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St. Paul Fire and Marine Insurance Co. v. City of Cairo

December 11, 2007

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, PLAINTIFF,
v.
CITY OF CAIRO, PAUL F. FARRIS, JOSEPH BARGO, PATRICK J. COX, LINDA JACKSON, ELBERT PURCHASE, DEFENDANTS.



The opinion of the court was delivered by: J. Phil Gilbert District Judge

MEMORANDUM AND ORDER

This matter comes before the Court on Motions to Dismiss or Stay filed by Defendants Paul F. Farris (Farris) (Doc. 28), Joseph Bargo (Bargo) (Doc. 30), and Patrick J. Cox (Cox) (Doc. 32), proceeding pro se.*fn1 Plaintiff St. Paul Fire and Marine Insurance Company (St. Paul) has responded to the Motions (Doc. 40). For the following reasons, the Court DENIES the Motions.

BACKGROUND

This is a declaratory judgment action brought in diversity, in which St. Paul asks the Court to determine its rights and obligations to defend and indemnify Defendants in an underlying lawsuit currently underway in Alexander County, Illinois.

I. The St. Paul Policy

St. Paul contractually obligated itself to defend from suit and indemnify "covered persons" including: 1) the City of Cairo (Cairo); 2) Cairo's elected or appointed officials for conduct within the scope of their duties to Cairo; and 3) members of Cairo's boards for conduct within the scope of their duties to Cairo. The insurance contract contained several exclusions relevant here: 1) an exclusion from coverage for suits brought by one covered person against another covered person; 2) an exclusion from defending declaratory, injunctive, or other non-monetary actions; 3) an exclusion from defending actions resulting from wrongful acts the protected person could reasonably foresee would result in a claim or suit; and 4) an exclusion from defending known wrongful acts.

II. The Underlying Suit*fn2

During the period of coverage under the St. Paul policy, Linda Jackson and Elbert Purchase, two members of Cairo's City Council, filed suit against Cairo's mayor, Farris, Cairo's Treasurer, Bargo, and Cairo's purported City Attorney, Cox, alleging that Farris had improperly appointed Cox without the approval or authorization of the Cairo City Council, and that Bargo had made salary payments to Cox in the absence of an appropriation concerning the expense. The complaint sought an injunction against further payments to Cox, an accounting and disgorgement of Cox's improperly paid salary, and costs.

Farris, Bargo and Cox all attempted to tender defense of the suit to St. Paul under the above policy. St. Paul denied coverage to each of them based on one or more of the above mentioned policy exclusions. Later, St. Paul agreed to pay for Farris's defense provided his retained defense counsel was acceptable to St. Paul. St. Paul indicated that Cox, Farris's current attorney, would not be acceptable. St. Paul also expressly reserved its rights to limit or deny coverage at any time based on any defense available to it. St. Paul brought this declaratory judgment action asking that the Court determine whether it owes the Defendants any duty under the policy.

Farris, Bargo, and Cox have filed motions to dismiss the action as moot, to dismiss the action for lack of subject matter jurisdiction, to dismiss the action for improper venue, or to stay the action pending the outcome of the underlying suit currently proceeding in Alexander County.

ANALYSIS

I. A Case or Controversy Exists

Defendants contend that the fact that St. Paul offered to pay for Farris's defense in the underlying action makes this action moot. District courts are limited by Article III of the Constitution to hearing actual cases or controversies. Flast v. Cohen, 392 U.S. 83, 88 (1968). Thus, a district court will not hear a case that is moot. See, e.g. California v. San Pablo & T.R. Co., 149 U.S. 308 (1893). It is well established that a complaint raised under the Declaratory Judgment Act is a case or controversy for Article III purposes so long as the parties have "adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941). Thus, the mere fact that St. Paul is seeking relief in a declaratory judgment act does not make this case non-justiciable.

Additionally, the fact that St. Paul agreed to defend Farris while reserving its rights to later deny a duty to do so does not make this case moot. "Under Illinois law. . . , when an insurer believes that a policy does not provide coverage, it can provide a defense under a reservation of rights or obtain a declaratory judgment as to its rights and obligations." Willis Corroon Corp v. Home Ins. Co., 203 F.3d 449, 452 (7th Cir. 2000) (citing Insurance Co. of Illinois v. Federal Kemper Ins. Co.,683 N.E.2d 947 (Ill.App.1997)). The insurer may also concurrently seek a declaratory ...


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