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Illinois School District Agency v. Pacific Insurance Company Limited

June 29, 2009

ILLINOIS SCHOOL DISTRICT AGENCY, AN INTERGOVERNMENTAL COOPERATIVE, PLAINTIFF-APPELLANT,
v.
PACIFIC INSURANCE COMPANY LIMITED, A CONNECTICUT CORPORATION, DEFENDANT-APPELLEE.



Appeals from the United States District Court for the Central District of Illinois. No. 3:02-cv-03173-JES-CHE-Jeanne E. Scott, Judge.

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

ARGUED FEBRUARY 11, 2009

Before BAUER, RIPPLE and WOOD, Circuit Judges.

The Illinois School District Agency ("Agency") brought this action against Pacific Insurance Company, Ltd. ("Pacific"), alleging that Pacific had breached its insurance contract with Agency. The district court granted partial summary judgment to Agency and partial summary judgment to Pacific. The court then held a bench trial on the remaining issues and entered judgment in favor of Agency in the amount of $98,638.66. Agency appealed the court's partial grant of summary judgment to Pacific.

On that first appeal, we vacated the partial grant of summary judgment to Pacific and remanded the case to the district court for trial on Agency's newly revived claim. See Ill. Sch. Dist. Agency v. Pac. Ins. Co., Ltd., 471 F.3d 714 (7th Cir. 2006). On remand, the district court concluded that Pacific was liable for damages on that claim. The court went on, however, to issue a series of post-trial rulings, which resulted in no recovery by Agency on the new claim and revoked the $98,638.66 award to Agency from the first trial.

Agency then filed this appeal. For the reasons set forth in this opinion, we reverse the judgment of the district court and remand the case for further proceedings.

I. BACKGROUND

A.

Agency is a cooperative that was formed by school districts in Illinois to provide insurance for those districts. In 1994, East Moline School District, one of Agency's members, was sued by a student and his family after the student brought mercury home from school. East Moline had a general liability insurance policy issued by Agency and therefore filed a claim under that policy for coverage of its costs and attorney's fees in defending the mercury lawsuit. Agency's third-party administrator, the Martin Boyer Company, determined that the policy covered East Moline's claim. Agency therefore began paying for East Moline's defense and continued to do so for the next two years. In 1996, Agency retained a new third-party administrator. The new administrator determined that East Moline's claim actually was not covered by the general liability policy. Based on that determination, Agency stopped paying East Moline's defense costs.

East Moline ultimately settled the mercury suit. It then sued Agency to recover the defense costs it had incurred after Agency stopped paying. In that suit, East Moline advanced three claims: 1) that Agency's refusal to pay the claim violated Section 155 of the Illinois Insurance Code, which requires insurers to act in good faith (the "Section 155 claim"); 2) that Agency had waived its right to assert a defense under the general liability policy (the "waiver claim"); and 3) that Agency was estopped from denying that it was obliged to pay for East Moline's defense (the "estoppel claim"). Agency prevailed on all of the claims.

B.

Agency then filed an action in Illinois state court against Martin Boyer, its former third-party administrator. In that action, Agency advanced a number of claims related to Boyer's determination that the general liability policy required Agency to pay East Moline's costs in defending the mercury lawsuit.

Agency had an "errors and omissions" ("E&O") insurance policy issued by Pacific. Agency filed a claim under this E&O policy for reimbursement of the costs and attorney's fees it had incurred in defending the suit for defense costs by East Moline. Pacific denied Agency's claim. Agency then brought this action in the United States District Court for the Central District of Illinois; it sought reimbursement for its costs in defending the East Moline suit as well as for its costs and fees in its suit against Martin Boyer. After discovery, Agency and Pacific each filed a motion for summary judgment. The district court granted partial summary judgment to Agency; it concluded that the E&O policy required Pacific to reimburse Agency for its expenses in defending against East Moline's Section 155 claim. The court concluded, however, that the insurance policy did not cover East Moline's waiver and estoppel claims, and it granted summary judgment for Pacific on those claims. With Agency's consent, the district court granted summary judgment in favor of Pacific on the claims related to the Martin Boyer lawsuit.

The district court then held a bench trial to determine Agency's damages on the Section 155 claim. The court found that Agency spent $98,638.66 defending against that claim. The court ...


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