parties who agreed to them.” 

The court concluded with this observation on the high-low settlement

“There is more we could say. North American did not exercise its right to participate in the defense, which exposed it to the risk that Menard would make litigating choices that it did not like. Menard's negotiation of a high-low settlement agreement with the plaintiff in the underlying trial shows that it took some steps to limit its insurers’ eventual liability rather than gambling with their money. Nor do we doubt that Menard's own payment obligations were ample motivation to minimize any prospective damage




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