Insurance Law Update - Duty to Defend Held to Include the Duty to Notify Insureds of Potential for Excess Liability - February 2011


U.S. Court of Appeals for the Seventh Circuit

In R.C. Wegman Const. Co. v. Admiral Ins. Co., 629 F.3d 724 (7th Cir. (Ill.) January 14, 2011), the Seventh Circuit Court of Appeals held that when a potential conflict of interest between the insured and insurer arises, the duty of good faith requires the insurer to notify the insured in order to give the insured an opportunity to best protect its own interests. This duty includes situations where a potential conflict of interest arises from the possibility that the insured may be exposed to liability in excess of the policy limits.

Admiral issued a liability insurance policy to Wegman that provided a per occurrence limit of $1 million. During the policy period, a worker at a construction site managed by Wegman was injured. The worker sued Wegman and other entities for negligence, and was ultimately awarded approximately $2 million at trial. Wegman filed suit against Admiral for bad faith, alleging that it would not have been liable for damages in excess of the $1 million policy limit if Admiral had acted in good faith in handling its defense and settling the case before trial. Wegman asserted that Admiral failed to warn it of the possibility that a judgment could exceed the policy limits, and that this failure prevented Wegman from providing timely notice to its excess insurer ( which denied coverage as a result).

The district court dismissed Wegman’s action for failure to state a claim, but the Seventh Circuit reversed.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sedgwick LLP | Attorney Advertising

Written by:


Sedgwick LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.