that "the third-party claims against the insurers fall squarely within the Court's jurisdiction under 28 U.S.C. § 1367(a)."
Judge Rovner noted that Chicagoland had followed Rule 14(a) precisely by impleading the Insurers, who "may be liable to [Chicagoland] for all or part of [LaSalle's] claim." "Nothing in 28 U.S.C. § 1367, the new statute codifying the supplemental jurisdiction of the federal courts, alters the propriety of this longstanding impleader practice." Aug. 7, 1992 Op. The Collier decision
does not apply the more permissive § 1367, but rather concludes that pre-§ 1367 case law, Finley, 490 U.S. 545, Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 375 (1978), and United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 725 (1966), allows ancillary (supplemental) jurisdiction over third-party claims
where the insurer-third-party defendant may be liable over for some or all of the amount sought in the underlying claim.
The decisions again relied upon by the Insurers, Hudson Insurance Co. v. American Elec. Corp., 957 F.2d 826, 830-31 (11th Cir. 1992) and McGraw-Edison Co. v. Speed Queen Co., 768 F. Supp. 684 (E.D. Wis. 1991), are, as Judge Rovner noted, inapposite. In Hudson, the insurance company was not impleaded on the underlying claim, which had already been resolved. Therefore, insured's direct action against the insurer lacked any federal basis apart from the underlying claim. Hudson, 957 F.2d at 830-31. The plaintiff in Speed Queen asserted CERCLA jurisdiction over one defendant and supplemental jurisdiction over a direct action against the insurer. 768 F. Supp. at 686 Finley prevented pendent party jurisdiction and § 1367 was not yet applicable. Id. at 687.
Again, Speed Queen did not involve a supplemental third-party claim tied directly to the outcome of an underlying, pending federal claim.
The issue of whether the insurer will be sued as a third party generally arises only in instances such as this where the insurer has disclaimed the duty to defend. 6 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure 2d, § 1449 at 392 (1990) [hereinafter Federal Practice]. The Insurers' denial of coverage does not affect this court's jurisdiction over the third-party action. Insurers contend that Chicagoland's motion for stay and severance of the third-party insurance claims is inconsistent with the basis for jurisdiction over the third-party action. However, the propriety of a stay or severance of the insurance issues to prevent prejudice would not affect the basis for jurisdiction over those claims. The reason for a third-party action, to maximize efficiency over dependant claims, is not eliminated by a severance of issues intended to prevent prejudice. See 6 Federal Practice § 1449 at 392-93. Indeed, Rule 14(a) specifically provides for severance.
Wausau argues that the LaSalle and Chicagoland claims do not derive from a common nucleus of operative fact. However, Chicagoland's claim against Insurers seeks indemnity for liability arising from the same facts as the underlying complaint. Chicagoland's duty to defend claim is based on the complaint, an allegation of the facts in the underlying case. Therefore, Chicagoland's claims "form part of the same case or controversy" for purposes of supplemental jurisdiction. See Estate of Bruce v. City of Middletown, 781 F. Supp. 1013 (S.D.N.Y. 1992) (supplemental jurisdiction for indemnity claim). Compare Mitcheson v. Harris, 955 F.2d 235, 239 (4th Cir. 1992) (recognizing appropriateness of abstaining in declaratory action when underlying claim pending in state court; noting overlapping issues of fact and law). Claims that derive from a common nucleus of operative fact would ordinarily be tried together and form part of the same case or controversy. See Gibbs, 383 U.S. at 725. Only a loose factual connection is necessary. Freiburger v. Emery Air Charter, Inc., 795 F. Supp. 253, 258 (N.D. Ill. 1992). In this case there is more than a mere loose factual connection between the insurance actions and the underlying complaint. Furthermore, it would be expected that a defendant, haled into federal court, would attempt to resolve issues of the duty to defend in that same proceeding. See 6 Federal Practice § 1449 and cases cited therein discussing impleader of insurer. The Insurers' focus on facts with no nexus in either action misses the larger point of the indemnity sought by Chicagoland based on the outcome of the LaSalle action. Similarly, Wausau's abstention arguments are unpersuasive.
American and Continental argue that the "no joinder" clauses in those policies prevent the third-party action in this case.
Wausau has also filed a motion to dismiss on this issue, which the court instructed would be treated as a motion for summary judgment. Such clauses contravene the purposes of Rule 14(a) and are ignored by most federal courts. 6 Federal Practice § 1449 at 395; see Colton v. Swain, 527 F.2d 296, 299 (7th Cir. 1975); Jordan v. Stephens, 7 F.R.D. 140 (D. Mo. 1945); see also Hall v. Allstate Ins. Co., 880 F.2d 394, 397-98 (11th Cir. 1989). In Colton v. Swain, the Seventh Circuit held that although a procedural rule, Rule 14, should not create a substantive right of action where Illinois substantive law and the insurance contract disallow direct actions against insurers, the refusal to defend estops the insurer's right to insist on adherence to this provision. 527 F.2d at 299-302. Therefore, the motion to reconsider the August 7 order will be denied and the duty to defend will be considered infra in connection with the motions of Chicagoland and Wausau for summary judgment.
DUTY TO DEFEND
Chicagoland and the Schaffners have moved for partial summary judgment as to Counts Four through Six of their first amended third-party complaint, asserting breach of the Insurers' duty to defend and requesting declaratory judgment on the resulting estoppel and/or waiver of policy defenses. Liberty has filed a cross-motion for summary judgment on this issue. Wausau has filed a motion to dismiss, which the court indicated would be treated as a motion for summary judgment, touching on this issue. On a motion for summary judgment, the entire record is considered with all reasonable inferences drawn in favor of the nonmovant and all factual disputes resolved in favor of the nonmovant. Visser v. Packer Engineering Assoc., Inc., 909 F.2d 959, 960 (7th Cir. 1990); Holland v. Jefferson Nat'l Life Ins. Co., 883 F.2d 1307, 1312 (7th Cir. 1989); Oxman v. WLS-TV, 846 F.2d 448, 452 (7th Cir. 1988); Jakubiec v. Cities Service Co., 844 F.2d 470, 471 (7th Cir. 1988). Summary judgment will be denied where there is a genuine issue of material fact such that a reasonable jury could rule for the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). The burden of establishing a lack of any genuine issue of material fact rests on the movant. Jakubiec, 844 F.2d at 473.
Under well-settled Illinois law, only three options are available to a liability insurer requested to defend an insured against claims which the insurer believes exceed policy coverage. The insurer can (1) seek a declaratory judgment regarding its obligations before or pending trial of the underlying action, (2) defend the insured under a reservation of rights, or (3) refuse either to defend or to seek a declaratory judgment at the insurer's peril that it might later be found to have breached its duty to defend. Once an insurer violates its duty to defend, it is estopped to deny policy coverage in a subsequent lawsuit by the insured. . . .