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Cincinnati Insurance Co. v. Menards, Inc.

United States District Court, S.D. Illinois

June 9, 2017

MENARDS, INC., and DARIN SIGLER, Defendants.


          Michael J. Reagan United States District Judge

         A. Procedural Background and Summary of Key Allegations

         On May 20, 2014, in the parking lot of the Menards home improvement store in Marion, Illinois, Darin Sigler was standing next to a pickup truck -- a truck belonging to his girlfriend Barbara's stepfather (Ronald Gregory) -- when a forklift collided with the truck, causing the truck door to strike Sigler. According to Menards, Sigler was helping his girlfriend pick up carpeting from the store, Sigler had Mr. Gregory's permission to drive the truck, the forklift was operated by a Menards employee (Anthony Parrino), Parrino was loading the carpet into the truck, and Sigler was injured in the collision. (Cincinnati Insurance Company takes issue with some of these allegations. See Doc. 42, pp. 2-4.)

         Sigler filed suit on September 12, 2014 in the Circuit Court of Williamson County, Illinois, looking to recover for personal injuries he suffered in the collision. Sigler named Menards as the sole defendant and alleged that (through its employee) Menards was negligent in various ways that caused or contributed to the accident and to Sigler's injuries. Darin Sigler v. Menard, Inc., Case No. 2014-L-156 (“the underlying action”).

         On March 24, 2016, Menards tendered the defense of the underlying action to Cincinnati Insurance Company (CIC). Menards asserted that CIC issued an insurance policy to Ronald and Virginia Gregory which covered the truck. Claiming that it qualified as an insured under that policy, Menards sought defense and indemnity from CIC in the underlying action. CIC denied the tender of defense on April 7, 2016.

         Two months later, in June 2016, CIC filed in this Court a complaint for declaratory judgment, naming Menards and Sigler as defendants. CIC seeks a declaration of the parties' rights and obligations under two insurance policies. The undersigned enjoys subject matter jurisdiction over the declaratory judgment action based on the federal diversity statute, 28 U.S.C. 1332.[1]

         Two insurance policies are in play. CIC issued a personal automobile liability policy to Ronald and Virginia Gregory effective October 1, 2013 through October 1, 2014, policy number A01-0546062 (the Auto Policy) and issued a personal umbrella liability policy to Ronald and Virginia Gregory effective October 1, 2013 through October 1, 2014, policy number U01-0546062 (the Umbrella Policy).

         CIC's amended complaint filed on October 12, 2016 (Doc. 28) alleges that CIC has no duty to defend or indemnify Menards in the underlying action, because Menards is not a “covered person” under the Auto Policy (Count I), business exclusions in both policies preclude coverage in the underlying action (Count II), an off-the-road vehicle exclusion in the Auto Policy applies to the forklift and precludes coverage for Menards in the underlying action (Count III), Menards failed to comply with notice requirements in both policies (Count IV), Menards has insurance with other carriers which renders the CIC policies “excess” and relieves CIC of the duty to defend Menards in the underlying action (Count V), and to the extent the Umbrella Policy provides any coverage to Menards in the underlying action, that coverage has not yet been triggered (Count VI).

         Now before the Court are cross-motions for summary judgment filed by Plaintiff CIC (Docs. 36-37) and Defendant Menards (Doc. 38). Responses were filed on May 1, 2017 (Docs. 42-43) and reply briefs on May 23, 2017 (Docs. 45-46). As explained below, the Court denies in part CIC's motion (Doc. 36) and grants in part Menards' motion (Doc. 38).

         B. Applicable Legal Standards

         Because the undersigned exercises diversity jurisdiction in this action, state substantive law applies and federal procedural rules apply. See, e.g., Doermer v. Callen, 847 F.3d 522, 529 (7th Cir. 2017), citing Goesel v. Boley Int'l (H.K.) Ltd., 806 F.3d 414, 419 (7th Cir. 2015), and Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). See also Great West Cas. Co. v. Robbins, 833 F.3d 711, 715 (7th Cir. 2016).

         Federal courts deciding state law claims apply the forum state's choice of law rules to select the applicable state substantive law, and if no party has raised the choice-of-law issue, “the federal court may simply apply the forum state's substantive law.” Selective Ins. Co. of South Carolina v. Target Corp., 845 F.3d 263, 266 (7th Cir. 2016), quoting McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 684 (7th Cir. 2014). See also Title Industry Assurance Co., R.R.G. v. First American Title Ins. Co., 853 F.3d 876, 883 (7th Cir. 2017) (“The interpretation of an insurance policy and the contours of the insurer's duty to defend are questions of state law.”). Here, no one disputes that Illinois substantive law applies.

         Under Illinois law, the primary goal in interpreting an insurance policy is “to give effect to the intent of the parties as expressed in the agreement.” Berg v. New York Life Ins. Co., 831 F.3d 426, 428-29 (7th Cir. 2016), quoting DeSaga v. W. Bend Mut. Ins. Co., 910 N.E.2d 159, 163 (Ill. 2009). When the terms of an insurance policy are unambiguous, they must be given their plain, ordinary meaning and enforced as written, unless doing so would contravene public policy. Id. at 429. If the policy language is ambiguous (i.e., susceptible to more than one reasonable meaning), the policy is construed against the insurer. Berg, 831 F.3d at 429, citing Gillen v. State Farm Mut. Auto. Ins. Co., 830 N.E.2d 575, 582 (Ill. 2005). Accord Trotter v. Harleysville Ins. Co., 821 F.3d 916, 918 (7th Cir. 2016) (“Under Illinois law, a provision in an insurance policy is ambiguous only when it is susceptible to more than one reasonable interpretation.”). A court should not strain to find an ambiguity where none exists. Berg, 831 F.3d at 429, quoting Founders Ins. Co. v. Munoz, 930 N.E.2d 999, 1004 (Ill. 2010).

         Additionally, any policy provision that limits or excludes coverage “must be construed liberally in favor of the insured and against the insurer” and applied only if its terms are clear, definite, and specific. Berg, 831 F.3d at 429, quoting DeSaga, 910 N.E.2d at 164, and Gillen, 830 N.E.2d at 582. The undersigned also bears in mind that the court must construe an insurance policy as a whole, “taking into account the type of insurance for which the parties have contracted, the risks undertaken and purchased, the subject matter that is insured, and the purposes of the entire contract.Westfield Ins. Co. v. Vandenberg, 796 F.3d 773, 778 (7th Cir. 2015), quoting Crum & Forster Managers Corp. v. Resolution Tr. Corp., 620 N.E.2d 1073, 1078 (Ill. 1993).

         Federal Rule of Civil Procedure 56 governs motions for summary judgment. Summary judgment is appropriate where the admissible evidence shows that there is no genuine dispute as to any material fact, and the movant is entitled to judgment as a matter of law. Taylor-Novotny v. Health Alliance Medical Plans, Inc., 772 F.3d 478, 488 (7th Cir. 2014). Accord Archdiocese of Milwaukee v. Doe, 743 F.3d 1101, 1105 (7thCir. 2014), citing Fed. R. Civ. P. 56. A "material fact" is a fact that affects the outcome of the lawsuit, i.e., it is outcome-determinative under the applicable substantive law. Taylor-Novotny, 772 F.3d at 488; Hanover Ins. Co. v. Northern Bldg. Co., 751 F.3d 788, 791 (7th Cir.), cert. denied, 135 S.Ct. 280 (2014).

         A genuine issue of material fact remains (and summary judgment should be denied), “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Miller v. Gonzalez, 761 F.3d 822, 827 (7th Cir. 2014), quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). However, if the factual record taken as a whole could not lead a reasonable jury to find for the non-moving party, there is nothing for the jury to do, and summary judgment is properly granted. Bunn v. Khoury Enterprises, Inc., 753 F.3d 676, 682 (7th Cir. 2014), citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

         In assessing whether a genuine issue of material fact exists, this Court views the record in the light most favorable to the non-moving party. Bunn, 753 F.3d at 682. See also 520 South Michigan Ave. Associates, Ltd. v. Unite Here Local 1, 760 F.3d 708, 718 (7th Cir. 2014). The undersigned examines the competent evidence of record “in the light reasonably most favorable to the non-moving party, ” giving the non-movant the benefit of reasonable, favorable inferences and resolving conflicts in the evidence in the non-movant's favor. Spaine v. Community Contacts, Inc., 756 F.3d 542, 544 (7th Cir. 2014).

         On cross-motions for summary judgment, the court construes all facts and reasonable inferences derived from those facts “in favor of the party against whom the motion under consideration was made.” Great West Cas. Co. v. Robbins, 833 F.3d 711, 715 (7th Cir. 2016), quoting Clarendon Nat. Ins. Co. v. Medina, 645 F.3d 928, 933 (7th Cir. 2011). In other words, the undersigned views the facts and reasonable inferences in the light most favorable to the nonmovant on each motion. Lalowski v. City of Des Plaines, 789 F.3d 784, 787 (7th Cir. 2015).

         C. Analysis

         The ultimate question presented by this case is whether CIC has a duty to defend and/or a duty to indemnify Menards in the underlying action. In its summary judgment motion, CIC seeks a declaration that it owes neither duty because Menards' breached the notice condition of the policies (Doc. 36, p. 2). In its cross-motion, Menards asks the undersigned to declare that omnibus coverage is afforded to Menards, that CIC owes a duty to defend Menard's in the underlying lawsuit, and that CIC should reimburse Menards for attorney fees and costs incurred in defending that action (Doc. 38, p. 15).

         A few general principles regarding these duties warrant mention. The starting point is the oft-quoted principle of Illinois law that an insurer's duty to defend is “much broader” than its duty to indemnify. Landmark American Ins. Co. v. Hilger, 838 F.3d 821, 824 (7th Cir. 2016). The insurer's duty to defend depends on the allegations of the complaint, as opposed to what is actually proved. Selective Ins., 845 F.3d at 269.

         The duty to defend exists if the factual allegations of the underlying complaint fall within or potentially fall within policy coverage. Id., citing Amerisure Mut. Ins. Co. v. Microplastics, Inc., 622 F.3d 806, 810 (7th Cir. 2010). The Court examines the factual allegations and policy terms keeping in mind that ambiguities are resolved against the insurer. However, this principle favoring the insured “must ‘yield to the paramount rule of reasonable construction which guides all contract interpretations.'” Selective Ins., 845 F.3d at 269, quoting Amerisure, 622 F.3d at 811.

         Eight weeks ago, the Seventh Circuit reiterated:

“A duty to defend will arise when the allegations of the underlying complaint may potentially come within the coverage of the policy.” Westfield Ins. Co. v. West Van Buren, LLC, … 59 N.E.3d 877, 882 (2016). The insurer may not simply refuse to defend a suit against its insured unless it is clear from the underlying complaint “that the allegations fail to state facts which bring the case within, or potentially within, the policy's coverage.” Employers Ins. of Wausau v. Ehlco Liquidating Trust, … 708 N.E.2d 1122, 1136 (1999)….
In deciding whether an insurer breached its duty, Illinois courts ordinarily apply the “eight-corners” rule: “the court ‘compares the four corners of the underlying complaint with the four corners of the insurance policy to determine whether facts alleged in the underlying complaint fall within or potentially within coverage.'” American Alternative Ins. Corp. v. Metro Paramedic Services, Inc., 829 F.3d 509, 513-14 (7th Cir. 2016)….

Title Industry, 853 F.3d at 883.

         If the insurer “tries to deny coverage without seeking a declaratory judgment or defending under a reservation of rights, ” the court's inquiry is “necessarily limited to the allegations of the underlying complaint.” If the insurer files a declaratory judgment action, that limitation does not apply. Selective Ins., 845 F.3d at 269, citing Landmark, 838 F.3d at 824. In that instance, the trial court may look beyond the underlying complaint and consider all relevant facts contained in the pleadings (e.g., in a third-party complaint or other evidence appropriate to a motion for summary judgment) to determine if there is a duty to defend. Selective Ins., 845 F.3d at 269, citing Pekin Ins. Co. v. Wilson, 930 N.E.2d 1011, 1020 (Ill. 2010). See also Title Industry, 853 F.3d at 884 (if declaratory judgment action is filed, court can look beyond insurance policy and underlying complaint and consider extrinsic evidence).

         The duty to indemnify is determined after liability has been affixed. Nat'l Am. Ins. Co. v. Artisan Truckers Cas. Co., 796 F.3d 717, 724 (7th Cir. 2015). “The duty to indemnify arises only when the insured becomes legally obligated to pay damages in the underlying action” that gave rise to the claim under the policy. Pekin, 930 N.E.2d at 1018, quoting Zurich Ins. Co. v. Raymark Industries, Inc., 514 N.E.2d 150, 163 (Ill. 1987). Accord Allied Property & Cas. Ins. Co. v. Metro North Condominium Ass'n, 850 F.3d 844, 847 (7th Cir. 2017) (Once the insured has incurred liability on the underlying claim, the insurer's duty to indemnify is triggered only if the insured's activity and resulting loss or damage actually fall within policy coverage).

         Turning to the case at bar, CIC's amended complaint offers six bases on which the Court could declare that CIC owes no duty to Menards in the underlying action. CIC's summary judgment motion pares this down to a single ground - Menard breached the notice requirement in both insurance policies, thereby forfeiting the right to any coverage.

         Under Illinois law, a notice provision in an insurance policy is a “condition precedent” to trigger the insurer's contractual duties. AMCO Ins. Co. v. Erie Ins. Exchange, 49 N.E.3d 900, 907-08 ( Ill. App. 2016). If the insured fails to comply with the notice provision, “the insurer may be relieved from its duty to defend and indemnify the insured under the policy.” Id., quoting Northern Ins. Co. of New York v. City of Chicago, 759 N.E.2d 144, 149 ( Ill. App. 2001). The Illinois Supreme Court has emphasized that insurance policy notice provisions are not mere technical requirements. They are valid prerequisites to coverage, conditions precedent that trigger the insurer's contractual duties. Country Mutual Ins. Co. v. Livorsi Marine, Inc., 856 N.E.2d 338, 341 (Ill. 2006); Zurich Ins. Co. v. Walsh Construction Co. of Illinois, Inc., 816 N.E.2d 801, 805 (Ill. 2004).

         The purpose of an insurance policy notice requirement is to allow the insurer to conduct a timely, thorough investigation of the insured's claim and to gather and preserve possible evidence. Commercial Underwriters Ins. Co. v. Aires Environmental Services, Ltd., 259 F.3d 792, 795-96 (7th Cir. 2001); AMCO, 49 N.E.3d at 908; Kerr v. Illinois Central R.R. Co., 670 N.E.2d 759, 767 (Ill. 1996). Accord Berglind v. Paintball Business Ass'n, 930 N.E.2d 1036, 1044 ( Ill. App. 2010) (purpose of notice provision is to ensure the insurer can timely investigate and defend claims against its insured).

         Without question, an insured must act diligently in providing notice to its insurer. Berglind, 930 N.E.2d at 1044. Illinois Supreme Court jurisprudence establishes that a policy calling for notice “as soon as practicable” means notice within a reasonable time, and what constitutes a reasonable period of time is a fact-dependent, case-by-case inquiry. Id.[2] “Breaching a policy's notice clause by failing to give reasonable notice will defeat the right of the insured party to recover under the policy.” Country Mutual, 856 N.E.2d at 343, citing Simmon v. Iowa Mutual Cas. Co., 121 N.E.2d 509 (Ill. 1954).

         In deciding whether notice was given within a reasonable time, the court applies five factors: (1) the specific language of the policy's notice provision, (2) the insured's degree of sophistication in commerce and insurance matters, (3) the insured's awareness that an occurrence under the policy terms has taken place; (4) the insured's diligence in ascertaining whether coverage is available; and (5) any prejudice to the insurer. AMCO, 49 N.E.3d at 908; Berglind, 930 N.E.2d at 1045; Country Mutual, 856 N.E.2d at ...

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