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Komatsu America Corp. v. Ace Property and Casualty Insurance Company

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Case Number: 
1:15-cv-08184 Search Pacer
Opposing Party: 
Komatsu America Corp
Court Type: 
US District Court: 
Northern District of Illinois
Date Filed: 
Sep 18 2015


Plaintiff, KOMATSU AMERICA CORP. (“KOMATSU”), brings this Complaint against
breach of an insurance contract and bad faith failure to settle a claim. This case involves the
potential disclosure of confidential information including infonnation that is subject to the
attorney-client privilege and attorney work-product rule. It also involves confidential and
sensitive case risk assessments and is subject to a confidentiality agreement. Plaintiff has
removed this sensitive and confidential information from this copy of the Complaint, but is
prepared to disclose this information once an appropriate protective order is entered in this case.
In support of this Complaint, KOMATSU alleges as follows:


  1. KOMATSU, one of the world’s largest manufacturers of earth moving equipment,
    was sued in an action for product liability. KOMATSU timely notified its insurers of the claim
    and tendered the claim to its insurers. Tokio Marine was KOMATSU’s primary insurer and
    ACE was KOMATSU’s excess insurer under Commercial Umbrella Liability Policy No. XOO


G23889353 (“Policy”). Both Tokio Marine and ACE accepted the tender and agreed to provide a
defense and to indemnify in the event of a judgment.

  1. Plaintiff in the underlying case sought damages for injuries he suffered, which
    permanently disabled him. He also sought punitive damages. Tokio Marine hired “Underlying
    Counsel” to represent KOMATSU.
  2. One month before the trial date, the parties participated in a mediation during
    which the mediator assessed the potential gross loss to KOMATSU. More importantly, as a
    result of statements made at the mediation, KOMATSU’s Underlying Counsel provided his own
    assessment of the risk to KOMATSU in the underlying litigation. As a result of the mediator’s
    and his own assessment, Underlying Counsel requested authority to settle up to a specified level
    in total from Tokio Marine and ACE. Tokio Marine authorized Underlying Counsel to offer its
    full limit, but ACE initially refused to offer anything.
  3. Three weeks before trial and over three years after having been notified of the
    suit, ACE’s representative wrote KOMATSU stating, for the first time, that (i) it was bringing in
    additional counsel (“Assigned-In Counsel”) to represent KOMATSU because of the new case
    evaluation after the mediation, (ii) punitive damages were not insurable and ACE was reserving
    its rights on punitive damages, and (iii) “Komatsu [should] consider [hiring] independent counsel
    to assess this [punitive damage] exposure and consider whether it wishes to contribute some
    amount toward settlement in reliance on Underlying Counsel’s assessments that some sum of
    punitive damages may be awarded.”
  4. The case was set to start trial three weeks after ACE notified KOMATSU that it
    was bringing in Assigned-In-Counsel. While preparing for trial, Underlying Counsel continued
    to negotiate with Plaintiff’s counsel to settle, but needed greater contribution from ACE.


Underlying Counsel made additional requests to ACE, but ACE stonewalled. Indeed, it was not
until six days before trial that ACE offered to contribute any of its limits to settlement and then
only a small amount.

  1. The Friday before the Monday start of trial was critical because the Court
    informed the parties that it would be ruling on multiple motions in limine that could significantly
    affect the value of the case. Consequently, Underlying Counsel contacted the mediator for
    assistance. As a result, the mediator agreed to make a mediator’s recommendation. If both sides
    accepted the recommendation, then there would be a binding settlement. If either side rejected
    the recommendation, then there would be no settlement and the case would proceed to trial on
    the upcoming Monday.
  2. Within a few hours of receiving the recommendation. Underlying Counsel and
    KOMATSU evaluated the recommendation, agreed that it was a reasonable settlement. However,
    the settlement recommendation would require ACE to contribute more than ACE had previously
    offered. Therefore, KOMATSU contacted ACE and requested additional contribution from ACE.
    Knowing that the court would soon be ruling on the motions in limine, KOMATSU requested
    that a call be scheduled with ACE and Underlying Counsel no later than 4:00 PM CST that day
    to confirm that ACE would contribute the additional amount to close the gap. At 3:45 PM CST
    Assigned-In Counsel sent an email to KOMATSU and Underlying Counsel attaching a case
    evaluation and stating that “We cannot do the proposed call at 4pm CST today ...
  3. Shortly before 5:00 CST, the Court ruled on the motions in limine and Underlying
    Counsel communicated to Assigned-In Counsel that KOMATSU lost the motions.


  1. At this point, Underlying Counsel had advised KOMATSU as to the
    reasonableness of the settlement and the impact of the lost motions in limine on the value of the
  2. KOMATSU tried to get set up a conference call with ACE to discuss the impact
    of the rulings on these motions and to get an agreement from ACE to contribute an additional
    sum to close the gap between the mediator’s recommendation and the primary and excess
    insurer’s contributions to date, but ACE’s representatives refused to make themselves directly
    available to discuss with KOMATSU the settlement amount.
  3. ACE forced KOMATSU into having to make a difficult decision: either
    contribute its own funds toward settlement, thereby bridging the gap between its insurers’ offer
    and the mediator’s recommendation, or expose itself to a potential judgment many times greater.
    More importantly, KOMATSU faced a reasonable probability of punitive damages assessed
    against it. As a result, KOMATSU’s own assets were exposed because ACE contended that its
    insurance did not cover punitive damages. Through its intransigence and unreasonable settlement
    position, ACE used the prospect of punitive damages against KOMATSU as leverage to force
    KOMATSU to contribute its own funds toward the settlement in order to avoid trial even though
    the settlement amount was reasonable (in that it was under the estimated likely compensatory
    judgment award) and within ACE’s limits. ACE breached its insuring agreement and acted in
    bad faith in rejecting a reasonable settlement, thereby exposing its insured to significant punitive


  1. KOMATSU AMERICA CORP. is a U.S. subsidiary of Komatsu Ltd., the world’s
    second largest manufacturer and supplier of earth-moving equipment, consisting of construction.



mining and compact construction equipment. KOMATSU’s principal place of business is in
Rolling Meadows, Cook County, Illinois.

    ACE Group, which is a global provider of commercial property and casualty insurance. ACE’s
    corporate office is in Philadelphia, Pennsylvania. ACE is authorized to do business, and does
    business in Illinois.


  1. The Court has jurisdiction over ACE pursuant to 735 ILCS §5/2-209 in that this
    case is based, in part, on breach of contract and the insurance contract at issue (the “Policy”) was
    issued to KOMATSU in Illinois and insures risks located in Illinois. Also, ACE conducts
    business in Illinois.
  2. Venue is proper in Cook County pursuant to 735 ILCS §§5/2-101 and 102, in that
    the contract at issue was entered into in Cook County, Illinois, and ACE does business in Cook
    County, Illinois.


The Insurance Contract

  1. On or about January 8, 2008, ACE issued to KOMATSU Commercial Umbrella
    Liability Policy No. XOO G23889353. (Ex. 1, the Policy.)
  2. The Policy provided excess coverage to KOMATSU.
  3. The Policy further provided that “We will pay on behalf of the "insured’ those
    sums in excess of the ‘retained limit’ that the ‘insured’ becomes legally obligated to pay as
    damages because of‘bodily injury’, ‘property damage’ or ‘personal and advertising injury’ to
    which this insurance applies.” (Ex. 1, Insuring Agreement, §I.A.)


  1. The Policy also provided that ACE would have the duty to defend KOMATSU
    when “damages sought would be covered by the ‘underlying insurance’ but are not covered by
    that insurance because of the exhaustion of the applicable limits of the ‘underlying insurance’...

(Ex. 1, Defense and Supplementary Payments, §III.A.)

  1. Additionally the policy provided that ACE “will have the right but not the duty to
    associate in the investigation of any claim and the defense of any ‘suit’ which may, in our
    opinion, result in damages to which this insurance applies.” (Ex. 1, Defense and Supplementary
    Payments, §III.C.)
  2. ACE’s position is that the Policy does not cover punitive damages, and ACE
    reserved its rights with respect to any award of punitive damages.

The Underlying Case

  1. KOMATSU was sued in an Underlying Case for injury allegedly caused by a
    KOMATSU machine.
  2. Upon receipt of the claim, KOMATSU timely and properly tendered the claim to
    both Tokio Marine, the primary carrier, and ACE.
  3. Both insurers accepted the tender. Tokio Marine provided a defense and ACE
    monitored the case.
  4. After years of discovery and litigation, the case was set for trial.
  5. Plaintiff was seeking damages above the primary limits and into ACE’s coverage.

The Mediation

  1. One month before the trial date, the parties mediated the dispute. ACE was
    advised of and had the right to participate in the mediation. At the time of the mediation, ACE’s



position was that the case should settle within the underlying policy limits, and ACE did not
offer any amount to settle the claim and did not meaningftilly participate in the mediation.

  1. At the mediation, the mediator assessed that a potential verdict above the primary
    limits and into ACE’s coverage layer was likely.
  2. Immediately after the mediation, KOMATSU’s Underlying Counsel, prepared a
    revised case evaluation based on information learned at the mediation, comments by the
    mediator and his own analysis and evaluation.
  3. Based on the mediator’s estimate of a likely verdict and Underlying Counsel’s
    own assessment of a likely verdict, Underlying Counsel requested settlement authority from both

ACE Undermined Settlement

  1. As the parties prepared for trial, negotiations continued, but ACE undermined the
    settlement process in three ways: (i) it ignored Underlying Counsel’s assessment of the value of
    the case; (ii) instead, it hired new Assigned-In Counsel, purportedly for KOMATSU, to evaluate
    the case, and then improperly relied on that counsel’s report by emphasizing incomplete factual
    assertions and assumptions; and (iii) it made itself unavailable during a critical period of the
  2. ACE continued to refuse to contribute anything despite numerous requests from
    KOMATSU and Underlying Counsel. In each of these communications, and without any rational
    explanation, ACE refused to acknowledge that the case was worth more than the primary
    insurer’s limits or accept Underlying Counsel’s recommendations. Instead it sought to discredit
    Underlying Counsel’s valuation of the case.



  1. During negotiations with plaintiffs counsel following the mediation and the
    Underlying Counsel’s updated analysis, Tokio Marine gave authority to Underlying Counsel to
    offer its limits.
  2. On the Friday before Monday’s start of trial, Assigned-In Counsel, who had been
    on the case for about two weeks, issued her own case evaluation to KOMATSU’s General
    Counsel, which disagreed with Underlying Counsel’s assessment.
  3. Although ACE hired Assigned-In Counsel to assist and represent KOMATSU, it
    appears that ACE did so in order to benefit it and to disadvantage its insured. ACE had
    Assigned-In Counsel prepare an evaluation, from which ACE selected facts that it believed
    supported its valuation of the case, and ignored facts that supported KOMATSU’s. For example,
  1. Neither ACE nor Assigned-In Counsel’s evaluation accounted for losing
    critical pre-trial motions;
  2. ACE and Assigned-In Counsel based their fair value on an overly narrow
    selection of jury verdicts.

These and other flaws in Assigned-In Counsel’s evaluation again bring into question ACE’s
good faith in retaining Assigned-In Counsel to represent KOMATSU.

  1. Moreover, ACE’s and Assigned-In-Counsel failed to meaningfully participate in
    the settlement negotiations, especially in the final days before trial.
  2. After providing her case valuation, Assigned-In Counsel informed KOMATSU
    and Underlying Counsel that ACE would not be available to further discuss settlement authority
    on the Friday before trial, even though time was of the essence and a settlement opportunity
    could be lost. ACE refused to make itself available directly, despite KOMATSU’s and its
    Underlying Counsel’s requests.


Case: l:15-cv-08184 Document #: 1-2 Filed: 09/18/15 Page 9 of 63 PagelD #:14

  1. Faced with (i) exposure of its assets, (ii) a judge who denied virtually all of its
    pre-trial motions, (iii) a sympathetic Plaintiff, and (iv) an insurer (ACE) who went dark and
    stopped communicating, KOMATSU had to decide whether to bridge the difference between
    Plaintiffs demand and its insurers’ contribution, or start a high-risk trial in two days.
  2. Based on these and other factors, ACE effectively forced its insured to contribute
    the additional sum in order to settle the case.



  1. KOMATSU incorporates by reference the allegations in ff 1-39 as its allegations
    to this Count.
  2. KOMATSU and ACE entered into an insurance contract, herein referred to as the


  1. Under the Policy, ACE agreed to pay “those sums in excess of the ‘retained limit’
    that the ‘insured’ becomes legally obligated to pay as damages ....”
  2. ACE also agreed to defend KOMATSU when “damages sought would be covered
    by the ‘underlying insurance’ but are not covered by that insurance because of the exhaustion of
    the applicable limits of the ‘underlying insurance.’”
  3. The insurer’s duty of good faith and fair dealing is “an extension of the duty to
    defend.” Swedish American Hosp. Ass'n of Rockford v. Illinois State Med. Inter-Ins. Exch., 395
  1. App. 3d 80, 101, 916 N.E.2d 80, 98 (2009).
  1. ACE owed a duty of good faith and fair dealing to KOMATSU.
  2. This duty included the obligation to enter into a reasonable settlement if ACE’s
    rejection of a reasonable settlement would expose KOMATSU “to liability exceeding the policy
    limits.” SwedishAmerican Hosp. Ass'n of Rockford, 395 111. App. 3d 80, 916 N.E.2d at 98.


  1. This duty arises “when there is a reasonable probability of recovery in excess of
    policy limits and there is a reasonable likelihood of a finding of liability against the insured.”
    SM’edishAmerican Hosp. Ass'n of Rockford, 395 111. App. 3d 80, 916 N.E.2d at 99.
  2. ACE had a duty to settle because there was a reasonable probability of recovery in
    excess of the policy limits and there was a reasonable likelihood of finding of liability against the
  3. ACE breached its duty to settle by refusing to contribute the sum necessary to the
    settlement even though that sum was well within the Policy’s limits.
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KOMATSU suffered harm as a result of ACE’s breach because KOMATSU
    contributed its own assets to settle the claim.
  5. ACE’s breach forced KOMATSU to step in and do what ACE should have done.

WHEREFORE, KOMATSU asks this Court to enter judgment in its favor and award it

damages equal to the sum it contributed to settle the claim, plus costs and fees of this suit.


TO 215 ILCS $5/155

  1. KOMATSU incorporates by reference the allegations in 1-51 as its allegations
    to this Count.
  2. ACE refused to contribute an additional sum to settle the Moore case.
  3. In addition, ACE refused to make itself directly available to negotiate a settlement
    during the critical Friday before Monday’s start of trial.
  4. ACE’s refusal to settle was both unreasonable and vexatious and constituted bad
    faith for the above reasons, among others. ACE, through its unreasonable and vexatious acts,
    forced on KOMATSU the choice of either contributing its own funds to settle the claim or face a

verdict that could reach its own assets.


WHEREFORE, KOMATSU seeks statutory damages, including attorney fees and costs,

as set forth in 215 ILCS §5/155.

The provided text is an excerpt from a document filed in this case. For a full understanding of the case, one should read the complete court file, including the response.

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