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Judge: Even after issues resolved, acrimony kept insurance spat alive, lawyers thriving


Occasionally, it’s time to gather your things and go home.

That’s not a popular litigation stance, but neither is waiting for a judge to tell you that the time has come.

That happened in RLI Insurance Co. v. Stan Koch & Sons Trucking, Inc. where a series of claims and counterclaims dating to 2019 were dismissed by Minnesota U.S. District Court Judge Patrick Schiltz, in an order issued Sept. 15.

Plaintiff RLI provided liability insurance to Koch. But the trucking company elected to maintain a large “self‐insured retention”—essentially a big deductible that Koch would have to pay out before the insurer would respond to any losses. The arrangement left Koch responsible for investigating, adjusting and paying all claims against its drivers and fleet, unless they exceeded a certain, high-dollar threshold.

But federal law provides that a commercial carrier must be insured for every dollar of potential liability. So RLI provided a bond to cover the claims within the retention, for which Koch agreed to provide security in the form of a letter of credit or cash.

In 2018, an audit revealed that Koch was retaining $3.8 million in reserves to pay pending and anticipated claims. But its security deposit was only $2 million—far short of RLI’s requirement that Koch maintain security equal to at least 125% of its reserves. RLI requested more security. Koch responded by moving to a different insurer.

But RLI’s policy was occurrence-based, not claims-made—meaning that claims arising at any point during the policy’s lifespan remained covered, even if RLI was no longer the company’s insurer. So Koch was still obligated to provide security. It did not.

As Schiltz pointed out, RLI had options. It could, for instance, have canceled all its insurance policies, but it didn’t.

“Instead, RLI decided to retaliate against Koch by breaching its own contractual obligations,” the judge said.

Specifically, the insurer withheld over $200,000 that it owed Koch, saying it would pay when Koch provided the additional security. RLI then sued Koch for an injunction, declaratory relief and damages. Koch answered and counterclaimed, alleging—among other things—breach of the covenant of good faith and fair dealing.

Time went by and Koch settled or disposed of various claims, reducing its reserves from $3.8 million to about $673,519. Thereby, its $2 million in security was adequate to cover any obligations under the self‐insured retention agreement.

During the time that the security was inadequate, RLI never paid any claim or expense on behalf of Koch, Schlitz writes, adding:

“In other words, the amount of the security turned out not to matter, as RLI never had to make a payment on behalf of Koch, much less ask Koch to reimburse it for that payment, much less be refused reimbursement, much less turn to the security to be made whole.”


‘Sounds like a windfall’

RLI then paid Koch the full $200,000 that it had withheld.

“So that’s the end of this lawsuit, right?” Schiltz wrote. The answer to his rhetorical question: No.

The relationship between the two sides was so acrimonious, the judge wrote, that instead of walking away from the litigation, they “continued to pay their lawyers to find creative ways to try to keep this lawsuit alive.”

Each party moved for summary judgment granting its claims and dismissing its opponent’s. Schiltz found the dispute between the parties largely moot and dismissed all of the remaining claims and counterclaims.

U.S. District Court Judge Patrick Schiltz

U.S. District Court Judge Patrick Schiltz

Schiltz first rejected RLI’s argument that it was entitled to equitable relief because Koch might breach its contract in the future.

He also rejected RLI’s claim for damages for breach of contract. The problem with that claim, the judge found, was that RLI had no damages. Under Illinois law, which governed the contract, damages are part of the cause of action for a breach.

“Koch never failed to pay a claim. No claim was ever made against the bond. RLI never made a payment to a claimant. And so on. … RLI did not lose a cent on account of Koch’s breach of its contractual obligation to provide sufficient security,” said Schiltz.

Schiltz also rejected RLI’s argument that it would have had to pay about $137,000 to cover the security that Koch failed to provide and that RLI “internalized” this amount.

This is a novel theory of damages—and, as RLI candidly acknowledged at oral argument, RLI is not aware of a single court that has ever accepted its theory,” Schiltz wrote.

Under this argument RLI would have about $137,000 more than if Koch had not breached. “That sounds like a windfall,” the judge said.

Schiltz also rejected the argument that RLI is damaged because it incurred attorney fees and costs. That was a problem because RLI is not the prevailing party in the suit, a prerequisite for a fee award, the judge said. Schiltz added that even if RLI had prevailed, the contract does not explicitly grant the court the authority to award fees.


No judgment, no interest

Koch counterclaimed for the more than $200,000 that RLI withheld in retaliation for failure to provide additional security. RLI told the court that it was in the process of making payments, and after the arguments filed a letter that all amounts owed Koch were paid.

Koch responded by arguing—for the first time—that its counterclaims are not moot because it is entitled to attorney’s fees under the insurance policy and prejudgment interest under Minnesota law.

But Schiltz said that an attorney fee demand did not save the Koch’s claims from mootness. He also said that there has been no judgment in Koch’s favor, thus there can be no prejudgment interest.

Furthermore, the court would not award interest when the issue was not raised until after the summary judgment hearing and after RLI had paid all the money it owed.

The judge then dismissed RLI’s damage claim with prejudice and on the merits, and also dismissed all other claims without prejudice as moot.

The time had come.


Session/Law logo by Kirk Anderson