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American Safety Casualty Insurance Company v. City of Waukegan

July 6, 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 long-running 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, who was convicted of rape in 1990 after an investigation by Waukegan police officer Paul Hendley but later exonerated. The primary issue in this case is which, if any, of the City's various insurers must cover the loss to the City from the verdict and the resulting judgment. On March 3, 2011, the Court entered summary judgment for Waukegan and against two of those insurers, primary carrier American Safety Casualty Insurance Company ("American Safety") and excess carrier Interstate Indemnity Company ("Interstate"), finding that those two carriers insured the City in 2002 when Dominguez's due process claim against the City accrued, and the City's loss was the $11,397,195.39 it paid to satisfy the Dominguez judgment ("March 3 Opinion"). (Doc. 811.) The Court also granted summary judgment in favor of the other carriers in that opinion.

Because the record was underdeveloped on this point, the Court asked American Safety and Interstate to brief the issue of who is responsible for the $2,334,195.39 difference between the verdict and the judgment. In addition, both American Safety and Interstate move the Court to reconsider or clarify its March 3 Opinion under Rule 59(e). (See Docs. 814 and 819.) For the below reasons, the Court denies both motions alter or amend the judgment and finds that responsibility for the City's $11,397,195.39 loss breaks down as follows:

Category Responsible Party Amount

Self-Insurance Retention Waukegan $100,000 American Safety policy limits American Safety $1,000,000

Interstate's excess layer Interstate $7,963,000 American Safety's pro rata share of American Safety $138,570.12 interest on judgment Interstate's pro rata share of Interstate $1,103, 434.97 interest on judgment Dominguez's attorney's fees in American Safety $1,067,637.86 underlying suit and appeal Dominguez's costs on appeal American Safety $13,757.95

Interest on Dominguez's American Safety $10,794.49 attorney's fees

Total: $11,397,195.39

I. MOTIONS TO ALTER OR AMEND JUDGMENT

A. Standard

Rule 59(e) allows a party to bring to the Court's attention manifest errors of law or fact or newly discovered evidence. See United States v. Resnick, 594 F.3d 562, 568 (7th Cir. 2010). Manifest error is the "wholesale disregard, misapplication, or failure to recognize controlling precedent." Oto v. Metro. Life Ins. Co., 224 F.3d 601, 606 (7th Cir. 2000). A Rule 59(e) motion is not a "vehicle for a party to undo its own procedural failures, and it certainly does not allow a party introduce new evidence or advance arguments that could have and should have been presented to the district court prior to the judgment." Resnick, 594 F.3d at 568. Nor is a Rule 59(e) motion an avenue to rehash arguments already considered and rejected by the Court. Oto, 224 F.3d at 606 ("A 'manifest error' is not demonstrated by the disappointment of the losing party."). Manifest errors of law are the "rare" instances where "the Court has patently misunderstood a party . . . or has made an error not of reasoning but of apprehension." Bank of Waunakee v. Rochester Cheese Sales, 906 F.2d 1185, 1191 (7th Cir. 1990). Whether to grant a Rule 59(e) motion "is entrusted to the sound judgment of the district court." In re Prince, 85 F.3d 314, 324 (7th Cir. 1996).

B. Responsibility for False Arrest Damages

First, American Safety and Interstate both content that the amount they must pay as a result of the Dominguez verdict should be reduced because some of the damages were awarded for Dominguez's false arrest claim. The facts of the underlying case are laid out in detail in the March 3 Opinion. For current purposes, it is sufficient to note that Dominguez brought two claims against the City, one for false arrest and the other for denial of due process. Dominguez's false arrest claim "occurred" (or accrued) for insurance purposes in 1989, while his due process claim accrued in 2002, when he was exonerated. (March 3 Opinion at 36-39); Nat'l Casualty Co. v. McFatridge, 604 F.3d 335, 344 (7th Cir. 2010) (finding that false arrest claims accrue when the plaintiff is held under a warrant and that due process claims accrue when the plaintiff's conviction is reversed). American Safety and Interstate did not insure the City in 1989.*fn1 They argue that, to the extent the verdict included damages for Dominguez's false arrest claim, they are not responsible for those damages. Setting aside that the carriers did not raise this issue on summary judgment, the Seventh Circuit's opinion on the direct appeal of the underlying case forecloses this argument. In rejecting Hendley's assertion that Dominguez had not shown that Hendley arrested him without probable cause, the court found such a lack of evidence "would be relevant only if the verdict were based on a false arrest claim, but it was not." ...


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