A federal court of appeals recently considered an Illinois car accident case in which the defendant construction companies failed to properly disclose their complete insurance coverage before a settlement. The case began after a van carrying six family members fell off the side of a road. One of the family members died and the others were all injured. The guardrail had been removed in the construction zone where the accident took place. There were also lines on the road that had been repaved and not repainted and there were pieces of asphalt left on the shoulder of the road.
The family filed a lawsuit against two construction companies that had done the construction work on the road. The attorney representing the two companies said to the plaintiffs that the defendant had a joint venture that had a $1 million insurance policy. The defendants’ attorney also sent required disclosures under Rule 26 of the Federal Rules of Civil Procedure, which listed that the $1 million policy joint venture insurance policy as the defendants’ only insurance coverage. The parties then agreed to settle the case for $1 million based on the policy limit. The plaintiffs also signed a release with a non-reliance clause, saying that they were not relying on the statements of any of the attorneys.
Four years later, the plaintiffs discovered that the defendants had their own insurance policies in addition to the joint venture insurance policy. After this discovery, the plaintiffs filed a subsequent lawsuit, alleging that the defendants concealed their actual available insurance coverage. The plaintiffs claimed that the defendants’ failure to disclose their coverage under Rule 26 was a misrepresentation and that the plaintiffs settled the case for $1 million based on that misrepresentation. The second lawsuit went to trial and a jury awarded the plaintiffs $8,169,512.84 in damages for negligent misrepresentation.
The defendants appealed and on appeal, the federal court of appeals held that the construction companies might have acted negligently in misrepresenting the extent of their insurance coverage. Yet, the court took issue with the judge’s instructions in the case. The appeals court explained that the court should not have relied on a violation of a Federal Rule of Civil Procedure to determine the relevant duty of care in the case. In addition, the jury also should have been allowed to decide whether the plaintiffs’ reliance on the disclosures was reasonable, rather than having the court decide the issue. As a result, the court ordered a new trial.
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