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Lyerla v. AMCO Insurance Co.

August 4, 2008


Appeal from the United States District Court for the Southern District of Illinois. No. 06 cv 679-G. Patrick Murphy, Judge.

The opinion of the court was delivered by: Cudahy, Circuit Judge


Before CUDAHY, KANNE and SYKES, Circuit Judges.

AMCO Insurance Company (AMCO) issued a commercial general liability (CGL) policy to Lyle Lyerla, d/b/a Wildewood Construction (Lyerla). When Lyerla was sued in a dispute arising out of a construction contract, he tendered notice of the suit to AMCO. AMCO refused to defend Lyerla and after he settled the underlying lawsuit, Lyerla sued AMCO for breach of contract. The district court granted summary judgment for AMCO and this appeal followed. For the reasons set forth below, we affirm.

I. Background

In March 2001, Scott Riddlemoser and Kathleen McNulty (Owners) hired Lyerla to build a residential dwelling according to particular plans and specifications. The construction contract required that construction be completed by July 31, 2001. The contract also gave the Owners 20 days after the house was completed to provide Lyerla "with a list of any defects, incomplete or unsatisfactory items (the 'Punchlist Items') with respect to Contractor's Work." Lyerla was obligated to cure any Punchlist Items within 20 days of receiving the list. Lyerla warranted and guaranteed his work and promised to repair any defects within seven days of receiving notice. In addition, the contract required Lyerla to pay liquidated damages if the project was not completed on time-$100 per day for the first 14 days and $150 per day for each day thereafter.

On January 24, 2002, the Owners sued Lyerla for breach of contract, alleging that he had failed to construct the building pursuant to the agreed-upon plans and specifications; had failed to complete Punchlist Items within the time frame provided under the contract; had failed to build the home in a workmanlike manner; had failed to correct defects in seven days, as required by the contract; and had failed to pay liquidated damages. The Owners sought to recover costs they incurred completing Lyerla's work as well as storage fees, finance charges, loss of work, attorneys' fees and court costs. On March 15, 2002, Lyerla tendered notice of the lawsuit to AMCO. AMCO denied coverage in July 2002. Lyerla settled with the Owners for $53,000.

Lyerla subsequently brought this lawsuit against AMCO in Illinois state court for breach of contract and for violating the Illinois Insurance Code. AMCO removed the action to federal court and filed a counterclaim against Lyerla seeking a declaration that the underlying claim was not covered by the policy and that AMCO had no duty to defend or indemnify Lyerla.

Both parties moved for summary judgment. In April 2007, the district court held a hearing on the motions and the case was taken under advisement. On May 25, 2007, Lyerla moved to file a supplemental motion for summary judgment based on a recent decision of the Illinois Appellate Court, Country Mut. Ins. Co. v. Carr, 867 N.E.2d 1157 (Ill. App. Ct. 2007), and "additional information about the policy in question and additional legal authority that has not yet been given to this court." The court granted Lyerla's motion in part, allowing Lyerla to file a supplemental brief to address recent case law. When Lyerla filed his supplemental brief, AMCO moved to strike on the grounds that rather than simply explaining the relevance of recent case law, Lyerla sought to relitigate issues and presented new arguments in his supplemental brief. The district court granted AMCO's motion but indicated that it would consider Carr.

In July 2007, Lyerla moved to amend his complaint in order to add two counts of breach of fiduciary duty. The district court denied this motion and granted summary judgment for AMCO.It concluded that the underlying complaint did not allege an "occurrence" or "property damage" as defined by Lyerla's CGL policy.Lyerla appeals the district court's decision. The basis of federal jurisdiction is diversity of citizenship.*fn1 The parties agree that Illinois law governs their dispute.

II. Analysis

We review an entry of summary judgment de novo, construing all facts and drawing all inferences in the light most favorable to the non-moving party. Abstract & Title Guar. Co., Inc. v. Chicago Ins. Co., 489 F.3d 808, 810 (7th Cir. 2007). "Summary judgment is appropriate where the evidence before the court indicates that there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law." Id. The construction of an insurance policy is a question of law which we review de novo. Sokol & Co. v. Atl. Mut. Ins. Co., 430 F.3d 417, 420 (7th Cir. 2005). "Unambiguous policy language is given its 'plain, ordinary, and popular meaning.' " Id. (citing Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1212 (Ill. 1992)).

Illinois insurance law provides that an insured's duty to defend is broader than its duty to indemnify. Outboard Marine Corp., 607 N.E.2d at 1220. An insurer is obligated to defend its insured if the underlying complaint contains allegations that potentially fall within the scope of coverage. Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092, 1098 (Ill. 2005). In order to determine whether an insurer has a duty to defend its insured, we must compare the allegations in the underlying complaint to the language of the insurance policy. Id. "If the underlying complaint alleges facts within or potentially within policy coverage, an insurer is obligated to defend its insured even if the allegations are groundless, false or fraudulent." Id. "An insurer may not justifiably refuse to defend an action against its insured unless it is clear from the face of the underlying complaint[ ] that the allegations fail to state facts which bring the case within, or potentially within, the policy's coverage." United States Fid. & Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 930 (Ill. 1991) (emphasis in original). We begin our examination of AMCO's obligations under the CGL policy mindful that "[t]he underlying complaint[ ] and the insurance polic[y] must be liberally construed in favor of the insured." Id.

The policy that Lyerla purchased from AMCO provides that AMCO "will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." The ...

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