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Kmart Corporation v. Footstar, Inc.

United States District Court, Seventh Circuit

December 18, 2013

KMART CORPORATION, a Michigan corporation, Plaintiff,
v.
FOOTSTAR, INC., a Delaware corporation, LIBERTY MUTUAL FIRE INSURANCE COMPANY, a Wisconsin corporation, Defendants.

Order

SUSAN E. COX, Magistrate Judge.

Defendant Liberty Mutual Fire Insurance Company has filed a motion for summary judgment on the issue of bad faith, arguing that it cannot be guilty of bad faith in denying a defense and indemnity to Kmart Corporation. Kmart seeks to renew its motion for summary judgment with respect to Liberty's bad faith conduct. For the reasons set forth, we grant Liberty's motion for summary judgment [352] and deny Kmart's renewed motion with respect to bad faith [dkt. 208]. The parties are directed to submit a final judgment order to the Court's proposed order box on or before 1/9/14.

Statement

This case has a long history that begins with an underlying accident that occurred in a Kmart store in Florida, when a customer, Judy Patrick, was injured by a baby car seat that fell off a shelf. Ms. Patrick filed a lawsuit, which ultimately settled. Since that time the insurance companies have been in battle over who should cover the costs of that settlement. We are now to the final stages of this case, after summary judgment rulings and a trial, when we must determine the issue of bad faith.

In Count five of its Second Amended Complaint, plaintiff Kmart Corporation ("Kmart") alleges that defendant Liberty Mutual Fire Insurance Company ("Liberty") acted in bad faith in refusing to defend and indemnify it in the underlying case involving Mrs. Patrick. (Liberty insured defendant Footstar, Inc. ("Footstar"), which is the company that ran Kmart's shoe department). Now Liberty has filed a motion for summary judgment on the issue of bad faith, arguing that it cannot be guilty of bad faith in denying a defense and indemnity to Kmart. And in a footnote, Kmart seeks to renew its motion for summary judgment with respect to Liberty's bad faith conduct.[1] For the reasons set forth, we grant Liberty's motion [352] and deny Kmart's motion with respect to bad faith [dkt. 208].

I. Background Facts

We have thoroughly reviewed the background of this case in our previous rulings, which we will not repeat here. The following, limited, review of those facts is taken from our Order on the cross-motions for summary judgment.[2]

As noted, while shopping at a Kmart store, Mrs. Patrick was struck and injured by a falling infant car seat that dislodged from one of the combination strollers. A year later, in May 2006, she and her husband sued Kmart, believing that only Kmart employees had been involved in her accident. Then in May 2007, the Patricks learned that a Footstar employee from the shoe department was also involved. The next month, Footstar reported the Patrick incident to Liberty as an "incident only" claim. But it was not until January 24, 2008 that Kmart's defense counsel sent a letter to Footstar requesting a defense and indemnity, as well as a copy of the Policy. Footstar forwarded the request to Liberty on January 30, 2008. The following day, the Patricks amended their complaint by naming Footstar as a defendant, and identifying Footstar's employee.

On February 1, 2008, Liberty decided to defend Footstar in connection with the Patrick Lawsuit. But on February 12, 2008, Liberty wrote a letter to Kmart's counsel refusing to defend or indemnify Kmart in connection with the Patrick Lawsuit. Liberty admitted that "it did not determine" whether the Policy issued to Footstar covered Kmart "because Kmart did not a make a tender to Liberty for additional insured coverage."[3] Several months later, in October 2008, Kmart settled the case. Since that time, Kmart has sought reimbursement for the settlement amount, plus legal expenses, from Footstar and Footstar's insurer, Liberty.

II. Summary Judgement Standard

Summary judgment is proper if the pleadings and the discovery materials on file, and any affidavits, show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.[4] The moving party bears the initial responsibility of informing the court of the basis for its motion and identifying the evidence it believes demonstrates the absence of a genuine issue of material fact.[5] If the moving party meets this burden, the nonmoving party "must present sufficient evidence to show the existence of each element of its case on which it will bear the burden at trial, " and cannot rest on conclusory pleadings.[6] To properly oppose a motion for summary judgment, the evidence must be such "that a reasonable jury could return a verdict for the nonmoving party."[7]

III. Analysis

Here, Liberty seeks summary judgment to determine, as a matter of law, that it did not act in bad faith in denying coverage or indemnity to Kmart for the Patrick accident. Specifically, Liberty argues that because the Court found a fact question existed as to whether Mrs. Patrick's accident arose out of Footstar's performance or failure to perform under the Master Agreement, there can be no bad faith finding. To the contrary, Kmart asserts that a fact question exists as to whether Liberty acted in bad faith in denying coverage and concurrently renews its motion for summary judgment on its claim of bad faith, claiming that the Court did not accept Liberty's interpretation of the contracts.

The parties agree that New Jersey law governs this issue. In New Jersey, the courts have adopted the "fairly debatable" standard, which is based on the idea that "when an insurer denies coverage with a reasonable basis to believe that no coverage exists, it is not guilty of bad faith even if the insurer is later held to have been wrong."[8] The rationale behind this standard is to provide the insurer the right to litigate a particular claim if it determines there is a question of law or fact "which needs to be decided before it in good faith is required to ...


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