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Security Insurance Company of Hartford, v. Schipporeit

November 17, 1995

SECURITY INSURANCE COMPANY OF HARTFORD,

PLAINTIFF-APPELLANT,

v.

SCHIPPOREIT, INC., ET AL.,

DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 93-C-3923--James B. Zagel, Judge.

Before H. WOOD, ROVNER, and EVANS, Circuit Judges.

EVANS, Circuit Judge.

ARGUED SEPTEMBER 27, 1995

DECIDED NOVEMBER 17, 1995

This case concerns the efforts of the LaSalle Street Church to intervene as of right in a declaratory judgment action brought by the Security Insurance Company of Hartford against George Schipporeit and Schipporeit, Inc., whom we'll refer to collectively as "Schipporeit." Security sought a determination in federal court that it had no duty to either defend or indemnify Schipporeit in an Illinois state court action brought against Schipporeit by LaSalle. LaSalle sought to intervene in the federal declaratory judgment action when Security filed for a default judgment of no coverage due to Schipporeit's failure to appear and defend Security's claims. The district court granted LaSalle's petition to intervene, denied Security's motion for default judgment, and ultimately, after a bench trial, ruled in favor of LaSalle on the merits. We affirm.

In 1985, LaSalle retained Schipporeit, an architectural firm, to renovate the roof of its church. Schipporeit designed the new roof and selected a contractor, Esko & Young, to install it. Work on the roof was completed in 1986. In February of 1987, approximately one-sixth of the roof was blown off in a storm. Esko & Young admitted that the roof had not been installed according to written specifications. The contractor repaired the part of the roof that had been damaged by the storm, but was unwilling to reinstall the entire roof at that time.

Dissatisfied with the fact that much of its new roof was still defective, LaSalle asserted claims against Schipporeit and the contractor. Schipporeit notified Security, its professional liability insurance carrier, of the claim against it at that time, and Security participated in at least one mediation session called to attempt to settle the dispute. At one point in the mediation process, a tentative agreement was discussed; Esko & Young would provide the labor needed to replace the roof, and the $15,000 cost of materials would be divided between Esko & Young, LaSalle, and Schipporeit. Esko & Young at first agreed to the arrangement but never actually performed any additional remedial work on the roof. The contractor has since assigned its assets for the benefit of its creditors. Security recommended that Schipporeit participate in this arrangement and personally pay $5,000, a sum within its deductible under the policy. Schipporeit refused and the mediation efforts ran out of gas.

In March of 1988, Joseph Dodson, Security's man during the mediation efforts, closed his claim file on the dispute. This was ill-advised because LaSalle filed suit against Schipporeit and Esko & Young in Illinois state court in the fall of 1989. LaSalle Street Church v. Schipporeit, Inc., et al., Circuit Court of Cook County Case No. 89 L 12550. Security did not get wind of the state court suit until 1993, when Schipporeit notified it that he had been sued. Schipporeit, at that time, had no significant assets except for the Security policy. Security took up Schipporeit's defense in state court under a reservation-of-rights provision in the policy.

Upon learning of the state court suit against Schipporeit, Security got busy on another front; it filed this declaratory judgment action in the federal district court for the Northern District of Illinois. Security argued that it was justified in denying coverage to Schipporeit for LaSalle's claims due to: (1) Schipporeit's failure to notify Security of the lawsuit in a timely fashion; (2) Schipporeit's breach of its contractual duty to cooperate with the insurer; and (3) Schipporeit's rejection of the mediation proposal, which Security characterized as a settlement offer. Schipporeit failed to make an appearance, and Security moved for a default judgment. LaSalle, sensing danger to its interests, moved to intervene in the suit as a matter of right pursuant to Federal Rule of Civil Procedure 24(a)(2). The case was heard by Judge James B. Zagel, who allowed LaSalle to intervene as of right and denied Security's motion for a default judgment. After a bench trial, the court ruled in favor of Schipporeit and LaSalle, holding that Security had a duty to defend and indemnify Schipporeit in the state court case. On appeal, Security argues that the district court erred in permitting LaSalle to intervene as of right and that, even if intervention was appropriate, the district court erred in its disposition of the coverage issue.

Rule 24(a)(2) of the Federal Rules of Civil Procedure provides that "anyone shall be permitted to intervene in an action . . . (2) when the applicant claims an interest relating to the property or transaction which is the subject matter of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties." An applicant for intervention under the rule must demonstrate that each of four requirements is met: (1) the application is timely; (2) the applicant has an "interest" in the property or transaction which is the subject of the action; (3) disposition of the action as a practical matter may impede or impair the applicant's ability to protect that interest; and (4) no existing party adequately represents the applicant's interest. United States v. City of Chicago, 798 F.2d 969, 972 (7th Cir. 1986); United States v. 36.96 Acres of Land, 754 F.2d 855, 858 (7th Cir. 1985). There is no dispute in this case as to the timeliness of LaSalle's application to intervene as of right, nor does Security contend that any interest LaSalle may have is being adequately represented by an existing party. Security does argue that LaSalle fails to meet the second and third requirements for intervention as a matter of right.

The real question, then, is whether LaSalle has an interest in the underlying determination of whether the Security policy covers LaSalle's claims against Schipporeit. After all, if LaSalle does have the necessary interest, it is difficult to argue that that interest would not be jeopardized by a default judgment against Schipporeit. Judge Zagel stated that he could not "imagine a more pressing, more clear, and more obvious interest than the LaSalle Street Church has in this case." We review the district court's determination of interest de novo. Nissei Sangyo America, Ltd. v. United States, 31 F.3d 435, 438 (7th Cir. 1994).

The "interest" required by Rule 24(a)(2) has never been defined with particular precision. An early attempt by the Supreme Court to define interest in the context of Rule 24(a)(2) tells us only that an "interest" is a "significantly protectable interest." Donaldson v. United States, 400 U.S. 517, 531 (1971). Later decisions in this circuit reveal that the interest of a would-be intervenor must be a "direct, significant, legally protectable" one. American Nat'l Bank v. City of Chicago, 865 F.2d 144, 146 (7th Cir. 1989). It is something more than a mere "betting" interest (Reich v. ABC/York Estes Corp., __ F.3d __ (7th Cir. 1995)), but less than a property right (United States v. City of Chicago, 870 F.2d 1256, 1260 (7th Cir. 1989)). Whether an applicant has an interest sufficient to warrant intervention as a matter of right is a highly fact-specific determination, making comparison to other cases of limited value. Reich, at __; Shea v. Angulo, 19 F.3d 343, 349 (7th Cir. 1994) (citing United States v. Pitney Bowes, Inc., 25 F.3d 66 (2d Cir. 1994)).

Although, as we have noted, the fact-specific analysis of "interest" for intervention purposes makes comparing cases a venture of dubious worth, we can't help but note that the facts in our case are identical to those presented 22 years ago to a savvy district judge named Bauer in Hartford Accident and Indemnity Co. v. Crider, 58 F.R.D. 15 (1973). Intervention was permitted in Crider; for the same reasons, Judge Zagel was correct in allowing it here. Security opposed LaSalle's petition to intervene because it wanted a quick, unopposed adjudication that it had no obligation to defend or indemnify Schipporeit. And Security, it seems, was on the verge of obtaining that result. It wanted to play the Washington Generals and get out of town with a quick win. The district court wisely allowed a more worthy opponent to get into and onto the court.

Before we leave the issue of intervention, we hasten to add a point. Even if we were to find intervention as of right by LaSalle to be erroneous, permissive intervention under Federal Rule 24(b)(2) would be perfectly appropriate. Rule 24(b)(2) states that permissive intervention may be allowed "when an applicant's claim or defense and the main action have a question of law or fact in common." The rule goes on to note that "[i]n exercising its discretion the court shall ...


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