United States District Court, S.D. Illinois
ORDER AND JUDGMENT OF DEFAULT
M. YANDLE UNITED STATES DISTRICT JUDGE
pending before the Court is Plaintiff Hanover Insurance
Company's (“Hanover”) Motion for Default
Judgment as to Declaratory Relief (Doc. 21). Hanover filed
this action against Morthland Institution of Higher Learning
(“Morthland”) seeking a declaration that it was
not required to defend and indemnify Morthland for a claim
made by the United States Department of Education
(“DOE”) seeking over $2 million in
fines. Morthland was served with summons and a
copy of the Complaint on January 23, 2018 and its responsive
pleading was due by February 13, 2018 (Doc. 10). However,
Morthland failed to answer or otherwise plead to the
Complaint by the deadline and the Clerk of Court entered
default on February 16, 2018 (Doc. 13).
the Federal Rules of Civil Procedure, a defendant must file
its answer “within 21 days after being served with
summons and complaint.” Fed.R.Civ.P. 8(a)(1)(A)(i). A
defendant who fails to do may be found in default under
Federal Rule of Civil Procedure 55(a). It is in the district
court's discretion whether to enter default judgment.
O'Brien v. R.J. O'Brien & Assocs.,
Inc., 998 F.2d 1394, 1398 (7th Cir.1993). Default
judgment establishes, as a matter of law, that a defendant is
liable to the plaintiff on each cause of action alleged in
the complaint. United States v. Di Mucci, 879 F.2d
1488, 1497 (7th Cir. 1989). When a defendant is found in
default, all factual allegations in the Complaint are deemed
admitted and not subject to challenge. Black v.
Lane, 22 F.3d 1395, 1399 (7th Cir. 1994).
to the Complaint and attachments, Hanover issued a Commercial
Line Policy to Morthland which provided a Schools and
Educators Legal Liability coverage (Doc. 2-1, pp. 247-260;
Doc. 2, p. 3). The coverage included a defend and indemnity
clause in which Hanover agreed to pay any
“'loss' due to a ‘claim' arising out
of an ‘educators wrongful act' to which this
insurance applies” (Id.). Loss, as the term is
used in the Policy, does not include “punitive damages,
exemplary damages, multiplied damages, taxes, fines or
penalties imposed by law” (Id. 4).
Additionally, the Policy excludes any “claim”
related to embezzlement, misuse, misappropriation or breach
of fiduciary duty in the handling or managing of public
and/or private monies, investments, or employee benefit
programs” (Id. 4). Finally, the Policy
excludes coverage for “[a]ny Claim based on or arising
out of acts, errors, or omissions by any person in a
fiduciary capacity, as a trustee, director, officer or in any
similar capacity” (Id. 5-6).
August 22, 2017, the DOE issued a letter to Morthland,
instituting a “fine action” in excess of $2
million for Morthland's violation of regulations
governing the distribution of Title IV of the Higher
Education Act of 1965 funds (Doc. 2-2, pp. 1-17). The letter
alleges a “dereliction of fiduciary duty” for
illegally distributing funds to ineligible students,
retaining unearned funds, inflating costs of attendance, and
mishandling student credit accounts (Id.). The
letter also states that Morthland is no longer eligible for
Title IV funds for failing to provide adequate courses,
contracting with non-Title IV eligible organizations, and
failing to maintain financial responsibility (Id.).
Morthland submitted a Notice of Occurrence/Claim to Hanover
with respect to the DOE letter on August 30, 2017 (Doc. 2-3,
insurer's duty to defend is determined by comparing the
allegations in the underlying Complaint to the relevant
provisions of the insurance policy. Health Care Indus.
Liab. Ins. Program v. Momence Meadows Nursing Ctr.,
Inc., 566 F.3d 689, 694 (7th Cir. 2009). If any portion
of the lawsuit potentially falls within the scope of the
coverage, the insurer is obligated to defend. Valley
Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d
307, 315 (2006). An insurer may refuse to defend only if
“it is clear from the face of the underlying complaint
that the allegations set forth in the complaint fail to state
facts that bring the case within, or potentially within, the
coverage of the policy.” Id. An insurer's
duty to defend is broader than its duty to indemnify.
Lyerla v. AMCO Ins. Co., 536 F.3d 684, 688 (7th Cir.
“School and Educators Legal Liability Coverage
Part” excludes Morthland's claim for defense
because the DOE's fine is specifically excluded from the
definition of “loss” in the policy. The
“claim” made by the DOE is for a breach of
fiduciary duties under controlling regulations which also is
excluded by the policy. Thus, Hanover has no duty to defend
Morthland from the claims made by the DOE. Moreover, as the
duty to indemnify is triggered only in circumstances of
actual coverage, Hanover also has no duty to indemnify. See,
Momence Meadows, 566 F.3d at 693.
foregoing reasons, the Motion for Default Judgment is
GRANTED (Doc. 21). A DECLARATORY
JUDGMENT is entered in favor of Hanover as follows:
Hanover does not have a duty to defend or indemnify Morthland
under the Schools and Educators Legal Liability Coverage Part
for the DOE claim as set forth in its August 22, 2017 letter.
IS SO ORDERED.
 The DOE no longer is pursing a claim
against Morthland (Doc. 18). This matter is not moot,
however, because Morthland still incurred defense costs in
relation to the DOE action and had not withdrawn ...