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Hendricks v. Novae Corporate Underwriting, Ltd.

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

April 21, 2015

DIANE M. HENDRICKS, et al., Plaintiffs,
v.
NOVAE CORPORATE UNDERWRITING, LTD., Defendant.

OPINION AND ORDER

SARA L. ELLIS, District Judge.

Plaintiffs Diane M. Hendricks and Hendricks Holding Company, Inc. (collectively, "Hendricks")[1] brought suit against Defendant Novae Corporate Underwriting, Ltd.'s ("Novae") insured, Cunningham Lindsey Claims Management, Inc. ("Cunningham Lindsey"), in Texas state court. Hendricks and Cunningham Lindsey settled the underlying litigation by entering a consent judgment against Cunningham Lindsey and having Cunningham Lindsey assign its rights under its insurance policy with Novae to Hendricks. Hendricks then filed the instant suit against Novae in this Court seeking a declaration that Novae breached its duty to indemnify Cunningham Lindsey and for breach of contract. Novae has filed a motion for judgment on the pleadings or alternatively summary judgment [35], contending that the assignment is void and the consent judgment does not bind it in this action.[2] Although the Court finds that the assignment is valid, because the judgment is not binding on Novae under Texas law and thus Novae has no indemnity obligations for that judgment, summary judgment is granted for Novae on Hendricks' declaratory judgment claim. But because the Court is unable to determine on the present record whether Hendricks is entitled to relief on the breach of contract claim that is not dependent on the consent judgment, the Court reserves ruling on that claim.

BACKGROUND

Novae and certain other underwriters at Lloyd's, London issued an insurance policy identified as Policy No. 823/FD0000493 (the "Policy") to Fairfax Financial Holdings, Cunningham Lindsey's parent company. As a subsidiary of Fairfax Financial Holdings, Cunningham Lindsey is an "Assured" under the Policy. The Policy does not include a duty to defend but includes a duty to indemnify, subject to a $1, 000, 000 retention. Loss is defined broadly, however, and includes "reasonable and necessary legal fees incurred by the Assureds in the defense or investigation of any Claim." Ex. A to Compl. at 67.

In 2002, Hendricks filed a breach of contract and negligence action against Cunningham Lindsey and others in the Northern District of Illinois. The parties litigated the proper venue for the action, with the case ultimately dismissed and refiled against Cunningham Lindsey in Texas state court in December 2004. In the underlying action, Hendricks alleged that it entered into agreements with a group of insurers to provide insurance products to roofing contractors (the "Roofers' Program"). Cunningham Lindsey was contracted to administer claims under the policies issued as part of the Roofers' Program. Although Cunningham Lindsey was required to set appropriate reserves for claims, Hendricks alleged that the reserves Cunningham Lindsey established were unreasonably low and led to the unwarranted renewal of some policies, the underpriced renewal of others, and other mismanagement. Hendricks claimed substantial losses, with an expert opining that damages reached $5, 120, 000. Cunningham Lindsey's expert opined instead that Hendricks only suffered $25, 000 in damages, the amount that Cunningham Lindsey failed to recover for American Patriot.

Cunningham Lindsey provided Novae with written notice of the litigation on October 5, 2006. In September 2007, Cunningham Lindsey informed Novae that it was planning a mediation conference with Hendricks and that, based on Hendricks' demand, settlement could place Cunningham Lindsey over the Policy's $1, 000, 000 retention. Novae declined coverage on September 18, 2007. Novae also filed a declaratory judgment action against Cunningham Lindsey and Hendricks in this district, seeking a declaration that it did not have indemnity obligations to Cunningham Lindsey in the underlying litigation. That action was dismissed without prejudice for lack of ripeness because the Policy's retention had not been exhausted by way of settlement or judgment.

On or about April 23, 2012, Hendricks and Cunningham Lindsey reached a settlement of the underlying litigation. The settlement agreement states that it was entered into "after engaging in extensive good faith, arm's-length discussions with respect to the claims and defenses that were or could have been raised by [Hendricks] or Cunningham [Lindsey]" in the underlying litigation. Ex. C to Compl. ยง 6.2. The settlement agreement provides for entry of a stipulated judgment in favor of Hendricks and against Cunningham Lindsey for $5, 120, 000. That stipulated judgment was entered by the Texas state court on May 10, 2012. The settlement agreement also provides for payment to Hendricks of the remaining $1, 000, 000 limit of liability under another insurance policy issued by American International Specialty Lines Insurance Company to Cunningham Lindsey. Under the settlement agreement, Cunningham Lindsey assigned Hendricks all its rights to payment under the Policy in exchange for Hendricks' agreement not to execute on the stipulated judgment against Cunningham Lindsey. Finally, Cunningham Lindsey agreed to cooperate with Hendricks in its attempt to recover under the Policy and agreed not to respond to any requests for information regarding the nature of the settlement agreement or the consent judgment and instead to refer such inquiries to counsel for Hendricks.

After the settlement agreement was finalized and the stipulated judgment entered, Hendricks filed suit against Novae in this Court on July 20, 2013. This was the first notice Novae received that the underlying litigation had been resolved.

LEGAL STANDARD

Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. To determine whether a genuine issue of fact exists, the Court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed.R.Civ.P. 56 & advisory committee's notes. The party seeking summary judgment bears the initial burden of proving that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In response, the non-moving party cannot rest on mere pleadings alone but must use the evidentiary tools listed above to identify specific material facts that demonstrate a genuine issue for trial. Id. at 324; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). Although a bare contention that an issue of fact exists is insufficient to create a factual dispute, Bellaver v. Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the Court must construe all facts in a light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

ANALYSIS

Novae argues that it is not liable under the Policy for the judgment entered in the underlying litigation because, under Texas law, that judgment is unenforceable and the assignment of Cunningham Lindsey's claim to Hendricks is void as against public policy.[3] Novae also argues that Cunningham Lindsey suffered no loss as a result of the settlement and thus Novae's indemnity obligations have not been triggered. Hendricks contests the application of Texas law to the validity of the assignment, arguing that Illinois law should apply instead. Hendricks also contends that, even if Texas law applies, Novae's motion should be denied. Finally, Hendricks maintains that coverage under the Policy was triggered when the consent judgment was entered, regardless of the fact that Hendricks agreed not to execute the judgment against Cunningham Lindsey. The Court turns first to the validity of the assignment.

I. Validity of the ...


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