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Creation Supply, Inc. v. Selective Insurance Company of Southeast

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

November 12, 2019




         Selective Insurance Company of the Southeast (“Selective”) denied insurance coverage to Creation Supply Inc. (“CSI”) when CSI was sued by Too Marker in federal court in Oregon for trade dress infringement. President of CSI, John Gragg, was also personally named as a defendant in the action. The Oregon suit and Selective's formal denial of coverage on June 22, 2012, spawned a series of lawsuits, appeals, and other court actions which persist to the present day.

         This ruling on fees and costs under 215 ILCS 5/155 will be followed by a trial for consequential damages and fees, if any, sustained by CSI due to Selective's breach of its insurance contract with Selective. A bench trial was previously held by this Court which resulted in findings of fact and conclusions of law being made in favor of CSI based on Section 155 conduct. Document 259 of the record in this case reflects those results.

         In addition to the original complaint filed in Oregon by Too Marker, other actions relevant to Section 155 include Selective's Illinois Declaratory Judgment Complaint; CSI's Illinois case against Too Marker (brought because Gragg was named as a defendant in the Oregon action); CSI's Illinois suit against Alpha for implied warranty of noninfringement and indemnification; Selective's appeal of the Illinois Circuit Court judgment that Selective had a duty to defend; and CSI's Illinois defensive crossclaims against Alpha (Alpha being the supplier of the accused products in the Oregon action).

         Completion of the appeals processes resulted in return of the matters to the trial courts for resolution of the remaining ancillary issues. The Illinois Circuit Court entered final judgment in its action on October 2, 2017. Attempts by this Court to settle all remaining issues between CSI and Selective have failed, necessitating a ruling at this time as to taxable costs, reasonable attorney's fees, and other statutory allowances.

         As stated in Neiman v. Economy Preferred Ins. Co., 357 Ill.App.3d 786, 829 N.E.2d 907 (1st Dist. 2005), Section 155's reach is described as follows:

The statute begins by stating that it applies to those insurance cases where one of three issues remains undecided: the liability of the insurer, the amount owed under the policy, or whether a delay in settling a claim has been unreasonable.
The language of this section is entirely plain to us. It directs that in a cause of action where there remains “in issue” either the liability of a company on an insurance policy or the amount of loss to be paid under a policy or an unreasonable delay in “settling a claim, ” a court may award a monetary remedy to an insured, as described in subsection 1(a), (b) or (c).

         Contrary to Selective's position, the instant action involved two claims, one for breach of the insurance contract and one under Section 155. This Court granted CSI's motion for summary judgment on its breach-of-contract claim with its damages and fees remaining to be decided by a jury or the Court.

         Selective's main argument in opposition to the award of any fees is that any recovery under Section 155 must arise out of an action by a policyholder to enforce the terms of the policy. Inasmuch as Selective claims the present action does not involve a determination of Selective's liability under an insurance policy, no fees to CSI are authorized per Selective. Selective argues that the “action” referred to in the statute means the declaratory judgment action before Judge Flynn in the Cook County Circuit Court and not the instant action.

         Selective's position is both factually and legally wrong. There are a number of cases in which a Section 155 claim is consolidated with a breach-of-contract claim as in this case. CSI's breach-of-contract claim, already determined by this Court to be meritorious, is an action involving the liability of the insurance company Selective. Keller v. State Farm Insurance Co., 180 Ill.App.3d 539, 536 N.E.2d 184 (5th Dist. 1989). There remains to be decided the amount of the loss payable by virtue of the breach of contract already found by the Court, a matter squarely encompassed by the language of Section 155.


         Selective's next attack is that the doctrine of collateral estoppel prevents previously unrecovered fees and expenses related to the underlying Oregon action from being recovered. It is Selective's assertion that the Illinois courts have already determined the fees and expenses CSI was entitled to recover against Selective.

         In order for collateral estoppel to apply, all of the following conditions must be present: (1)The issue sought to be precluded must be the same as that involved in the prior action; (2) the issue must have been actually litigated in the prior action; (3) the determination of the issue was essential to the final judgment in the prior action; ...

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