Hyland v. Liberty Mutual Fire Insurance Co.

Hyland was a passenger in a car owned by Perkins and driven by Smith, age 16. Smith smashed the car into two parked vehicles, seriously injuring Hyland. Smith was convicted of aggravated reckless driving. Neither Smith nor her parents had auto insurance. Perkins had insurance with Liberty Mutual, covering her family, including her daughter Risby and anyone driving the car with the family’s permission. Smith told Liberty Mutual that Risby gave her the keys during a party; Risby denied doing that and said that she gave the keys to “Rob,” who was never identified. The police reported that Smith told many incompatible stories. Liberty Mutual would not provide a defense or indemnity. Smith defaulted. A state court entered a $4.6 million judgment. Smith assigned to Hyland whatever claim she had against Liberty Mutual. The district court concluded that Liberty Mutual’s failure either to defend or to seek a declaratory judgment of non-coverage violated Illinois law, making it liable for the entire judgment, although the policy provided only $25,000 per person in coverage. The Sixth Circuit vacated and remanded for the entry of a judgment for $25,000 plus interest; damages for a breach of the duty to defend are measured by the consequences proximately caused by the breach. The maximum loss caused by this failure to defend is $25,000 View "Hyland v. Liberty Mutual Fire Insurance Co." on Justia Law