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St. Paul Fire and Marine Insurance Co. v. Village of Franklin Park

March 31, 2006


The opinion of the court was delivered by: Honorable David H. Coar


St. Paul Fire and Marine Insurance Company ("St. Paul") seeks a declaratory judgment that it has no duty to defend its insured, the Village of Franklin Park ("the Village"), against an Illinois state court lawsuit alleging that the Village underfunded the Franklin Park Firefighters' Pension Fund ("the Fund"). The Village counterclaimed, alleging breach of contract, seeking a declaratory judgment that St Paul has a duty to defend, and seeking attorney's fees and costs under § 155 of the Illinois Insurance Code. 215 Ill. Comp. Stat. 5/155 (2003). The parties have cross-moved for summary judgment and those motions are fully briefed and now before this Court.


St Paul issued two liability insurance policies to the Village ("the St Paul Policies"). The first one, Policy Number GP09304033, was in effect from February 1, 2001 until February 1, 2002, and provided a limit of $2 million for each wrongful act for the Employee Benefit Plans Administration Liability Protection Coverage. The second policy, Policy Number GP09307222, was in effect from February 1, 2002 until February 1, 2003, and provided substantially the same coverage.

Plaintiffs in the Underlying Litigation in state court, Steven Iovinelli and William Horn, are firefighters for the Village and serve as trustees of the Fund. Under Article 4 of the Illinois Pension Code, 40 Ill. Comp. Stat. 5/4-101 et seq., as amended, the Village is required to levy taxes and contribute to the Fund an annual amount that, when added to firefighter contributions and monies raised from other sources, is sufficient to meet the Fund's actuarial requirements as determined under state law. Some time after May 24, 1999, Iovinelli and Horn allege that they discovered that the Village owed the Fund over $1 million for fiscal year 1997. They contend that they sought to put the matter of possible legal action against the Village to recover the monies owed on the Pension Board agenda on several occasions after May 24, 1999. The Village attorney, however, objected, and legal action was never put on the Board's agenda. On or about August 21, 2000, the Underlying Plaintiffs allegedly made a written demand on the Village to pay $4 million to the Fund out of a $14 million surplus collected from the Municipal Utility User Tax. The Village paid $133,529.41 to the Fund on November 21, 2000.

On January 30, 2002, Iovinelli and Horn filed a class action complaint against the Village on behalf of themselves and the beneficiaries of the Fund. The Village tendered the complaint to St. Paul on February 21, 2002. St. Paul initially denied coverage by fax on March 8, 2002, followed by a detailed denial of coverage letter dated May 16, 2002. The Village sent a written objection on October 14, 2002. On January 17, 2003, the underlying plaintiffs filed a first amended verified complaint against the Village. The state court dismissed four counts of the first amended complaint on November 3, 2003, but allowed the plaintiffs to replead three remaining counts. The state court's order stated that it only had authority to order an accounting; order the disgorgement of funds already collected by the Village as part of a pension levy; and order one year's interest on the levied funds that were not contributed to the Fund. On December 8, 2003, the plaintiffs filed a second amended verified complaint against the Village, seeking a declaratory judgment, a verified accounting, restitution, a permanent injunction against the Village, and attorney's fees and court costs. St. Paul sent a supplemental denial of coverage letter to the Village on July 23, 2004, demanding that the Village withdraw its tender of the underlying complaint. The Village did not respond. St. Paul filed the instant action for a declaratory judgment in this court on December 23, 2004.


Summary judgment is appropriate "if the pleadings, depositions, and answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); Schuster v. Lucent Technologies, Inc., 327 F.3d 569, 573 (7th Cir. 2003). In deciding a motion for summary judgment, the Court views the evidence in the light most favorable to the non-moving party and draws all reasonable inferences in her favor. See Haywood v. Lucent Technologies, 323 F.3d 524 (7th Cir. 2003). A non-moving party who bears the burden of proof on a specific issue must demonstrate by specific factual allegations that there is a genuine issue of material fact in dispute. McMillian v. Svetanoff, 878 F.2d 186, 188 (7th Cir. 1989).


Under Illinois law, the interpretation of an insurance policy is a question of law. Mank v. West Am. Ins. Co., 620 N.E.2d 6, 8 (Ill. App. Ct. 1990). When an insured tenders a claim to its insurer for defense, the insurer has essentially two options.*fn1 The insurer can defend its insured under a reservation of rights, such that it could recover from the insured if it later turns out that there was no duty to defend, or it can seek a declaratory judgment that it has no duty to defend. Employers Ins. of Wausau v. Ehlco Liquidating Trust, 708 N.E.2d 1122, 1135 (Ill. 1999) (citations omitted). If, however, the insurer does neither and is later found to have wrongfully denied coverage, then the insurer is estopped from raising policy defenses to coverage. Id.

To determine whether an insurer has a duty to defend its insured, the court must look to the allegations of the underlying complaint. "If the underlying complaints allege facts within or potentially within policy coverage, the insurer is obliged to defend its insured even if the allegations are groundless, false, or fraudulent." United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 930 (Ill. 1991) (emphasis in original) (citing Thornton v. Paul, 384 N.E. 2d 335 (Ill. 1978)); see also Roman Catholic Diocese of Springfield v. Maryland Casualty Co., 139 F.3d 561, 565 (7th Cir. 1998). Refusal to defend an insured is unjustified unless it is clear from the face of the underlying complaints that the allegations fail to state facts which would bring the claim or case within, or even potentially within, the policy's coverage.

Wilkin, 578 N.E.2d at 930 (citing Conway v. Country Casualty Ins. Co., 442 N.E.2d 245, 247 (Ill. 1982)). In addition, the duty to defend arises even if only one of several theories of recovery asserted against the insured falls within the potential coverage of the policy. Id. (citation omitted).

The court will liberally construe the underlying complaints and the insurance policies in favor of the insured. Wilkin, 578 N.E.2d at 930. When a policy provision is clear and unambiguous, its language shall be read in its "plain, ordinary and popular sense."

Id. Ambiguous language must be resolved in favor of the insured. This Court now turns to the allegations of the underlying complaints and Plaintiff's insurance policies to determine whether the underlying complaints ...

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