An Illinois court recently held that an insured defendant can be equitably estopped from enforcing a plaintiff’s release of that defendant when the plaintiff agreed to the release based on misrepresentations regarding coverage by the defendant’s insurers.  Ahle v. D. Chandler, Inc., 2012 IL App (5th) 100346 (5th Dist. 2012).  The plaintiff, Ahle, was involved in an automobile accident with a delivery vehicle for D. Chandler, Inc., (d/b/a Pizza Man).  Id. at 3.  Ahle submitted a joint demand of $400,000 to the driver’s insurer (Allstate) and D. Chandler, Inc.’s insurer (State Farm).  Id. at 4.  A State Farm claims representative responded to the demand and erroneously stated that the State Farm policy would be excess to the liability coverage provided by Allstate and that she would review the claim only after the Allstate insurance was exhausted.  Id. at 5. 

Allstate, on the other hand, tendered its policy limits of $100,000 to settle the claim.  Id.  State Farm was notified of the tender. Id. at 6.  Ahle accepted the $100,000 from Allstate and executed a settlement, releasing the driver, the driver’s insurer, Allstate, and “any other person, firm or corporation charged or chargeable with responsibility or liability, their heirs, representatives and assigns, from any and all claims, demands, damages, [and] costs . . . .  Excluding Pizza Man, Dennis Chandler.”  Id. at 8.

Not long thereafter, Ahle filed suit against D. Chandler, Inc. (“Chandler”) for injuries related to the automobile accident.  Id. at 9.  However, the trial court granted summary judgment in favor of Chandler on the basis that Ahle’s release of the employee (i.e., the driver) extinguished liability on the part of the Chandler.  Id. at 10. 

On appeal, the Fifth District reversed under the theory of equitable estoppel, finding that Ahle had relied to his detriment on the misrepresentations of State Farm and had therefore involuntarily relinquished its rights to file suit against Chandler.  Id. at 14.  Because State Farm misrepresented that its policy was in excess of the Allstate policy and remained silent after it received notice of Ahle’s intent to settle with Allstate, and because Ahle included a carve-out in the release which excluded Chandler, the court held that there was a genuine issue of material fact that precluded summary judgment.  Id. at 17.

In reaching that conclusion, the court rejected Chandler’s assertion that under Gilbert v. Sycamore Municipal Hosp., 156 Ill. 2d 511 (1993), applied.  Chandler argued that under Gilbert, a settlement between a plaintiff and an agent also serves to extinguish the vicarious liability of the principal, even if the settlement expressly reserves the plaintiff’s right to seek recovery from the principal.  Id. 18.  The court rejected this argument on the basis that “there was no allegation of malfeasance” inGilbert.  Id.

Dissenting, Justice Spommer reiterated that, “[a]t the time the plaintiff executed the release of [the driver], it was clearly the long-standing law in Illinois that a settlement between a plaintiff and an agent extinguished, by operation of the law, any claim that the plaintiff has against the principal under a theory of vicarious liability, regardless of whether the release of the agent, expressly reserves the plaintiff’s right to seek recovery from the principal.”  Id. at 25 (citing Gilbert, 156 Ill. 2d at 528-29.)  According to Justice Spommer, Ahle and his attorney’s reliance on State Farm’s misrepresentation was thus “unreasonable as a matter of law.”  Id. at 26.