The Surgery Center at 900 North Michigan Avenue, LLC et al

Filing 16

MEMORANDUM Opinion and Order. Signed by the Honorable Sharon Johnson Coleman on 12/30/2015: For the reasons set out in the Memorandum Opinion and Order, Defendants' motion to dismiss 11 is denied as to Count I and granted without prejudice as to Count II. Surgery Center is granted leave to file an amended complaint consistent with this order within 30 days. Mailed notice(air, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THE SURGERY CENTER AT 900
NORTH MICHIGAN AVENUE, LLC

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)
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Plaintiff,
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)
v.
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AMERICAN PHYSICIANS ASSURANCE )
CORPORATION, INC., and AMERICAN )
PHYSICIANS CAPITAL, INC.,
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Defendants.
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)

Case No. 15-cv-4336
Judge Sharon Johnson Coleman

MEMORANDUM OPINION AND ORDER
Plaintiff The Surgery Center at 900 North Michigan Avenue, LLC (“Surgery Center”) filed a
two-count complaint against its former malpractice insurers, American Physicians Assurance
Corporation, Inc. and American Physicians Capital, Inc. (collectively “APAC”), alleging APAC acted
in bad faith (Count I) and breached a contract (Count II) by failing to settle a patient’s malpractice
lawsuit against Surgery Center. APAC now moves to dismiss both claims against it pursuant to Rule
12(b)(6). For the reasons stated below, the Court denies in part and grants in part the motion.
Background
The following facts taken from the complaint are accepted as true for purposes of ruling on the
motion to dismiss now before the Court. APAC provided malpractice insurance to Surgery Center
from 1999 through 2005. Dkt. 1 ¶ 20. The insurance policies APAC issued to Surgery Center had
one million dollar per-claim limits of liability. Id. In 2003, Ms. Tate, whose post-surgery
complications rendered her quadriplegic, sued Surgery Center, where the surgery had been
performed, and Dr. Hasson, the doctor who performed the surgery (“the Tate Suit”). Id. ¶ 21-23.
APAC retained defense counsel to defend Surgery Center in the Tate suit. Id. ¶ 25. According to

Surgery Center, APAC knew since at least 2003 that the likelihood that Surgery Center would be
found liable in the Tate Suit was “significant.” Id. ¶ 27.
On August 3, 2007, the trial court in the Tate Suit granted summary judgment in favor of
Surgery Center. Id. ¶ 30. At that time, APAC noted it was “thankful” for the grant of summary
judgment because Ms. Tate was a “very sympathetic” plaintiff. Dkt. 1-5 at 18. Ms. Tate appealed and
the decision was reversed, the appellate court finding there was a dispute of material fact as to
whether Surgery Center breached the standard of care and whether that breach proximately caused
Ms. Tate’s injuries. Dkt 1, ¶ 31; Dkt 1-4. APAC was then informed by counsel that although a jury
determination of whether Surgery Center was liable would be necessary, counsel believed that
Surgery Center had a ninety-percent chance of winning a jury trial in the Tate suit. Dkt. 1 ¶ 39-40.
On May 11, 2010, Ms. Tate offered to settle for one million dollars. Id. ¶ 41. APAC rejected the
offer and did not enter into settlement negotiations with Ms. Tate. Id. ¶¶ 42-44. During the jury trial,
Surgery Center asked APAC twice if anything could be done to settle the case to no avail. Id. ¶ 4950. The jury found Surgery Center liable and awarded Ms. Tate approximately five million dollars in
damages, id. ¶ 51, which caused Surgery Center to bring suit against APAC.
Legal Standard
A complaint will survive a motion to dismiss under Rule 12(b)(6) if its well-pleaded facts when
accepted as true and viewed in the light most favorable to the plaintiff state a plausible claim for
which relief can be granted. Vesely v. Armslist LLC, 762 F.3d 661, 664 (7th Cir. 2014). If a copy of a
written instrument is attached to a pleading, it is “a part of the pleadings for all purposes.” Fed. R.
Civ. P. 10. Facts alleged in a complaint are accepted as true except when contradicted by an exhibit
considered part of the pleadings. Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir. 2013).

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Discussion
Bad-Faith Failure To Settle
APAC asserts that Surgery Center’s bad-faith-failure-to-settle claim must be dismissed because
Surgery Center failed to allege that a finding of liability against Surgery Center in the Tate suit was
more likely than not at the time that APAC refused the settlement offer.
Illinois law 1 recognizes that “an insurance provider has a duty to act in good faith when
responding to settlement offers.” Haddick ex rel. Griffith v. Valor Ins., 763 N.E.2d 299, 303 (Ill. 2001).
“If the insurer breaches this duty, it may be liable for the entire judgment against its insured,
including any amount in excess of policy limits.” Id. To state a claim that an insurer acted in bad
faith when responding to a settlement offer, a plaintiff “must allege that the duty to settle arose; the
insurer breached the duty; and the breach caused injury to the insured.” Id. at 304. The duty of an
insurance provider to settle arises when a third party makes a settlement demand within policy limits
if at that time “there is a reasonable probability of recovery in excess of policy limits and a
reasonable probability of a finding of liability against the insured.” Id. at 304-305. “[R]easonable
probability” in this context means a “more likely than not” probability. Powell v. Am. Serv. Ins. Co., 7
N.E.3d 11, 17 (Ill. App. 2014). 2
APAC argues that Surgery Center fails to state a bad-faith claim because it alleges that the
probability of a finding of liability was “significant” instead of alleging it was “more likely than not.”
Dkt. 11 ¶ 4. But a complaint does not fail to state a claim merely because it fails to plead certain
“magic words.” Gustafson v. Jones, 117 F.3d 1015, 1019 (7th Cir.1997). Rather, the relevant inquiry is
The Court will apply Illinois law because both parties assumed in their briefs that Illinois law governed and there is a
reasonable relation between Illinois and the dispute, which arose out of actions occurring in the state. Under these
circumstances, courts may “forego an independent analysis of the choice-of-law issue and apply the parties' choice.”
Harter v. Iowa Grain Co., 220 F.3d 544, 559 (7th Cir. 2000) (internal quotations and brackets omitted).
2 Illinois Appellate Court decisions are not binding upon federal courts, but should be followed absent a “compelling
reason to doubt they have stated the law correctly.” AAR Aircraft & Engine Grp., Inc. v. Edwards, 272 F.3d 468, 470 (7th
Cir. 2001)
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whether “[v]iewed as a whole, the complaint supports a plausible inference” that defendants violated
the law. Olson v. Champaign Cty., Ill., 784 F.3d 1093, 1100 (7th Cir. 2015).
Here, APAC argues the complaint contains no support for an inference that at the time Ms. Tate
offered to settle her suit, it was “more likely than not” that Surgery Center would be found liable.
According to APAC such an inference is impossible because Surgery Center admits in its complaint
that defense counsel in the Tate suit determined there was a ninety-percent chance of a no-liability
finding. However, defense counsel’s assessment of the case is not dispositive as to the actual
probability of a liability finding. Instead, courts look to the “quality and quantity of proof” that the
parties could have expected to be presented in the underlying suit. SwedishAmerican Hosp. Ass'n of
Rockford v. Illinois State Med. Inter-Ins. Exch., 916 N.E.2d 80, 101 (Ill. App. 2009). Furthermore,
Surgery Center also alleges that defense counsel’s assessment of the likelihood of victory was
unreasonable.
The exhibits attached to Surgery Center’s complaint indicate the following: (1) the record with
respect to Surgery Center’s liability was at least sufficient to convince an appellate court to reverse a
grant of summary judgment, Dkt. 1 ¶ 31, Dkt. 1-4 at 41; and (2) prior to the appellate court reversal,
APAC was “thankful” that the case would not be going before a jury because Ms. Tate was a “very
sympathetic” plaintiff, Dkt. 1-5 at 18. This is sufficient to support the inference that the quality and
quantity of proof was such that there was a more likely than not probability that a jury would find
Surgery Center liable in the Tate suit. Consequently, Surgery Center’s bad-faith claim survives.
Breach of Contract
APAC argues that Surgery Center’s breach of contract claim should be dismissed because there
is no contract remedy for a bad-faith failure to settle. Surgery Center does not dispute that
contention; it instead asks for leave to re-plead its breach of contract claim so that the claim is based
solely on APAC’s failure to hire competent defense counsel. In its reply, APAC does not address
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whether it would be futile to permit Surgery Center to re-plead its claim; it continues to focus on the
viability of the claim as it is currently pled. Accordingly, the Court dismisses Surgery Center’s breach
of contract claim without prejudice with leave to re-plead.
Conclusion
For the foregoing reasons, Defendants’ motion to dismiss [11] is denied as to Count I and
granted without prejudice as to Count II. Surgery Center is granted leave to file an amended
complaint consistent with this order within 30 days.

IT IS SO ORDERED.

December 30, 2015
DATED: _______________

_____________________________
SHARON JOHNSON COLEMAN
United States District Judge

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