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John Marshall Law School v. National Union Fire Insurance Co. of Pittsburgh, PA.

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

December 26, 2016



          MATTHEW F. KENNELLY United States District Judge

         John Marshall Law School (JMLS) alleges that its liability insurer National Union Fire Insurance Company wrongfully denied it coverage in connection with an employment discrimination lawsuit against JMLS. JMLS has filed a three-count complaint against National Union. Count 1 is a claim for breach of contract; JMLS alleges that National Union breached its obligations under the insurance policy by denying coverage for the lawsuit and refusing to advance defense costs. In Count 2, JMLS seeks a declaratory judgment that National Union is estopped from raising policy defenses due to its wrongful denial of coverage. Count 3 is a claim for vexatious refusal to pay under an Illinois statute, 215 ILCS 5/155. National Union removed this lawsuit to federal court based on the diversity of citizenship and has now moved to dismiss JMLS's complaint for failure to state a claim.


         On December 31, 2013, Joel Cornwell, a JMLS professor, filed an employment discrimination lawsuit against JMLS alleging discrimination based on disability. Before filing suit in court, Cornwell filed a charge with the Equal Employment Opportunity Commission on October 30, 2013, naming JMLS as the respondent. The EEOC issued Cornwell a "Notice of Right to Sue" on November 6, 2013. The notice stated that any lawsuit by Cornwell under the Americans with Disabilities Act (or other statutes) had to be filed within 90 days of his receipt of the notice, or his right to sue based on his EEOC charge would be lost. Def.'s Mot. to Dismiss, Ex. 2 (Cornwell lawsuit), Ex. B. The EEOC sent a copy of the notice to JMLS.

         National Union issued JMLS a liability insurance policy for the period from November 15, 2013 through November 15, 2014. The policy was a "claims made" policy, meaning that it covered losses "arising from a Claim first made against [the] Insured during the policy period . . . ." Case No. 16 C 5753, dkt. no. 1-1 at 43. JMLS received Cornwell's complaint on January 8, 2014, and it notified its insurance broker of the lawsuit on February 14, 2014. The broker then reported the suit to National Union. On April 21, 2014, National Union sent JMLS a letter denying coverage. JMLS ended up settling Cornwell's lawsuit.

         In the present lawsuit, JMLS alleges that the denial of coverage was wrongful because Cornwell's claim-which, JMLS says, is the lawsuit that he filed in court-was first made within the period covered by the National Union policy. National Union contends that Cornwell's claim was first made when he filed his EEOC charge and that this happened outside the policy period. It has moved to dismiss JMLS's breach of contract claim on this basis and has also moved to dismiss JMLS's other claims.


         When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court accepts the plaintiff's allegations as true and draws reasonable inferences in the plaintiff's favor. Parish v. City of Elkhart, 614 F.3d 677, 679 (7th Cir. 2010). The plaintiff is required to allege "only enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face if "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         A. Breach of contract claim

         National Union seeks dismissal of JMLS's breach of contract claim on the ground that Cornwell's claim was "first made" outside the policy period and thus JMLS is not entitled to coverage. Resolution of this question involves construction of the insurance policy, which is a question of law. Traveler's Ins. Co. v. Eljer Mfg., Inc., 197 Ill.2d 278, 757 N.E.2d 481, 491 (2001). A court reads the policy as a whole and gives the policy's clear and unambiguous terms their plain and ordinary meaning. Id. at 293, 757 N.E.2d at 491. "Conversely, if the language of the policy is susceptible to more than one meaning, it is considered ambiguous and will be construed strictly against the insurer who drafted the policy and in favor of the insured." Id. A court should not, however, strain to find an ambiguity where none exists. Id.

         Cornwell's claim is covered, if at all, under the Employment Practices Liability Coverage section of the National Union policy. That section states:

This policy shall pay the Loss of each and every Insured arising from a Claim first made against such Insured during the Policy Period . . . and reported to the Insurer pursuant to the terms of this policy for any Wrongful Act. The Insurer shall, in accordance with and subject to Clause 4 of this Coverage Section advance Defense Costs of such Claim prior to its final disposition.

Case No. 16 C 5753, dkt. no. 1-1 at 43. Each of the terms in bold print is defined in the policy, including in Endorsement 6, which amends certain definitions. The pertinent section of that endorsement defines "claim" as follows:


         1. In Clause 2, "DEFINITIONS" of the EPL Coverage Section, Paragraphs (a) and (c) are deleted in their entirety ...

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