                            NO. 4-06-0994            Filed 11/1/07

                       IN THE APPELLATE COURT

                             OF ILLINOIS

                           FOURTH DISTRICT

VERNA CHANDLER and JAMES E. CHANDLER,     )   Appeal from
as Assignees of Otis Doherty,             )   Circuit Court of
           Plaintiffs-Appellants,         )   Champaign County
           v.                             )   No. 01L223
AMERICAN FIRE AND CASUALTY COMPANY of     )
the OHIO CASUALTY GROUP OF INSURANCE      )   Honorable
COMPANIES,                                )   John R. DeLaMar,
           Defendant-Appellee.            )   Judge Presiding.
_________________________________________________________________

            JUSTICE KNECHT delivered the opinion of the court:

            American Fire and Casualty Company (American Fire)

refused to defend Otis Doherty when Doherty was sued by Verna and

James Chandler for injuries received in an automobile accident.

Verna was driving the Chandlers' car when it collided with the

car driven by Doherty.    Doherty had an automobile insurance

policy with American Fire.    A default judgment was entered

against Doherty in excess of the policy limits on his insurance

policy.    The Chandlers then sued American Fire to collect the

judgment.    The Chandlers made a settlement demand to American

Fire for policy limits plus interest, which was refused.    The

trial court granted summary judgment to the Chandlers.    American

Fire appealed.    Prior to filing appellate briefs, the Chandlers

made another settlement demand of American Fire, which was again

refused.    We affirmed the trial court on appeal.   The Chandlers

filed suit against American Fire for bad-faith failure to settle.

The trial court dismissed a count for punitive damages and later

granted a motion for summary judgment to American Fire.
          The Chandlers appeal, contending (1) an insurer has a

good-faith duty to settle a judgment in excess of policy limits

upon a demand made after judgment; (2) they filed their action

within the applicable statute of limitations; and (3) their

complaint stated a cause of action for punitive damages.    We

affirm.

                           I. BACKGROUND

          This case began on November 15, 1988, when the Chan-

dlers filed a lawsuit against Doherty, claiming Verna had been

injured in an automobile accident with Doherty.    American Fire

contended from the beginning Doherty was not an insured relative

to this claim because he was driving a replica fiberglass

Volkswagen-Bugati that was a nonscheduled auto on his policy.

American Fire refused all of Doherty's efforts to tender the

defense of this claim.   On August 19, 1993, the Chandlers ob-

tained a $1,618,678 judgment against Doherty.   American Fire

failed to defend Doherty in the action.

          On December 16, 1993, counsel for Doherty demanded

American Fire pay the judgment.   On March 2, 1994, American Fire

advised no payment would be made.

          On October 4, 1994, Doherty assigned any rights he had

under the American Fire policy to the Chandlers.    The assignment

did not relieve Doherty from liability, but the Chandlers prom-

ised to proceed against American Fire first.    On August 21, 1995,

the Chandlers filed their amended complaint for citation and

affidavit for order of garnishment against American Fire.    On


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February 14, 1996, American Fire answered the amended complaint.

          On August 1, 1996, the Chandlers offer to settle the

entire judgment for the $300,000 policy limits plus interest.      On

September 4, 1996, American Fire refused the settlement demand.

Both parties filed motions for summary judgment and the trial

court granted the Chandlers partial summary judgment on January

17, 1998, entering judgment for the $300,000 policy limits plus

interest at 9% on the sum of $1,618,678 from August 19, 1993, the

date the judgment was entered against Doherty.

          American Fire appealed the January 1998 judgment.    On

March 19, 1998, the Chandlers again offered to settle the entire

judgment for policy limits plus interest.   American Fire again

refused to settle.   On November 4, 1998, the trial court's

judgment was affirmed.    Chandler v. Doherty, 299 Ill. App. 3d

797, 702 N.E.2d 634 (1998).

          On June 29, 1999, American Fire filed with the trial

court a satisfaction of partial summary judgment indicating

payment to the Chandlers of policy limits plus interest for a

total of $1,117,836.92.   The Chandlers moved to amend their

garnishment complaint to add a count alleging bad-faith failure

to settle.   The trial court allowed leave to amend.

          On September 20, 1999, the trial court heard arguments

on American Fire's objections to the Chandlers filing an amended

complaint for bad-faith failure to settle, and the court denied

the motion to amend.   The Chandlers appealed.   On June 2, 2000,

this court affirmed the trial court.    Chandler v. Doherty, 314


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Ill. App. 3d 320, 731 N.E.2d 1007 (2000).

          On August 23, 2000, Doherty assigned his rights to

pursue American Fire for bad-faith failure to settle to the

Chandlers.    On September 4, 2001, the Chandlers filed a complaint

against American Fire for bad-faith failure to settle and a

second count for punitive damages, alleging willful and wanton

breach of American Fire's duty to settle.

          On February 25, 2002, the trial court dismissed the

count for punitive damages, finding they could not be recovered

in an action for bad-faith failure to settle.    On September 1,

2006, the court granted summary judgment to American Fire.    On

October 18, 2006, the court denied the Chandlers' motion to

reconsider.    This appeal followed.

                            II. ANALYSIS

          A trial court's grant of summary judgment is subject to

a de novo review upon appeal.    Outboard Marine Corp. v. Liberty

Mutual Insurance Co., 154 Ill. 2d 90, 102, 607 N.E.2d 1204, 1209

(1992).

          The issues concerning the statute of limitations

question and the bad-faith failure to settle postjudgment are

intertwined.    The relevant statute of limitations is found in

section 13-205 of the Code of Civil Procedure: "*** all civil

actions not otherwise provided for, shall be commenced within 5

years next after the cause of action accrued."    735 ILCS 5/13-205

(West 2000); see also Del Bianco v. American Motorists Insurance

Co., 73 Ill. App. 3d 743, 747, 392 N.E.2d 120, 124-25 (1979)


                                - 4 -
(tort actions arising out of contractual obligation are governed

by statute of limitations of five years, relying on predecessor

statute to section 13-205).   Any obligation American Fire had in

this case to settle the suit brought against Doherty would arise

from its contract of insurance with him.   Any bad-faith failure

to settle would be a tort arising from this contractual obliga-

tion.

          The Chandlers contend American Fire's bad-faith failure

to settle following either of their settlement demands made after

the entry of judgment against Doherty is the breach of duty that

triggered the running of the statute of limitations.    The Chan-

dlers' first demand to settle was made on August 1, 1996, and

refused by American Fire on September 4, 1996.    The Chandlers'

second settlement demand was made on March 19, 1998.    The record

indicates the offer to settle was to expire on May 8, 1998.     The

record does not contain a formal rejection of the offer although

the Chandlers pleaded in their complaint American Fire did not

accept the offer.   Further, the record indicates on October 1,

2001, American Fire filed an appearance and on November 5, 2001,

a motion to dismiss.   The Chandlers contend their complaint,

filed on September 4, 2001, was filed within the five-year

statute of limitations from either of their settlement demands.

          American Fire argues a settlement demand must be made

prior to or during trial, before a verdict is reached on damages,

to trigger a bad-faith failure to settle claim.    Thus, the

Chandlers had five years to file their complaint, i.e., from (1)


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August 19, 1993, when the judgment was entered against Doherty

for $1.6 million or (2) at the very latest, September 18, 1993,

when any appeal by Doherty of the judgment was required to have

been on file (see Supreme Court Rule 303(a)(1) (155 Ill. 2d R.

303(a)(1)).   They missed the deadline by eight years.

           The chronology of events in this case is not in dis-

pute.   The accident that gave rise to the default judgment

occurred almost 19 years ago.   The judgment was 14 years ago.

The Chandlers never made a settlement demand to American Fire

prior to entry of the $1.6 million judgment against Doherty.

Therefore, if, as the trial court found, a settlement demand must

be made prior the entry of judgment against an insured in order

to trigger a claim against an insurance company for bad-faith

failure to settle, the Chandlers' complaint against American Fire

is clearly barred by the statute of limitations.   However, if a

cause of action can be stated against an insurance company for

bad-faith failure to settle when no settlement demand is made

prior to entry of judgment against an insured, but when a

postjudgment demand is made and rejected, the Chandlers' com-

plaint was timely filed.

           Illinois courts have long recognized an insurer has a

duty to act in good faith in responding to settlement offers and

if this duty is breached by refusal to settle, the insurer may be

liable for the full amount of a judgment against a policyholder,

including any amount in excess of policy limits.   Haddick v.

Valor Insurance, 198 Ill. 2d 409, 414, 763 N.E.2d 299, 303


                                - 6 -
(2001); Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513,

526, 675 N.E.2d 897, 903 (1996); Krutsinger v. Illinois Casualty

Co., 10 Ill. 2d 518, 527, 141 N.E.2d 16, 21 (1957).

           The tort usually referred to as a breach of the "duty

to settle" arose from cases involving a policyholder, a liability

insurer, and a third party.    In the usual circumstances, the

insurer has assumed the policyholder's defense under the policy.

The third party has sued the policyholder for an amount in excess

of the policy limits but has offered to settle for an amount

equal to or less than the policy limits.     Cramer, 174 Ill. 2d at

525, 675 N.E.2d at 903.    If such a settlement is accepted by the

insurer, the insured is not at risk for personal liability.      The

insurer must take the insured's settlement interests into consid-

eration when there is a reasonable probability of (1) recovery in

excess of policy limits and (2) a finding liability against the

insured.   Haddick, 198 Ill. 2d at 419, 763 N.E.2d at 304.

                "The 'duty to settle' arises because the

           policyholder has relinquished defense of the

           suit to the insurer.    The policyholder de-

           pends upon the insurer to conduct the defense

           properly.   In these cases, the policyholder

           has no contractual remedy because the policy

           does not specifically define the liability

           insurer's duty when responding to settlement

           offers.   The duty was imposed to deal with

           the specific problem of claim settlement


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            abuses by liability insurers where the poli-

            cyholder has no contractual remedy."     Cramer,

            174 Ill. 2d at 526, 675 N.E.2d at 903.

            The breach of duty to settle is not a contractual

remedy and does not arise at the time the parties enter into the

insurance contract.    The duty of an insurer to settle "arises

when a claim has been made against the insured and there is a

reasonable probability of recovery in excess of policy limits and

a reasonable probability of a finding of liability against the

insured."    Haddick, 198 Ill. 2d at 417, 763 N.E.2d at 304.     The

duty does not arise until a third party demands settlement within

policy limits.    Haddick, 198 Ill. 2d at 417, 763 N.E.2d at 305.

            Because the tort of breach of duty to settle was

recognized to combat abuses by liability insurers where a settle-

ment offer within policy limits is made prior to trial, the

requirement of reasonable probability of both liability and

recovery in excess of policy limits has been attached to the

tort.    The usual fact pattern where an insurer questions its

coverage is to either defend the insured under a reservation of

rights or file a declaratory judgment action to determine cover-

age.    A duty to settle would usually arise as a result of a

pretrial settlement offer made to the insurer.     The breach of the

insurer's duty to settle could occur only up to the time any

excess judgment is entered against the insured, at which time the

insurer can no longer accept the offer to settle.

            Under the facts of this case, to trigger the duty to


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settle on the part of American Fire, a settlement demand should

have been made prior to entry of judgment against Doherty on

August 19, 1993.    If such a settlement offer had been made and

rejected by American Fire, a breach of the duty to settle might

have occurred.     Any claim for bad-faith failure to settle would

have arisen no later than August 19, 1993, and the statute of

limitations for filing suit on such a claim expired on August 19,

1998.   The Chandlers' suit, filed September 4, 2001, is barred by

the statute of limitations.

           The Chandlers argue the facts in this case are unique

and they should not be constrained by the "usual" fact pattern

which results in a breach of an insurer's duty to settle.    They

contend an insurer who rejects an offer to settle within policy

limits after a judgment in excess of the policy limits has been

entered against the insured should also be subject to a claim of

a bad-faith failure to settle and the statute of limitations

should run from the date of the rejection of their first settle-

ment demand.     American Fire rejected the Chandler's postjudgment

demand on September 4, 1996; and their suit filed on September 4,

2001, was filed on the last day before it would have been barred

by the statute of limitations.

           In support of their argument, they cite Olympia Fields

Country Club v. Bankers Indemnity Insurance Co., 325 Ill. App.

649, 60 N.E.2d 896 (1945), apparently one of the few reported

cases in which a postjudgment settlement demand within policy

limits is part of the factual scenario.    The Chandlers cite


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Olympia Fields for the proposition a postjudgment settlement

demand within policy limits that is rejected by an insurer can be

the basis for finding an insurer liable for breaching its duty to

settle and failing to settle in good faith.    The facts in Olympia

Fields are unusual, as are the facts in this case, but we find

those unusual facts do not support the legal proposition the

Chandlers claim for Olympia Fields.

           Olympia Fields Country Club (Club) had a liability

policy with Bankers Indemnity Insurance Company (Bankers) with

policy limits of $10,000.   A patron of the Club sued the Club for

personal injuries she sustained while on Club grounds.      Olympia

Fields, 325 Ill. App. at 651, 60 N.E.2d at 897.   Bankers assumed

defense of the case but notified the Club the suit was seeking

damages in excess of the policy limits and invited the Club's

personal counsel to participate in the suit.   He did so.    At the

opening of the trial, the plaintiff's attorney offered to settle

the case for only $3,500.   Bankers rejected the offer.   During

the trial, the offer to settle was renewed but still rejected.

Olympia Fields, 325 Ill. App. at 654, 60 N.E.2d at 898.     The Club

was found liable and judgment was entered in the amount of

$20,000.   This time, plaintiff offered to settle for $8,000.

This offer was again rejected, and Bankers planned to appeal the

judgment, which was upheld on appeal.   Olympia Fields, 325 Ill.

App. at 654, 60 N.E.2d at 898-99.   The Club demanded Bankers pay

the $8,000 to settle the case; and when it was refused, the Club

paid the settlement itself and sued its insurer for both failure


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to settle for $3,500 and failure to settle for $8,000, recovering

judgment for $10,853.11 against Bankers, which appealed that

judgment also.   Olympia Fields, 325 Ill. App. at 651, 656, 60

N.E.2d at 897, 899.

          The gist of the Club's suit against Bankers was that

Bankers acted in bad faith in failing to accept the $3,500

settlement offer and the $8,000 settlement offer.   Olympia

Fields, 325 Ill. App. at 660, 60 N.E.2d at 900.   The appellate

court found this was a case of first impression in Illinois and

proceeded to review numerous cases from other jurisdictions.

Olympia Fields, 325 Ill. App. at   660-73, 60 N.E.2d 900-06.    The

appellate court found the weight of authority supported the rule

an insurer could be held liable for failure to settle within

policy limits before or during trial if it acted in bad faith.

Olympia Fields, 325 Ill. App. at 673, 60 N.E.2d at 906.   The

appellate court then found the trial court was correct in denying

Banker's motion for directed verdict.   In so doing, it relied on

the following evidence to find the Club had made out a prima

facie case of Bankers failing to act in good faith in refusing

the $8,000 settlement offer: at the time Banker's refused the

$8,000 offer, its attorney, having heard the trial evidence and

with knowledge a $20,000 verdict had been entered, recommended

the offer be accepted and a $3,500 offer had been made both at

the opening of the trial and during the trial and rejected.

Olympia Fields, 325 Ill. App. at 675, 60 N.E.2d at 907.

          In Olympia Fields, not only were two settlement demands


                              - 11 -
made and rejected prior to judgment being entered, the appellate

court specifically relied upon those facts in finding the rejec-

tion of the settlement offer postjudgment was prima facie evi-

dence of bad-faith failure to settle.    In this case, no settle-

ment offer was made prior to judgment being entered.   Although

the Chandlers argued to the trial court it would have been a

futile gesture to have made such a demand given American Fire's

position it had no coverage, as the trial court noted, it would

have been an easy thing to do and would have brought the Chan-

dlers in line with the factual circumstances of the reported

cases and the requirements enunciated to support the tort of

breach of the duty to settle.

           Under the unique facts of this case, the Chandlers have

failed to meet the requirements of the specially created tort of

breach of an insurer's duty to settle within policy limits: they

failed to make a settlement demand prior to entry of judgment in

the underlying liability suit.    The statute of limitations began

to run when judgment was entered--and not at the time of their

postjudgment settlement demand.    If a claim for bad-faith failure

to settle exists, it is barred by the statute of limitations.

           The claim against American Fire for a bad-faith failure

to settle is time-barred.   Consequently, the additional claim for

punitive damages based on allegations that American Fire will-

fully and wantonly breached its duty to settle is also time-

barred.   Accordingly, we need not address the trial court's

dismissal of the count requesting punitive damages.


                                - 12 -
                           III. CONCLUSION

            For the foregoing reasons, we affirm the trial court's

judgment.

            Affirmed.

            TURNER and STEIGMANN, JJ., concur.




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