Business Judgment Rule Shields In-House Counsel and Outside Counsel from Claims of Tortious Interference of Insurance Contract

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On February 27, 2023, the Seventh Circuit issued its decision in Creation Supply, Inc. v. George Cherrie, et al, holding that Selective retains the sole power under the business judgment rule to deny claims. This decision prevented Creation from bringing a tortious interference claim against Selective Insurance Company of the Southeast (“Selective”) and its agents.

Creation Supply, Inc. (“Creation”) purchased insurance from Selective. When Selective denied coverage to Creation, Creation sued Selective for breach of contract and won. Creation later pursued costs and fees for “Selective’s vexatious and unreasonable delay” under 215 ILCS 5/155 in addition to the breach of contract damages in the two suits outlined below.

In Creation Supply, Inc. v. Selective Insurance Co. of the Southeast, 995 F.3d 576 (7th Cir. 2021), the Seventh Circuit found that above-mentioned remedy Creation sought was not available. However, in Creation Supply, Inc. v. Selective Insurance Co. of the Southeast, 51 F.4th 759 (7th Cir. 2022), the Seventh Circuit found that other breach of contract damages might yet be available, including tortious interference against Selective’s in-house lawyer, the lawyer’s supervisor, and its outside counsel (collectively “Defendants”) for interference with a contract.

In its recent decision, the Seventh Circuit acknowledged that corporations work through their agents, and in return, the agents are “generally shielded from liability by the corporation for acts undertaken on its behalf.” This is because when a “corporation enters a contract, an agent decides that the contract is in the corporation’s interest and signs her name on the firm’s behalf.” Consequently, where a corporation breaks that same contract, it is broken through the acts of its agents. Thus, the corporation is the entity “bound and benefitted by the contract, even though the agent is indispensable.”

The Seventh Circuit recognized that a conditional privilege exists for Selective under the business judgment rule. This means that so long as an agent “acts in the corporation’s interests, she is protected from liability for interfering in her principal’s contractual affairs.” Thus, this rule places a “higher value on having corporations (really, their agents) make decisions in their own best interests . . . than it does on a contract creditor’s expectation of performance.” Consequently, any time an agent interferes with a contract, the agent is “presumed to do so for the company’s benefit (given their aligned interests), and therefore lacks the malice necessary for tortious interference.”

The Seventh Circuit dismissed Creation’s suits with prejudice based on the business judgment rule and a finding that Selective’s attorneys had absolute immunity for its conduct undertaken during litigation. Although Creation argues that it overcame the privilege by alleging the Defendants’ acted in their own interest, the district court found that “mere conclusory allegations” are insufficient to show the Defendants’ actions went against Selective’s interests. The Seventh Circuit agreed, stating that as an insurer, Selective’s profitability “turns on paying as few claims as possible.” Hence, the Defendants’ actions supported Selective’s interest where its decision vacated a $2.8 million judgment against Selective and ended an eleven (11) year string of litigation on a “simple coverage dispute.” Accordingly, the Seventh Circuit ruled that Selective, under the business judgment rule, solely retains the ability to deny coverage or claims.

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