The opinion of the court was delivered by: Magistrate Judge Jeffrey Cole
MEMORANDUM OPINION AND ORDER
Since this is not the first opinion in this case, the history and the facts surrounding the parties' dispute need not be detailed at any great length. See General Insurance. Co. of America v. Clark Mall, Corp., 631 F.Supp.2d 968, 971 (N.D.Ill. 2009). The case grows out of a fire at the Clark Mall, a discount mall in Chicago, at which vendors maintained kiosks from which they sold their wares. The vendors sued Discount Mega Mall Corp., ("the Corporation") the owner of the Mall, for negligently maintaining the property and thus being responsible for the fire and their losses. Also named as defendants were Kyun and Jennifer Park, who were corporate officers. The complaint in the underlying case also had counts charging the defendants with having made various misrepresentations to them.*fn1 Discount Mega Mall Corporation ("the Corporation") had an insurance policy with GICA -- plaintiff and counter-defendant here -- and expected the insurance company to defend it and its officers in the underlying suit. GICA refused and filed a declaratory judgment action here, asking for a declaration that it was neither obligated to defend the Corporation and its officers and directors, nor indemnify them in connection with the losses the vendors suffered as a consequence of the fire. Up to that point, the case was routine. It was not, however, to remain simple and predictable.
The Corporation filed an amended counterclaim with multiple counts that sought a declaration that GICA was obligated under its policy of insurance to indemnify the Corporation in connection with its own losses and property damage resulting from the fire, including lost income, and requiring GICA to negotiate in good faith with respect to payment of the claim. [Dkt. # 77].*fn2 The Counterclaim also had separate counts for breach of GICA's insurance contract with the Corporation (Count II), unreasonable and vexatious conduct under Section 155 of the Illinois Insurance Code (215 ILCS 5/155)(Count III), violation of the Illinois Consumer Fraud and Deceptive Trade Practices Act (Count IV), and common law fraud in connection with alleged bad faith demands for documentation of the claim and prolonging its refusal to honor or deny the claim (Count V). All these counts asked that GICA be ordered to pay its (first party) claim and sought attorneys' fees. Counts IV and V sought punitive damages as well. The Second Amended Counterclaim made essentially the same allegations and sought the same relief. [Dkt. #146].
GICA's First Affirmative Defense to the Counterclaim alleged that "the fire at the [Mall] was incendiary," and that the Corporation breached the terms of the policy "by intentionally committing, or conspiring to commit, acts with the intent to cause the subject loss." [Dkt. #193 at pp. 7-8, ¶¶2-3]. In short, GICA charged the Corporation with having torched the Mall. GICA also contended that the Corporation concealed facts concerning its financial condition, and facts relating to the physical condition of the property, thereby precluding liability for the loss. (Second Affirmative Defense). The Fourth Affirmative Defense alleged that there was a bona fide dispute regarding coverage, and that GICA's refusal to pay was not vexatious or unreasonable. Finally, the Fifth Affirmative Defense charged that the Corporation, in contravention of its obligations under the policy, had failed to cooperate in the investigation.
The Seventh Circuit recently dismissed GICA's interlocutory appeal of the entry of judgment on the pleadings against GICA on its declaratory judgment complaint for want of jurisdiction. General Insurance Co. of America v. Clark Mall Corp., 644 F.3d. 375 (7th Cir. 2011). GICA's subsequent motion for reconsideration of this court's entry of judgment on the pleadings was denied. General Insurance Co. of America v. Clark Mall Corp., 2011 WL 6182340 (N.D.Ill. 2011). That brings us to GICA's motion to stay any action on the Second Amended Counterclaim pending the outcome of the underlying action in the state court by the vendors against the Corporation. The theory is that there is a danger of reaching a result in this case that would be inconsistent with or would resolve underlying issues in the state court action.
"'Under what is known as the Wilton/Brillhart abstention doctrine, district courts possess significant discretion to dismiss or stay claims seeking declaratory relief, even though they have subject matter jurisdiction over such claims.'" Envision Healthcare, Inc. v. PreferredOne Insurance. Co., 604 F.3d 983, 986 (7th Cir. 2010). Conversely, a district court substantial discretion not to stay a proceeding. The source of this discretion is the Declaratory Judgment Act, 28 U.S.C. §§ 2201, itself, which provides that district courts "may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a)(emphasis supplied). Given this permissive language, the Supreme Court held in Brillhart v. Excess Insurance. Co. of America, 316 U.S. 491 (1942), and later in Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995), that a district court's substantial discretion permits it to stay or dismiss an action seeking a declaratory judgment in favor of an ongoing state court case. See Brillhart, 316 U.S. at 494-95; Wilton, 515 U.S. at 288; Medical Assur. Co., Inc. v. Hellman, 610 F.3d 371, 379 (7th Cir. 2010).
Although the Supreme Court has not set out exact criteria for when a court should stay its hand under the Declaratory Judgment Act, the classic example involves a parallel state court proceeding. Envision Healthcare, 604 F.3d at 986. But is not limited to such situations. Nationwide Insurance. v. Zavalis, 52 F.3d 689, 692 (7th Cir. 1995).*fn3 Where there is a pending action involving the same parties as in the declaratory judgment case, the decision to stay or dismiss the federal action requires analysis beyond merely assessing whether resolving an issue in the federal action might also determine an issue in the parallel state case.*fn4
Since usually an insurance company's "duty to indemnify is not ripe for adjudication until the insured is in fact held liable in the underlying suit," Nationwide, 52 F.3d at 693, "decisions about indemnity should be postponed until the underlying liability has been established." Lear Corp. v. Johnson Electric Holdings Ltd., 353 F.3d 580, 583 (7th Cir. 2003). See also Medical Assur. Co., Inc. v. Hellman, 610 F.3d 371, 375 (7th Cir. 2010); Grinnell Mutual Reinsurance Co. v. Reinke, 43 F.3d 1152, 1154 (7th Cir.1995) Travelers Insurance Cos. v. Penda Corp., 974 F.2d 823, 833 (7th Cir.1992). As the Seventh Circuit explained in Nationwide:
When the underlying facts and the nature of the insured's conduct are disputed, the court presiding over the declaratory action typically cannot decide whether the insured acted negligently or intentionally (and consequently whether he has coverage or not) without resolving disputes that should be left to the court presiding over the underlying tort action.
The cases articulating these principles generally involve situations where the question of indemnification raised in the federal case is dependent upon the outcome of the state court suit against the insured. In that setting, sound considerations of comity and efficient use of judicial resources counsel against involvement by a federal court in a state court matter, since the outcome ...