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General Insurance Company of America v. Clark Mallcorporation

May 4, 2011

GENERAL INSURANCE COMPANY OF AMERICA, PLAINTIFF-APPELLANT,
v.
CLARK MALLCORPORATION, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 C 2787-Jeffrey N. Cole, Magistrate Judge.

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

ARGUED APRIL 14, 2011

Before EASTERBROOK, Chief Judge, and ROVNER and SYKES, Circuit Judges.

General Insurance Company of America filed this declaratory-judgment action to determine whether it must defend and indemnify its insured, Discount Mega Mall Corporation ("Discount Mall"), and its principals in an Illinois state-court law-suit. On Discount Mall's motion for judgment on the pleadings, the district court determined that General Insurance owed a duty to defend under Illinois law. At General Insurance's request, the court entered its duty-to-defend order as a final judgment to facilitate an immediate appeal. See FED. R. CIV. P. 54(b); 28 U.S.C. § 1291.

But much of the case remains pending, including several counterclaims implicating the insurer's duty to defend. We dismiss for lack of appellate jurisdiction.

I. Background

On September 8, 2007, a major fire occurred at the Discount Mega Mall in Chicago. Discount Mall was insured under a commercial general liability ("CGL") policy issued by General Insurance, and the mall filed a first-party claim under the policy for the fire damage. A number of tenants sued Discount Mall in Illinois state court alleging that the mall's negligence caused the fire. Discount Mall tendered the defense to General Insurance, which denied the tender and filed this declaratory-judgment action seeking a judicial determination that it has no duty to defend or indemnify under the policy. General Insurance named the following defendants: Clark Mall Corporation d/b/a Discount Mega Mall Corporation; Kyun Hee Park and Jennifer Park, Discount Mall's princi-pals; and the mall's tenants, who were the plaintiffs in the underlying state-court suit.

As relevant here, General Insurance claimed that the losses at issue in the underlying suit fell within an exclusion in the CGL policy for " 'property damage' to . . . property in the care, custody, or control of the insured."

The insurer alleged that the fire occurred after the mall had closed for the night and that Discount Mall's employees had locked the building and restricted the tenants' access. Based on these allegations, General Insurance claimed that the underlying suit sought recovery for damage to "property in the care, custody, or control of the insured" and was therefore excluded from coverage under the policy.

Discount Mall and the other defendants answered the declaratory-judgment complaint and asserted five counterclaims. The counterclaims sought the following relief: (1) a declaratory judgment that a defense and indemnity were owed; (2) damages for breach of contract for failure to indemnify; (3) damages for "vexatious and unreasonable" refusal to defend and indemnify under section 155 of the Illinois Insurance Code, 215 ILL. COMP. STAT. 5/155; (4) damages for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILL. COMP. STAT. 505/2; and (5) damages for common-law fraud. The parties consented to proceed before a magistrate judge, and the defendants (Discount Mall, the Parks, and their tenants) moved for judgment on the pleadings on the competing claims for declaratory judgment relating to General Insurance's duty to defend. See FED. R. CIV. P. 12(c).

The magistrate judge entered a split decision on the motion. To the extent the defendants sought a declaration that General Insurance had a duty to defend Clark Mall Corporation, the court denied the motion because no entity named "Clark Mall" was an insured. But the court held that General Insurance had a duty to defend Discount Mall. The judge faulted General Insurance for failing to introduce evidence establishing the applicability of the policy's exclusion for damage to "property in the care, custody, or control" of the insured. This failure, the judge held, was fatal to the insurer's claim that it had no duty to defend. Finally, the court held that General Insurance's refusal to defend the underlying suit had not been "vexatious and unreasonable" because there was a bona fide dispute about coverage. Accordingly, the judge declined to enter an award under section 155 of the Illinois Insurance Code, 215 ILL.

COMP. STAT. 5/155.

General Insurance objected to the judge's novel requirement that it produce evidence at the pleadings stage and asked the court to reconsider. This request was denied. The court shifted course, however, on the section 155 claim. In a separate order denying General Insurance's motion to dismiss the counterclaims, the court explained that its earlier ruling had not conclusively rejected the counterclaim for vexatious and unreasonable refusal to defend. The section 155 claim, in other words, remained pending in its entirety.

General Insurance asked the court to enter its duty-to-defend ruling as a final judgment under Rule 54(b) so that it could take an immediate appeal. The court obliged and entered a judgment purporting to permit this appeal. The judgment, however, is stated more broadly than the court's original order. It states that "[j]udgment on the pleadings is entered against [General Insurance] and in favor of the Defendants on [General Insurance's] claim . . . that it is not obligated . . . to defend any of the defendants named in" the state-court lawsuit. This sweeping language conflicts with the judge's holding that General Insurance has no duty to defend "Clark Mall" because no ...


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