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City of Marion, Ill v. U.S. Specialty Ins. Co

April 30, 2013

CITY OF MARION, ILL., PLAINTIFF,
v.
U.S. SPECIALTY INS. CO., DEFENDANT.



The opinion of the court was delivered by: Stephen C. Williams United States Magistrate Judge

MEMORANDUM & ORDER

WILLIAMS, Magistrate Judge:

This case-an insurance coverage dispute between the City of Marion, Illinois (the City) and its insurer, U.S. Specialty Insurance Co. (USSIC)-was fully referred to the undersigned magistrate judge by the consent of the parties pursuant to 28 U.S.C. § 636(c). The matter comes before the Court on USSIC's Motion for Summary Judgment. For the following reasons, the motion (Doc. 14) is GRANTED.

FACTUAL &PROCEDURAL BACKGROUND

USSIC was the City's general liability insurer when, in 2008, the Marion Community School District No. 2 sued the City for wrongfully withholding tax revenues to which the School District was entitled. (Doc. 2, Ex. 1, p. 3). The School District's eleven-count lawsuit sought the return of tax revenue, which the City allegedly deprived the district due to violation of Illinois Tax Increment Allocation Financing Redevelopment ("TIF") Act. (hereinafter, "the underlying suit"). When the City received service on the lawsuit, they timely notified USSIC, and USSIC appointed counsel. (Doc. 2, Ex. 1, p. 3). The City's counsel, Mr. Osman, also entered an appearance. (Doc. 2, Ex. 1, p. 3). At no time did USSIC issue a reservation of rights statement. (Doc. 16). After USSIC's appointed counsel entered their appearance, USSIC determined that no coverage was available for this claim and declined to continue to provide a defense. (Ex. B). Their attorney withdrew. (Doc. 2, Ex. 1, p. 4). Mr. Osman continued to defend the City and the lawsuit eventually settled in April 2012. The City then filed the present lawsuit seeking compensation for its legal fees and costs of settlement. (Doc. 2, Ex. 1, p. 6).

On November 19, 2012, USSIC filed a Motion for Summary Judgment arguing that they had no duty to defend the underlying case. (Doc 14). Their arguments were based on policy language that specifically precluded coverage for certain kinds of losses. Specifically, the policy provides that USSIC agreed to pay all "LOSS that the INSURED shall be legally obligated to pay resulting from a WRONGFUL ACT:"

INSURING AGREEMENTS:

WE will pay on behalf of the INSURED all LOSS that the INSURED shall be legally obligated to pay resulting from a WRONGFUL ACT but only with respect made to CLAIMS first made against the INSURED during the POLICY PERIOD . . . .

(Ex. A to Countercl., at USSIC 00021). The USSIC policy defines WRONGFUL ACT as:

Any alleged or actual:

1. Act, error, misstatement, misleading statement, or omission of an INSURED constituting a breach of duty imposed by law . . .that arises out of the discharge of duties for the NAMED INSURED, individually or collectively.

(Ex. A to Countercl., at USCIC 00021). The policy goes on to define loss as:

LOSS -- means any compensatory monetary amount, including punitive damages where permitted by law, for which the INSURED(s) is legally obligated to pay as a result of WRONGFUL ACT(S) covered by this policy shall include, but not be ...


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