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Springfield Division State Auto Property and v. Paul Kincaid

February 1, 2011

SPRINGFIELD DIVISION STATE AUTO PROPERTY AND
CASUALTY INSURANCE CO., PLAINTIFF,
v.
PAUL KINCAID, STEVE COLLINS,
BOTH INDIVIDUALLY AND DOING BUSINESS AS THE HAIR CLINIC, A PARTNERSHIP,
AND JOHN DOE, DEFENDANTS.



The opinion of the court was delivered by: Michael P. McCUSKEY Chief U.S. District Judge

Tuesday, 01 February, 2011 11:26:08 AM Clerk, U.S. District Court, ILCD

OPINION This matter comes before the Court on Plaintiff's Motion for Summary Judgment as To Counts II, II, and IV of Its Complaint (hereinafter the "Motion")(d/e 31). For the reasons stated below, the Motion is DENIED. Instead, pursuant to Federal Rule of Civil Procedure 56(f)(1), summary judgment for Defendant Steve Collins is ALLOWED on the duty to defend issue.

FACTS

The facts in this case are undisputed. Defendants Paul Kincaid ("Kincaid") and Steve Collins ("Collins") were business partners who, pursuant to their romantic involvement, shared a residence. The business they operated was The Hair Clinic, a hair salon in Litchfield, Illinois. The Hair Clinic is also a Defendant in this lawsuit.

Tragically, the lawsuit arises from sexual abuse which Kincaid perpetrated against a minor, John Doe ("Doe"), who worked at The Hair Clinic. The abuse occurred both at The Hair Clinic and the residence Kincaid and Collins shared. In the residence was a computer on which Kincaid child pornography.

Kincaid was criminally prosecuted, convicted and sentenced to prison for manufacturing and possessing child pornography. See United States v. Kincaid, 571 F.3d 648 (7th Cir. 2009). Following his conviction, Kincaid allegedly transferred assets to Collins in order to prevent Doe from obtaining the assets via some future civil action.

On May 4, 2009, Doe commenced a civil action against Kincaid, Collins and The Hair Clinic in state court. See Doe v. Kincaid, et al, Circuit Court of the 4th Judicial Circuit (Montgomery County), No. 2009-L-10. Among other things, Doe alleged that Collins was negligent because he failed to protect Doe from Kincaid and liable for partaking in a fraudulent conveyance of assets. See State Auto's Memorandum in Support of Summary Judgment as To Counts II, II, and IV of Plaintiff's Complaint (hereinafter "State Auto's Memorandum") at Exhibit J (copy of Doe's state court Complaint, Count Ten and Count Eleven). Doe also alleged that The Hair Clinic was liable for negligently hiring, retaining and supervising Kincaid. Id. at Count Twelve and Count Thirteen. Collins notified State Auto of Doe's claims and demanded coverage.

Collins' insurer was Plaintiff State Auto Property and Casualty Insurance Company ("State Auto"), an Iowa corporation whose principal place of business is Columbus, Ohio. From October 8, 1999, to October 8, 2008, State Auto provided business liability insurance to "Steve Collins and Paul Kincaid DBA The Hair Clinic" under policy number SOP9612605. State Auto sought a declaratory judgment from this Court as to whether it had a duty to defend Collins and The Hair Clinic against Doe's claims.

The Court stayed the case pending resolution of Doe's state Court action. See State Auto Property and Casualty Insurance Company v. Kincaid, 2010 WL 1994861 (C.D.Ill.). The stay was ultimately lifted and the Court allowed a motion from State Auto which argued that Kincaid, due to his intentional conduct, was not entitled to policy coverage. See d/e 48 (Opinion entered June 22, 2010).

State Auto now argues that it has no duty to defend Collins and The Hair Clinic because Collins knew of Kincaid's perderastic behavior and, thus, "expected" Kincaid's actions. See State Auto's Memorandum at 1-2. State Auto also contends that it has no duty to defend The Hair Clinic because The Hair Clinic, a "dba" (doing business as"), is not a distinct entity from Collins. Id. at 10-11. Moreover, since the policy did not contemplate that sexual abuse would occur on the business premises, State Auto claims it has no duty to defend The Hair Clinic. Id. at 12. Additionally, State Auto argues it has no duty to defend Collins for Doe's claim that Collins engaged in a fraudulent transfer of assets because the transfer was an intentional act. Id. at 9.

State Auto contends that if it succeeds in proving it has no duty to defend all of the claims against Collins, it is entitled to reimbursement of all the costs it has expended litigating the duty to defend issue. Id. at 12-14. State Auto is operating under a reservation of rights. Id. at 13.

After reading State Auto's summary judgment motion, the insurance policy and the relevant caselaw, it appeared to the Court that State Auto had a duty to defend Collins. Since Collins had not moved for summary judgment, the Court issued a Federal Rule of Civil Procedure 56(f)(1) order advising the Parties that non-movant Collins may be entitled to judgment on the duty to defend issue. See Text Order dated December 14, 2010. The Court allowed the Parties to submit supplemental briefing and State Auto did so on January 31, 2011. See Plaintiff's Supplemental Brief in Further Support of Its Motion For Summary Judgment As to Counts II, II and IV of Its Complaint ("Supplemental Brief") (d/e 60).

The Court has read State Auto's supplemental brief. Nothing in the supplemental brief dissuades the Court from concluding State Auto has a duty to defend Collins. While Federal Rule of Civil Procedure 56 allows Collins to file a responsive brief and State Auto to submit a reply thereto, those pleadings would merely delay and ...


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