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DePasquale Steel Erectors, Inc. v. Gemini Insurance Co.

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

April 11, 2017

DePASQUALE STEEL ERECTORS INC., an Illinois Corporation, Plaintiff,
v.
GEMINI INSURANCE COMPANY, a Delaware Corporation, Defendant.

          MEMORANDUM OPINION AND ORDER

          Milton I. Shadur Senior United States District Judge

         DePasquale Steel Erectors Inc. ("DePasquale") filed a lawsuit against its insurer, Gemini Insurance Company ("Gemini"), alleging breach of contract and bad faith under 215 ILCS 5/155 in a matter related to an underlying lawsuit filed against DePasquale as third party defendant. DePasquale asserts that a conflict of interest exists between itself and Gemini so that Gemini may not use its own counsel to defend the lawsuit and must instead appoint independent counsel. Although the parties have filed cross-motions for summary judgment, this opinion explains that both parties' failure to provide sufficient input on all genuine issues of material fact requires that both motions be denied.

         Factual Background

         DePasquale holds a Commercial General Liability policy from Gemini with a $1 million per occurrence limit (D. St. ¶¶ 4, 5). According to the policy Gemini has a "right and duty to defend the insured against any suit" (D. St. ¶ 6).

         On or about June 14, 2016 Two Brothers Property LLC and Go To Logistics, Inc. filed a complaint against Triumph Development Corporation and Triumph Construction Services (collectively "Triumph") charging that negligent construction resulted in the sudden and violent collapse of the roof of their property and seeking damages in excess of $1.7 million (G. St. ¶¶ 8, 9, 10). Triumph then filed a third party complaint against nine subcontractors, including DePasquale, seeking contribution for their pro rata shares of liability as joint tortfeasors (G. St. ¶¶ 12, 13). DePasquale in turn tendered the original and third party complaints to Gemini, noting that the liability was at least potentially covered by its insurance policy and thus Gemini owed a duty to defend DePasquale in the lawsuit (D. St. ¶ 9).

         Gemini then notified DePasquale by email that it would defend the lawsuit without reservation of right (D. St. ¶¶ 19, 20). DePasquale then sent a letter to Gemini explaining that a potential conflict of interest existed because the jury demand exceeded Gemini's policy limit, so that Gemini was required to pay for independent counsel to defend the lawsuit (D. St. ¶ 21). DePasquale's letter cited Perma-Pipe, Inc. v. Liberty Surplus Ins. Corp., 38 F.Supp.3d 890 (N.D. Ill. 2014) for that proposition (D. St. ¶ 22). On November 4 Gemini sent a letter to DePasquale advising it to put its excess insurance carrier on notice because there could be a verdict in excess of its policy limits (G. St. ¶ 17). On November 7 Gemini sent a letter to DePasquale stating that it disagreed with that position and denying Pasquale's request to retain independent counsel at Gemini's expense (D. St. ¶ 23).

         Legal Standard

         Every Rule 56 movant bears the burden of establishing the absence of any genuine issue of material fact (Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)). For that purpose courts consider evidentiary records in the light most favorable to nonmovants and draw all reasonable inferences in their favor (Lesch v. Crown Cork & Seal Co., 282 F.3d 467, 471 (7th Cir. 2002)). Courts "may not make credibility determinations, weigh the evidence, or decide which inferences to draw from the facts" in resolving motions for summary judgment (Payne v. Pauley, 337 F.3d 767, 770 (7th Cir. 2003)). But a nonmovant must produce more than "a mere scintilla of evidence" to support the position that a genuine issue of material fact exists (Wheeler v. Lawson, 539 F.3d 629, 634 (7th Cir. 2008)) and "must come forward with specific facts demonstrating that there is a genuine issue for trial" (id.). Ultimately summary judgment is warranted only if a reasonable jury could not return a verdict for the nonmovant (Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).

         There is a potential added complexity where, as here, cross-motions for summary judgment are presented. Because the court must then adopt a dual perspective that this Court has often referred to as Janus-like, it must credit the nonmovant's version of any disputed facts as to each motion, and that can on occasion lead to the denial of both motions. Regrettably that unfortunate consequence has eventuated here.

         Material Factual Issues

         Under Illinois law "an insurer has a broad duty to defend its insured in any action where the allegations in the complaint are even potentially within the scope of the policy's coverage" (Nat'l Cas. Co. v. Forge Indus. Staffing Inc., 567 F.3d 871, 874 (7th Cir. 2009)). And with its duty to defend comes its right to direct its defense, which includes choosing its lawyer (id.). To be sure, that lawyer owes ethical obligations to both the insurer and the insured, but in reality an insurer-appointed lawyer may be more closely aligned with the insurer's interests (id.). Thus if a conflict of interest exists between the insurer and the insured, the insurer may be required to appoint and pay for independent counsel (id.).

         But in that respect Littlefield v. McGuffey, 979 F.2d 101, 105 (7th Cir. 1992) has cautioned that "[n]ot just any conflict will do." Instead Illinois courts have found that a conflict necessitating independent counsel exists "when the insurer's and the insured's interests in the conduct of the tort action are in serious conflict" and the insurer and the insured are "complete adversaries on a crucial issue which would necessarily be decided either one way or the other if liability was imposed" (id. at 106).

         But Littlefield was also informed by the less demanding standard in Illinois caselaw --specifically Nandorf, Inc. v CNA Ins. Cos., 134 Ill.App.3d 134, 479 N.E.2d 988 (1st Dist. 1985) -- that recognized a broader category of conflicts of interest, noting that one could exist when "the insurer has 'an interest in providing a less than vigorous defense'" (Littlefield, 979 F.2d at 106, quoting Nandorf, 134 Ill.App.3d at 139, 479 N.E.2d at 992). In that light Littlefield, id. concluded that "[u]nder Nandorf, then, a conflict of interest may exist when the insurer lacks incentive to defend its insured on a portion of the claims that appear not to be covered by the insurance contract."

         Of course the operative word in Littlefield is "may;" and here the parties pose the question whether the $700, 000 disparity between DePasquale's $1 million policy limit with Gemini and the $1.7 million total sought from all nine subcontractors as joint and several tortfeasors creates the degree of conflict that requires independent ...


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