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Creation Supply, Inc. v. Selective Insurance Co. of Southeast

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

February 17, 2017

CREATION SUPPLY, INC., Plaintiff,
v.
SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST, Defendant.

          MEMORANDUM OPINION

          CHARLES P. KOCORAS, District Judge.

         Before the Court are the parties' cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56 and Northern District of Illinois Local Rule 56.1. For the following reasons, Plaintiff Creation Supply, Inc.'s (“CSI”) motion for summary judgment is granted in part as to Count II, denied as to Count I, and Defendant Selective Insurance Company of the Southeast's (“Selective”) motion for summary judgment is denied in its entirety.

         BACKGROUND

         The following facts are taken from the parties' statements and exhibits filed pursuant to Local Rule 56.1. The Court disregards any argument, conclusion, or assertion unsupported by the evidence in the record. On May 26, 2012, CSI was served with a complaint. It was sued in the United States District Court for the District of Oregon in a lawsuit titled Too Marker Products, Inc. et al. v. Creation Supply, Inc., et al., No. 3:12-cv-00735-BR (the “Oregon Action”). In the Oregon Action, Too Marker claimed that CSI sold a type of marker, MEPXY markers, which were similar to its own line of markers, Copic markers, alleging violations of the Lanham Act and trademark infringement. On June 13, 2012, CSI asked Selective, an insurance company that issued Insurance Policy Number S 1997299 to CSI from August 19, 2011 to August 19, 2012, to defend it in the Oregon Action. “Selective denied CSI's request for a defense under the Policy in a letter dated June 22, 2012” (the “denial letter”). On July 2, 2012, Selective filed a declaratory judgment action in the Illinois Circuit Court against CSI. “On July 5, 2012, Nicholas S. Lee (‘Lee'), one of CSI's attorneys, wrote” a letter to David Hahn (“Hahn”), Selective's complex claims counsel, asking him to reconsider Selective's denial of CSI's requested defense. On July 10, 2012, Selective's counsel, Drew Block (“Block”), responded to Lee's letter, informing him that Selective “stood by its denial.” The Oregon Action terminated by way of settlement on or around July 29, 2013.

         On September 23, 2013, CSI “filed a renewed motion for partial summary judgment” against Selective in the Circuit Court, arguing “that it was entitled to coverage” because “certain retail store displays of the MEPXY markers constituted advertisements, ” and “a photograph of the display satisfied the causal nexus requirement by connecting the complained of advertising to the damages asserted.” See Selective Ins. Co. of Se. v. Creation Supply, Inc., 2015 IL App (1st) 140152-U, ¶ 14. “[O]n December 19, 2013, the Illinois Circuit Court granted CSI's” motion. Id. at ¶ 15. Selective appealed the judgment on January 9, 2014.

         On March 4, 2014, Selective presented a settlement offer of $35, 000 to CSI. The next day, CSI's counsel advised Selective's counsel that the $35, 000 settlement offer “was unacceptable, and therefore, settlement discussions would not be worthwhile.” In an email dated August 7, 2014, Selective's counsel informed CSI “that due to the pendency of the appeal, and because the Circuit Court had not determined the amount that Selective must pay, Selective would not be fronting costs for trial preparation in the Oregon Action.” The email further “stated that any defense obligation” that Selective had “ended when the trade dress infringement claims in the Oregon Action settled.” Throughout the course of the litigation, CSI sent Selective invoices amounting to over $200, 000. On August 18, 2014, Selective filed objections to the invoices, totaling $39, 480.00, in the Circuit Court. A day later, CSI asked Selective to pay it $164, 291.39. “On August 26, 2014, Selective responded that it would not pay anything to CSI because, (1) ‘there [wa]s no ‘uncontested' amount that [wa]s owed' even though there [wa]s a judicial finding of duty to defend CSI; and (2) ‘[the] matter [wa]s subject to a pending appeal and no court order ha[d] yet been entered on the amount of fees allegedly owed.'” On February 9, 2015, the Illinois Appellate Court found “that the allegations in the underlying complaint, the photograph of the retail product display, and the relevant policy language triggered Selective's duty to defend [CSI] in the underlying case, ” affirming the Circuit Court's decision granting CSI's renewed motion for partial summary judgment. Id. at ¶ 54. “Selective paid $178, 000 to CSI on November 25, 2015.” The “Circuit Court entered final judgment in Selective's declaratory judgment action on June 21, 2016, and awarded CSI $392, 147.61.”

         LEGAL STANDARD

         Summary judgment is appropriate when the movant establishes that “there is no genuine dispute as to any material fact” and that it “is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine issue of material fact arises where a reasonable jury could find in favor of the non-movant based on the evidence of record. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “As with any motion for summary judgment, a court considering cross-motions for summary judgment will ‘constru[e] all facts, and draw[ ] all reasonable inferences from those facts, in favor of the nonmoving party.'” Metro. Life Ins. Co. v. Unger, No. 14 CV 07586, 2016 WL 5477523, at * 4 (N.D. Ill. Sept. 29, 2016) (quoting Garofalo v. Vill. of Hazel Crest, 754 F.3d 428, 430 (7th Cir. 2014)).

         DISCUSSION

         CSI asks that we enter judgment in its favor on Counts I and II of its first amended complaint, while Selective moves us to enter judgment in its favor. CSI, however, solely “moves for summary judgment as to Selective's liability, ” recognizing that it will prove damages at trial. (emphasis added). We begin with a discussion of Count II, CSI's claim that Selective breached the insurance contract, Insurance Policy Number S 1997299, with CSI.

         As an initial matter, Selective argues that it is entitled to summary judgment on CSI's Count II because collateral estoppel bars the breach of contract claim. “Collateral estoppel will apply if: (1) the issue sought to be precluded is the same as that involved in the prior action; (2) the issue was actually litigated; (3) the determination of the issue was essential to the final judgment; and (4) the party against whom estoppel is invoked was fully represented in the prior action.” Havoco of Am., Ltd. v. Freeman, Atkins & Coleman, Ltd., 58 F.3d 303, 307 (7th Cir. 1995). The burden is on Selective to establish each of these elements, and it has failed to meet its burden. See Id. at 308.

         Selective claims that CSI fully litigated the issue of consequential damages “in the form of lost profits” in the Oregon Action, and therefore, “it is collaterally estopped from re-litigating that issue here.” Selective takes issue with CSI utilizing the same theory of liability in both actions-“that as a result of Selective's decision to pursue its coverage action, CSI was ‘forced' to agree to an unfavorable settlement not to distribute the [MEPXY] markers, ” and thus lost profits. CSI made this argument in the Oregon Action against Alpha, the manufacturer of the MEPXY markers, whom CSI also sued for a defense and indemnification in the Oregon Action, and the court rejected it. However, CSI is correct in arguing that “[t]he two cases involve[ ] different causes of action, and potential recovery of consequential damages against different parties for different reasons.” CSI elaborates, stating that “[t]he issue in this case is whether CSI can show that it is entitled to recover” compensatory and consequential damages against Selective, “as a result of Selective's breach of its insurance contract.” In contrast, CSI contends that the matter litigated in the Oregon Action “was whether CSI could recover against Alpha, . . . under 810 ILCS 5-312(3) for breach of implied warranty against infringement, its attorney's fees and expenses caused by Alpha's breach, or whether CSI could recover consequential damages caused by Alpha's breach under that statute.” The fact that CSI pursues a similar argument against a different party does not bar its breach of contract claim in the instant matter. Selective's collateral estoppel argument, therefore, fails.

         Turning to the merits, “[w]hen an insurer wrongfully refuses to defend a complaint, it is liable to the insured for breach of contract.” Regas v. Cont'l Cas. Co., 487 N.E.2d 105, 108 (1985). The well-known and “essential elements for breach of contract are: (1) the existence of a valid and enforceable contract; (2) performance by the plaintiff; (3) breach of the contract by the defendant; and (4) resultant injury to the plaintiff.” Nielsen v. United Servs. Auto. Ass'n, 612 N.E.2d 526, 529 (1993). CSI argues that “[n]o fact issues exist as to any of these elements, ” and therefore, it “is entitled to judgment as a matter of law on Count II” regarding Selective's liability. We agree and address each element in turn.

         First, “Selective admits that it and CSI are parties to Insurance Policy No. S 1997299.” Moreover, the Appellate Court found that CSI and Selective are parties to the Policy. Thus, there is no factual dispute “that CSI and Selective are parties to a valid insurance contract.” Second, CSI claims that there is no fact issue regarding CSI's performance of its obligation to pay premiums under the Policy. Selective admitted that CSI “made full ...


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