Landmark Am. Ins. Co. v. Deerfield Constr., Inc.

LANDMARK AMERICAN INSURANCE COMPANY, Plaintiff, v. DEERFIELD CONSTRUCTION,INC., and SHAWN GRAFF, Defendants.

DEERFIELD CONSTRUCTION, INC., and SHAWN GRAFF, Third-Party Plaintiffs, v. AMERICAN STATES INSURANCE COMPANY, ARTHUR J. GALLAGHER RISK MANAGEMENT SERVICES, INC.,

LAW OFFICES OF MEACHUM, STARCK, BOYLE & TRAFMAN,

and DAVID OLMSTEAD Third-Party Defendants.

No. 15 C 1785

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

May 19, 2016

Chief Judge Rubén Castillo

MEMORANDUM OPINION AND ORDER

Following the entry of an adverse judgment in a personal injury case, secondary insurance provider Landmark American Insurance Company ("Landmark") brought this action against Deerfield Construction, Inc., and its employee Shawn Graff (collectively, "Deerfield") seeking a declaratory judgment that Deerfield is not entitled to coverage under the Landmark insurance policy. (R. 1, Compl.) Deerfield subsequently impleaded third-party defendants American States Insurance Company ("American States"), Arthur J. Gallagher Risk Management Services, Inc. ("AJG"), and Meachum, Starck, Boyle & Trafman and its attorney David Olmstead (collectively, "MSBT"), alleging that they breached various professional duties and were responsible for Landmark's potential denial of coverage. (R. 28, Third-Party Compl.) Presently before the Court are motions to dismiss or stay third-party claims by MSBT and AJG, (R. 61, MSBT's Mot. to Dismiss; R. 56, AJG's Mot. to Dismiss), as well as American States's joinder in the motions to stay, (R. 75, American States's Reply). For the reasons set forth below, MSBT's motion to dismiss is granted in part and denied in part, AJG's motion to dismiss is granted, and MSBT's and American States's motions to stay are denied.

RELEVANT FACTS

Sometime prior to March 2007, Deerfield enlisted AJG as its insurance broker to procure on its behalf various insurance policies. (R. 28, Third-Party Compl. ¶ 7.) Through AJG, Deerfield obtained a primary commercial automobile liability policy from American States with liability limits of $1 million, effective from March 1, 2007, to March 1, 2008. (Id. ¶ 8.) AJG also obtained a commercial excess liability policy for Deerfield from Landmark, effective for the same period and with liability limits of $10 million. (Id. ¶ 9.)

On January 16, 2008, an automobile accident occurred involving Graff and a third party, Ryan Keeping ("Keeping"). (Id. ¶ 10.) Deerfield notified both American States and AJG of the accident soon thereafter. (Id. ¶ 11.) In late December 2009, Keeping filed suit against Deerfield and Graff in the Circuit Court of Cook County (the "Keeping Case"). (Id. ¶ 13.) Deerfield notified American States and AJG of the litigation, but neither Deerfield, American States, nor AJG notified Landmark at that time. (Id. ¶ 14.) American States accepted Deerfield's defense and retained MSBT to represent Deerfield. (Id. ¶¶ 15-16.) At all times throughout the trial, American States and MSBT allegedly represented to Deerfield that they did not believe a verdict would be entered against Deerfield and that there was no danger that Deerfield could be exposed to liability in excess of the American States policy. (Id. ¶¶ 18-19.) When asked what would happen if a judgment was entered that exceeded the limits of the American States policy, Olmstead allegedly responded that Deerfield "did not need to worry because they were covered under the Landmark Policy for any amounts in excess of $1 million and up to $10 million." (Id. ¶ 20.)

In October 2010, MSBT took the deposition of Keeping and allegedly first learned that he was claiming damages for emotional distress and long-term unemployment in the Keeping Case. (Id. ¶ 23.) In April 2013, Keeping tendered a $1.25 million settlement demand that was rejected. (Id. ¶ 24.) On December 5, 2014, AJG notified Landmark's parent company of the Keeping Case via email. (Id. ¶ 25.) The trial was scheduled to begin approximately five weeks later. (Id.) After the case had proceeded to trial but before the jury returned its verdict, MSBT and Keeping's counsel attempted to negotiate a high-low offer that would have ensured that any judgment would not exceed American States's $1 million policy limit, but the parties were not able to agree. (Id. ¶¶ 26-27.) On January 16, 2015, the jury entered a verdict of $2,368,000 against Deerfield, which was later reduced to $2,339,827. (Id. ¶¶ 28-31.) After the verdict was entered, Landmark refused to indemnify Deerfield for the portion of the judgment exceeding American States's policy limit, arguing that it had not been provided timely notice as required in its insurance contract. (Id. ¶ 32.)

PROCEDURAL HISTORY

In February 2015, Landmark filed this action against Deerfield seeking a declaratory judgment that Deerfield's failure to timely notify it of the Keeping Case entitled Landmark to withhold payment on the policy.¹ (R. 1, Compl.) Deerfield moved to stay in light of its pending remittitur motion in the Keeping Case, (R. 10, Deerfield's Mot. to Stay), which this Court granted, (R. 14, Min. Order). Deerfield filed its answer on June 10, 2015, (R. 20, Deerfield's Answer), and filed an amended answer adding three counterclaims on June 24, 2015, (R. 22, Deerfield's Am. Answer). Landmark filed its answer to the counterclaims on July 14, 2015. (R. 26.) Landmark moved for summary judgment in January 2016, (R. 87, Landmark's Mot. for Summ. J.), and Deerfield moved to defer consideration of the motion until completion of discovery, (R. 90, Deerfield's Mot. to Defer). The Court granted Deerfield's motion, and it entered and continued Landmark's motion for summary judgment generally. (R. 99, Min. Order.)

Deerfield also sought leave to file a third-party complaint against MSBT, AJG, and American States, (R. 24, Deerfield's Mot. for Leave), which this Court granted, (R. 27, Min. Order). The third-party complaint was filed on July 22, 2015. (R. 28, Third-Party Compl.) Deerfield's third-party complaint alleges six counts in total. Counts I and II allege negligence and bad faith refusal to settle against American States, Counts III and IV allege breach of fiduciary duty and negligence against AJG, and Counts V and VI allege professional negligence and breach of fiduciary duty against MSBT.

MSBT moves to dismiss the third-party claims against it under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), or to stay the claims until resolution of the Landmark case. (R. 61, MSBT's Mot. to Dismiss.) MSBT argues that this Court lacks supplemental jurisdiction over these state-law claims because the claims are not part of the same case or controversy as the Landmark case. (Id. at 2.) It also argues that Deerfield's malpractice count is premature because Deerfield will have suffered no injury unless it loses the Landmark claim and coverage is denied. (Id.) Deerfield responds that this Court has jurisdiction because the MSBT claims and the Landmark case "share identical factual issues." (R. 70, Deerfield's Resp. at 2.) Deerfield further argues that its claims are ripe for adjudication because an adverse judgment has already been entered against it in the Keeping Case. (Id.)

AJG also moves to dismiss the third-party claims against it under Federal Rule of Civil Procedure 12(b)(6), or alternatively to sever and stay these claims. (R. 56, AJG's Mot. to Dismiss.) AJG argues that Deerfield has failed to state a claim because "the only purported duty it alleges AJG breached—failing to report Deerfield's claim to its excess insurer—is not a cognizable duty under Illinois law." (Id. at 2.) AJG contends that the statute establishing the duties of insurance brokers in Illinois, the Illinois Insurance Placement Liability Act ("IIPLA"), 735 ILL. COMP. STAT. 5/2-2201, sets forth an exhaustive list of insurance brokers' duties, and that these claims do not fall under that list. (Id.) Deerfield responds that insurance brokers owe certain fiduciary duties under Illinois law that are not specifically delineated by the IIPLA and, because the IIPLA does not specifically limit liability in cases alleging a failure to notify insurers of potential claims, the statute does not preclude its claims against AJG. (R. 69, Deerfield's Resp. at 2-3.)

American States filed its answer to the third-party complaint on the same day that MSBT's and AJG's motions to dismiss were filed. (R. 62, American States's Answer.) Subsequently, American States joined in the motions to stay filed by MSBT and AJG. (R. 75, American States's Reply.) American States argues that a stay is warranted because resolution of the Landmark case may moot the American States claims and the issues to be decided in each case are distinct. (Id. at 2.) Deerfield has not responded to American States's motion.

LEGAL STANDARD

Rule 12(b)(1) provides for dismissal of a case when the Court lacks subject-matter jurisdiction. Fed. R. Civ. P. 12(b)(1). In deciding a motion to dismiss for lack of subject-matter jurisdiction, the Court "must accept as true all well-pleaded factual allegations and draw all reasonable inferences in favor of the plaintiff." Long v. Shorebank Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999). The Court may also look beyond the pleadings to "view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Id. (citation and internal quotation marks omitted). The party invoking jurisdiction bears the burden of establishing that jurisdiction exists. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). Even when a party does not raise the issue, "not only may the federal courts police subject matter jurisdiction sua sponte, they must." Wernsing v. Thompson, 423 F.3d 732, 743 (7th Cir. 2005) (citation and internal quotation marks omitted).

In deciding a motion to dismiss under Rule 12(b)(6), the Court must accept the factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff....