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NATIVE AMERICAN ARTS, INC. v. HARTFORD CASUALTY INS. CO.

NATIVE AMERICAN ARTS, INC., an Illinois corporation, as the assignee of Bloom Brothers, a division of Stravina Operating Company, L.L.C., Plaintiff,
v.
HARTFORD CASUALTY INSURANCE COMPANY, an Indiana corporation; HARTFORD INSURANCE COMPANY OF THE MIDWEST, an Indiana corporation; and GREAT AMERICAN INSURANCE COMPANY, an Ohio corporation, Defendants. NATIVE AMERICAN ARTS, INC., an Illinois corporation, as the assignee of Stravina Operating L.L.C., d/b/a Artistic Impressions, Plaintiff, v. HARTFORD CASUALTY INSURANCE COMPANY, an Indiana corporation; HARTFORD INSURANCE COMPANY OF THE MIDWEST, an Indiana corporation; and GREAT AMERICAN INSURANCE COMPANY, an Ohio corporation, Defendants.



The opinion of the court was delivered by: CHARLES KOCORAS, District Judge

MEMORANDUM OPINION

This matter comes before the court on the parties' cross-motions for partial summary judgment. For the reasons set for below, Plaintiff's motion is denied and Defendants' motions are granted. BACKGROUND

Plaintiff Native American Arts, Inc. ("NAA") is an Illinois based and incorporated company that is engaged in the business of selling Indian-made arts, crafts, and jewelry. NAA is wholly owned by Indians. In 2001, NAA filed two lawsuits in this district that ultimately named as defendants various subsidiaries of Stravina Operating Company, LLC ("Stravina").*fn1 NAA alleged in both the AI and BB Litigation that Stravina-owned companies were liable under the Indian Arts and Crafts Act of 1990, 25 U.S.C. § 305 et seq. ("IACA"). The IACA authorizes certain Indian groups to bring civil actions against any person who "directly or indirectly offers or displays for sale or sells a good . . . in a manner that falsely suggests it is Indian produced, an Indian product, or the product of a particular Indian or Indian tribe or Indian arts and crafts organization. . . ." 25 U.S.C. § 305e(a). In both the AI and BB Litigation, NAA contended that Stravina-owned companies engaged in the marketing, advertising, display, and sale of arts and crafts products that falsely suggested that the products were made by Indians. In late August 2003, NAA and Stravina executed settlement agreements, effectively ending both the AI and BB Litigation (the "AI and BB Settlements"). Under each of these settlement agreements, Stravina agreed to pay NAA $150,000 and a "settlement value" of $3,000,000 for the assignment to NAA of Stravina's claims against its insurers. The insurance companies identified in the AI and BB Settlements are Defendants Hartford Casualty Insurance Company ("Hartford Casualty"), Hartford Insurance Company of the Midwest ("Hartford Insurance"), and Great American Insurance Company ("Great American") (collectively "Defendants").*fn2 Among the insurance policies that Stravina purchased from Defendants was coverage for "advertising injury."

  On October 14, 2004, NAA filed two separate actions — with both lawsuits naming Hartford and Great American as defendants — in its capacity as an assignee of Stravina's rights and claims against the Defendants, which NAA obtained through the AI and BB Settlements. Jurisdiction is based on diversity of citizenship pursuant to 28 U.S.C. § 1332. In both of these present actions, which have been consolidated before this court,*fn3 NAA alleges (1) that Defendants have breached their duties to defend and indemnify Stravina for its losses resulting from the AI and BB Litigation and (2) that Defendants' purported failure to defend and indemnify Stravina constituted bad faith conduct. All Defendants assert as defenses that they have no duty or obligation to defend or indemnify Stravina stemming from the AI and BB Litigation, and Great American additionally seeks a declaratory judgment that no such duty exists.

  At the request of all parties, we agreed to bifurcate the present litigation into two phases, with the first phase addressing Defendants' duty to defend Stravina and the second phase addressing their duty to indemnify. We are currently at the first phase, as all parties have filed motions for partial summary judgment concerning Defendants' duty to defend. The parties are in agreement that the duty to defend issue can be resolved via the present motions.

  LEGAL STANDARD

  Summary judgment is appropriate when the record, viewed in the light most favorable to the non-moving party, reveals that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R. Civ. P. 56(c). On summary judgment the moving party must identify "those portions of `the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S, 317, 323 (1986) (quoting Fed.R. Civ. P. 56(c)). This initial burden may be satisfied by presenting specific evidence on a particular issue or by pointing out "an absence of evidence to support the nonmoving party's case." Id. at 325. Once the movant has met this burden, the non-moving party cannot simply rest on the allegations in the pleadings, but, "by affidavits or as otherwise provided for in [Rule 56], must set forth specific facts showing that there is a genuine issue for trial." Fed.R. Civ. P. 56(e). A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The court must consider the record as a whole in a light most favorable to the non-moving party and draw all reasonable inferences in favor of the non-moving party. Id. at 255; Bay v. Cassens Transport Corp., 212 F.3d 969, 972 (7th Cir. 2000).

  When parties file cross-motions for summary judgment, each motion must be assessed independently, and denial of one does not necessitate the grant of the other. M. Snower & Co. v. United States, 140 F.2d 367, 369 (7th Cir. 1944). Rather, each motion evidences only that the movant believes it is entitled to judgment as a matter of law on the issues within its motion and that trial is the appropriate course of action if the court disagrees with that assessment. Miller v. LeSea Broadcasting, Inc., 87 F.3d 224, 230 (7th Cir. 1996). With these considerations in mind, we now turn to the parties' motions.

  DISCUSSION

  1. Choice of Law

  In their briefing papers, NAA and Defendants vigorously contest which state's law should be applied for the present litigation. NAA favors Illinois law while Defendants prefer California law. The parties are in accord that because this action is based on diversity jurisdiction, the choice of law principles of the forum state, Illinois, should apply. See Jupiter Aluminum Corp. v. Home Ins. Co., 225 F.3d 868, 873 (7th Cir. 2000). They further aver that Illinois choice of law analysis for cases involving insurance policy interpretation mandates the balancing of six factors enunciated by the Illinois Supreme Court in Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 665 N.E.2d 842, 845 (Ill. 1995).*fn4 While NAA and Defendants each proffer various reasons why the Lapham-Hickey factors tilt in their favor, their own admissions support the conclusion that we need not decide the choice of law issue at this phase of the present litigation. This is because courts should first determine whether applying two states' laws would produce different results before engaging in a choice of law analysis. Jean v. Dugan, 20 F.3d 255, 260 (7th Cir. 1994).

  As indicated by the parties, key differences exist between California and Illinois law when it comes to the ramifications of an insurer's breach of its duty to defend, especially consequences concerning indemnification after a duty to defend has been established. However, none of the parties identify, nor does our own research indicate, a meaningful disparity between Illinois and California law concerning the actual issue at dispute in these motions, namely whether Defendants have a duty to defend under the relevant policies. Since the parties agreed that the present litigation should be bifurcated into duty to defend and duty to indemnify phases (and given the heavily contested facts concerning certain Lapham-Hickey factors), we feel that it would be premature to unnecessarily decide the potentially outcome-determinative choice of law issue at this stage of the case.

  Our decision not to decide the choice of law question is supported by Judge Gottschall's approach in Flodine v. State Farm Ins. Co., 2001 WL 204786, **4-5 (N.D. Ill. 2001), a case cited by both NAA and Defendants as factually and procedurally similar to the present litigation. Flodine involved NAA being the assignee of a company that it had sued under the IACA for selling items that were falsely suggested as being produced by Indians. The case concerned whether the defendant insurance company had a duty to defend and indemnify the company accused by NAA of violating the IACA. As with our case, the Flodine parties agreed that the litigation should be bifurcated into duty to defend and duty to indemnify phases. At the first stage (judgment on the pleadings), Judge Gottschall determined that because applying the law of the two states in question would yield the same result as to the insurer's duty to defend, it would be prudent to reserve judgment on the choice of law issue until it really made a difference, the second stage of the litigation. Id.

  Because we find that there is no material conflict between Illinois and California law regarding an insurer's duty to defend, we will apply the law of the forum state, Illinois, at this ...


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