Hendricks v. Novae Corporate Underwriting, Ltd., No. 16-1712 (7th Cir. 2017)Annotate this Case
Novae issued Cunningham an insurance policy. While insured by Novae, Cunningham entered into an agreement with AP to provide claims-handling services. In 2004 AP sued Cunningham in Texas state court, alleging misrepresentation and negligently-handled claims, resulting in unwarranted or underpriced policy renewals. While that litigation was ongoing, AP filed for bankruptcy. Novae then denied Cunningham’s request for coverage and remained largely uninvolved in the state litigation because the policy did not obligate it to defend. In 2012 Cunningham and AP’s bankruptcy trustee entered into a settlement, including a stipulation to the entry of a $5.12 million judgment against Cunningham; an assignment to AP of Cunningham’s purported right to recover against Novae; and a covenant not to execute on the judgment against Cunningham. The settlement stated that Illinois law would govern its interpretation. The Texas court entered judgment in accordance with the settlement. APs bankruptcy trustee then sued Novae in Illinois, asserting the assigned rights. The Seventh Circuit affirmed summary judgment for Novae. In Texas “assignments of choses in action that tend to increase and distort litigation” violate public policy and are invalid. The type of settlement at issue is collusive and distorts the adversarial process.