Bernacchi v. First Chi. Ins. Co., 21-3363

52 F.4th 324

Gina BERNACCHI, Plaintiff-Appellant,

v.FIRST CHICAGO INSURANCE COMPANY and Chicago Seven Cab, Inc., Defendants-Appellees.

No. 21-3363

United States Court of Appeals, Seventh Circuit.

Argued September 14, 2022

Decided October 20, 2022

St. Eve, Circuit Judge.

Gina Bernacchi was travelling in a taxicab insured by First Chicago Insurance Company when an uninsured driver collided with the vehicle. After an Illinois court ruled that the insurance policy covered her, she asked First Chicago for compensation for injuries and expenses she claims she incurred because of the crash. The insurance company has not been acting in a timely manner, she alleges, so she brought this suit seeking specific performance to "adjust her claim"—that is, (1) admit or deny liability and (2) state the amount of compensatory damages to which she is entitled and the factual basis for that figure. The district court granted First Chicago's motion to dismiss, finding that her claim was premised on Illinois Insurance Code provisions that do not provide a private right of action.

On appeal, Bernacchi argues that the district court inappropriately dismissed her claim on a basis not presented or briefed by the parties. She also argues that the district court erred in concluding that her claim was based on violations of Illinois law rather than provisions of the contract and that the court improperly denied her leave to amend her complaint. For the reasons below, we affirm the decision of the district court.

I. Background

Gina Bernacchi was a passenger in a taxicab insured by First Chicago Insurance Company when an uninsured driver struck the cab. As part of its contract with the cab company, First Chicago agreed to pay for certain damages resulting from an accident with an uninsured motorist, including for cab passengers. In February 2021, an Illinois court concluded that Bernacchi was covered under the First Chicago policy up to $350,000.

On February 11, 2021, Bernacchi sent a letter to First Chicago detailing the nature of her claim with accompanying documentation. She requested $350,000—the maximum possible recovery—though she valued her entire loss at $680,000. The letter requested payment on or before March 30, 2021.

First Chicago was allegedly less than responsive. On March 29, 2021, it requested details about Bernacchi's medical records. Bernacchi faxed over her response the next day and set a deadline of April 7, 2021, for the insurance company to adjust her claim. On April 8, 2021, First Chicago issued written interrogatories for Bernacchi to answer in two and a half months. About a month later, Bernacchi sent the completed interrogatories and asked the claims adjuster to identify with specificity what was missing to adjust the claim.

On May 11, 2021, Bernacchi filed suit in federal court, alleging that First Chicago had still not done anything to adjust her claim. She sought an order of specific performance directing First Chicago to adjust her claim within fourteen days. On June 25, 2021, First Chicago made Bernacchi a settlement offer of $45,000. It subsequently filed a motion to dismiss, arguing that (1) the matter must be arbitrated and (2) its good-faith settlement offer fulfilled its obligation to evaluate her claim. Bernacchi disputed that a settlement offer was equivalent to a claim adjustment and accused First Chicago of attempting to shirk its obligations under the policy.

The district court held two hearings on First Chicago's motion. During the first hearing, counsel for First Chicago stated that the correct way to pursue Bernacchi's claim was to file a complaint with the Illinois Department of Insurance. During the second hearing, Bernacchi's lawyer confirmed that the source of First Chicago's obligation to adjust the claim stemmed from the Illinois Insurance Code, rather than any specific policy provision. The district court asked, "Are you, in terms of the requirement for adjusting the claim, ... relying on the ... various state law statutes and regulations that you've identified in your response brief for the duty to adjust the claim in a timely fashion ... is that correct?" Bernacchi's lawyer responded, "That's absolutely correct."

In an order dated August 10, 2021, the district court granted First Chicago's motion to dismiss for a reason not directly argued by the parties. It concluded that Bernacchi's complaint failed to cite any language in the contract creating an obligation to adjust her claim or to do so within a certain timeframe. Instead, the court reasoned, Bernacchi's claim relied upon certain sections of the Illinois Insurance Code, none of which provide a private right of action.

Bernacchi subsequently filed a motion to vacate the judgment, asking the court to reconsider on the basis that its decision contemplated an issue not presented or briefed by the parties. She also requested leave to amend her complaint and attached a proposed amended complaint, which included two new counts in addition to the count in her original complaint. The first new count alleged that First Chicago's failure to adjust the claim was a breach of the covenant of good faith and fair dealing. The second new count alleged that Illinois law created an implied right of action. Neither count relied on the policy.

The district court denied Bernacchi's motions. It rejected Bernacchi's contention that it dismissed her complaint sua sponte , finding that she was on notice of the possibility of dismissal given the full briefing of First Chicago's motion to dismiss and the two motion hearings where the parties "vigorous[ly]" debated the issues. The court further found that its prior decision did not violate the party presentation principle. It noted that, during the motion hearings, counsel for First Chicago stated that the appropriate remedy for Bernacchi's grievance was through the Illinois Department of Insurance and Bernacchi's counsel confirmed that her argument rested entirely on state statutes and regulations.

As for Bernacchi's proposed amended complaint, the district court found that her added counts would not have prevented dismissal. It concluded that her count asserting a violation of an implied covenant of good faith and fair dealing "goes nowhere," as "it has been recognized time and again that under Illinois law the implied covenant of good faith and fair dealing does not give rise to an independent cause of action." The district court noted that her count alleging an implied private right of action failed for similar reasons. Concluding that amendment would be futile, the district court denied her leave to amend. Bernacchi filed this timely appeal.

II. Analysis

We review the dismissal of a complaint for failure to state a claim de novo, construing all allegations and reasonable inferences in favor of the plaintiff. Circle Block Partners, LLC v. Fireman's Fund Ins. Co. , 44 F.4th 1014, 1018 (7th Cir. 2022). We review a district court's denial of leave to amend a complaint for abuse of discretion. CMFG Life Ins. Co. v. RBS Sec., Inc. , 799 F.3d 729, 735 (7th Cir. 2015). Where the basis for denial is futility, as it is here, however, "we apply the legal sufficiency standard of Rule 12(b)(6) to determine whether the proposed amended complaint fails to state a claim." Runnion ex rel. Runnion v. Girl Scouts of Greater Chi. & Nw. Ind. , 786 F.3d 510, 524 (7th Cir. 2015).

Bernacchi argues that the district court erred by dismissing her complaint for reasons not raised by First Chicago's motion; finding that her claim was premised on Illinois law rather than any contractual provision; and denying leave to file an amended complaint. These positions fall flat.

A. Party Presentation Rule

Bernacchi states that the district court erred by deciding the case on grounds not raised by First Chicago in its motion to dismiss, resulting in her having "insufficient notice and opportunity to be heard." Her arguments invoke the party presentation rule, which stands for the proposition that parties "frame the issues for decision," whereas the courts play "the role of neutral arbiter of matters the parties present." United States v. Sineneng-Smith , ––– U.S. ––––, 140 S. Ct. 1575, 1579, 206 L.Ed.2d 866 (2020) (quoting Greenlaw v. United States , 554 U.S. 237, 243, 128 S.Ct. 2559, 171 L.Ed.2d 399 (2008) ). "[A]s a general rule, our system ‘is designed around the premise that [parties represented by competent counsel] know what is best for them, and are responsible for advancing the facts and argument entitling them to relief.’ " Id. (quoting Castro v. United States , 540 U.S. 375, 386, 124 S.Ct. 786, 157 L.Ed.2d 778 (2003) (Scalia, J., concurring in part and concurring in the judgment)).

The party presentation rule, however, is "not ironclad." Id. A court "is not limited to the particular legal theories advanced by the parties, but rather retains the independent power to identify and apply the proper construction of governing law." Kamen v. Kemper Fin. Servs., Inc. , 500 U.S. 90, 99, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991). The Supreme Court has recognized that a "court may consider an issue ‘antecedent to ... and ultimately dispositive of’ the dispute before it, even an issue the parties fail to identify and brief." See U.S. Nat'l Bank of Oregon v. Indep. Ins. Agents of Am., Inc. , 508 U.S. 439, 447, 113 S.Ct. 2173, 124 L.Ed.2d 402 (1993) (quoting Arcadia v. Ohio Power Co. , 498 U.S. 73, 77, 111 S.Ct. 415, 112 L.Ed.2d 374, (1990) ).

Here, the district court did not violate the party presentation rule. The parties squarely argued about Illinois insurance statutes and administrative regulations. See 50 Ill. Adm. Code 919.50, 919.40 ; 215 ILCS 5/154.6. In fact, during one of the motion hearings, Bernacchi's attorney admitted, in no uncertain terms, that her claim was premised on alleged violations of Illinois law.¹ Before the district court could determine whether First Chicago violated these duties, it had to determine whether the cited statutes and...