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Philadelphia Indemnity Insurance Co. v. Chicago Title Insurance Co.

July 13, 2010

PHILADELPHIA INDEMNITY INSURANCE COMPANY, PLAINTIFF,
v.
CHICAGO TITLE INSURANCE COMPANY AND WESTERN CAPITAL PARTNERS, LLC, DEFENDANTS.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

Philadelphia Insurance Company and Chicago Title Insurance Company both provided insurance to Western Capital Partners, LLC. Western Capital was sued and asked Chicago Title to defend the lawsuit. Chicago Title agreed to defend four counts of the six-count lawsuit. It declined to defend the other two pursuant to a term in the insurance policy that stated Chicago Title was only obligated to defend those causes of action that were covered by the policy. Western Capital then requested that Philadelphia defend the remaining two claims in the lawsuit. Philadelphia objected, claiming its policy was excess to Chicago Title's policy, and arguing that Chicago Title is obligated under Illinois law to defend the entire lawsuit.

Philadelphia has filed suit seeking a declaratory judgment that Chicago Title's policy is the primary policy for the suit against Western Capital and that Chicago Title is obligated to defend the entire suit. Philadelphia has moved for judgment on the pleadings. For the reasons stated below, the Court denies the motion.

Facts

In February 2008, several real estate developers filed a six-count lawsuit against Western Capital over a foreclosure action it had commenced against them (the Ridgeland suit). Western Capital is insured by both Philadelphia and Chicago Title. When the Ridgeland suit was filed, Western Capital contacted Philadelphia and asked it to defend the suit using an attorney Western Capital had already selected. Philadelphia replied by a letter in which it acknowledged an obligation to defend the case but stated that it would allow Western Capital to use its chosen attorney only at rates approved by Philadelphia.

After receiving this letter from Philadelphia, Western Capital contacted its other insurer, Chicago Title, and asked it to defend the lawsuit instead of Philadelphia. Chicago Title acknowledged a defense obligation for four of the counts in the Ridgeland suit. It stated that the other two counts were not covered by its policy and therefore it would not defend them, pursuant to a policy term limiting its defense obligation to claims that are covered by the policy. In November 2008, Western Capital once again contacted Philadelphia to ask Philadelphia defend the two remaining counts.

Philadelphia responded with a letter advising Western Capital that it believed the Chicago Title policy was the primary policy for the Ridgeland suit. Philadelphia therefore reserved its right to withdraw the defense it had offered in its first letter. On December 15, 2008, Philadelphia sent another letter informing Western Capital that it had concluded its policy was excess to the Chicago Title policy and therefore would not provide Western Capital a defense. On October 2, 2009, Philadelphia filed a suit in the Circuit Court of Cook County, Illinois, seeking a declaratory judgment that the Chicago Title policy provides primary coverage to Western Capital for the Ridgeland lawsuit, that Philadelphia's policy provides excess coverage, and that Philadelphia has no duty or obligation to provide a defense to Western Capital in the suit. On November 10, 2009, the case was removed to this Court based on diversity of citizenship.

On March 10, 2010, Philadelphia filed a motion for judgment on the pleadings. In its brief in support of the motion, Philadelphia argues that because Chicago Title has admitted it has a duty to defend four of the counts contained in the Ridgeland suit, it is obligated to provide a defense for the entire suit. In the alternative, Philadelphia argues that the term of the Chicago Title policy that disclaims a duty to defend non-covered claims is ambiguous and therefore, under Illinois law, should be construed in favor of Western Capital such that Chicago Title is obligated to defend all claims. Philadelphia seeks a declaratory judgment that the Chicago Title policy provides primary coverage to Western Capital for the Ridgeland litigation and that Chicago Title is obligated to pay all of Western Capital's defense costs for that litigation. For the reasons stated below, the Court denies Philadelphia's motion.

Discussion

Under Federal Rule of Civil Procedure 12(c), "after the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings." Fed. R. Civ. Proc. 12(c). A party is entitled to judgment on the pleadings when it "demonstrates that there are no material issues of fact to be resolved." Moss v. Martin, 473 F.3d 694, 698 (7th Cir. 2007). In deciding a motion for judgment on the pleadings, a court construes the facts alleged in the complaint in the light most favorable to the non-moving party. R.J. Corman Derailment Servs., L.L.C. v. Int'l Union, Local Union 150, 335 F.3d 643, 647 (7th Cir. 2003).

A. Scope of Chicago Title's defense obligation

Chicago Title admits a defense obligation for four of the counts in the six-count Ridgeland suit but maintains that the other two counts contain claims not covered by its policy. Because Chicago Title's insurance policy contains a term saying it will not defend causes of action that are not covered by the policy, Chicago Title argues it is not obligated to provide a defense on the remaining two counts.

Philadelphia argues that Chicago Title's position is contrary to Illinois law. Philadelphia argues that if even one count in a complaint falls within the potential coverage of an insurance policy, the insurer has a duty to defend the entire complaint. Pl.'s Mem. in Supp. of Mot. for J. on Pleadings at 3. Because Chicago Title admits it must defend four counts, Philadelphia argues, Chicago Title must defend them all. Chicago Title argues that its policy unambiguously states that it will not provide defense or pay any legal expenses for any causes of action that allege matters not insured by the policy. Therefore, it argues, it need not defend those counts that are not covered by the policy.

The relevant portion of the Chicago Title policy states: Upon written request by the insured . . . [Chicago Title], at its own cost and without unreasonable delay, shall provide for the defense of an insured in litigation in which any third party asserts a claim adverse to the title or interest as insured, but only as to those stated causes of action alleging a defect, lien or encumbrance or other matter insured against by this policy. . . . [Chicago Title] will not pay any fees, costs or ...


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