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American Protection Insurance Co. v. Airborne

March 9, 2007

AMERICAN PROTECTION INSURANCE COMPANY, PLAINTIFF,
v.
AIRBORNE, INC., ETC., DEFENDANT.



The opinion of the court was delivered by: Milton I. Shadur Senior United States District Judge

MEMORANDUM OPINION AND ORDER

In this diversity action American Protection Insurance Company ("American Protection") charges Airborne, Inc. ("Airborne") with breach of an American Protection policy ("Policy") that provided automobile liability insurance.*fn1

American Protection claims that Airborne must reimburse it for a $1 million deductible amount that American Protection paid out as part of a $2.85 million settlement with a third-party claimant against Airborne. Airborne responds that under the Policy American Protection was not entitled to settle the third-party claim over Airborne's objection--Airborne wanted to try its luck at trial-- so that American Protection is not entitled to reimbursement of any of the deductible amount.

Both parties now move for summary judgment under Fed. R.

Civ. P. ("Rule") 56. For the reasons stated in this memorandum opinion and order, American Protection's motion is granted, while Airborne's motion is accordingly denied.

Standard of Review

Under familiar Rule 56 principles, a movant for summary judgment bears the burden of establishing the absence of any genuine issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)). For that purpose courts consider the evidentiary record in the light most favorable to nonmovants and draw all reasonable inferences in their favor (Lesch v. Crown Cork & Seal Co., 282 F.3d 467, 471 (7th Cir. 2002)). But to avoid summary judgment a non-movant "must produce more than a scintilla of evidence to support his position" that a genuine issue of material fact exists (Pugh v. City of Attica, 259 F.3d 619, 625 (7th Cir. 2001)). Ultimately summary judgment is appropriate only if a reasonable jury could not return a verdict for the non-movant (Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

One more complexity is added here, where cross-motions for summary judgment are involved. Those same principles require the adoption of a dual perspective that this Court has sometimes referred to as Janus-like: As to each motion the non-movant's version of any disputed facts must be credited.*fn2

Finally, as a federal court sitting in diversity, this Court is charged with applying state law (in this instance Illinois law*fn3 ) to resolve all substantive questions (M.T. Bonk Co. v. Milton Bradley Co., 945 F.2d 1404, 1407 (7th Cir. 1991)). What follows then are (1) a summary of the facts that either are undisputed or are viewed in the light most favorable to Airborne (as the party that has ultimately come up short) and (2) an application of Illinois substantive law to those facts.

Background

American Protection issued the Policy to Airborne covering Airborne for liability arising from auto accidents from January 1, 2001 to January 1, 2002, then renewed the coverage through January 1, 2003 (A.P. St. ¶5). Its coverage limit was $2 million (id. ¶5), subject to a "Deductible Amount" (a defined term that, as with all defined terms, appeared in boldface throughout the document) of $1 million per accident (A. St. Ex. 31, Schedule). Section I Paragraph A of the Policy's Endorsement No. 10 specified (id.):

Our obligation to pay damages on behalf of the insured applies only to that amount of the Limits of Insurance that remains after deducting the Deductible Amount stated in the Schedule of this endorsement.

On September 13, 2002 a lawsuit was filed against Airborne in a Nevada state court (the "Garcia Action"), alleging that one of Airborne's trucks had collided with the plaintiff motorcyclist, causing him major trauma including head injury (A. Resp. St. ¶16). Although that action was within the Policy's coverage (A. St. ¶5), Airborne itself--led by its in-house legal counsel Mark Dietz ("Dietz")--undertook the investigation and defense of the litigation, as it had the right to do (id. ¶¶12, 23). Dietz and his outside counsel developed multiple defenses to the Garcia Action, taking the positions that the truck driver (1) was an independent contractor and not an Airborne employee, (2) was acting beyond the scope of his employment and (3) was guilty of contributory negligence (id. ¶¶6, 8, 10). Because Airborne believed those defenses had a strong likelihood of success, it took a "no pay" position--a posture that was in line with its typical practice in such litigation (id. ¶11).

Given the Garcia Action plaintiff's significant injuries, Airborne was required to notify American Protection of the suit, and it did so by notifying Joan Honan ("Honan," a claims adjuster at American Protection) in April 2004 (A. St. ¶¶15-16). American Protection largely sat back and allowed Airborne to continue to take the lead in the litigation (id. ¶13). Although Airborne refused to consider settlement, its excess coverage insurer National Union Fire Insurance Company (A.P. St. ¶22)("AIG," the acronym for the parent company of that excess coverage insurer and the name regularly used by the litigants in their papers), which had also become involved in the dispute, repeatedly requested Airborne to make its $1 million in Deductible Amount funds available for settlement (A.P. St. ¶24). Handling the case for American Protection, Honan believed that Airborne had control over whether it would do so--an understanding that she communicated to Airborne (see, e.g., A. St. ¶¶24, 26, 39-40).

That state of affairs continued until October 2004, when the Garcia Action plaintiff filed an offer of judgment for $2.999 million (A.P. St. ¶25). Shortly thereafter AIG informed Honan that under its reading of the Policy, American Protection had the power to settle the Garcia Action without Airborne's consent, with the concomitant right to require Airborne to cough up the $1 million Deductible Amount. AIG encouraged American Protection to do so, given its view of its own potential exposure should the case go to trial (A. St. ¶41).

On November 16, 2004 Honan wrote Dietz a letter articulating that reading of the Policy and notifying Airborne that American Protection intended to settle the Garcia Action with or without Airborne's consent and would then seek reimbursement of the applicable Deductible Amount from Airborne (id. ¶43). In response Airborne objected to the use of Airborne's funds to effect settlement and reiterated its intention to pursue its defenses through trial if necessary (id. ¶46).

Despite that objection American Protection went ahead and settled the Garcia Action for $2.85 million, of which $1 million was paid by a contribution from still another insurer (not now at issue), while the remaining $1.85 million was paid by American Protection (A.P. St. ¶31). Airborne has refused American Protection's request for reimbursement of the $1 million Deductible Amount, instead challenging American Protection's right to have settled the action without its consent while looking to Airborne for participation (id. ¶32). That dispute in the reading of the Policy has led to this action.

Power To Settle over Airborne's Objection This Court's first chore is to determine American Protection's and Airborne's respective rights as to settlement of claims under the Policy. Nicor, Inc. v. Associated Electric & Gas Insurance Services Ltd., 223 Ill.2d 407, --, 860 N.E.2d 280, 285-86 (2006)(numerous citations omitted) has recently distilled the principles of such insurance contract interpretation--a question of law--in Illinois:

Insurance policies are subject to the same rules of construction applicable to other types of contracts. A court's primary objective is to ascertain and give effect to the intention of the parties as expressed in the agreement. In performing that task, the court must construe the policy as a whole, taking into account the type of insurance purchased, the nature of the risks involved, and the overall purpose of the contract.

The words of a policy should be accorded their plain and ordinary meaning. Where the provisions of a policy are clear and unambiguous, they will be applied as written ...


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