Gardner Denver, Inc. (“Gardner”), had entered into a settlement agreement with its liability insurer, National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“NUF”) to resolve a dispute over Gardner’s coverage under various indemnity agreements. NUF honored the settlement agreement for several years, paying Gardner’s claims. However, once NUF entered into a “retroactive reinsurance” agreement with National Indemnity Company (“NICO”), in which NICO assumed NUF’s obligations and liabilities, NICO delegated the claims handling to another entity, which asserted a coverage defense and ceased paying Gardner’s claims under the settlement agreement. Gardner sued NICO and the claims administrator for tortious interference with a contract, and NICO countered with a motion to dismiss. NICO contended that the tortious interference claim failed because NICO had a qualified privilege as NUF’s agent (similar to the protection afforded to corporate officers under the “business judgment” rule) to handle claims on behalf of NUF. The trial court agreed with NICO and found that the complaint failed to overcome the privilege by sufficiently alleging that NICO acted without justification and with malice, and dismissed the case.

The appellate court, however, reversed the dismissal, holding that it was a factual question whether NICO’s actions were in fact unjustified or malicious, based on interpretation of the underlying insurance and settlement agreements and other evidence not before court, and thus it was not a decision for the court to resolve on a motion to dismiss. “Until the court answers whether NICO’s defense was frivolous, it could not determine whether NICO acted in good faith or, alternatively, acted without justification or malice, in its failure to pay claims pursuant to the settlement agreement.” Gardner Denver, Inc. v. National Indemnity Co., et al., Case No. 4-14-0713 (Ill. App. Ct. May 21, 2015).