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Philadelphia Indemnity Insurance Co. v. Chicago Trust Co.

United States Court of Appeals, Seventh Circuit

July 19, 2019

Philadelphia Indemnity Insurance Company, Plaintiff, Counterdefendant-Appellee,
The Chicago Trust Company, as Administrator of the Estate of Kianna Rudesill, and The Baby Fold, Defendants, Counterplaintiffs-Appellants.

          Argued April 16, 2019

          Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 16 C 10161 - Joan Humphrey Lefkow, Judge.

          Before EASTERBROOK, KANNE, and SCUDDER, Circuit Judges.


         The Baby Fold is a nonprofit corporation that provides foster-care services in Illinois. In 2010 Baby Fold placed three-year-old Kianna Rudesill in the care of Joshua and Heather Lamie. Heather killed Kianna in May 2011 and has been convicted of murder. The Chicago Trust Company, as administrator of Kianna's estate, maintained a wrongful death action in Illinois state court against Baby Fold for its failure to supervise and protect Kianna. In February 2019 Chicago Trust and Baby Fold settled their dispute for $4 million.

         The question in this case is what portion of the settlement (and any other losses related to Kianna's death) must be paid by Baby Fold's insurer. Philadelphia Indemnity filed this declaratory-judgment suit under the diversity jurisdiction and asked the judge to declare how much it owes under two policies covering Baby Fold at the time of Kianna's death. We refer to the policies as the primary policy and the excess policy. The insurer asked for a declaration that its maximum indemnity is $1 million under the primary policy and $250, 000 under the excess policy. Baby Fold and Chicago Trust filed counterclaims: They agree that the primary policy provides $1 million of coverage but contend that the excess policy's limit is $5 million, not $250, 000. Philadelphia moved to dismiss Chicago Trust's counterclaim under Fed.R.Civ.P. 12(b)(6). The district judge concluded that the policies' language favors the insurer and granted the motion to dismiss. The opinion declared that Philadelphia's potential liability under the excess policy is $250, 000. 2018 U.S. Dist. LEXIS 165071 at *25-26 (N.D. Ill. Sept. 26, 2018).

         Unfortunately, the district court entered a judgment that does not declare the parties' rights. Instead the judgment reads: "Case is dismissed." This means that Philadelphia loses (contradicting the judge's opinion) and that the wrong parties have appealed, jeopardizing our appellate jurisdiction. We asked counsel for both sides at oral argument about this incongruity. They surmised that the opinion and judgment, taken together, fully resolve the case in Philadelphia's favor. That's wrong. A judgment must provide the relief to which a prevailing party is entitled. See, e.g., Greenhill v. Vartanian, 917 F.3d 984, 987 (7th Cir. 2019) (collecting authority). This judgment does the opposite, awarding the prevailing party a loss. And Fed.R.Civ.P. 58(a) prohibits an opinion from serving as a declaratory judgment. See Foremost Sales Promotions, Inc. v. Director, Bureau of Alcohol, Tobacco & Firearms, 812 F.2d 1044, 1045-46 (7th Cir. 1987).

         Counsel also speculated that this document represents a take-nothing judgment for the counterclaims. But this would mean that Philadelphia's claim remains unresolved, and if so the suit is not over. Moreover, this judgment suffers from other problems. It fails to mention one defendant (Chicago Trust). It does not address the counterclaims. And it transgresses Rule 58(b) because it was entered by a clerk. District judges must review all judgments other than simple judgments on jury verdicts and judgments entirely in the defendants' favor. This judgment does not fall under those exceptions and thus requires the district judge's approval. Rule 58(b) requires this judicial inspection to ensure the entry of proper judgments, especially when dispositions are complicated. See Rush University Medical Center v. Leavitt, 535 F.3d 735, 737 (7th Cir. 2008). And lawyers must alert judges to problems with judgments. We are disappointed by counsel's failure to adhere to our repeated admonitions on this subject. See, e.g., Azeez v. Fairman, 795 F.2d 1296, 1297 (7th Cir. 1986).

         We remanded with instructions to enter a new judgment that implements the district judge's opinion, abides by Rule 58, and resolves the whole case. The district judge complied, and the revised judgment provides Philadelphia with the declaratory relief described in the opinion. It also dismisses the defendants' counterclaims. With the new judgment in hand we turn to the merits.

         Chicago Trust and Baby Fold contend that the excess policy provides a $5 million limit, or at least that the language is ambiguous and thus must be construed in favor of more coverage under Illinois law. See, e.g., Gillen v. State Farm Mutual Automobile Insurance Co., 215 Ill.2d 381, 393 (2005). But the policies' language supports Philadelphia's interpretation.

         The primary policy comprises several "coverage parts," each of which outlines specific types of losses. One part covers losses arising out of Baby Fold's negligent supervision of foster parents who commit physical abuse; both sides agree that this part provides $1 million of coverage. The excess policy then provides an additional layer of insurance with a general limit of $5 million. The excess policy, however, contains a sublimit for physical abuse claims:

         Sexual or Physical Abuse or Molestation Liability Coverage Form Sublimit

This endorsement modifies insurance provided under the following: COMMERCIAL EXCESS LIABILITY POLICY
This policy is intended to include the Sexual or Physical Abuse or Molestation Coverageform [sic], but only with the limits set forth below. These limits are included within, and not excess of, nor in addition to ...

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