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SCHLOSSER v. ST. PAUL FIRE AND MARINE INSURANCE COMPANY

January 20, 2004.

BERNARD A. SCHLOSSER, ATTORNEY AT LAW, P.C., on behalf of itself and all others similarly situated, and as assignee of EHOME CREDIT CORP., Plaintiffs,
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant



The opinion of the court was delivered by: MATHEW KENNELLY, District Judge

MEMORANDUM OPINION AND ORDER

In May 2002, plaintiff Bernard A. Schlosser, Attorney at Law, P.C. filed suit on behalf of a putative class against eHome Credit Corp. in state court in DuPage County, Illinois. Schlosser alleged that in April 2002, eHome, a mortgage broker, had sent an unsolicited advertisement to his facsimile machine, in violation of the federal Telephone Consumer Protection Act of 1991, 47 U.S.C. § 227, the Illinois Consumer Fraud Act, 815 ILCS 505/2, and the Illinois common law of conversion. eHome had allegedly contracted with another entity to sent 100,000 advertising faxes. Schlosser sued on behalf of all of those who had been sent advertising faxes without their consent or a prior business relationship with eHome.

In 2001, eHome purchased a commercial general liability policy from defendant St. Paul Fire and Marine Insurance Company, covering the period from June 21, 2001 through June 21, 2002, along Page 2 with an umbrella excess liability policy for the same period. The policies provided a total of $7 million in coverage. eHome was served with summons in the Schlosser case on or about June 21, 2002. On September 18, 2002, eHome gave St. Paul notice of the suit. On October 10, 2002, St. Paul sent eHome a letter denying coverage. In the letter, St. Paul stated that the TCPA claim did not constitute a "personal injury" or "advertising injury" claim within the scope of the CGL policy's general liability coverage; there was no claim in the Schlosser suit for bodily injury or property damage covered under the policy's general liability coverage; and the ICFA claim, which sought injunctive relief, restitution, penalties and attorney's fees, was not a claim for "damages" within the meaning of the policy and did not fall within the policy's terms in any event.

  St. Paul did not elect to defend eHome under a reservation of rights, nor did it institute a declaratory judgment action seeking a declaration of non-coverage. eHome filed a declaratory judgment action in New York state court against St. Paul and Schlosser sometime prior to November 27, 2002. St. Paul was served with summons on November 27, 2002; Schlosser, as best as we can determine, was never served.

  The TCPA provides for statutory damages of $500 per fax if the violation is not willful, and $1,500 if it is. Thus eHome's potential exposure in the Schlosser suit, if a class was certified, was somewhere between $50,000,000 and $150,000,000. eHome, represented by the law firm of Varga, Berger, Ledsky, Hayes & Casey (which is experienced in the defense of consumer lawsuits), negotiated a settlement with Schlosser. The settlement agreement, made in or about September 2003, provided for an assignment to the putative class of eHome's rights under any applicable insurance policies and payment by eHome of $20,000. The agreement provided that Schlosser would pursue, as Page 3 assignee, a claim against St. Paul for the amounts provided by the insurance policies, and that if Schlosser recovered, eHome would stipulate in the DuPage County case to certification of a settlement class consisting of all Illinois residents who received an advertising fax from eHome without express consent. If Schlosser did not recover from St. Paul, eHome would be given a release of all claims. In either event, judgment would not be entered until after the determination of the insurance coverage suit. A state court judge approved the settlement on October 9, 2003.

  On October 13, 2003, Schlosser's counsel advised eHome's counsel that it was prepared to file suit against St. Paul in Illinois as the assignee of eHome's rights under the insurance policies, and it directed eHome to dismiss the New York action. Two days later, on October 15, 2003, Schlosser filed this action in state court in DuPage County seeking a declaration of coverage.

  On some unknown date following the Illinois settlement and assignment, St. Paul filed a separate suit against eHome in New York state court, seeking a declaratory judgment of non-coverage. St. Paul advised eHome's New York counsel that it would not pursue its newly-filed case so long as eHome did not dismiss its own New York declaratory judgment action. Evidently eHome did not take the steps necessary to dismiss its earlier-filed case. On December 15, 2003, St. Paul filed a motion for summary judgment in eHome's New York case seeking a declaration of non-coverage. The motion is noticed for hearing on January 21, 2004, at which time a briefing schedule is likely to be set. As indicated earlier, Schlosser, though named as a defendant in the case, evidently has not been served with process.

  On November 26, 2003, St. Paul removed the present action to this Court based on diversity of citizenship. On December 24, 2003, Schlosser filed a motion for summary judgment on Count 1 of Page 4 its complaint, in which it alleges that St. Paul breached the insurance policies by refusing to defend or indemnify eHome. On the same date, Schlosser also filed in present case a motion entitled "motion to enjoin St. Paul from interfering with res before the court," in which it sought to bar St. Paul from seeking a declaration of non-coverage from the New York state court. Both of Schlosser's motions are now fully briefed and ready for ruling.

 1. Schlosser's motion for summary judgment

  The first question, and the one the Court finds to be dispositive of Schlosser's summary judgment motion, is that of choice of law. Schlosser cited both Illinois and New York law in its opening memorandum without discussion of which should apply. St. Paul cited New York law throughout its responsive memorandum but made no argument regarding why that state's law should apply. Schlosser's reply contains the only argument in the parties' papers on the choice of law issue, and that argument is confined to a footnote which largely relies on a single unpublished District Court decision. Though the question is not an easy one, the Court finds that New York law governs this action.

  A federal court sitting in diversity applies the conflict of laws rules of the forum state, in this case Illinois. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). When, as in this case, an insurance policy lacks a choice of law provision, Illinois courts employ a "most significant contacts" test to determine the rights and responsibilities of parties to an insurance contract. Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 166 Ill.2d 520, 527, 655 N.E.2d 842, 845 (1995). "Absent an express choice of law, insurance policy provisions are generally 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 Page 5 the last act to give rise to a valid contract, the place of performance, or other place bearing a rational relationship to the general contract." Id. (quotation marks and citation omitted).

  In this case, the factors set forth in Lapham-Hickey point in several different directions. The subject matter of the CGL policy — in other words, the risks insured — is located in the various states in which eHome operated, including Illinois. The policy was delivered to eHome at its headquarters in New York, which is also eHome's domicile. St. Paul's domicile is Minnesota. New York appears to be the place of the last act needed to give rise to a valid contract (eHome's acceptance of the policy). The "place of performance" is unclear. Several states, including Illinois, have some relationship to the general contract.

  Schlosser argues that Illinois law should apply, relying on two factors: eHome has operations here, and the liability for which it seeks coverage arose here. As a general rule, "the location of the insured risk is given special emphasis." Society of Mount Carmel v. National Ben Franklin Ins. Co. of Ill, 268 Ill. App.3d 655, 664, 643 N.E.2d 1280, 1287 (1994) (citing Restatement (Second) of Conflict of Laws § 193 (1971)). But in the present situation, the insured risks were located in every state in which eHome did business, not just Illinois. In such circumstances, several decisions from other judges in this District appear to give controlling weight to the law of the state in which the claim arose that forms the basis of the coverage dispute, which in this case is Illinois. See, e.g., Flodine v. State Farm Ins. Co., No. 99 C 7466, 2001 WL 1394977, at *3 (N.D. Ill. Mar. 19, 2003); Western American Ins. Co. v. Moonlight Design, Inc., 95 F. Supp.2d 838, 841-42 (N.D. Ill. 2000); Evangelical Lutheran Church in America v. Atlantic Mut. Ins. Co., 973 F. Supp. 820, 823-24 (N.D. Ill. 1997); American Builders & Contractors Supply Co. v. Home Ins. Co., No. 96 C 5041, Page 6 1997 WL 43017, at *2 n.5 (N.D. Ill. Jan. 28, 1997).

  The primary Illinois case on which the judges in each of these cases relied is Society of Mount Carmel, which was decided by the First District of the Illinois Appellate Court. Society of Mount Carmel concerned a liability insurance policy issued to a religious order headquartered in Illinois but with operations in several states. The order was sued in California on an employment-related claim, and it sought a declaratory judgment that the claim was covered by its insurance policy with the defendant. The Appellate Court ...


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