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Wesco Insurance Co. v. Elements Architectural Group, Inc.

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

November 5, 2019

Wesco Insurance Company, Plaintiff/Counter-Defendant,
Elements Architectural Group, Inc., Defendant/Counter-Claimant.



         There have been problems at the house that Elements Architectural Group designed for Stefen and Kristi Lippitz in Chicago. The Lippitzes say holes in the planter boxes caused water damage in the garage, flecks of metal were found lodged in the picture windows, and the hot tub on the top floor sprung a leak. They sent Elements three letters demanding money and repairs before initiating a lawsuit in state court. When Elements reported all of this to its insurance provider (Wesco Insurance), Wesco denied coverage, saying Elements had waited too long to tell them about it. Wesco then filed this declaratory action and, while it was pending, reached an agreement with the Lippitzes and Elements to settle their underlying dispute. Elements says that, during those settlement discussions (and again in open court), Wesco made admissions that resolve all of the issues presented here. Wesco and Elements have filed cross-motions for summary judgment, both seeking a declaration that the other should have to foot the bill for the defense of Elements in the state- court suit. For the reasons discussed below, Wesco's motion is granted and Elements's is denied.

         I. Legal Standards

         Summary judgment is appropriate if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving party must show that, after “construing all facts, and drawing all reasonable inferences from those facts, in favor of the non-moving party, ” United States v. P.H. Glatfelter Co., 768 F.3d 662, 668 (7th Cir. 2014), a “reasonable jury could not return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party is also entitled to summary judgment when the “nonmoving party has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). These same rules apply equally to cross-motions for summary judgment, Blow v. Bijora, Inc., 855 F.3d 793, 797 (7th Cir. 2017), and I may consider evidence from one motion when deciding the other. Torry v. City of Chicago, 932 F.3d 579, 584 (7th Cir. 2019). In deciding a motion for summary judgment that calls for the interpretation and application of a contract in a declaratory judgment action, when the terms of the contract are “clear and unambiguous, ” the contract should be construed and applied according to its literal terms. Elkhart Lake's Rd. Am., Inc. v. Chicago Historic Races, Ltd., 158 F.3d 970, 972 (7th Cir. 1998).

         II. Facts

         Plaintiff and counter-defendant Wesco Insurance Company issued defendant and counter-claimant Elements Architectural Group Inc. two professional liability insurance policies. [42] ¶¶ 8, 9.[1] The first had a policy period spanning from November 6, 2015, to November 6, 2016. [42] ¶ 8. The second (a renewal of the first) spanned from November 6, 2016, to November 6, 2017. [42] ¶ 9.

         According to both policies, Wesco agreed to indemnify Elements against claims that were made against it for damages “for wrongful acts arising out of the performance of professional services for others, ” and to defend Elements against all “covered claims.” [42] ¶ 10. The policies define “claim” to mean “a demand received by [Elements] for money, damages, or professional services alleging a wrongful act arising out of the performance of professional services or contracting services.” [42] ¶ 11. And the policies say that the insurance only applies to a “wrongful act” if the claim arising out of the wrongful act is “first made against [Elements] during the policy period” and reported in writing “no later than 60 days after the end of the policy period or, if applicable, during an extended claims reporting period.” [42] ¶ 10. See also [42] ¶ 13 (Elements was also obligated to report any potential claims “as soon as practicable during the policy period”).

         The policies treat “[t]wo or more covered claims arising out of a single wrongful act or any series of related wrongful acts” as a single claim. [42] ¶ 12. If a claim was made-not reported, made-before the effective date of the second policy (i.e., before November 6, 2016, see [1-2] at 4-5), the second policy does not provide coverage for any claim made after the effective date that is “based upon the same or related wrongful acts.” [42] ¶ 12.

         The Lippitzes and Elements entered into a contract for Elements to provide professional architectural design services to design a house on West Stratford Court in Chicago. [41] ¶ 3; [42] ¶ 14. Elements designed the house and construction was completed in 2011. [42] ¶ 15. A few years later, when a leak developed in a planter that Elements had designed, the Lippitzes asked Elements and the general contractor to investigate. See [42] ¶ 16. Elements obliged, [46] ¶ 1, [2] but nonetheless, in July of 2016, the Lippitzes sent Elements a letter in which they claimed that the planter was defective and had caused water to collect under their deck and damage their garage. [42] ¶ 17. The Lippitzes considered Elements to be one of the liable parties (along with the construction firm), [42] ¶ 18, and sought $64, 070 in damages. [42] ¶ 19. They characterized their letter as a “claim” against Elements and said that they planned to sue Elements if the requested payment was not received within fourteen days. [42] ¶ 19; [1-3] at 2. But at the end of that fourteen-day period, they did not file a lawsuit (or follow up on their letter). See [42] ¶¶ 19-20; [46] ¶ 4. Elements did not report the July 2016 letter to Wesco before November 6, 2016 (the end of the first policy period). [42] ¶ 25.

         In February of 2017, the Lippitzes sent a second letter, this time demanding arbitration and $92, 000. [42] ¶¶ 21, 22; [1-5] at 1. Attached to that letter was a “statement of claim” that included descriptions of unsatisfactory picture windows (also designed by Elements, also mentioned in the July 2016 letter, see [1-3] at 2) and the water damage that had resulted from the planters. [1-5] at 3. The Lippitzes served a copy of the letter on Elements, [1-5] at 5-6, but never filed an official claim with the American Arbitration Association. [46] ¶ 5. Elements did not report the February 2017 demand to Wesco until August of 2017. See [42] ¶ 25.

         In August of 2017, the Lippitzes circulated a second demand for arbitration, this time seeking $200, 000 in damages. [42] ¶¶ 23-24. That demand attached an estimate from a restoration company that included costs associated with repairing both the garage and a hot tub located on the top level deck of the house. [1-6] at 36- 40. Thirteen days after receiving the second arbitration demand, Elements made its first report to Wesco about the defective-design claims. [42] ¶ 25; [41] ¶ 11. Wesco denied tender of the claim, denied that it had a duty to defend Elements against the claim, and denied that it had a duty to indemnify Elements. See [41] ¶ 12. Instead, seven months after receiving notice of the claim, Wesco filed this lawsuit seeking a declaration as to its duties under the policies. See [42] ¶ 26. Shortly thereafter, the Lippitzes filed an action for professional malpractice against Elements in Cook County. [42] ¶ 27.

         Wesco, Elements, and the Lippitzes eventually attended mediation and reached an agreement in principle to resolve both the state-court lawsuit and any obligation Wesco had to “indemnify Elements in connection with the Lippitzes' claim.” [42] ¶ 32. That agreement has still not been finalized. See [42] ¶ 33; [29] ¶¶ 2, 3. An unsigned document (titled, “confidential agreement and release”) states that neither the release nor the consideration provided for therein “is intended to be or should be construed as an admission by any of the [parties to the agreement] of any obligation, fault, wrongdoing or liability whatsoever.” [31-5] at 4, § VII.C. It also says that the purpose of the release is “to avoid the risks, burdens, and expenses attendant upon litigation, to cease certain adversarial relationships among [the parties to the agreement] and to settle and release the matters and claims.” [31-5] at 1. It refers to both the state-court malpractice suit and this declaratory judgment case. Id. at 1, 2. The matters and claims covered include “any and all claims for coverage under the Wesco Policies arising out of” the lawsuit in state court. [31-5] at 2 § I.A. There is one exception: the agreement does not purport to settle “Elements' claim for defense costs incurred in the Underlying Action until its dismissal.” Id. See also [41] ¶ 5 (Wesco has “agreed to compromise the portion of its declaratory judgment action … against Elements and the Lippitzes regarding Wesco's duty to indemnify”).

         A few weeks after that mediation, during a status hearing in this case, counsel for Wesco reported that the parties were “close to a settlement” of the state-court case and that Wesco “believe[d]” that the parties had reached a “settlement in principle” that “should also dispose of this case.” [39] at 2:13-17. Counsel for Elements said that the malpractice case against Elements had been resolved and that, as far as Elements was concerned, the resolution “satisfie[d] the indemnity issue on the coverage part of the case but leaves unaddressed the duty-to-defend issue.” Id. at 3:3-7. Elements acknowledged that Wesco disagreed with that understanding. [39] at 3:4-6.

         III. Analysis

         Elements is an Illinois Corporation with its principal place of business in Cook County, Illinois. [42] ¶ 2. Wesco is a Delaware corporation with its principal place of business in New York. [42] ¶ 1. The Lippitzes's demands exceeded $200, 000 at the time this case was filed, see [42] ¶ 5, and evidence in the record substantiates those demands. See, e.g., [1-6] at 37-40. I have jurisdiction under 28 U.S.C. § 1332(a). Wesco and Elements disagree over whether the former owes a duty to defend and indemnify Elements against certain claims submitted in relation to a set of insurance policies. See [1] ...

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