United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Judge.
The history underlying this action includes various lawsuits filed in both state and federal court. In December of 2010, Mr. Petrishe, Ms. Caputo-Petrishe, and Ms. McGann filed a lawsuit against Defendants Village of Oak Lawn ("Oak Lawn"), Todd Tenison ("Defendant Tenison"), and Scott Kirk ("Defendant Kirk") arising out of injuries sustained by Mr. Petrishe related to Defendants Tenison and Kirk's response to the aftermath of a domestic disturbance (the "Underlying Action"). (R.37, ¶¶ 1, 18-52.) The Underlying Action resulted in a settlement agreement between the parties with Defendants' portion of the settlement being paid by insurance companies-Essex Insurance Company ("Essex") and Illinois Union Insurance Company, a part of the ACE Group ("ACE"). ( Id., ¶ 7, 13, 56.) Even though Essex paid a portion of the settlement in the Underlying Action, it simultaneously entered into a non-waiver agreement with Defendant Oak Lawn as to its rights and defenses under an excess liability policy Essex issued to Defendant Oak Lawn ("Essex Policy"). ( Id., ¶¶ 57, 58.) In December of 2014, Essex filed its Second Amended Complaint in a lawsuit against Defendants (the "Declaratory Action") seeking a declaration that Essex has no duty-under the Essex Policy-to indemnify Defendants for settlement of the claims asserted in the Underlying Action. ( Id., ¶ 1.)
Defendants subsequently-as Third Party Plaintiffs-filed a Third Party Complaint against Cannon Cochran Management Services, Inc. ("CCMSI" or "Third Party Defendant") alleging negligence and breach of contract related to claim management and indemnification. ( See R.39.) CCMSI responded with its Answer, Affirmative Defenses, and Counterclaim asserting affirmative defenses that: (1) notice to Essex was timely; (2) CCMSI did not breach the Service Agreement; and (3) Oak Lawn was contributorily negligent. ( See R.44.) In addition, CCMSI's Answer seeks a declaratory judgment that Oak Lawn breached the Service Agreement by failing to notify CCMSI of the existence of the Essex Policy and that CCMSI is entitled to indemnification from Oak Lawn for all claims, losses, liabilities, costs, damages and reasonable attorney's fees stemming from this breach. ( See R.44, Counterclaim, ¶¶ 1-6.) Before the Court is Third Party Plaintiffs' Motion to Dismiss CCMSI's counterclaim pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. (R.52.) For the reasons discussed below, the Court denies Third Party Plaintiffs' motion.
Third Party Plaintiff Oak Lawn is an Illinois municipal corporation organized and existing under the laws of the State of Illinois. (R.39, ¶ 1; R.44, ¶ 1.) Third Party Plaintiffs Tenison and Kirk were police officers employed by Oak Lawn on the date of loss. (R.39, ¶¶ 2, 3; R.44, ¶¶ 2, 3, 8.) Third Party Defendant CCMSI is an Illinois corporation with its principal place of business located in Vermilon Count, Illinois and a regional office in Cook County, Illinois. (R.39, ¶ 4; R.44, ¶ 4.) The Court has original jurisdiction over the Declaratory Action based on diversity between the parties and the amount in controversy exceeding $75, 000. ( See R.37, ¶¶ 2, 4-6; R.49, ¶¶ 2, 4-6.) The Court, therefore, has supplemental jurisdiction over Third Party Plaintiffs' claims pursuant to 28 U.S.C. § 1367 based on the Court's original jurisdiction over the claims in the Declaratory Action because they "derive from a common nucleus of operative fact, " forming part of the same case or controversy. See McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 683 (7th Cir. 2014).
I. The Underlying Action
On December 14, 2010, Mr. Petrishe, Ms. Caputo-Petrishe, and Ms. McGann filed an action in this District relating to injuries sustained by Mr. Petrishe, when Defendant Kirk shot him multiple times after responding to a domestic disturbance. (R.37, ¶¶ 18, 20.) A few days earlier, on December 8, 2010, Mr. Petrishe was at his home in Oak Lawn, "feeling depressed, and drinking some beer" when he began arguing with his wife, Ms. Caputo-Petrishe. ( Id., ¶ 21.) Ms. Caputo-Petrishe called her mother, Ms. McGann, who came to the home and tried to calm Mr. Petrishe. ( Id., ¶ 22.) Ms. Caputo-Petrishe then called both the Oak Lawn Police Department and Mr. Petrishe's Alcoholics Anonymous sponsor to inform them that Mr. Petrishe was acting suicidal and cutting himself. ( Id., ¶¶ 20-24.) Defendants Kirk and Tenison responded and an altercation ensued resulting in Defendant Kirk firing several gun shots at Mr. Petrishe. ( Id., ¶¶ 24-27.) Charges were subsequently filed against Mr. Petrishe for two counts of attempted first degree murder and misdemeanor aggravated assault. ( Id., ¶¶ 29, 30.) Following a bench trial in the Circuit Court of Cook County, Illinois, the judge found Mr. Petrishe not guilty on all counts against him. ( Id., ¶ 37.) In their Second Amended Complaint, Mr. Petrishe, Ms. Caputo-Petrishe, and Ms. McGann sought compensatory and punitive damages and alleged claims including asserted violations under 42 U.S.C. § 1983, failure to intervene, deprivation of constitutional due process rights, assault, false imprisonment, malicious prosecution, intentional infliction of emotional distress, abuse of process, loss of consortium, vicarious liability, and negligent training and supervising of Defendants Kirk and Tenison. ( Id., ¶¶ 1, 32-50.)
II. Settlement of Underlying Action
After participating in a settlement conference by all parties to the Underlying Action and the Declaratory Action, the parties in the Underlying Action reached a $3, 000, 000.00 settlement. (R.37, ¶¶ 53, 54.) The insurance carriers, Essex and ACE, paid the settlement. ( Id., ¶ 56.) Specifically, Essex paid $1, 000, 000.00 and ACE paid $2, 000, 000.00. (Id. ) As alleged by Essex, a condition precedent to Essex's agreement to pay a portion of the settlement of the Underlying Action was the entry by Essex and Oak Lawn into a Non-Waiver Agreement. ( Id., ¶ 57; R.37, Ex. A, Non-Waiver Agreement.) Essex alleges that under the Non-Wavier Agreement, Oak Lawn agreed that Essex's payment of a portion of the settlement in the Underlying Action would not be deemed to be a waiver or estoppel against Essex's rights and defenses under the Essex Policy. In addition, Essex asserts that the Non-Waiver Agreement specifically preserved Essex's right to seek reimbursement from Oak Lawn for amounts paid in satisfaction of the settlement of the Underlying Action, subject to certain limitations and conditions. ( Id., ¶ 58.)
III. The Agreements
A. Essex Insurance Policy
Essex issued an Excess Liability insurance policy to Oak Lawn for the one-year period running from March 15, 2010 through March 15, 2011 ("the Essex Policy"). (R.37, ¶ 7; R.44, ¶ 7; R.6-1, at 4.) The Essex Policy includes an insuring agreement whereby Essex "hereby agrees to pay on behalf of [Oak Lawn] that portion of Ultimate Net Loss in excess of the limits of Underlying Insurance..." (R.37, ¶ 8; see also id., ¶¶ 12-17 (addressing policies identified as "Underlying Insurance"); R.6-1, at 23.) The Essex Policy defines "Ultimate Net Loss" as "the total amount of damages for which [Oak Lawn] is legally liable in payment of bodily injury', property damage', personal injury', or advertising injury.' (R.37, ¶ 10; R.6-1, at 23.) The Essex Policy also defines "Underlying Insurance" as "the policy or policies listed in Item 4, of the Declarations." (R.37, ¶ 10; R.6-1, at 23.) The Essex Policy also had a notice provision which stated:
3. Duties in the Event of Accident, Occurrence, Claim or Suit
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