Hyland was a passenger in a car owned by Kimberly Perkins and driven by Miquasha Smith—who, at age 16, was not lawfully behind the wheel when she smashed the car seriously injuring Hyland. Perkins had a policy of insurance with Liberty Mutual. Smith told Liberty Mutual that Risby gave her the car’s keys during a party; Risby denied doing that and said that she had given the keys to “Rob,” who was never identified.
Liberty Mutual believed its insured, Risby, and when Shannon Hyland (Monteil’s mother, acting as his next friend) sued Smith it told Shannon’s lawyer that it would not provide a defense or indemnity. Eventually Smith defaulted, and a state court entered a judgment for about $4.6 million. Smith assigned to Hyland whatever claim she had against Liberty Mutual. In this suit under the diversity jurisdiction, the district court concluded that Liberty Mutual’s failure either to defend Smith or to seek a declaratory judgment of non-coverage violated Illinois law, making it liable for the entire tort judgment, even though the policy provided only $25,000 per person in coverage. 2017 U.S. Dist. LEXIS 124374 (C.D. Ill. Aug. 7, 2017). Liberty Mutual now concedes that it should have defended Smith while reserving a right to decline indemnity, but it contends that its liability cannot exceed the policy’s cap.