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L.R. Nelson Corp. v. Great American Insurance Co.

September 22, 2008

L.R. NELSON CORPORATION, PLAINTIFF,
v.
GREAT AMERICAN INSURANCE COMPANY DEFENDANT.



The opinion of the court was delivered by: Joe Billy McDade United States District Judge

OPINION & ORDER

Before the Court is Defendant Great American Insurance Company's Motion for Summary Judgment, filed on June 30, 2008. (Doc. 49) Plaintiff L.R. Nelson Corporation filed a response in opposition to the motion on July 24, 2008. (Doc. 54) And Great American filed a reply (Doc. 57) on August 14, 2008. Also before the Court are Nelson's motion to allow Great American to file certain summary judgment documents under seal (Doc. 43), filed on June 19, 2008, and Great American's motion for leave to file certain summary judgment documents under seal (Doc. 46), filed on June 26, 2008. For the reasons that follow, the motions to file under seal are both GRANTED, and the motion for summary judgment is DENIED.

I. BACKGROUND

The parties, Plaintiff L.R. Nelson Corporation and Defendant Great American Insurance Company, are involved in a dispute over insurance coverage. All of the material facts are undisputed. Great American was Nelson's excess insurer for the period of March 1, 2000 to March 1, 2001. (Defendant's Statement of Undisputed Material Facts (Def.'s SMF) ¶ 15) In August 2001, Nelson, an Illinois based lawn and garden watering product manufacturer, was sued by Orbit Irrigation Products, Inc, a Utah based competitor, in the United States District Court for the District of Utah. In the Orbit Lawsuit, Orbit requested a declaration that a patent claimed by Nelson with respect to a certain hose nozzle (the "'117 Patent") was invalid. Additionally, Orbit sought to recover damages caused by Nelson's alleged disparagement of Orbit's products and alleged intentional interference with Orbit's business relationships. Nelson counter-claimed against Orbit for damages resulting from Orbit's alleged infringement of the '117 Patent.

In December 2002, Orbit submitted a filing to the district court in Utah, stating that it would present expert testimony at trial establishing that Nelson's allegedly illegitimate conduct had caused Orbit "millions of dollars of losses." (Def.'s SMF ¶ 7) The filing was served upon Nelson's counsel. Approximately a month later, on January 14, 2003, Orbit submitted an expert report estimating that Orbit's damages amounted to between $6.4 million and $13.2 million. Nelson's attorneys received this report no later than January 24, 2003. (Def.'s SMF ¶ 9) A supplemental expert report dated April 21, 2003 revised the damages estimate to as high as $45.5 million for past and future loses.

At the time Nelson purportedly engaged in the conduct at issue in the Orbit Lawsuit, Nelson was insured under two successive primary insurance policies, issued by Reliance National Indemnity Company and Kemper Casualty Insurance Company. Each policy provided coverage for personal and advertising injuries up to a $1 million limit. The primary policies also obligated the primary insurers to defend Nelson against certain types of lawsuits. During that same period of time, Nelson was also insured under excess policies issued by Great American (the "Umbrella Policy") and Fireman's Fund Insurance Company. Each excess policy provided $10 million in coverage for certain liabilities incurred by Nelson in excess of the limits of coverage provided by Nelson's primary insurance policies.*fn1 (Def.'s SMF ¶¶ 14-18; Great American's policy attached as Ex. 15 to Doc. 48

Nelson notified Great American of the Orbit Lawsuit by a letter dated December 18, 2003. (Def.'s SMF ¶ 19) At all times prior to December 18, 2003, Nelson did not believe that the claims made by Orbit in the Orbit Lawsuit were likely to invoke the Great American excess policy. (Plaintiff's Statement of Additional Facts (Ptf.'s SAF ¶ 1) At the time Nelson notified Great American of the Orbit Lawsuit, Nelson was confident, as a result of assurances provided to Nelson by its attorneys, that Nelson's case against Orbit based on the '117 Patent was strong, that Orbit's claims were weak, and that the possibility of an adverse judgment was fairly remote. (Ptf.'s SAF ¶ 1-2)

However, on March 19, 2004, Nelson suffered a significant blow in the Orbit Lawsuit. On that date, the district court in Utah entered an order invalidating the '117 Patent. (See Plaintiff's Response Brief at p.2) Despite this damaging ruling to Nelson, attorneys for Great American appeared confident that the Great American excess policy would not ultimately come into play. Peter Whalen, a partner with the firm that Great American had hired to represent it in association with the Orbit Lawsuit, stated to Nelson's counsel, in a letter dated September 27, 2004, that it appeared unlikely that Orbit's claims would ultimately involve the Great American excess policy. (Doc. 54, Ex. B) The letter stated that, in Mr. Whalen's opinion, even if the type of coverage included in the Great American policy was applicable, it was unlikely that Orbit's damages would exceed the $2 million in coverage that Nelson's primary insurers would supply.

Ultimately, in October 2005, Nelson paid Orbit approximately $3.57 million to settle the Orbit Lawsuit ("Orbit Settlement"). (Def.'s SMF ¶ 21-22) In July 2006, Nelson settled with Kemper on both primary policies in effect during Nelson's allegedly wrongful conduct.*fn2 Pursuant to the settlement agreement, Kemper paid Nelson $2.59 million in return for Nelson's agreement to generally release Kemper from liability in connection with the Orbit Lawsuit. (Def.'s SMF ¶ 27) In the settlement agreement, Nelson and Kemper did not designate any specific amount of the total settlement sum as payment for indemnity or as payment for the defense costs that Nelson incurred in the Orbit Lawsuit. (Def's SMF ¶ 28)

On September 5, 2006, Nelson filed a complaint in Illinois circuit court, requesting a declaration that Great American and Fireman's Fund were jointly and severally obligated to indemnify Nelson for the sums in excess of underlying primary insurance limits that Nelson had become obligated to pay with respect to the Orbit Settlement. Great American and Fireman's Fund removed the case to federal district court on September 29, 2006. (Doc. 1) Great American answered Nelson's complaint and counterclaimed on October 18, 2006. (Doc. 8) On April 17, 2008, pursuant to a settlement agreement, Nelson stipulated to dismiss Fireman's Fund from the litigation. (Doc. 41) And on June 30, 2008, Great American filed a motion for summary judgment, which is now before this Court. (Doc. 49)

II. LEGAL STANDARD

Summary judgment should be granted where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party has the responsibility of informing the Court as to portions of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The movant may meet this burden by demonstrating "that there is an absence of evidence to support the nonmoving party's case." Id. at 325.

Once the movant has met its burden, to survive summary judgment, the "non-movant must show through specific evidence that a triable issue of fact remains on issues on which [s]he bears the burden of proof at trial." Warsco v. Preferred Tech. Group, 258 F.3d 557, 563 (7th Cir. 2001); see also Celotex Corp., 477 U.S. at 322-24. "The non-movant may not rest upon mere allegations in the pleadings or upon conclusory statements in affidavits; it must go beyond the pleadings and support its contentions with proper documentary evidence." Chemsource, Inc. v. Hub Group, Inc., 106 F.3d 1358, 1361 (7th Cir. 1997).

This Court must nonetheless "view the record and all inferences drawn from it in the light most favorable to the [non-moving party]." Holland v. Jefferson Nat. Life Ins. Co., 883 F.2d 1307, 1312 (7th Cir. 1989). In doing so, this Court is not "required to draw every conceivable inference from the record -- only those inferences that are reasonable." Bank Leumi Le-Isreal, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir. 1991). Therefore, if the record before the court "could not lead a rational trier of fact to find for the non-moving party," then no genuine issue of material fact exists and, the moving party is entitled to judgment as a matter of law. McClendon v. Indiana Sugars, Inc., 108 F.3d 789, 796 (7th Cir. 1997) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). However, in ruling on ...


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