BENTON – Trial began at U.S. district court on April 5, on a claim that United Fire and Casualty put its interest ahead of the interest of Thiems Construction Company at a Madison County property damage trial in 2013.
District Judge Staci Yandle scheduled trial to last all week.
Thiems Construction alleges that United Fire didn’t defend a claim for punitive damages at trial because its policy didn’t cover them.
That trial involved a lake of four acres on property of Fred and Juanita Steinkuehler, north of Edwardsville on Route 159.
Tad and Terry Thiems, sons of late Thiems Construction owner Gary Thiems, bought 90 acres east of the Steinkuehlers in 2006.
After they cleared the land for development of Fox Creek subdivision, heavy rains washed soil into the lake.
The Steinkuehlers met with Gary Thiems in 2009, but erosion continued and they filed suit in Madison County chancery court in 2010.
United Fire advised Thiems Construction that it retained Seth Gausnell to defend the suit subject to a reservation of rights to deny coverage.
United Fire stated that to the extent exposure might exceed its protection, Thiems Construction might wish to consult with its own attorney.
Former judge Barbara Crowder ordered sediment controls but erosion continued until Thiems Construction hired an engineer under threat of contempt.
In 2012, United Fire reserved a right to deny coverage for punitive damages.
Thiems Construction corporate counsel Michael Garavalia asked United Fire to pay $350,000 to limit the company’s exposure to punitive damages.
United Fire didn’t pay.
As trial approached in 2013, the Steinkuehlers moved to claim punitive damages and Crowder allowed it.
United Fire advised Thiems Construction that the Steinkuehlers demanded the policy limit of $1 million and United Fire intended to reject it.
Gary Thiems’s personal attorney, not identified in the record, alleged a conflict of interest in a letter to United Fire claim attorney Bedora Sheronick.
The attorney wrote that in Illinois, an insurer must pay for outside counsel when proof of certain facts would shift liability from the insurer to the insured or where allegations against the insured include punitive damages.
United Fire general counsel Neal Scharmer denied any conflict and refused to pay independent counsel.
At trial, jurors awarded the Steinkuehlers $440,000 for dredging, $325,000 for loss of enjoyment, and $765,000 in punitive damages.
Fifth District appellate judges affirmed the punitive award, finding Thiems Construction acted with conscious disregard of the rights of the Steinkuehlers.
United Fire paid actual damages and Thiems Construction paid punitive damages through a line of credit of Gary Thiems at Bank of Edwardsville.
Interest had increased the amount to $904,109.71.
Thiems Construction counsel Jon Rosenstengel of Belleville sued to recover that amount from United Fire in 2015, in St. Clair County circuit court.
He alleged breach of contract, bad faith, and breach of fiduciary duty. He alleged willful and wanton conduct worthy of punitive damages.
United Fire counsel John Schultz of Kansas City, Mo. removed the suit to district court on the basis of diverse citizenship as an Iowa corporation.
The clerk randomly assigned District Judge Nancy Rosenstengel, wife of plaintiff’s counsel, and she recused herself.
The clerk assigned Yandle.
Schultz asserted affirmative defenses in 2016, stating that United Fire followed advice of counsel and adjusters in good faith.
He stated that United Fire communicated with Thiems Construction and negotiated with the Steinkuehlers in good faith.
He stated that United Fire kept Thiems Construction fully advised of the willingness of the Steinkuehlers to settle for a $1 million policy limit.
On Oct. 13, 2016, Gary Thiems died.
His business continued pursuing recovery from United Fire.
In 2018, Magistrate Judge Donald Wilkerson waived confidentiality for evidence from mediation of the Madison County suit.
Former Madison County judge Daniel Stack conducted the mediation.
Wilkerson wrote that “any statements made by the mediator, parties, attorneys, or other participants in the mediation are discoverable.”
This year, Yandle ruled that Thiems Construction could proceed to trial on breach of fiduciary duty, bad faith, and willful and wanton conduct.
“United Fire cannot be absolved from its obligation to give due consideration to Thiems’ interest in avoiding a judgment for punitive damages in the underlying case,” Yandle wrote.
On breach of contract, she granted summary judgment to United Fire.
She found Illinois public policy prohibits coverage for punitive damages that arise out of an insured’s misconduct.
She found an insured may not shift to an insurer the duty to pay punitive damages through a suit for breach of a duty to defend.
“In other words, an insurer is not under a duty to settle a compensatory damage award in order to minimize its insured’s exposure to punitive damages,” she wrote.
“Thus, while United Fire’s failure to settle may have been a cause in fact of the punitive damage award, it was not a proximate cause and cannot support a breach of contract claim.”
Thiems Construction moved for reconsideration, asserting a substantial likelihood that Yandle’s judgment on breach of contract would be reversed on appeal.
Yandle denied it, finding it highly likely that the party who is unsuccessful at trial would appeal at that point.
She found the parties might find themselves back in her court in six to 12 months.
On March 26, she excluded evidence that Stack warned United Fire in mediation that they would have a bad result.
She found the danger of confusing and misleading the jury outweighed the value of the evidence.
According to an order Yandle entered on April 1, jurors must decide whether United Fire breached a fiduciary duty, whether it acted in bad faith, and whether Thiems Construction suffered any damages.
On Monday, April 5, lawyers Rosenstengel and Schultz selected eight jurors.
According to minutes, Yandle excused them and took up an exhibit Rosenstengel expected to use in examining United Fire claims attorney Sheronick.
She found the exhibit was problematic and went beyond the information she previously found relevant.
Sheronick testified until 4:30 p.m.