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Scottsdale Insurance Co. v. City of Waukegan

September 10, 2007

SCOTTSDALE INSURANCE COMPANY, PLAINTIFF,
v.
CITY OF WAUKEGAN, DEFENDANTS.



The opinion of the court was delivered by: Virginia M. Kendall, United States District Judge Northern District of Illinois

Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff/Counter-Defendant, Scottsdale Insurance Company ("Scottsdale") brings a declaratory judgment complaint against Defendant/Counter-Plaintiff, City of Waukegan, ("Waukegan") seeking a declaration that it was under no obligation to defend and indemnify Waukegan arising out of the S. Alejandro Dominquez v. Paul Hendley lawsuit. Waukegan brings a counterclaim against Scottsdale for breach of contract and declaratory judgment and Scottsdale moves to dismiss Count III of Waukegan's Counterclaim seeking costs and attorneys' fees under Section 155 of the Illinois Insurance Code for failure to state a claim under Rule 12(b)(6). For the reasons stated herein, Scottsdale's Motion to Dismiss is granted and Count III is dismissed with prejudice.

WAUKEGAN'S ALLEGATIONS

Scottsdale is an insurance company and provided Law Enforcement Liability Coverage for the City's Police Department. Countercl. ¶ 1. Scottsdale's Comprehensive Law Enforcement Liability Policies PPL 81101, PPL 911489, and PPL 111427 ("the policies") were effective from November 1, 1988 to November 1, 1989, November 1, 1989 to November 1, 1990, and November 1, 1990 to November 1, 1991, respectively. Countercl. ¶¶ 10-12. The policies included provisions for a $1 million limit for each person and each occurrence and provisions allowing coverage for payments in addition to the applicable limits of liability. Id.

On April 23, 2004, S. Alejandro Dominquez ("Dominquez") filed suit against Waukegan and several of the City's Police officers in a case titled S. Alejandro Dominquez v. Paul Hendley, Case No. 04 C 2907 ("the underlying action"). Countercl. ¶ 5. Dominquez alleged that on September 21, 1989, he was arrested by officers of the City of Waukegan Police Department and charged with two counts of aggravated criminal sexual assault and one count of home invasion arising from an incident which occurred on September 19, 1989. Id. Dominquez was convicted, but his convictions were vacated on April 26, 2002 after DNA testing excluded him as the rapist. Countercl. ¶ 7. On April 23, 2004, Dominquez brought claims against Waukegan for false arrest and malicious prosecution and alleged that he was deprived of his Fourth, Fifth, and Fourteenth Amendment rights. Countercl. ¶¶ 5, 8.

On September 27, 2006, Waukegan, through its claims administrator, notified the law firm of Lord, Bissell & Brook regarding the Dominquez claim, and on September 28, 2006, Waukegan notified Scottsdale directly. Countercl. ¶ 9. The underlying lawsuit commenced trial on October 3, 2006. Countercl. ¶ 19. Two weeks later, the jury returned a verdict in favor of Dominquez in the amount of $9,063,000. Countercl. ¶ 20.

Scottsdale had actual knowledge of the Complaint and the status of the proceedings as of September 28, 2006, but failed to appear and defend Waukegan at trial. Countercl. ¶¶ 17-18. On October 9, 2006, twelve days after Scottsdale received notice and six days after trial commenced, Scottsdale sent Waukegan a "reservation of rights" letter denying it owed coverage to Waukegan based upon Waukegan's delay in notifying Scottsdale and because the Dominquez matter wasn't a covered occurrence. Pl. Cplt. Ex. 7. On January 5, 2007, Scottsdale file a declaratory judgment action to determine its coverage obligations. Countercl. ¶¶ 1, 18, 25. Countercl. ¶¶ 17-18. Waukegan alleges that knowingly and intentionally refused to provide insurance coverage to Waukegan and that Scottsdale's refusal to provide coverage was and continues to be vexatious and unreasonable. Countercl. ¶¶ 53-54.

STANDARD

When considering a motion under Rule 12(b)(6), a court must take as true all facts alleged in the complaint and construe all reasonable inferences in favor of the plaintiff. See Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995). The plaintiff need not allege all of the facts involved in the claim. See Sanjuan v. American Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994). The claim though must be supported with enough facts, taken as true, that plausibly suggest that the plaintiff is entitled to relief. See Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007).

DISCUSSION

Count III of Waukegan's Counterclaim seeks attorneys' fees and costs under Section 155 of the Illinois Insurance Code related to both the underlying claim and the pending claim. Countercl. ¶ 55. Section 155 provides:

(1) In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees, other costs, plus an amount not to exceed any one of the following amounts:

(a) 60% of the amount which the court or jury finds such party is entitled to recover against the ...


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