WWM Attorney Christopher A. Wadley successfully obtained the dismissal of an insurance coverage and bad-faith lawsuit against Illinois Union Insurance Company, which arose out of an underlying malicious prosecution lawsuit filed by Rodell Sanders against The City of Chicago Heights. Sanders was arrested in 1994 and convicted of murder, attempted murder, and armed robbery. More than a decade later, Sanders was granted a new trial and acquitted of all charges. Sanders then sued Chicago Heights for malicious prosecution. Chicago Heights sought coverage under a liability policy it had purchased from Illinois Union, which was in effect when Sanders was acquitted. Illinois Union denied coverage on the grounds that the alleged offense of malicious prosecution did not occur during the policy period, as required to trigger coverage. Sanders and Chicago Heights subsequently settled Sanders’s claim for $15 million, and they jointly sued Illinois Union for coverage and bad faith. The court, however, dismissed the complaint, agreeing with Illinois Union that the claim was not covered. In doing so, the court held that the offense of malicious prosecution occurred, for purposes of insurance coverage, when the charges were initially filed against Sanders, rather than when he was exonerated. Sanders v. Illinois Union Ins. Co., No. 16 CH 2605 (Ill. Cir. Ct., Cook Cnty., Jan. 2, 2018). Click here for PDF.
WWM attorneys Robert P. Conlon, Christopher A. Wadley, and Ryan J. Rodman successfully represented RSUI Indemnity Company before the United States Court of Appeals for the Seventh Circuit in a lawsuit alleging that RSUI failed, in bad faith, to settle an underlying claim. In the lawsuit, West Side Salvage, Inc. alleged that RSUI breached a duty to settle an underlying lawsuit arising out of a grain bin explosion at a ConAgra facility in Chester, Illinois. In response, RSUI argued that it did not breach a duty to settle because either the claim was not covered or, even if covered, it did not act in bad faith. The trial court entered summary judgment in RSUI’s favor, concluding that the claim was covered, but that RSUI did not act in bad faith as a matter of law. The Seventh Circuit affirmed. The court concluded that the claim was excluded from coverage under the policy’s exclusion for damage to property on which the insured was performing operations. Accordingly, the court held that RSUI did not breach a duty to settle. West Side Salvage, Inc. v. RSUI Indem. Co., No. 16-3928 (7th Cir. Dec. 18, 2017).
WWM attorneys Edward P. Gibbons and Christopher A. Wadley successfully represented Federal Insurance Company (“Federal”) before the United States Court of Appeals for the Seventh Circuit, in a case involving coverage for an underlying class action arising out of a bank’s imposition of overdraft fees. Specifically, on October 12, 2017, the Seventh Circuit affirmed that Federal did not have a duty to defend or indemnify BancorpSouth, Inc. (“BancorpSouth”) in an underlying class action alleging that BancorpSouth engaged in various practices and procedures that resulted in the imposition of overdraft fees on its customers. The court concluded that an exclusion in BancorpSouth’s professional liability policy, which excluded coverage for claims “based upon, arising from on in consequence of any fees or charges,” was unambiguous and applied to preclude coverage for the underlying lawsuit. In reaching that conclusion, the court observed that all of the underlying plaintiff’s allegations against BancorpSouth arose from the bank’s alleged imposition of excessive overdraft fees.
The plaintiff had initiated his lawsuit against BancorpSouth in May 2010, claiming that BancorpSouth engaged in a number of practices that resulted in the imposition of excessive overdraft fees, including resequencing debit card transactions and failing to provide customers with accurate balance information. BancorpSouth sought coverage for the lawsuit, but Federal declined. BancorpSouth later settled the action for $24 million and sued Federal for reimbursement. BancorpSouth also claimed that Federal had denied coverage in bad faith.
The United States District Court for the Southern District of Indiana dismissed BancorpSouth’s lawsuit, concluding that the exclusion applied to bar coverage. BancorpSouth appealed, arguing that the underlying complaint contained allegations related to BancorpSouth’s general banking practices and procedures that did not implicate the exclusion. The Seventh Circuit, however, rejected that argument. While acknowledging that the underlying complaint contained allegations related to BancorpSouth’s banking practices and procedures, the court explained that those allegations could not be “read in a vacuum” and that each alleged act was tied to the bank’s overdraft fee scheme. Consequently, the court held that the exclusion barred coverage, and it affirmed the dismissal of BancorpSouth’s complaint.
On August 10, 2017, Walker Wilcox Matousek obtained summary judgment for RSUI Indemnity Company in the U.S. District Court for the Southern District of New York in Abrams v. RSUI Indemnity Co., No. 16-CV-4886 (JGK), 2017 WL 3433108 (S.D.N.Y. Aug. 10, 2017).
The insured in Abrams sought reimbursement from RSUI under a Directors & Officers Liability Insurance Policy for defense expenses the insured incurred in defending an underlying lawsuit pending in New York Supreme Court, styled Southern Advanced Materials, LLC v. Robert S. Abrams, and John Does 1-10, Index No. 650773/2015 (the “SAM Action”). Specifically, the insured sought reimbursement from RSUI for defense expenses he incurred prior to giving RSUI notice of the SAM Action in April 2016. The SAM Action was filed in March 2015 and RSUI’s insured allegedly incurred more than $3.5 million in defense expenses prior to notifying RSUI of the lawsuit. While RSUI agreed to defend the insured under a reservation of rights after April 2016, RSUI denied the insured’s claim for defense expenses incurred prior to notice.
RSUI maintained that it was not responsible for the insured’s pre-notice defense expenses under the policy, stressing that the D&O Policy was a claims-made policy that required the insured to give notice to RSUI as a condition precedent to coverage. RSUI also noted that the policy required RSUI’s consent before the insured could incur any covered defense expenses, and that the insured in Abrams did not have consent prior to giving notice to RSUI. In response, the insured argued that the policy did not specifically disclaim pre-notice defense expenses and that RSUI must show prejudice before denying that claim.
On cross-motions for summary judgment, Judge John G. Koetl ruled in RSUI’s favor, holding that Delaware law (which applied to interpret the policy) enforces the plain language of the RSUI Policy, including the notice and consent provisions requiring notice as a condition precedent and consent prior to incurring any defense costs. 2017 WL 3433108 at *4. The Court rejected the insured’s argument that RSUI must show prejudice before denying the claim, stating that the policy language and applicable Delaware law did not support that analysis. Id. at *5-6. Accordingly, the Court granted RSUI’s motion for summary judgment and denied the insured’s motion.
Walker Wilcox Matousek recently obtained summary judgment for Westport Insurance Corporation in the U.S. District Court for the Southern District of Florida with the court finding that the insured’s claim was not covered by Westport’s policy pursuant to its prior knowledge exclusion. David R. Farbstein, P.A. v. Westport Ins. Co., 2017 WL 3425327, Case No. 16-cv-62361-BLOOM/Valle.
The insured sought coverage for a legal malpractice action filed against it in March 2016. Caravan, Inc. v. David R. Farbstein, P.A., et. al., Case No. 2016 CA 002459, Fifteenth Judicial Circuit in and for Palm Beach County, Florida. The claimant alleged that it retained the insured to represent it in the sale of property. The insured assisted in review and drafting the sales contract. As the closing approached, the claimant realized the contract did not require the buyer to assume a substantial pre-payment penalty in the existing mortgage. The claimant alleged he instructed the insured that the contract required the buyer to either assume the existing mortgage or pay the pre-payment penalty.
The claimant alleged that the insured advised in a July 2015 conversation that it should complete the transaction with the existing terms. It is further alleged that the insured informed the claimant that he carried an “errors and omissions” policy. Months after this discussion the insured completed a renewal application for a Westport policy and denied knowledge of any claim or potential claim against him.
The claimant filed suit against the insured in March 2016. The insured tendered his defense to Westport. After investigation, Westport denied his claim for a defense citing the policy’s prior knowledge exclusion, which precludes coverage for claims that insured reasonably knew may be asserted at the time the policy is issued. The insured filed a declaratory judgment action against Westport seeking coverage in the underlying action.
On behalf of Westport, WWM removed the case to federal court, filed a counterclaim for declaratory judgment against the insured, and a third-party complaint for declaratory action against the claimant as an indispensable defendant. After conducting discovery, Westport moved for summary judgment arguing that the undisputed facts demonstrated the insured reasonably knew or should have known of a potential claim. The Southern District of Florida Court found that the allegations in the underlying complaint demonstrated that the insured could reasonably have foreseen the claim at the time the policy was issued and granted Westport’s motion for summary judgment, while simultaneously denying the insured’s competing motion for partial summary judgment.
Walker Wilcox Matousek recently obtained judgment on the pleadings for insurer RSUI in the District Court for the Northern District of Illinois, with the court finding no coverage under a Directors & Officers policy pursuant to the Specific Litigation Exclusion in the policy. RSUI Indemnity Co. v. Worldwide Wagering, Inc., et al., 1:17-cv-01690 (N.D. Ill. July 17, 2017).
World Wide Wagering (“WWW”), sought coverage for an underlying bankruptcy adversary complaint filed against it in December 2016, alleging, among other things, that WWW transferred funds to avoid paying a $78 million judgment against it in a prior lawsuit: Empress Casino Joliet Corporation, et. al. v. Rod Blagojevich, et. al., Case No. 1:09-cv-03585 (the “Riverboat Matter”). The bankruptcy adversary complaint also re-alleged some of the allegations from the Riverboat Matter, specifically that WWW’s subsidiaries, a group of horseracing track owners in Illinois, allegedly paid bribes to former Governor Rod Blagojevich in exchange for his support for legislation that would require Illinois riverboat casinos to pay 3% of their revenue to the racetrack owners.
The adversary complaint further alleged that WWW intentionally shielded and fraudulently transferred some of its assets, knowing they were at risk for the judgment in the Riverboat Matter. RSUI denied coverage for the bankruptcy proceeding based on the Specific Litigation Exclusion in the D&O policy, which excluded coverage for any claims made against the insureds “alleging, arising out of, based upon or attributable to, directly or indirectly, in whole or in part” the Riverboat Matter.
On behalf of RSUI, Walker Wilcox Matousek initiated a coverage action and filed an early motion for judgment on the pleadings based primarily on the Specific Litigation Exclusion. WWW filed a counterclaim and contemporaneous motion for summary judgment, arguing that the bankruptcy adversary complaint triggered a duty to defend because at least some of the claims in the underlying lawsuit did not arise out of the Riverboat Matter. The Northern District of Illinois Court, relying on Delaware law, found that the Specific Litigation Exclusion applied to bar coverage for the entire case because the bankruptcy adversary complaint needed only arise “in part” out of the Riverboat Matter. Ultimately, the court granted RSUI’s motion for judgment on the pleadings and denied WWW’s motion for summary judgment, also dismissing WWW’s counterclaim.
Bill Bila and Cassandra Jones recently obtained judgment on the pleadings in the Southern District of Florida, finding no coverage under a Directors & Officers policy pursuant to an Insured versus Insured exclusion.
The January 30, 2017, ruling came after the insureds initiated coverage litigation, arguing that the insurer had a duty to defend the underlying lawsuit, as well as a duty to indemnify for the settlement amount. The insured condominium association initially tendered the underlying lawsuit, which was brought by the former association board president and another condominium unit owner, alleging that the board mismanaged the installation of hurricane resistant glass. The underlying lawsuit was filed in November 2013, and the former Association president served in that capacity until early 2012. The insurer denied coverage for the underlying lawsuit, raising several exclusions, including the Insured versus Insured exclusion. The parties in the underlying lawsuit reached a mediated settlement in March 2016, after which the insureds instituted a coverage action in Florida State court, seeking recovery of their underlying defense costs and the amount of the settlement.
On behalf of the defendant, our firm removed the case to federal court, filed a counterclaim and subsequent motion for judgment on the pleadings. Plaintiffs did not dispute that the former board president served on the board within three years of the underlying lawsuit, as required under the policy’s Insured versus Insured exclusion. Instead, plaintiffs argued that the insurer wrongfully refused to defend because the presence of a non-insured plaintiff in the underlying lawsuit required allocation between covered and uncovered matters. The court, relying on Florida law, found that the Insured versus Insured exclusion applied to bar coverage for the entire case from its inception because both insured and non-insured persons were initial parties to the suit. The court rejected plaintiffs’ allocation argument, finding that the provisions were inapplicable because the action was not covered.
The Marbella Condominium Association v. RSUI Indemnity Co., 9:16-cv-80987, Southern District of Florida
WWM recently obtained summary judgment on behalf of RSUI Indemnity Company when a Florida federal judge held it had no duty to cover an underlying $40 million consent judgment arising from claims of real estate fraud because every underlying claim asserted against the insured shares the same factual basis as a 2008 counterclaim that was “first made” before the policy’s inception. RSUI Indemnity Co. v. Attorney’s Title Insurance Fund Inc., No. 13-670, M.D. Fla.
Attorneys’ Title Insurance Fund Inc. and Florida Title Co. (collectively, ATIF) sued Section 10 Joint Venture LLP, Sky Property Venture LLC and CAS Group Inc., seeking to recover $3 million that they paid for an allegedly fraudulently sold property. The underlying lawsuit alleged claims for equitable lien/constructive trust, injunctive relief and unjust enrichment. Section 10 counterclaimed for slander of title, wrongful lis pendens, declaratory judgment, tortious interference and wrongful injunction.
ATIF sought coverage for the counterclaims from its commercial general liability insurers and RSUI, its directors and officers liability insurer. Eventually ATIF’s unjust enrichment count was the only remaining claim, and Section 10 filed a claim for malicious prosecution against ATIF. The parties in the underlying dispute reached a settlement that resulted in a $40 million judgment against ATIF. Section 10 agreed to enforce the judgment only against ATIF’s insurers pursuant to Coblentz v. Am. Sur. Co. of New York, 416 F.2d 1059 (5th Cir. 1969).
ATIF’s liability insurer filed suit in the U.S. District Court for the Middle District of Florida, seeking a declaration as to coverage and RSUI intervened. RSUI moved for summary judgment, arguing that there is no coverage because Section 10’s claim is a single claim that predates any RSUI policy. The District Court agreed stating:
Contrary to Section 10’s position, the policies’ language is clear and unambiguous. For a claim to qualify for coverage, it must be first made during the respective policy period and it must not be factually or otherwise related to a previous claim. If it is factually or otherwise related to a previous claim, and that claim was first made before the respective policy periods, there is no coverage available. That is what occurred here. Every claim asserted against ATIF in the underlying state court litigation shares the same factual basis as the 2008 Counterclaim, which was ‘first made’ before the respective policy periods began. As such, there is no coverage afforded under the policies for these claims.
The judge added that the “Prior and Pending Litigation Exclusion, even in its modified form, is in harmony with this construction” rejecting Section 10’s argument that there was conflict between the Related Claims Condition and the Prior and Pending Litigation Exclusion.
Neil Holmen and Jeremy Kerman recently obtained a favorable partial summary judgment ruling in the Circuit Court of Cook County that will reduce our clients’ potential damages from nearly $1,000,000 to the low-five figures.
The April 1, 2016 summary judgment victory, and the Court’s August 3, 2016 denial of plaintiffs’ motion to reconsider came in a class action lawsuit brought on behalf of the tenants of an apartment complex in the South Loop neighborhood of Chicago. The plaintiff, on behalf of a proposed class of building tenants, sought the recovery of all sums paid by all tenants to the building owner and authorized management agent for gas, water and sewer utility services. The basis of the claim was that from mid-2011 to the time of the filing of the lawsuits, the owner and/or the authorized management agent allegedly failed to provide the tenants with the formula used to allocate utility charges amongst the tenants as required by the Illinois Tenant Utility Payment Disclosure Act (“TUPDA”). Specifically, plaintiff claimed that that the defendants’ failure to comply with the TUPDA was a violation of public policy, which in turn was a violation of the Illinois Consumer Fraud Act (“ICFA”), and that the purported class was therefore entitled to damages in the full amount of all utility payments ever made to defendants.
On behalf of the defendants, our firm prepared a partial summary judgment motion asking the court to find that plaintiff’s damages were limited to only those actually suffered (i.e. the overbilling for utilities, if any such overbilling even existed). The court agreed that plaintiff’s damages should be limited, noting that plaintiff’s complaint sought a refund of all amounts tenants paid for utilities during the purported class period, not just overcharges. Significantly, the court also recognized that one of the requirements to succeed on a cause of action under the ICFA is that a plaintiff must suffer actual damages, which the court defined as “actual pecuniary loss.” The court held then that the damages sought by the plaintiff were not “actual pecuniary loss,” but amounted to a penalty against the landlord, and that the terms of the TUPDA does not allow for any such penalty. The effect of the court’s ruling was to limit the plaintiffs’ damages to amounts paid by tenants in excess of the correct prorata share for each tenant, if any.
Walsh v. McCaffery Interests, Inc. and CJUF III McCaffery Roosevelt Residential I, LLC, No.2014 CH 16257, Circuit Court of Cook County, Illinois
WWM recently obtained a reversal in the Seventh Circuit on behalf of Landmark American Insurance Company. Reversing a decision by the United States District Court for the Northern District of Illinois, the Seventh Circuit held that Landmark is entitled to conduct discovery regarding whether a defendant to a lawsuit is an insured as defined by the Landmark policy. Landmark American Ins. Co. v. Peter Hilger, No. 15-2566, 2016.
Peter Hilger was named in two lawsuits alleging that he and several codefendants persuaded credit unions to fund loans by misrepresenting the value of life insurance policies offered as collateral. Landmark had issued a professional liability policy to an entity owned by one of Hilger’s codefendants – O’M and Associates LLC (“O’MA”). Hilger was an employee of a different company called Allied Solutions, LLC, yet insisted that he was insured under the Landmark policy and thus entitled to a defense because he was an independent contractor of O’MA.
Landmark filed a declaratory judgment action, confident that discovery would show that Hilger was not acting as an independent contractor performing professional services for O’MA and thus not actually an insured under its policy. The District Court, in a misapplication of the four corners rule, granted Hilger’s motion for judgment on the pleadings. The District Court limited its analysis to the underlying complaints alone and concluded that because they “paint an ambiguous picture” of Hilger’s relationship with O’MA, it had to interpret the allegations in favor of coverage. Landmark was thus forbidden to search for the truth and forced to defend Hilger, who it believed to be a stranger to the policy.
The Seventh Circuit reversed:
Hilger thinks that the broad scope of an insurer’s duty to defend means that in all duty to defend disputes, the court is limited to a review of the allegations of the underlying complaint. That’s true when an insurer tries to deny coverage without seeking a declaratory judgment or defending under a reservation of rights.
But Landmark did seek a declaratory judgment, so that limitation doesn’t apply here.
Because Landmark filed a declaratory judgment action, it may discover and present evidence beyond the underlying complaints, so long as it does not tend to determine an ultimate issue in the underlying action (which it did not in this case). The ruling provides insurers a measure of protection against having to automatically defend strangers to their policies based solely on the allegations in a complaint.