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Scottsdale Insurance Co. v. City of Waukegan

United States District Court, N.D. Illinois, Eastern Division

July 21, 2014

SCOTTSDALE INSURANCE COMPANY, Plaintiff,
v.
CITY OF WAUKEGAN, MICHAEL URBANCIC, WILLIAM BIANG, PHIL STEVENSON, MIGUEL JUAREZ, DAVID DEPREZ, and BENNY STARKS, Defendants.

MEMORANDUM OPINION AND ORDER

ANDREA R. WOOD, District Judge.

Plaintiff Scottsdale Insurance Group ("Scottsdale") has filed suit against the City of Waukegan ("Waukegan"), Michael Urbancic, William Biang, Phil Stevenson, Miguel Juarez, David Deprez (collectively, the "Individual Defendants" and, along with Waukegan, the "Waukegan Insureds"), and Benny Starks. Scottsdale seeks a declaratory judgment that it owes no obligation under certain law enforcement liability insurance policies with respect to the Waukegan Insureds' potential liability in a pending civil rights lawsuit filed by Starks in the Northern District of Illinois (the " Starks Suit" or "underlying litigation"). Currently before the Court is the Waukegan Insureds' motion to dismiss Counts III through VII of Scottsdale's Amended Complaint for Declaratory Judgment ("Amended Complaint") pursuant to Federal Rule of Civil Procedure 12(b)(6) (the "Motion"). (Dkt. No. 25.) As explained below, because adjudicating Counts III through VII would require this Court impermissibly to determine ultimate facts in controversy that could bind the parties in the underlying litigation, the Motion is granted.

BACKGROUND

In 1986, Starks was arrested, charged, and convicted of a sexual assault. (Am. Compl. ¶ 17, Dkt. No. 20.) Twenty years into his sixty-year sentence, newly-surfaced DNA evidence led to the reversal of Starks's conviction. ( Id. ) Starks subsequently filed the underlying litigation against the Waukegan Insureds, alleging, among other things, that they caused his wrongful charging, prosecution, and conviction by falsifying or improperly altering evidence, by suppressing and destroying exculpatory evidence, and by giving false testimony. ( Id. ¶ 22.) Starks seeks compensatory and punitive damages, costs, and attorneys' fees from the Waukegan Insureds. ( Id. ) As of the date of this Order, the Starks Suit is still in the discovery stage, and a three-week trial is set for August 2015. See Starks v. City of Waukegan, et al., Case No. 1:09-cv-00348 (N.D. Ill.) at Dkt. Nos. 226, 252.[1] There have been no factual determinations made in the Starks Suit.

Shortly after Starks filed the underlying litigation, the Waukegan Insureds tendered their defense to Scottsdale, which had issued to Waukegan four policies for law enforcement liability insurance effective from November 1, 1987 until November 1, 1991 (the "LEL Policies"). (Am. Compl. ¶¶ 14, 18, Dkt. No. 20.) Scottsdale agreed to participate in the defense of the Waukegan Insureds pursuant to a reservation of rights, expressly reserving its right to deny coverage and withdraw from the defense of the Starks Suit. ( Id. ¶ 19.) On April 24, 2013, Scottsdale instituted the current lawsuit pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201. (Dkt. No. 1.) Scottsdale later filed the Amended Complaint (Dkt. No. 20), in which it seeks the following declarations:

• No duty to defend the Waukegan Insureds in the Starks Suit exists under any of the LEL Policies (Count I);
• The Starks Suit does not trigger coverage because the allegations do not fall within the effective policy periods of the LEL Policies (Count II);
• The allegations in the Starks Suit state intentional acts undertaken with the intent to cause harm and are therefore not covered by any of the LEL Policies (Count III);
• The allegations in the Starks Suit concern acts committed by the Individual Defendants outside the scope of their duties as employees and, therefore, no coverage exists under the LEL Policies for the Individual Defendants (Count IV);
• The allegations in the Starks Suit contend that the Waukegan Insureds intended, expected, or reasonably could have expected the injury alleged and, therefore, no coverage exists under the LEL Policies (Count V);
• The allegations in the Starks Suit state criminal, malicious, fraudulent, or dishonest acts for which no coverage exists under the LEL Policies (Count VI); and
• There is no coverage under the LEL Policies for any punitive or exemplary damages claimed in the Starks Suit (Count VII).

The Waukegan Defendants filed an answer to Counts I and II (Dkt. No. 24), but moved to dismiss Counts III ...


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