Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

American Safety Casualty Insurance Company v. City of Waukegan

March 3, 2011

AMERICAN SAFETY CASUALTY INSURANCE COMPANY, PLAINTIFF,
v.
CITY OF WAUKEGAN,
DEFENDANT. CITY OF WAUKEGAN, COUNTER-PLAINTIFF,
v.
AMERICAN SAFETY CASUALTY INSURANCE COMPANY, INTERSTATE INDEMNITY COMPANY, CERTAIN UNDERWRITERS AT LLOYDS OF LONDON, NORTHFIELD INSURANCE COMPANIES, WESTPORT INSURANCE CORPORATION, EVANSTON INSURANCE COMPANY, S. ALEJANDRO DOMINGUEZ, AND PAUL HENDLEY, COUNTER-DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

This insurance coverage dispute between the City of Waukegan, Illinois ("Waukegan" or "the City") and its various insurers arises from a $9,063,000 verdict entered against Waukegan in a civil rights case brought by S. Alejandro Dominguez ("Dominguez"), who was convicted of rape in 1990 after an investigation by Waukegan police officers but exonerated by DNA evidence in 2002. The insurers issued to the City various primary and excess policies in effect between 1991 and 2006. The parties have filed summary judgment motions addressing whether the insurers should now indemnify Waukegan for its loss as a result of the Dominguez verdict, whether certain of Waukegan's carriers should have defended the City in the underlying case, and whether a subset of those insurers violated Section 155 of the Illinois Insurance Code by acting "unreasonably and vexatiously" in handling the Dominguez claim.

Plaintiff American Safety Casualty Insurance Company ("American Safety") filed a Complaint against Waukegan on April 11, 2007, seeking a declaratory judgment that it does not owe coverage to Waukegan for its obligations in S. Alejandro Dominguez v. Paul Hendley et. al., No. 04 C 2907 (N.D. Ill.) ("the Dominguez Civil Case"). On August 19, 2009, Waukegan filed its operative complaint, the Second Amended Counterclaim (Doc. 273), against Counter-Defendants American Safety, Interstate Indemnity Company ("Interstate"), Certain Underwriters at Lloyds of London ("Underwriters"), Northfield Insurance Companies ("Northfield"), Westport Insurance Corporation ("Westport") (formerly Coregis Insurance Organizations), Dominguez, and Paul Hendley ("Hendley"). Two defendants, Scottsdale Insurance Company ("Scottsdale") and Evanston Insurance Company ("Evanston"), were named in Waukegan's first counterclaim, but the Court granted Scottsdale's motion for summary judgment in March 2009 (see Doc. 236) and Waukegan voluntarily dismissed Evanston without prejudice in July 2009 (see Doc. 260).

American Safety (Doc. 563) and Interstate (Doc. 561) have each filed Motions to Strike portions of Waukegan's Rule 56.1 statements of material facts in connection with its summary judgment motions. The Court addressed these motions during its analysis of the pending summary judgment motions. For the reasons explained below, the Court grants in part and denies in part American Safety's motion, and grants Interstate's motion in its entirety.

In addition, American Safety (Doc. 444), Interstate (Doc. 448), and Westport (Doc. 460) have each filed motions for summary judgment against Waukegan, and Waukegan has cross-moved for summary judgment against each of them. (Docs. 458, 533 (amending 466), 539 (amending 476), respectively). Northfield and Underwriters have joined in three separate summary judgment motions, one addressing whether their policies were triggered (Doc. 450), one addressing their duty to defend Waukegan (Doc. 435), and the last addressing whether they had a duty to indemnify the City given its allegedly voluntary agreement to assume Hendley's liability (Doc. 429). Waukegan has cross-moved for summary judgment against Northfield and Underwriters separately (Docs. 535 (amending 491), 537 (amending 498), respectively).

For the reasons stated below, the Court:

1. grants in part American Safety's motion to strike portions of Waukegan's Local Rule 56.1 Statement supporting its motion for summary judgment against American Safety, as detailed below;

2. grants in its entirety Interstate's motion to strike portions of Waukegan's Local Rule 56.1 Statement supporting its motion for summary judgment against Interstate;

3. denies American Safety's motion for summary judgment against Waukegan in its entirety, and grants Waukegan's cross-motion for summary judgment as detailed below, finding American Safety (a) breached its duty to defend Waukegan, (b) must now indemnify Waukegan for the Dominguez verdict to the policy's limits, and (c) is liable under Section 155 of the Illinois Insurance Code for "unreasonable and vexatious" conduct in handling the Dominguez claim;

4. grants in part, and denies in part, Interstate's motion for summary judgment against Waukegan; and grants in part, and denies in part, Waukegan's cross-motion for summary judgment, finding that Interstate did not breach a duty to defend or violate Section 155, but must indemnify Waukegan for the Dominguez verdict;

5. grants in its entirety Northfield's and Underwriters' joint motion for summary judgment regarding whether their policies were triggered and denies Waukegan's cross-motions for summary judgment against Northfield and Underwriters, finding that the Northfield/Underwriters policies were not triggered by Dominguez's allegations in the underlying complaint, rendering moot Northfield's and Underwriters' joint motions for summary judgment regarding duty to defend and duty to indemnify;

6. grants in its entirety Westport's motion for summary judgment against Waukegan, and denies in its entirety Waukegan's motion for summary judgment against Westport, finding that the Westport policies were not triggered by Dominguez's allegations in the underlying complaint.

7. denies as moot Waukegan's objection (Doc. 781) to Magistrate Finnegan's Order of December 17, 2010 denying Waukegan's motion to compel.

I. MOTIONS TO STRIKE PORTIONS OF WAUKEGAN'S 56.1 STATEMENTS

As an initial matter, American Safety and Interstate have each moved to strike portions of Waukegan's Local Rule 56.1 statements in the City's cross-motions for summary judgment against them, arguing that they contain improper legal conclusions, rely on portions of Donald Brayer's Amended Expert Report that have been stricken by the Court's January 12, 2011 order, fail to provide adequate citation to the record, or are immaterial. Local Rule 56.1(a) provides that a party moving for summary judgment shall file a "statement of material facts" entitling it to judgment as a matter of law, "including within each paragraph specific references to the affidavits, parts of the records, and supporting materials relied upon to support the facts set forth in that paragraph." See L.R. 56.1(a) (emphasis added). Nonconformity with the Local Rules and the standing orders of the Court is not without consequence. "A district court is entitled to expect strict compliance with Rule 56.1." Ammons v. Aramark Uniform Servs., Inc., 368 F.3d 809, 817 (7th Cir. 2004) (citing Bordelon v. Chicago School Reform Bd. of Trustees, 233 F.3d 524, 527 (7th Cir. 2000)). Further, "a district court does not abuse its discretion, when, in imposing a penalty for a litigant's non-compliance with Local Rule 56.1, the court chooses to ignore and not consider the additional facts that a litigant has proposed." Cichon v. Exelon Generation Co., L.L.C., 401 F.3d 803, 809-10 (7th Cir. 2005).

First, with respect to American Safety's and Interstate's objections to paragraphs that contain or consist of legal conclusions, a party may not include legal opinions or conclusions of law in its statement of facts in support of summary judgment. See Judson Atkinson Candies, Inc. v. Latini-Hohberger Dhimantec, 529 F.3d 371, 382 n. 2 (7th Cir. 2008) ("Local Rule 56.1 requires that statements of facts concerning summary judgment motions identify the evidence supporting a party's factual assertions. It is inappropriate to make legal arguments in a Rule 56.1 statement of facts."); Cady v. Sheahan, 467 F.3d 1057, 1060 (7th Cir. 2006) (finding a statement of material facts did not comply with Rule 56.1 because it failed to adequately cite the record and contained legal arguments).

The Court, therefore, strikes the following portions of Waukegan's statements of material facts because they address legal issues that are to be decided by this Court:

Document Statement Striken

Waukegan's Statement of Material Facts in The second and forth sentences of paragraph support of its Motion for Summary Judgment 34; the latter part of the second sentence of against American Safety paragraph 54.

Waukegan's Statement of Additional Material The first clause of paragraph 7; paragraph 9; Facts in Opposition to American Safety's paragraph 13; and the first sentence of Motion for Summary Judgment paragraph 24 Waukegan's Statement of Material Facts in Paragraph 34; all but the first sentence of support of its Motion for Summary Judgment paragraph 36; all but the first sentence of against Interstate paragraph 38; the first clause of paragraph 44; the last sentence of paragraph 45; paragraph 46; the last clause of paragraph 48 reading "Dominguez's claims . . . are covered claims under the Interstate policy."; and the first sentence of paragraph 50.

Waukegan's Statement of Additional Material Paragraphs 10-11; the first sentence of Facts in Opposition to Interstate's Motion for paragraph 14; the first clause of paragraph 15; Summary Judgment paragraphs 18-19; the last sentence of paragraph 20; the first sentence of paragraph 22; and the first two sentences of paragraph 23.

Each of these paragraphs contains or consists of legal conclusions regarding whether certain claims in the Dominguez Civil Case occurred or accrued within the policy periods, who qualifies as an insured under the policies, when an insured's duty to defend was triggered, and whether claims in the underlying complaint are "covered" under the policies - in other words, the primary issues to be decided in this case.

Turning to American Safety's and Interstates's objections to statements of fact that rely on Brayer's expert testimony, "to be considered in a motion for summary judgment, the testimony [by an expert] must be admissible." See Porter v. Whitehall Labs., Inc., 9 F.3d 607, 612 (7th Cir. 1993). For that reason, the Court strikes the following portions of Waukegan's statements of material facts because they are supported solely by portions of Brayer's report that the Court struck in its January 12, 2011 order. See e.g., Good Shepherd Manor Found. v. City of Momence, 323 F.3d 557, 564 (7th Cir. 2003) (expert testimony on conclusions of law not admissible); see also In re Ocean Bank, 481, F. Supp. 2d 892, 898 (N.D. Ill. 2007) (St. Eve, J.) (same).

Document Statement Stricken

Waukegan's Statement of Material Facts in Paragraph 47 and paragraph 68. support of its Motion for Summary Judgment against American Safety Waukegan's Statement of Additional Material The second sentence of paragraph 2; and the Facts in Opposition to American Safety's second sentence of paragraph 19.

Motion for Summary Judgment Waukegan's Statement of Material Facts in All but the first sentence of paragraph 42 and support of its Motion for Summary Judgment paragraph 43. against Interstate Finally, the Court strikes various facts because they do not making specific reference to a relevant portion of the record to support the statements therein or are not supported by the cited record. See L.R. 56.1 (a party's statement of material facts in support of its motion for summary judgment "shall consist of short numbered paragraphs, including within each paragraph specific references to the affidavits, parts of the record, and other supporting materials relied upon to support the facts set forth in that paragraph"). In Waukegan's 56.1 statement in support of its motion for summary judgment against American Safety, the Court strikes the last clause of paragraph 31 referring to various "provisions" without citing them specifically; the general statements about cooperation and notification of "all information" in paragraph 49; and the last statement in paragraph 72 that "[b]y its own admission, [American Safety] has no policies or procedures it followed with regard to processing claims," which is a conclusion not supported by the cited testimony. See L.R. 56.1(a).

The Court denies American Safety's motion to strike, however, with respect to the first sentence of paragraph 56, paragraphs 58-59, and paragraphs 69-70 in Waukegan's 56.1 statement. Contrary to American Safety's assertions, these factual statements are relevant to the Court's legal determinations regarding coverage in this matter, including whether American Safety's conduct was "unreasonable and vexatious" for purposes of Waukegan's claims under Section 155 of the Illinois Insurance Code. It also denies American Safety's motion to strike with respect to paragraph 71 in Waukegan's 56.1 statement, which cites to portions of Brayer's amended report describing a claim representative's duties that the Court found admissible in its January 12, 2011 order.

II. MOTIONS FOR SUMMARY JUDGMENT

A. Statement of Material Undisputed Facts*fn1

1. The Parties.

Waukegan is a municipal corporation providing governance to residents within Lake County, Illinois. (Waukegan v. American Safety 56.1 Resp. ¶ 1; Interstate v. Waukegan 56.1 Resp. ¶ 1; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶ 1; Waukegan v. Westport 56.1 Resp. ¶ 1.) Plaintiff and Counter-Defendant American Safety issued insurance policies to Waukegan that are at issue in this matter, as did Counter-Defendants Interstate, Westport, Underwriters, and Northfield. (Waukegan v. American Safety 56.1 Resp. ¶ 2; Waukegan v. Interstate 56.1 Resp. ¶ 2; Underwriters & Northfield Trigger Resp. ¶¶ 24-25; Waukegan v. Westport 56.1 Resp. ¶ 2.) Counter-Defendant Interstate provides insurance coverage policies to Illinois insureds. (Interstate v. Waukegan 56.1 Resp. ¶ 3.) Counter-Defendant Underwriters are members of syndicates who severally subscribed to certain insurance policies and are authorized to underwrite insurance policies in Illinois. (Underwriters & Northfield Trigger Issue 56.1 Resp. ¶ 2.) Counter-Defendant Northfield is a Minnesota insurance company that provides insurance policies to Illinois insureds. (Underwriters & Northfield Trigger Issue 56.1 Resp. ¶ 3.) Counter-Defendant Westport is an insurance company licensed to do business in the state of Illinois. (Westport v. Waukegan 56.1 Resp. ¶ 1.) Counter-Defendant Dominguez is a resident of Illinois who was tried and convicted for home invasion and sexual assault in 1990 but later exonerated. (Waukegan v. American Safety 56.1 Resp. ¶¶ 4-5.) Counter-Defendant Hendley is a former Waukegan police sergeant involved in the investigation of the home invasion and sexual assault for which Dominguez was convicted. (Waukegan v. American Safety 56.1 Resp. ¶ 7; Waukegan v. Interstate 56.1 Resp. ¶ 7; Underwriters & Northfield Trigger Issue 56.1 Resp. Add. Facts ¶ 15; Waukegan v. Westport 56.1 Resp. ¶ 6.) At all times relevant to the allegations in Dominguez's federal court complaint following his exoneration, Hendley was a Waukegan employee engaged in law enforcement activities, as directed and controlled by Waukegan. (Waukegan v. American Safety 56.1 Resp. ¶ 8; Waukegan v. Interstate 56.1 Resp. ¶ 7*fn2 .)

2. Dominguez's Civil Case (the Underlying Complaint).

On April 23, 2004, Dominguez then filed suit against Waukegan, Hendley, Waukegan Police Detective John Moran ("Moran"), Lisa Kraus ("Kraus"), and others in the United States District Court for the Northern District of Illinois, alleging false arrest and false imprisonment, malicious prosecution under 42 U.S.C. Section 1983 ("Section 1983"), and unconstitutional policies and procedures (the "Dominguez Civil Case"). (Waukegan v. American Safety 56.1 Resp. ¶¶ 6, 26; Interstate v. Waukegan 56.1 Resp. ¶¶ 6, 16; Waukegan v. Interstate 56.1 Resp. ¶¶ 6, 23-24; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶¶ 6, 17; Waukegan v. Westport 56.1 Resp. ¶ 5; Waukegan v. Westport 56.1 Resp. ¶ 24.) Dominguez filed his operative complaint on August 2, 2004 against Waukegan, Hendley, Moran, Kraus, and security guard Richard McCandless ("McCandless"), alleging federal claims for false arrest and false imprisonment (Count I), a violation of the Due Process Clause through malicious prosecution pursuant to Section 1983 (Count II), claims against Kraus and McCandless for conspiracy pursuant to Section 1983 (Count III), state law malicious prosecution against Kraus and McCandless (Count IV), state law intentional infliction of emotional distress (Count V), respondeat superior (Count VI), and indemnification (Count VII) ("the Underlying Complaint"). (Waukegan v. American Safety 56.1 Resp. ¶ 27; Interstate v. Waukegan 56.1 Resp. ¶ 6; Waukegan v. Interstate 56.1 Resp. ¶¶ 23, 25; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶¶ 6, 18; Underwriters & Northfield Trigger Issue 56.1 Resp. Add. Facts ¶ 3; Waukegan v. Westport 56.1 Resp. ¶ 24, 26.) These constitute personal injury claims for offenses caused in the course of Waukegan's law enforcement activities. (Waukegan v. American Safety 56.1 Resp. ¶ 15; Waukegan v. Interstate 56.1 Resp. ¶ 13*fn3 .)

a. The Factual Allegations in the Underlying Complaint.

The Underlying Complaint made the following factual allegations. First, it alleged that on September 19, 1989, Lisa Kraus ("Kraus") filed a complaint with the Waukegan Police Department asserting that she was sexually assaulted in her apartment. (Waukegan v. American Safety 56.1 Resp. ¶ 15; Waukegan v. Interstate 56.1 Resp. ¶ 13; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶ 7; Waukegan v. Westport 56.1 Resp. ¶ 14.) Waukegan police officers Hendley and Moran conducted an investigation into these allegations. (Waukegan v. American Safety 56.1 Resp. ¶ 16; Interstate v. Waukegan 56.1 Resp. ¶ 8; Waukegan v. Westport 56.1 Resp. ¶ 15.) On September 21, 1989, the Underlying Complaint alleged, Hendley arrived at Kraus's apartment building for investigation purposes and spoke with a security guard. (American Safety v. Waukegan 56.1 Resp. ¶ 7; Waukegan v. Interstate 56.1 Resp. ¶ 14; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶ 8.) Although Hendley denied the following allegations in his answer to the Underlying Complaint, that complaint alleged that Hendley asked the security guard to bring Dominguez into the guard's office for Kraus to identify him, and that Kraus then identified Dominguez as her assailant in that office. (American Safety v. Waukegan 56.1 Resp. ¶¶ 8, 10.)

It further alleges that Dominguez was arrested on September 21, 1989 and convicted on February 28, 1990 of aggravated criminal sexual assault and home invasion; he was sentenced to a nine year term, but then released for good behavior in December 1993 and required to register as a sex offender for ten years. (Waukegan v. American Safety 56.1 Resp. ¶¶ 4, 18-19; American Safety v. Waukegan 56.1 Resp. ¶ 12; Interstate v. Waukegan 56.1 Resp. ¶¶ 10-12; Waukegan v. Interstate 56.1 Resp. ¶¶ 15-17; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶¶ 9-11; Underwriters & Northfield Trigger Issue 56.1 Resp. Add. Facts ¶ 19; Waukegan v. Westport 56.1 Resp. ¶¶ 17-18.) When he missed the sex offender registration deadline in November 1998, he was arrested and held in jail for one day. (Waukegan v. American Safety 56.1 Resp. ¶ 20; Interstate v. Waukegan 56.1 Resp. ¶ 13; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶¶ 12-13; Waukegan v. Westport 56.1 Resp. ¶ 19) He then pled guilty to attempted failure to register as a sex offender and was sentenced to two years of probation and 100 hours of community service; he was also required to participate in therapy sessions. (Waukegan v. American Safety 56.1 Resp. ¶ 21; Waukegan v. Interstate 56.1 Resp. ¶ 19; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶ 14; Waukegan v. Westport 56.1 Resp. ¶ 20.)

On January 28, 2001, Immigration and Naturalization Services ("INS") arrested Dominguez, a non-citizen, and initiated proceedings for his immediate removal from the country based on his earlier sexual assault conviction. (Waukegan v. American Safety 56.1 Resp. ¶ 35; American Safety v. Waukegan 56.1 Resp. Add. Facts ¶ 15.) He remained in INS custody for a one month period between January 28, 2001 and February 28, 2001. (American Safety v. Waukegan 56.1 Resp. Add. Facts ¶ 15.) On August 10, 2001, the Underlying Complaint alleges, Dominguez was granted post-conviction DNA testing; the results of this test excluded Mr. Dominguez as the alleged rapist. (American Safety v. Waukegan 56.1 Resp. ¶ 17; Interstate v. Waukegan 56.1 Resp. ¶ 14; Waukegan v. Interstate 56.1 Resp. ¶ 21; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶ 15; Waukegan v. Westport 56.1 Resp. ¶ 21.) On April 26, 2002, the Circuit Court of the Nineteenth Judicial Circuit for Lake County, Illinois reversed Dominguez's convictions for home invasion, aggravated criminal sexual assault, and exonerated him. (Waukegan v. American Safety 56.1 Resp. ¶ 5; Waukegan v. Interstate 56.1 Resp. ¶ 5; Waukegan v. Westport 56.1 Resp. ¶¶ 22-23.)

b. The Dominguez Verdict and Post-Trial Proceedings.

The district court later dismissed Counts III, IV, and V -- the Counts against Kraus and the security guard individually. (American Safety v. Waukegan 56.1 Resp. ¶ 20.) On October 13, 2006, the district court entered a minute order stating: "[i]n accordance with this Court's oral ruling the City of Waukegan is hereby dismissed as a defendant." (Interstate v. Waukegan 56.1 Resp. ¶ 17; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶ 19.) That order stated: the ruling was based on the lack of proof as to City in terms of the substantive Section 1983 claims of plaintiff S. Alejandro Dominguez . . . , but with the express understanding, based on the representations of counsel for all parties, that the City had unconditionally undertaken to indemnify co-defendant Paul Hendley. . . for any awards of compensatory damages and attorneys' fees entered against him.

(American Safety v. Waukegan 56.1 Resp. ¶ 40; American Safety v. Waukegan 56.1 Ex. Q.) Through this order, the Court ordered Waukegan to be held liable as indemnitor for all sums that Hendley was obligated to pay in the litigation. (Waukegan v. American Safety 56.1 Resp. ¶ 29.)

The district court conducted a jury trial beginning on October 3, 2006, and the jury returned a verdict in favor of Dominguez in the amount of $9,063,000 in compensatory damages on October 17, 2006. (Waukegan v. American Safety 56.1 Resp. ¶¶ 6, 28; Interstate v. Waukegan 56.1 Resp. ¶ 18; Underwriters & Northfield Trigger Issue 56.1 Resp. ¶ 20; Underwriters & Northfield Trigger Issue 56.1 Resp. Add. Facts ¶ 22; Waukegan v. Westport 56.1 Resp. ¶¶ 27, 59.) Dominguez had withdrawn all punitive damages claims before the close of the trial. (Underwriters & Northfield Trigger Issue 56.1 Resp. Add. Facts ¶ 23; Waukegan v. Westport 56.1 Resp. ¶ 27.) On October 27, 2006, Hendley moved for judgment as a matter of law and for a new trial, which the district court denied on December 4, 2006. (Underwriters & Northfield Trigger Issue 56.1 Resp. Add. Facts ¶ 24.)

On December 13, 2006, the district court entered a judgment order vacating the prior dismissal of Waukegan as a defendant based on its binding admissions that it would indemnify Hendley for all compensatory damages and attorney's fees for which he was held liable. (Interstate v. Waukegan 56.1 Resp. ¶ 19; Waukegan v. Interstate 56.1 Resp. ¶ 28; Waukegan v. Westport 56.1 Resp. ¶ 28.) The order specifically explained that the City would be "held liable as indemnitor for all sums that Hendley is obligated to pay" and that the "City is further ordered to be jointly and severally liable with Hendley as to all such sums, and a judgment shall be entered against it in accordance with this judgment order." (Underwriters & Northfield Trigger Issue 56.1 Resp. ¶ 21.) Waukegan has since satisfied the judgment award, including the judgment, interest, and attorneys' fees, in a total amount of $11,397,195.39. (Waukegan v. American Safety 56.1 Resp. ¶ 30;

Waukegan v. Interstate 56.1 Resp. ¶ 29; Waukegan v. Westport 56.1 Resp. ¶ 29.) Waukegan also incurred at least $1,079,296.90 in its own attorneys fees in defending Hendley in the Dominguez Civil Case and the appeal. (Waukegan v. American Safety 56.1 Resp. ¶ 30; Waukegan v. Interstate 56.1 Resp. ¶ 29.)

On December 29, 2006, Waukegan filed a notice of appeal to the United States Court of Appeals for the Seventh Circuit from the jury verdict in the Dominguez Civil Case. (Underwriters & Northfield Trigger Issue 56.1 Resp. Add. Facts ¶ 25.) The Seventh Circuit affirmed the judgment of the District Court on September 30, 2008 and issued its mandate on November 12, 2008. (American Safety v. Waukegan 56.1 Resp. ¶ 23; Underwriters & Northfield Trigger Issue 56.1 Resp. Add. Facts ¶ 26.) On January 29, 2009, Waukegan and Hendley petitioned the Supreme Court for certiorari, which the Supreme Court denied on May 19, 2009. (Underwriters & Northfield Trigger Issue 56.1 Resp. Add. Facts ¶ 27.)

3. The Insurance Policies at Issue.

a. The Policy Periods Summarized.

Northfield and Certain Underwriters issued Law Enforcement Liability insurance policies to Waukegan that were in effect, for the purposes of this suit, between November 1, 1991 and November 1, 1995. (Underwriters & Northfield Trigger 56.1 Resp. ¶¶ 24-25.) Westport issued primary and umbrella policies to Waukegan effective between November 1, 1997 and November 1, 2000. (Westport v. Waukegan ¶¶ 17-19, 30-32.) American Safety issued two policies to Waukegan, effective November 1, 2000 through November 1, 2001 and November 1, 2001 through November 1, 2002. (Waukegan v. American Safety ¶ 31.) Finally, Interstate issued a Commercial Umbrella Policy to Waukegan covering excess over American Safety's November 1, 2001 through November 1, 2002 insurance policy. (Interstate v. Waukegan ¶¶ 21-22.)

b. American Safety's Policies.

American Safety issued two Comprehensive Law Enforcement Liability Policies to Waukegan ("American Safety's Policies"). (Waukegan v. American Safety 56.1 Resp. ¶ 31.) The first was Public Entity Program Policy No. 14AN-MUOO-0000008-001 to Waukegan, effective between November 1, 2000 and November 1, 2001, and the second was Public Entity Program Policy No. 14AN-MUOO-0000008-002, effective between November 1, 2001 and November 1, 2002. (Waukegan v. American Safety 56.1 Resp. ¶ 31.) Each of the American Safety policies contains the following relevant provisions:

General Liability

We will pay all sums in excess of the "Self Insured Retention" limit stated in the Policy Declarations that any "Insured" becomes legally obligated to pay as damages because of "Bodily Injury" or "Property Damage" caused by an "Occurrence", or "Advertising Injury" or "Personal Injury" caused by an offense to which this coverage applies. The amount we will pay in damages is limited as described in section 2b below. The above stated coverage applies only if the "Occurrence" or offense occurs during the policy period and within the Policy Territory as set forth in the General Policy Provisions. The amount we will pay in damages is limited as described in Section 2b below. The above stated coverage applies only if the "Occurrence" or offense occurs during the policy period and within the Policy Territory as set forth in the General Policy Provisions. This General Liability Coverage Part does not apply if the "Occurrence" or offense arises as a result of a "Law Enforcement Activity".

Law Enforcement Liability We will pay all sums in excess of the "Self Insured Retention" limit stated in the Policy Declarations that any "Insured" becomes legally obligated to pay as damages because of "Bodily Injury" or "Property Damage" caused by an "Occurrence" in the course of a "Law Enforcement Activity" or because of an "Advertising Injury" or "Personal Injury" caused by an offense in the course of your "Law Enforcement Activity."

Duty to Defend

We shall have the right and duty to select counsel and defend any claims seeking damages to which Part II applies. Our right and duty to defend ends when we have used up the applicable limit of insurance in the payment of judgments or settlements. . . .

Liability Exclusions . . .

This insurance does not apply to any claim due to: . . .

2. Assumption of Liability: Damages any "Insured" is obligated to pay by reason of the assumption of liability under a contract or agreement. This exclusion does not apply to liability for damages assumed in a contract or agreement that is an "Insured Contract" provided "Bodily Injury", "Property Damage", "Personal injury" and/or "Advertising Injury" occur subsequent to the execution of the contract or agreement. . . .

Supplementary Payments In addition to the Limit of Insurance we will pay for the "Insured": (5) All costs taxed against the "Insured" in the "Suit"; (6) Prejudgment interest awarded against the "Insured" on that part of the judgment we pay . . . (7) All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in the court the part of the judgment that is within the applicable limit of insurance.

These payments will not reduce the limits of insurance.

Common Policy Conditions . . .

12. An "Insured's" Duties in the Event of an "Occurrence," Claim or Suit... Unless having our express written consent, or acting at their own cost, an "Insured" will not voluntarily: 1. Make a payment; 2. Assume any obligation; or 3. Incur any expense . . . .

24. Policy Period

We will pay only for loss that you sustain occurring during the Policy Period shown in the Declarations of this policy.

Common Policy Definitions . . .

9. "Bodily Injury" means bodily injury, sickness, disease, disability, shock, mental anguish, mental injury and humiliation sustained by a person, including death resulting from any of these at any time. . . .

19. "Insured" means (a) You . . . (d) Any "Employee" or any other person for whom the "Insured" is legally liable provided that, at the time of the "Occurrence" or wrongful act, the individual or individuals are under the direct supervision or control of an "Insured." . . . (f)Your "Employee" is an "Insured" for: 1) "Bodily Injury" or "Personal Injury" to you or to a co-employee while in any way connected or related to the course and scope of his or her employment, or the spouse, child, parent, brother or sister of that co-employee as a consequence of such "Bodily Injury" or "Personal Injury," or for any obligation to share damages with or repay someone else who must pay damages because of the injury; or 2) "Property Damage" to property owned or occupied by or rented or loaned to that "Employee", or any of your other "Employees". . .

21. "Law Enforcement Activity" means all operations of your police force or any other public safety organization which enforces the law and protects persons or property. . . .

29. "Occurrence" means an accident caused by a "Covered Cause of Loss", including continuous or repeated exposure to substantially the same general harmful conditions."

30. "Personal Injury" means injury, other than "Bodily Injury", arising out of one or more of the following offenses: (a) False arrest, detention or imprisonment; (b) Malicious prosecution; . . . (g) Violation of the Federal Civil Rights Act of 1871or 42 U.S.C. 1983 and similar laws.

38. "Self Insured Retention" means: that sum or sums indicated in the Declarations or Schedule of "Self Insured Retentions" which the "Insured" shall pay: (a) For settlement or satisfaction of claims, "Suits" of judgments, after making deductions for all salvages and recoveries; plus (b) "Allocated Claims Expenses" . . . . The "Self Insured Retention" shall be paid by the "Insured" prior to any obligation on the part of this Company. This "Self Insured Retention" shall be funded by an "annual Aggregate Loss Fund" administrated by a "Third Party Administrator." (American Safety v. Waukegan 56.1 Resp. ¶¶ 26, 43; American Safety v. Waukegan 56.1, Exhibits B and C to Ex. A; Waukegan v. American Safety 56.1 Resp. ¶¶ 38-41, 44-45; Waukegan v. American Safety 56.1 Resp. Add. Facts. ¶¶ 1, 4; American Safety v. Waukegan 56.1 Resp. Add.

Facts ¶¶ 2, 3, 11, 17, 20; Waukegan v. Interstate 56.1 Resp. ¶¶ 44, 47; Interstate v. Waukegan 56.1 Resp. Add. Facts ¶¶ 14, 16.)

The first American Safety policy lists the "Policy Period" as "From: 11/01/00 To: 11/01/01." (Waukegan v. American Safety 56.1 Resp. Add. Facts. ¶ 2.) The second American Safety policy lists the "Policy Period" as "From: 11/01/01 To: 11/01/02." (Waukegan v. American Safety 56.1 Resp. Add. Facts. ¶ 2.) Dominguez's January 28, 2001 arrest and incarceration occurred during the policy period for the first American Safety policy, and his convictions for home invasion, sexual assault, and failure to register as a sex offender were vacated during the policy period for the second American Safety policy. (Waukegan v. American Safety 56.1 Resp. ¶ 35-36.) The policies included $1,000,000 limits for each person and occurrence for losses, including losses attributable to or occurring in the course of law enforcement activities. (Waukegan v. American Safety 56.1 Resp. ¶ 31.) Waukegan's police officers are insureds under the policies. (Waukegan v. American Safety 56.1 Resp. ¶ 38.) Under the American Safety Policies, Dominguez's claims of false arrest (Count I) and malicious prosecution (Count II) fall within the definition of "personal injury." (Waukegan v. American Safety 56.1 Resp. ¶ 42.) The Policies do not require insureds to notify American Safety when the SIR is exhausted.*fn4 (Waukegan v. American Safety 56.1 Resp. ¶ 46; American Safety v. Waukegan 56.1 Resp. Add. Facts ¶ 18.) American Safety never inquired whether the SIR was exhausted or requested "paid to date" figures to determine whether the SIR was exhausted. (American Safety v. Waukegan 56.1 Resp. Add. Facts ¶ 18.)

b. Interstate Policy.

Interstate issued to Waukegan Commercial Excess and Umbrella Policy number UMC6101226 ("the Interstate Policy"), which had a policy period of November 1, 2001 through November 1, 2002. (Interstate v. Waukegan 56.1 Resp. ¶ 21, 24; Waukegan v. Interstate 56.1 Resp. ¶ 30.) The policy includes a provision for an upper liability limit of $10,000,000 per occurrence. (Waukegan v. Interstate 56.1 Resp. ¶ 30.) It provides coverage that follows form of underlying policies listed in its Schedule of Underlying Insurance. (Interstate v. Waukegan 56.1 Resp. ¶ 21.) Specifically, the Interstate Policy was an excess policy over American Safety's policy effective November 1, 2001 through November 1, 2002. (Interstate v. Waukegan 56.1 Resp. ¶ 22.) The Interstate Policy provides coverage on an "occurrence" basis, and defines "insured" as "[t]he 'named insured'" or "[a]ny person or organization included as an insured in any 'underlying policy' at the inception of this policy, other than an Additional Insured." (Waukegan v. Interstate 56.1 Resp. ¶ 45.) Interstate's policy provides that "[n]o ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.