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WOODARD v. AMERICAN FAMILY MUT. INS. CO.

January 31, 1997

DOTTIE WOODARD, and RICHARD WRIGHT, Plaintiffs,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin Corporation, AMERICAN FAMILY INSURANCE GROUP, a Wisconsin Corporation, WILLIAM SOYK, individually and in his representative capacity as an employee and agent of AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin Corporation, SOUTHEASTERN RESEARCH LABORATORIES INC., a South Carolina Corporation, and RICHARD W. HENDERSON, individually and in his representative capacity as President of SOUTHEASTERN RESEARCH LABORATORIES, INC., Defendants.



The opinion of the court was delivered by: REINHARD

 INTRODUCTION

 Plaintiffs, Dottie Woodard and Richard Wright, filed a seven-count complaint alleging various state law claims against defendants, American Family Mutual Insurance Company, American Family Insurance Group, William Soyk, Southeastern Research Laboratories, Inc., and Richard W. Henderson. This court has jurisdiction pursuant to 28 U.S.C. § 1332, and venue is proper as a substantial part of the alleged events giving rise to this action occurred in this district and division. Pending before the court are separate motions to dismiss by defendants. These motions have been consolidated for purposes of this opinion and will be resolved herein.

 BACKGROUND

 The facts are taken from the complaint and are assumed to be true for purposes of the pending motions. American Family Mutual Insurance Company and American Family Insurance Group (hereinafter collectively referred to as "American Family") are Wisconsin corporations engaged in providing liability insurance throughout the United States, including Illinois. Soyk is a Wisconsin resident and is employed as a special investigator by American Family. Southeastern Research Laboratories, Inc. ("Southeastern") is a South Carolina corporation engaged in the business of chemical and other types of scientific testing. Henderson is a South Carolina resident and is president and chief executive officer of Southeastern. Plaintiffs Woodard and Wright, both Illinois residents, lived in a mobile home owned by Woodard in New Milford, Illinois.

 On January 8, 1994, a fire occurred in the mobile home destroying the home and the personal belongings contained therein. At that time, Woodard held an insurance policy with American Family. Woodard filed a claim with American Family on January 27, 1994, seeking the maximum limits on her policy for the loss of her mobile home and personal property, that limit being $ 10,000 for the building and $ 10,000 for the personal property. The Illinois State Fire Marshall and local police agencies investigated the fire. American Family also conducted its own investigation. During these investigations, samples of wood, carpet and cloth were taken from the mobile home to be tested for the presence of accelerants. The fire marshall's samples were sent to the Illinois State Police crime lab, where analysis thereon revealed no presence of accelerants. American Family's samples, taken from the same locations, were sent to Southeastern for testing. It is alleged that defendants all conspired with each other to obtain false test results in order to provide American Family with a basis for denying Woodard's insurance claim.

 Southeastern tested four samples and claimed that the results on two of the four samples revealed the presence of accelerants. It is alleged that all defendants, with knowledge of their falsity, provided these test results to the Winnebago County State's Attorney's office. It is also alleged that American Family, having knowledge that the fire was caused by accidental means, wrongfully denied Woodard's claim on April 27, 1994, on the basis that the fire was deliberately set by either Woodard or Wright, or both.

 On July 14, 1994, a Winnebago County grand jury returned an indictment against both Woodard and Wright, charging them with arson. For more than twenty-two months, plaintiffs defended the criminal charges and expended great sums of money for legal fees and retention of experts. It is alleged that during this entire period, all defendants actively participated in, and encouraged, the prosecution of plaintiffs with knowledge that the fire in question was caused by accidental means.

 Count I asserts a claim for malicious prosecution against all defendants. Count II alleges a claim for libel per se against all defendants based on defendants' false statements to the Winnebago County State's Attorney. Count III asserts a claim for fraud against defendants based on falsification of test results. Count IV asserts a claim for negligence, alleging that American Family failed to exercise reasonable care in selecting a testing laboratory and that Southeastern failed to exercise reasonable care in performing the tests. Count V, against American Family, alleges a claim for breach of contract based on American Family's refusal to allow Woodard's claim under the insurance contract. Count VI, against American Family, alleges a claim pursuant to 215 ILCS 5/155 for American Family's vexatious refusal to settle the claim. Last, Count VII alleges a claim against American Family under the theory of quantum meruit/unjust enrichment.

 DISCUSSION

 In considering the motions to dismiss, the court accepts the allegations in the complaint as true and draws all reasonable inferences therefrom in a light most favorable to plaintiffs. Wilczynski v. Lumbermens Mut. Cas. Co., 93 F.3d 397, 401 (7th Cir. 1996). The motions will be denied unless it appears beyond doubt that plaintiffs can prove no set of facts consistent with the allegations in the complaint that would entitle them to relief. Id.

 I. Southeastern & Henderson's Motion to Dismiss

 A. Count I (Malicious Prosecution)

 In order to establish a claim for malicious prosecution under Illinois law, a plaintiff must show: (1) the commencement or continuance of an original criminal or civil judicial proceeding by the defendant; (2) the termination of the proceeding in favor of the plaintiff; (3) the absence of probable cause for such proceeding; (4) the presence of malice; and (5) damages resulting to the plaintiff. Swick v. Liautaud, 169 Ill. 2d 504, 662 N.E.2d 1238, 1242, 215 Ill. Dec. 98 (Ill. 1996). Southeastern and Henderson move to dismiss Count I on the grounds that it fails to sufficiently allege the elements of malicious prosecution. Because these defendants challenge the sufficiency of each element, the court shall consider each element and the contentions relating thereto in turn.

 As to the first element, a defendant must either have "initiated a criminal proceeding or his participation in it must have been of so active and positive a character as to amount to advice and cooperation." Denton v. Allstate Ins. Co., 152 Ill. App. 3d 578, 504 N.E.2d 756, 760, 105 Ill. Dec. 471 (Ill. App. Ct. 1st Dist. 1986), appeal denied, 511 N.E.2d 427 (1987). Southeastern and Henderson contend that Count I fails to allege sufficient facts showing that they had an active role in the criminal proceedings against plaintiffs. They contend that the various allegations to the effect that they "actively participated in and encouraged the prosecution" and that they submitted the false test results to the Winnebago County State's Attorney are mere conclusions.

 Under federal notice pleading standards, mere conclusions are usually sufficient as long as they provide minimal notice of the claims being asserted. Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 113 S. Ct. 1160, 1163, 122 L. Ed. 2d 517 (1993); Jackson v. Marion County, 66 F.3d 151, 154 (7th Cir. 1995). Accepting the allegations of the complaint to be true, as the court must, the court cannot accept Southeastern and Henderson's contention that Count I fails to allege sufficient involvement in the prosecution. This element is alleged, and the mere fact that it is not supported with detailed factual allegations is not a basis for dismissal. Nonetheless, the court cautions plaintiffs that the allegations as to this element must be made to the best of their knowledge based on reasonable inquiry. If the allegations are not accurate, or if further investigation during discovery reveals that such allegations can no longer be made in good faith, the court expects plaintiffs to act accordingly.

 Southeastern and Henderson's contentions with respect to the second element are that plaintiffs' factual allegations show, as a matter of law, that they cannot establish the second element. Count I merely alleges that the Winnebago State's Attorney dismissed the charges. Southeastern and Henderson contend that a dismissal by the prosecutor does not operate as a favorable termination under Illinois law, relying in part on Sutton v. Hofeld, 118 Ill. App. 3d 65, 454 N.E.2d 681, 683, 73 Ill. Dec. 584 (Ill. App. Ct. 1st Dist. 1983). In response, plaintiffs contend that the second element can be predicated on dismissal of the charges by the prosecutor if the proceedings were terminated in a manner consistent with their innocence, relying on the recent Illinois Supreme Court decision Swick v. Liautaud, 169 Ill. 2d 504, 662 N.E.2d 1238, 1243, 215 Ill. Dec. 98 (Ill. 1996). Plaintiffs, therefore, contend that the rule announced in Swick does not, as a matter of law, bar plaintiffs' claim.

 In Swick, the Illinois Supreme Court adopted the majority rule, holding that a "criminal proceeding has been terminated in favor of the accused when a prosecutor formally abandons the proceeding via a nolle prosequi, unless the abandonment is for reasons not indicative of the innocence of the accused." 662 N.E.2d at 1242-43. The court held that the "abandonment of the proceedings is not indicative of the innocence of the accused when the nolle prosequi is the result of an agreement or compromise with the accused, misconduct on the part of the accused for the purpose of preventing trial, mercy requested or accepted by the accused, the institution of new criminal proceedings, or the impossibility or impracticability of bringing the accused to trial." Id. at 1243. The burden of proving a favorable termination, moreover, remains with the plaintiff even when the criminal charges are dismissed via a nolle prosequi; that is, in order to satisfy the burden of proof at trial, the plaintiff must show that the prosecutor dismissed the charges for reasons consistent with his or her innocence. The circumstances surrounding the abandonment of the criminal proceedings must "compel an inference that there existed a lack of reasonable grounds to pursue the criminal prosecution." Id.

 The Swick decision renders the contentions in Southeastern and Henderson's motion and supporting brief moot, as it clearly displaces the rule applied in Sutton. In their reply brief, these defendants maintain that plaintiffs' allegations are insufficient, even under Swick. Count I alleges that the "criminal actions against Plaintiffs were judicially determined in favor of the Plaintiffs when the Winnebago County State's Attorney dismissed both indictments charging [plaintiffs] with Arson." Southeastern and Henderson contend that this is insufficient and that, at a ...


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