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United States Fidelity and Guaranty Co. v. Shorenstein Realty Services

July 8, 2008

UNITED STATES FIDELITY AND GUARANTY COMPANY, PLAINTIFF,
v.
SHORENSTEIN REALTY SERVICES, LP; SHORENSTEIN MANAGEMENT, INC.; SHORENSTEIN COMPANY, LLC; SRI MICHIGAN AVENUE VENTURE, LLC; SRI MICHIGAN AVENUE MANAGEMENT, INC.; 175 EAST DELAWARE PLACE HOMEOWNERS ASSOCIATION; AND NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, DEFENDANTS.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA; SRI MICHIGAN AVENUE VENTURE, LLC; SHORENSTEIN REALTY SERVICES, LP; SHORENSTEIN MANAGEMENT, INC.; SRI MICHIGAN AVENUE, INC.; AND SHORENSTEIN COMPANY, LLC, COUNTER-PLAINTIFFS,
v.
UNITED STATES FIDELITY AND GUARANTY COMPANY, COUNTER-DEFENDANT.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA; SRI MICHIGAN AVENUE VENTURE, LLC; SHORENSTEIN REALTY SERVICES, LP; SHORENSTEIN MANAGEMENT, INC.; SRI MICHIGAN AVENUE, INC.; AND SHORENSTEIN COMPANY, LLC, THIRD-PARTY PLAINTIFFS,
v.
AMERICAN MOTORISTS INSURANCE COMPANY, THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: United States District Judge Elaine E. Bucklo

MEMORANDUM OPINION AND ORDER

Third-party defendant American Motorists Insurance Company ("AMICO") has moved to dismiss count III of the third-party complaint ("the complaint") pursuant to FED. R. CIV. P. 12(b)(1) & (6). For the following reasons, the motion is denied.

I.

This is a declaratory judgment action arising out of a scaffold collapse at the John Hancock Center in Chicago on March 9, 2002. Plaintiff United States Fidelity and Guaranty Company filed the underlying complaint against defendants Shorenstein Realty Services, LP, Shorenstein Management, Inc., Shorenstein Company, LLC (collectively "Shorenstein"), SRI Michigan Avenue Venture, LLC, SRI Michigan Ave Management, Inc., National Union Fire Insurance Company of Pittsburgh, PA ("National Union"), and 175 East Delaware Place Homeowners Association ("the Homeowners Association"). Plaintiff seeks a declaration that it does not have a duty to defend or indemnify defendants, under a commercial general liability insurance policy issued to a non-party, for various suits filed as a result of the scaffold collapse ("the underlying suits"). With the exception of the Homeowners Association, the defendants have filed counterclaims against the plaintiff and are third-party plaintiffs against AMICO. National Union is alleged to be Shorenstein's excess carrier and AMICO is alleged to be an insurer of one of Shorenstein's sub-contractors.

National Union seeks a declaratory judgment declaring it is entitled to equitable subrogration against AMICO. Counts I and II of the complaint allege that AMICO breached its duty to defend Shorenstein in the underlying cases and that, based on Shorestein's targeted tender, National Union's policy was in excess of AMICO's primary and excess policies and that as a result of AMICO's failure to indemnify Shorenstein, National Union paid indemnity that AMICO owed to Shorenstein. National Union seeks a declaration of rights and seeks recovery of $6 million - the full policy limits of the AMICO primary and excess policies. In Count III, Shorenstein seeks recovery for AMICO's alleged bad faith and a declaration that AMICO's alleged actions constituted an unreasonable delay in settling the claim and that it is entitled to reasonable attorneys' fees and other costs under section 155 of the Illinois Insurance Code, codified as 215 ILCS 5/155 ("section 155").

II.

In assessing a motion to dismiss under Fed. R. Civ. P. 12(b)(1) and 12(b)(6), I must accept all well-pleaded facts in the complaint as true. Moranski v. General Motors Corp., 433 F.3d 537, 539 (7th Cir. 2005); Patel v. City of Chicago, 383 F.3d 569, 572 (7th Cir. 2004). I must view the allegations in the light most favorable to plaintiff. Id. However, "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1965 (2007); E.E.O.C. v. Concentra Health Servs., Inc., 496 F.3d 773, 776-77 (7th Cir. 2007).

III.

AMICO first moves to dismiss count III on the ground that Shorenstein cannot meet the amount in controversy requirement in order to establish jurisdiction. Shorenstein does not dispute that it does not allege over $75,000 in damages, but argues that I may exercise supplemental jurisdiction over its claim. Section 1367 provides that a court may exercise supplemental jurisdiction "over all other claims that are so related to claims in the action within [the court's] original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367. Two claims are part of the same case or controversy if they "'derive from a common nucleus of operative facts. A loose factual connection between the claims is generally sufficient.'" Baer v. First Options of Chicago, Inc., 72 F.3d 1294, 1299 (7th Cir. 1995) (quoting Ammerman v. Sween, 54 F.3d 423, 424 (7th Cir. 1995)).

I agree with Shorenstein that count III derives from a common nucleus of operative facts and will exercise supplemental jurisdiction. Although AMICO was not a party to the insurance contract issued by the underlying plaintiff, its duties to Shorenstein in relation to the underlying suits provide more than a "loose factual connection between the claims." Id. In the absence of a decision concerning whether AMICO breached any of its alleged duties, Shorenstein's claim for attorneys' fees and costs could not be resolved. See, e.g., Yamada Corp v. Yasuda Fire and Marine Ins. Co., Ltd., 305 Ill. App. 3d 362, 369, 712 N.E.2d 926, 931 (Ill. App. Ct. 1999) ("without a duty to defend, there can be no . . . violation of . . . section 155 of the Illinois Insurance Code."). The interests of judicial economy are best served by the exercise of supplemental jurisdiction over the claim in count III and the motion to dismiss pursuant to Rule 12(b)(1) is denied.

AMICO also moves to dismiss count III on the ground that it fails to state a claim upon which relief can be granted. Shorenstein seeks damages under section 155, which provides:

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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