The opinion of the court was delivered by: Magistrate Judge Jeffrey Cole
MEMORANDUM OPINION AND ORDER ON MOTION FOR RECONSIDERATION
General Insurance Corporation of America ("GICA") has moved, for a second time, for reconsideration of the April 16, 2009 memorandum opinion granting the defendant insureds' motion for judgment on the pleadings on the issue of GICA's duty to defend the defendants in the underlying state court action.*fn1 Contrary to all of the decided cases, GICA had argued that its obligation to defend the insureds in the underlying state court case was not to be determined by resort to the complaint in the underlying case, but by resort to its declaratory judgment complaint in the instant case, the allegations of which had to be taken as true. The argument was based on a series of cases from the Illinois appellate Court then held that an insurer could offer "extrinsic evidence" in order to negate a claimed obligation to defend. Although it was not quite argued this way, inherent in the argument was the contention that the allegations in the declaratory judgment complaint somehow satisfied the Illinois state cases that had allowed extrinsic evidence to be used to negate a duty to defend. It was never explained how acceptance of the allegations as true was the same as extrinsic evidence within the meaning of the Illinois Appellate Court cases. Nor was it ever explained how those cases had anything to do with the operation of Rule 12(c) in the federal court.
The April 2009 memorandum opinion concluded that the pleadings in the underlying case did not show that it was clear and free from doubt that Exclusion 2(j) of the insurance policy the defendants have with GICA precluded coverage and that the allegations in the complaint in this court effectively did not count. General Insurance Co. of America v. Clark Mall, 631 F.Supp.2d 968 (N.D.Ill. 2011). GICA filed an interlocutory appeal pursuant to Rule 54 (b). The Seventh Circuit dismissed the appeal for lack of jurisdiction. General Insurance Co. of America v. Clark Mall, 644 F.3d 375 (7th Cir. 2011).
Relying on a snippet of the Seventh Circuit's opinion, removed from the informing context of the balance of the opinion, GICA now argues that the Seventh Circuit held that the allegations in its declaratory judgment complaint must be taken as true and effectively trump the allegations in the underlying complaint in the state court. So, along with a reversal of the April 2009 order, GICA asks -- also for a second time -- for leave to file an amended declaratory judgment complaint, the allegations of which purportedly negate an obligation to defend under the care, custody or control exclusion of the GICA insurance policy. As we shall see, the argument for reconsideration is not supported by the Seventh Circuit's opinion in Clark Mall, is violative of the basic rules governing motions for reconsideration, and ultimately rests on a non sequitur.
The Seventh Circuit read the memorandum opinion as "oddly requir[ing]" GICA to come forward with evidence at the pleading stage in response to the insureds' motion for judgment on the pleadings under Fed.R.Civ.P. 12(c). It was apparently the court's view that the memorandum opinion's "requirement" that GICA produce evidence was based on a series of Illinois Appellate Court cases that allowed (but did not require) an insurance carrier, in response to a motion for judgment on the pleadings, to offer extrinsic "evidence" showing that it had no obligation to defend. But, Illinois insurance law, the court held, could not trump the operation of the Federal Rules of Civil Procedure. Here are the relevant portions of the Seventh Circuit's decision:
On the merits this appeal presents the following question of Illinois insurance law: Is an insurer's duty to defend determined solely by reference to the allegations in the underlying complaint, or may the insurer present evidence to establish that the loss alleged in the complaint is not covered under its policy? Decisions from the Illinois Appellate Court hold that although the duty to defend is ordinarily determined by examining the allegations of the underlying complaint, when an insurer seeks a declaratory judgment on the issue of coverage, it may present evidence to demonstrate that its policy does not cover the loss in question. See, e.g., Am. Econ. Insurance Co. v. Holabird & Root, 382 Ill.App.3d 1017, 320 Ill.Dec. 97, 886 N.E.2d 1166, 1175--78 (Ill.App.Ct.2008); Fid. & Cas. Co. v. Envirodyne Eng'rs, Inc., 122 Ill.App.3d 301, 77 Ill.Dec. 848, 461 N.E.2d 471, 473--74 (Ill.App.Ct.1983). In its recent decision in Pekin Insurance Co. v. Wilson, 237 Ill.2d 446, 341 Ill.Dec. 497, 930 N.E.2d 1011, 1019--21 (Ill.2010), the Illinois Supreme Court cited this line of cases with approval.
The magistrate judge noted these cases but oddly required General Insurance to present evidence on the duty-to-defend question at the pleadings stage in response to the defendants' Rule 12(c) motion for judgment on the pleadings. It is not surprising, then, that General Insurance asked the court to enter its order as a final judgment to set up an immediate appeal. Under Rule 12(d) of the Federal Rules of Civil Procedure, a motion for judgment on the pleadings must be treated as a motion for summary judgment if matters outside the pleadings are submitted. Fed.R.Civ.P. 12(d) ("If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56."). But this does not mean that a party opposing a Rule 12(c) motion for judgment on the pleadings must submit evidence in order to avoid entry of judgment against it. And that is precisely what the court required General Insurance to do.
It is true that duty-to-defend questions in insurance-coverage disputes can sometimes be resolved at the pleadings stage on a Rule 12(c) motion for judgment on the pleadings. See, e.g., Nautilus Insurance. Co. v. 1452--4 N. Milwaukee Ave., LLC, 562 F.3d 818, 822--24 (7th Cir.2009). But not always. Illinois insurance law does not alter the normal operation of the Federal Rules of Civil Procedure, although the magistrate judge seemed to think that it does. 644 F.3d at 378 (emphasis in original).
That it appeared to the Court of Appeals that the memorandum opinion ignored Rule 12(c) (and the cases construing it, which were cited in the opinion, 631 F.Supp.2d at 972), and "require[d]" that GICA produce evidence in opposition to the insureds' motion may have been the result of GICA's brief, which unfortunately ignored all but the last two pages of the memorandum opinion, citing only to pages 16 and 17 of the 17-page opinion. (Brief of Plaintiff-Appellant, at 15, 23)).This sort of presentation can have pernicious results, as Judge Easterbrook has noted. Cf., Durgins v. City of East St. Louis, Illinois, 272 F.3d 841, 844-45 (7th Cir. 2001)(parties' briefs misled the Court of Appeals into finding it had no jurisdiction). Perhaps it was inexactness in the phrasing of the memorandum opinion or in its organizational structure. Cf., Rodriguez v. Chandler, 492 F.3d 863 (7th Cir. 2007)("Our original opinions' failure to keep these subjects distinct may have influenced the parties' briefing choices on appeal."); Pruitt v. Mote, 503 F.3d 647, 654 (7th Cir. 2007)(en banc)("Nor have we always been consistent in articulating and applying the inquiries each question represents.").
In any event, it cannot be too strongly stressed that nothing in the memorandum opinion granting the defendants' Rule 12(c) motion or in this opinion was or is intended to require GICA to submit "evidence" in order to defeat a Rule 12(c) motion or to subordinate the operation of Rule 12(c) to Illinois insurance law. We turn to GICA's arguments, mindful of and guided by the opinion of the Court of Appeals.
In response to the insureds' Rule 12(c) motion, GICA did not argue that the allegations of the underlying complaint demonstrated it had no duty to defend. Instead, it relied on the allegations in its declaratory judgment complaint to support its position. (Dkt. # 18, at 4-6).*fn2 GICA argued that those allegations had to be taken as true and were enough to defeat the Rule 12(c) motion. The memorandum opinion concluded that, given the allegations in the underlying complaint in the state court and the fact that GICA paid them no mind in its brief, GICA had failed to demonstrate that it was clear and free from doubt that exclusion 2(j) of the insurance policy precluded coverage. 631 F.Supp.2d at 972-977.
There was no mention of evidence in the discussion, nor any demand for its production, contrary to GICA's position here and in the Court of Appeals (Brief of Plaintiff-Appellant, at 15-16, 19-22), until well into the memorandum opinion. And that reference was solely in response to GICA's brief, and not because of uncertainty about Rule 12(c). See 631 F.Supp.2d at 977.
In its brief in response to the insureds' Rule 12(c) motion in this court, GICA argued, much as it continues to do in the current motion, that "where the insurer files a declaratory judgment action seeking to determine its duty to defend, it may rely on facts extrinsic to the underlying complaint as the basis for denying coverage." (Dkt. # 18, at 5). GICA cited the following portion from Fidelity & Cas. Co. of New York v. Envirodyne Engineers, Inc., 122 Ill.App.3d 301, 305, 461 N.E.2d 471, 474 (1st Dist.1983) to support its proposition: the duty to defend flows in the first instance from the allegations in the underlying complaint; this is the concern at the initial stage of the proceedings when an insurance company encounters the primary decision of whether to defend its insured. However, if an insurer opts to file a declaratory proceeding, we believe that it may properly challenge the existence of such a duty by offering evidence to prove that the insured's actions fell within the limitations of one of the policy's exclusions. 122 Ill.App.3d at 304, 461 N.E.2d at 473 (emphasis supplied).
What relevance this proposition had to the principle that well-pled allegations in a complaint must be taken as true, GICA never paused to explain. Obviously, the passage does nothing to support GICA's novel take on the law that allegations in an insurer's declaratory judgment complaint can come into play or constitute "evidence" or trump the underlying complaint.
GICA, nonetheless, went on to argue that, because it: brought a timely declaratory judgment action, it may offer extrinsic facts to prove that the underlying plaintiffs' damages fall within the care custody or control exclusion. Moreover, at this stage in the case, when the plaintiff has moved for judgment on the pleadings, this court must take as true [GICA]'s allegations establishing that the underlying plaintiffs' damages were property damage to property within the insured's care custody or control. (Dkt. # 18, at 6)(Emphasis supplied).
As the memorandum opinion noted, all the state cases GICA cited made clear that evidence meant just that -- evidence that would suffice in a summary judgment case. 631 F.Supp.2d at 978.
See also infra at 7, et. seq. But this was not intended to mean that Illinois law governed interpretation and application of Rule 12 (c) or that GICA was required to produce evidence in a Rule 12(c) proceeding. Even the state court appellate cases GICA cited merely allowed an insurer to present evidence to support its declaratory judgment claim; none of them made it a requirement. See Envirodyne, American Economy Insurance. Co. v. Holabird and Root, 382 Ill.App.3d 1017, 1031, 886 N.E.2d 1166, 1178-1179 (1st Dist. 2008), Fremont Compensation Insurance. Co. v. Ace-Chicago Great Dane Corp., 304 Ill.App.3d 734, 741, 710 N.E.2d 132, 137 (1st Dist. 1999), Country Mut. Insurance. Co. v. Waldman Mercantile Co., Inc., 103 Ill.App.3d 39, 40, 430 N.E.2d 606, 608 (5th Dist. 1981).
None of these cases were judgment on the pleadings cases under Rule 12(c). Envirodyne and Holabird were state summary judgment cases, Country Mut. involved a trial, and Fremont involved Illinois' voluntary dismissal rule, 735 ILCS 5/2-619(a), which allows a party to move for dismissal on the face of the complaint or to support its motion with an affidavit.*fn3 None of these cases say anything about allowing insurers to rely on their own allegations in their declaratory judgment complaints -- this was just GICA's faulty interpretation of the word "evidence" in the state court cases on which it relied.*fn4 In fact, it was precisely because of the rule in Illinois that a court in a declaratory judgment action looked only to the underlying complaint that the Illinois Appellate Court had devised the "extrinsic evidence" option for insurers.
The reference to the need for evidence, which appeared three-quarters of the way through the memorandum opinion in response to GICA's argument was meant as nothing more than an explanation of the only way that evidence could come into play in a Rule 12(c) proceeding, which would occur only if the insurance company voluntarily chose to respond to a Rule 12(c). But as the memorandum opinion noted, that would convert the proceeding into one for summary judgment under Rule 12(d). See 631 F.Supp.2d at 977-979.
GICA's focus on a few sentences at the end of the memorandum opinion caused it to miss the opinion's meaning. But, "[j]udges expect [and are entitled to have] their pronunciamentos...read in context . . . ." Wisehart v. Davis, 408 F.3d 321, 326 (7th Cir. 2005)(emphasis supplied); see also United States v. Ingram, 172 U.S. 327, 328 (1899)(chastising counsel for "pick[ing] out a sentence or two in the opinion . . . , and, severing them from the balance . . . .").
The memorandum opinion reiterated that the cases GICA relied upon and, indeed, nearly all the cases in which evidence was considered in the duty to defend determination were summary judgment cases. 631 F.Supp.2d at 978. The remaining cases involved trials or procedures like 735 ILCS 5/2-619(a) that specifically envision the production of evidence. It was apparent that what GICA hoped to shoehorn into these evidence cases were its own allegations in its declaratory judgment complaint, all the while:
Here, the [declaratory judgment complaint] alleges that the underlying plaintiff's property was destroyed in a fire in a mall, after business hours, at a time when only the insured's employees had access to the mall. Thus, the extrinsic facts alleged in the [declaratory judgment complaint] established that the insured had care, custody and control of the property sufficient to trigger the "care, custody and control" exclusion. . . . Accordingly, Defendant's Motion to Dismiss should be denied. (Dkt. # 18, at 6). Despite the cases on which it relied, GICA was arguing its own allegations in its declaratory judgment complaint, should play the decisive role and exclusive in the determination of whether the Rule 12(c) motion should be denied.
Again, a response seemed necessary; in hindsight, perhaps that was a bad choice. The memorandum opinion pointed out the standards under Rule 12(c) at the beginning of the Analysis section, 631 F.Supp.2d at 972, and went on for five pages to consider the underlying complaint -- and only that pleading -- in the context of applicable Illinois law. 631 F.Supp.2d at 972-77. The opinion noted that GICA had ignored the allegations in the underlying complaint and went on to explain that GICA's allegations were not evidence. 631 ...