Illinois right to select defense counsel

In R.G. Wegman Construction Co. v. Admiral Ins. Co., No. 09-2022 (7^th Cir. Jan. 14, 2011), insured construction manager Wegman was sued by Budrik, an employee of a subcontractor injured on the jobsite.  Wegman tendered its defense as an additional insured under the CGL policy issued by Admiral to Budrik’s employer.  Admiral agreed to defend Wegman and retained defense counsel.  The case went trial trial resulting in a judgment against Wegman in excess of the limits of the Admiral policy.   Wegman then filed suit against Admiral for bad faith failure to settle.  The trial court dismissed the suit and Wegman appealed.  In an opinion authored by Judge Posner, the Seventh Circuit, applying Illinois law, reversed.  The court held that Wegman sufficiently alleged that Admiral breached its duty to notify Wegman of the possibility of an excess judgment and the resulting conflict of interest between Wegman and Admiral entitling Wegman to select defense counsel of its choice and control the defense and settlement of the Budrik lawsuit.  The court states that once Admiral learned during the course of its control of the defense of the Budrik suit that there was a “nontrivial probability” of an excess judgment, it had a duty to notify Wegman of that probability and advise Wegman that it had the right to hire its own lawyer to defend the case, the reasonable cost of which to be reimbursed by Admiral.  The court also states that Wegman could have then negotiated a reasonable settlement for which Admiral would have been obligated to pay.