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Caveo, LLC v. Citizens Insurance Company of America, Inc.

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

September 29, 2016

CAVEO, LLC, Plaintiff,
v.
CITIZENS INSURANCE COMPANY OF AMERICA, INC. and HANOVER INSURANCE COMPANY, Defendants.

          MEMORANDUM OPINION AND ORDER

          Robert M. Dow, Jr. United States District Judge

         In this insurance coverage dispute, Plaintiff seeks to impose a duty to defend on Defendants with respect to a lawsuit filed against Plaintiff in state court. All parties have moved for summary judgment in this case. See [21] and [23]. As discussed at the February 4, 2016 hearing, the Court directed the parties to submit responses limited to the estoppel issue so that the Court could advance the litigation forward by addressing that threshold issue. For the reasons stated below, Plaintiff's motion is granted [21] and Defendants' motion [23] is denied solely with respect to the issue of whether Defendants are estopped from asserting policy defenses. The other pending motions [33], [37], and [50] are stricken without prejudice and with leave to refile. This case is set for further status hearing on October 13, 2016 at 9:30 am.

         I. Background

         The Court takes the undisputed facts from the applicable policy provisions and the relevant admissions by the parties. In this insurance coverage dispute, Caveo LLC, (“Plaintiff”), seeks to impose a duty to defend on Citizens Insurance Company of America and Hanover Insurance Company (“Defendants”) with respect to a state court lawsuit filed against Plaintiff by Abreon that has since settled. Plaintiff, a consulting company and competitor of Abreon, was sued for a range of torts and civil statutory violations stemming from the alleged theft of copyrighted material and other confidential information by a former Abreon employee who later worked for Plaintiff. Hanover declined coverage, concluding that its policies either did not provide or expressly excluded coverage for the events at issue in the Abreon lawsuit.

         In 2013, Caveo renewed its Avenues Business Owners Policy (“Policy”) with Hanover. The Policy was issued to Caveo at its principal place of business in Cook County, Illinois. The Policy was effective from June 20, 2013 through June 20, 2014. Section II.A.1.a of the Policy provides that Hanover “will pay those sums that the insured becomes legally obligated to pay as damages because of * * * ‘personal and advertising injury, ' to which this insurance applies, ” and that Hanover “will have the right and duty to defend the insured against any ‘suit' seeking those damages.” [1] at ¶ 17. The Policy defines “personal and advertising injury” as “injury, including consequential ‘bodily injury, ' arising out of one or more of the following offenses: * * * (g) Infringing upon another's copyright, trade dress, or slogan in your ‘advertisement.'” Id. at ¶ 18. In Section II.F.1, the Policy defines “advertisement” as “a notice that is broadcast or published to the general public or specific market segment about your goods, products or services for the purpose of attracting customers or supporters, ” providing that “[n]otices that are published include material placed on the internet or a similar electronic means of communication.” [1] at ¶ 19.

         Abreon filed the underlying lawsuit against Caveo on May 22, 2014. In its complaint, Abreon alleged that Caveo and Abreon are direct competitors in the consulting industry, including in training for enterprise resource planning software that an organization can use to collect, store, manage and interpret data. [1-1] at ¶¶ 2, 9-13. Abreon alleged that Caveo had “engaged in a scheme and conspired with the Former Abreon Employees to have them work for Caveo and use Abreon's confidential, proprietary, trade secret and copyrighted material to compete with Abreon, interfere with its customer relationships and grow Caveo's competing business by capturing Abreon's business.” Id.

         Following the May 22, 2014 filing beginning the underlying litigation, Caveo tendered the litigation to Hanover on June 10, 2014. Hanover denied coverage for Caveo in connection with the Abreon Litigation in its letter of June 27, 2014. Hanover did not provide a defense to Caveo under a reservation of rights or seek declaratory judgment that there was no coverage. [15] at ¶ 1. Caveo now insists that Defendants are estopped from asserting policy defenses in this Court.

         II. Legal Standard

         Summary judgment is proper where “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). “Although intent and credibility are often critical issues in employment discrimination cases, no special summary judgment standard applies to such cases.” Majors v. Gen. Elec. Co., 714 F.3d 527, 532-33 (7th Cir. 2013). Rather as with any case, the Court “must construe all facts and draw all reasonable inferences in the light most favorable to the nonmoving party.” Id. (citation omitted).

         To avoid summary judgment, the opposing party must go beyond the pleadings and “set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). A genuine issue of material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. at 248. The party seeking summary judgment has the burden of establishing the lack of any genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is proper if the nonmoving party “fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Ellis v. CCA of Tennessee LLC, 650 F.3d 640, 646 (7th Cir. 2011) (quoting Celotex Corp., 477 U.S. at 322). The non-moving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). In other words, the “mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-movant].” Anderson, 477 U.S. at 252.

         In view of the parties' agreement that Illinois law governs the insurance policies at issue, the Court will apply Illinois law in its analysis. See Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009) (“Courts do not worry about conflict of laws unless the parties disagree on which state's law applies.” (internal citation and quotation marks omitted)). Specifically, the Court will “apply the law that [it] believe[s] the Supreme Court of Illinois would apply if the case were before that tribunal rather than before this court.” Help at Home, Inc. v. Med. Capital, LLC, 260 F.3d 748, 753 (7th Cir. 2001). Under Illinois law, “[t]he construction of an insurance policy and a determination of the rights and obligations thereunder are questions of law for the court which are appropriate subjects for disposition by way of summary judgment.” Crum & Forster Managers Corp. v. Resolution Trust Corp., 620 N.E.2d 1073, 1079 (Ill. 1998).

         III. Analysis

         The parties agree that this question of estoppel is governed by Illinois law. As the Seventh Circuit recently reiterated, where, as here, “an insurer tries to deny coverage without seeking a declaratory judgment or defending under a reservation of rights, ” the court “is limited to a review of the allegations in the underlying complaint” (Landmark American Ins. Co. v. Hilger, -- F.3d --, No. 15-2566, slip op. at 6 (7th Cir. Sept. 22, 2016) (applying Illinois law)), which the court must compare with the express language in the insurance policy to determine whether the insurer's duty to defend has been triggered. See Pekin Ins. Co. v. Wilson, 930 N.E.2d 1011, 1016-1017 (Ill. 2010); Am. States Ins. Co. v. Koloms, 687 N.E.2d 72, 75 (Ill. 1997). “Like any contract under Illinois law, an insurance policy is construed according to the plain and ordinary meaning of its unambiguous terms.” Schuchman v. State Auto Property & Casualty Ins. Co., 733 F.3d 231, 235 (7th Cir. 2013) (quotation marks and citation omitted). Furthermore, “[a] court must construe the policy as a whole and take into account the type of insurance purchased, the nature of the risks involved, and the overall purpose of the contract.” Id. at 238. Finally, if, after undertaking the aforementioned analysis and employing the standard tools of textual interpretation, the Court determines that the terms of the policy are susceptible to more than one meaning, then they are considered ambiguous and will be construed strictly against the insurer who drafted the policy. Id.

         Under Illinois law, “[i]f the facts alleged in the underlying complaint fall within, or potentially within, the policy's coverage, the insurer's duty to defend arises.” Pekin Ins. Co., 930 N.E.2d at 1017. An insurer may justifiably refuse to defend the insured only if ‘it is clear from the face of the underlying complaint that the allegations fail to state facts which bring the case within, or potentially within, the policy's coverage.'” Northfield Ins. Co. v. ...


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