United States District Court, Northern District of Illinois
September 2, 2003
COMPUTER STRATEGY COORDINATORS, INC., PLAINTIFF,
PHILADELPHIA INDEMNITY INSURANCE CO., DEFENDANT
The opinion of the court was delivered by: Wayne Andersen, District Judge
MEMORANDUM OPINION AND ORDER
This case is before the Court on the motion of defendant Philadelphia Indemnity Insurance Company ("Philadelphia Indemnity") to clarify the Court's order of June 5, 2003. We issue this opinion as a clarification of our previous order and grant in part and deny in part Philadelphia Indemnity's motion to clarify.
I. Choice of Law
The first clarification requested by Philadelphia Indemnity is to clarify whether the Court will apply the law of Illinois or the law of Pennsylvania to this case. Plaintiff CSC maintains that Pennsylvania law should be applied, while Philadelphia Indemnity contends that Illinois law applies.
"A federal court sitting in diversity looks to the conflict of rules in the state jurisdiction in which it sits in order to choose the substantive law applicable to the case." Massachusetts Bay Ins. Co, v. Vic Koeing Leasing, Inc. 136 F.3d 1116, 1122 (7th Cir. 1998). Here, that forum is Illinois, and Illinois applies the "most significant contracts" analysis in determining which forum's law governs the interpretation of a comprehensive Page 2 insurance policy. Id., citing Society of Mount Carmel v. National Ben Franklin Ins. Co. of Ill, 643 N.E.2d 1280, 1286 (1994). Under Illinois' "most significant contacts" test:
"Insurance contract provisions may be governed by the
location of the subject matter, the place of delivery
of the contract, the domicile of the insured or of the
insurer, the place of the last act to five rise to a
valid contract, the place of performance, or other
place bearing a relationship to the general contract.
While all of these factors must be considered in the
choice of law analysis, the location of the insured
risk is given special emphasis. . . . The location of
the insured risk will be given greater weight than any
other single contract in determining the state of the
applicable law provided that the risk can be located,
at least principally in a single state.
Massachusetts Bay, 643 N.E.2d at 1122, citing Society of Mount Carmel, 643 N.E.2d at 1287.
In the instant case, the insured risk is CSC's business, which is located in Illinois, Moreover, CSC, the insured, is domiciled in Illinois, and the delivery of the insurance contract occurred in Illinois when CSC received the counter-signed policy from Philadelphia Indemnity. Therefore, we find that the proper choice of law is Illinois law because the insured risk is the single most important factor, and other factors also favor Illinois.
II. Punitive Damages
Philadelphia Indemnity next argues that punitive damages should not be allowed in this case. In Count III, CSC alleges that Philadelphia Indemnity breached the insurance policy issued to CSC by failing to act in good faith. CSC requests relief in the form of punitive damages. Philadelphia Indemnity argues that punitive damages are not allowed in this instance by Illinois law.
In Cramer v. Insurance Exchange Agency, 174 Ill.2d 513, 675 N.E.2d 897 (1996), the Illinois Supreme Court held that an independent action in tort for breach of an Page 3 implied covenant of good faith and fair dealing would he proper only in the narrow context of cases involving an insurer's obligation to settle with a third party who has sued the policyholder, Cramer, 174 D1.2d at 525, 675 N.E.2d at 897 (emphasis added).
In this case, we find that CSC is not entitled to punitive damages under the facts as alleged in the complaint. CSC has not alleged any tort claim against Philadelphia Indemnity, but instead alleges an action for breach of contract. Moreover, the third party involved hi this case, AOL, has not yet sued CSC. Therefore, under the rationale of Cramer, an action for tort is not proper because this case does not involve an insurer's obligation to settle with a third party who has sued the policyholder. CSC has an explicit contractual remedy and can sue under the policy.
For these reasons, the request for punitive damages contained in Count II is stricken.
For the foregoing reasons, we enter this clarification of our June 5, 2003 order. Philadelphia Indemnity's motion to clarify is granted in part and denied in part. Philadelphia Indemnity's answer to the complaint is due on or before July 21, 2003. Page 1
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