In many injury cases, the value of the claim clearly exceeds the available insurance coverage. When that happens, a settlement for the policy limits may be the most reasonable outcome. Yet insurers do not always tender limits, even when liability is strong and damages are substantial.

Illinois law recognizes that this situation creates a tension between the insurer and its insured. While the insurer controls the defense and settlement decisions, the insured may be personally exposed to any judgment above the policy limits.

The Insurer’s Duty to Consider the Insured’s Interests

Under Illinois law, an insurer has a duty to give the insured’s interests consideration at least equal to its own when evaluating settlement opportunities. This duty arises from the implied obligation of good faith and fair dealing in the insurance relationship.

In practical terms, this means an insurer cannot simply gamble with the insured’s financial well-being by refusing to settle within policy limits when a reasonable insurer would do so to protect the insured from an excess judgment.

Why Policy-Limit Cases Create Conflicts of Interest

In a policy-limits case, the insurer’s risk is typically capped at the amount of coverage purchased. The insured’s risk is not.

If a case proceeds to trial and results in a verdict exceeding the policy limits, the insured may face personal exposure for the excess amount. This creates a conflict of interest when the insurer delays or refuses to settle despite a clear risk of an excess judgment.

Illinois courts have recognized that this conflict must be disclosed to the insured so the insured can understand the risk and make informed decisions.

Independent Counsel and Excess Exposure

When a genuine conflict exists between the insurer and the insured, Illinois law recognizes that the insured may be entitled to independent counsel whose loyalty runs solely to the insured, not to the insurer’s settlement strategy.

In some cases, the insurer’s refusal to settle within limits can expose it to liability beyond the stated policy limits if an excess judgment is later entered. The excess judgment itself may constitute the harm that gives rise to the claim against the insurer.

This possibility often becomes a critical pressure point in cases where the insurer lacks a good-faith basis for refusing to settle.

When Refusal to Settle Crosses the Line

Not every refusal to settle is improper. Insurers are not required to accept unreasonable demands or “extortionate” settlements. However, when liability is clear, damages are predictably in excess of coverage, and a reasonable opportunity to settle exists, continued refusal can have serious consequences.

Illinois courts have made clear that insurers must exercise care and skill to protect their insureds from excess liability. When an insurer’s conduct reflects bad faith, negligence, or disregard of the insured’s interests, the insurer may be held responsible for the full judgment, not just the policy limits.

Why This Matters to Injured People

From the injured person’s perspective, this doctrine explains why some cases that appear straightforward do not resolve quickly. It also explains why experienced counsel focuses on creating a clear record of liability, damages, and settlement opportunity.

When properly applied, Illinois’s policy-limits and conflict-of-interest principles can realign incentives and bring cases to resolution that otherwise would stall.