Lucky Lincoln Gaming LLC v. Hartford Fire Ins. Co.

LUCKY LINCOLN GAMING LLC, Plaintiff, v. THE HARTFORD FIRE INSURANCE COMPANYand HUB INTERNATIONAL LIMITED, Defendants.

Case No. 3:20-cv-01110-NJR

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ILLINOIS

April 14, 2021

MEMORANDUM AND ORDER

ROSENSTENGEL, Chief Judge:

Pending before the Court is a Motion to Remand pursuant to 28 U.S.C. § 1447 filed by Plaintiff, Lucky Lincoln Gaming LLC ("Lucky Lincoln") (Doc. 16). For the reasons set forth below, the Motion to Remand is granted.

BACKGROUND

Defendant HUB International Limited ("HUB") procured and Defendant Hartford Fire Insurance Company ("HFIC") issued a Commercial Inland Marine insurance policy ("Policy") to Lucky Lincoln with an effective policy period of March 3, 2017 to March 3, 2018 (Doc. 1-1, p. 6; Doc. 1-5, p. 573). A copy of the Policy was given to Lucky Lincoln on March 31, 2017 (Doc. 1-5, pp. 607-09). HFIC reissued the Policy to Lucky Lincoln for the effective policy periods of March 3, 2018 to March 3, 2019—March 3, 2019 to March 3, 2020—and March 3, 2020 to March 3, 2021 (Id. at pp. 618; 682; Doc. 1-4, p. 34).

During the pandemic, Lucky Lincoln unfortunately lost income from shutting down its business (Doc. 1-1). As a result, Lucky Lincoln submitted a claim for coverage of its losses to HFIC noting that COVID-19 is a "covered cause of loss" under the under the Business Income and Extra Expense provision of the Policy for losses in revenue "exceeding $190,000 per day" because of mandatory closure (Id.). On April 20, 2020, HFIC denied the claim for coverage (Id.).

On August 18, 2020, Lucky Lincoln filed a complaint against HFIC and HUB in the Circuit Court of the Third Judicial Circuit of Madison County, Illinois (Id.). Lucky Lincoln brings three claims against HFIC: declaratory judgment (Count I); breach of contract (Count II); and statutory penalty for bad faith denial of insurance under 215 ILCS 5/155 (Count III) (Id.). Lucky Lincoln brings one claim against HUB: negligent failure to procure insurance (Count IV) (Id.).

On October 21, 2020, HFIC removed the case to this Court, asserting that the Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1332(a), 1441, and 1446 (Doc. 1). On November 20, 2020, Lucky Lincoln, a corporate citizen of Illinois, moved to remand the case back to state court because the joinder of HUB, a corporate citizen of Illinois, defeats complete diversity (Doc. 17, p. 2). HFIC filed a memorandum in opposition to Lucky Lincoln's Motion to Remand on December 21, 2020 (Doc. 20).¹

DISCUSSION

HFIC alleges HUB is fraudulently joined and thus does not defeat diversity of citizenship (Doc. 1). Lucky Lincoln argues that HUB is a properly joined party, and there is no diversity of citizenship—thus remand is proper (Docs. 16, 17).

The "fraudulent joinder" doctrine prohibits a plaintiff from joining a non-diverse defendant in an action simply to destroy diversity jurisdiction. Schwartz v. State Farm Mut. Auto. Ins. Co., 174 F.3d 875, 878 (7th Cir. 1999); Gottlieb v. Westin Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993). If the removing defendant establishes fraudulent joinder, the district court considering removal may "disregard, for jurisdictional purposes, the citizenship of certain non-diverse defendants, assume jurisdiction over a case, dismiss the non-diverse defendants, and thereby retain jurisdiction." Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 763 (7th Cir. 2009).

To establish fraudulent joinder, the removing defendant has the burden of proving the plaintiff cannot establish a cause of action against the in-state defendant. Morris v. Nuzzo, 718 F.3d 660, 666 (7th Cir. 2013). Courts only assess whether the plaintiff's complaint provides a reasonable basis for recovery against an in-state defendant; not whether the plaintiff will ultimately be successful on the merits. Asperger v. Shop Vac Corp., 524 F.Supp.2d 1088, 1096 (S.D. Ill. 2007). In reviewing such a claim, a court must construe "all issues of fact and law in favor of the plaintiff . . . ." Morris, 718 F.3d at 666 (quoting Poulos v. NAAS Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992)). Even if a state court may ultimately find a plaintiff has failed to state a claim against a defendant, joinder of the claim is not "fraudulent" for purposes of jurisdiction so long as the state law issue is subject to reasonable argument on both sides. See Batoff v. State Farm Ins. Co., 977 F.2d 848, 853 (3d Cir. 1992). Put differently, the defendant has the "heavy burden" of showing the plaintiff's claim has "no chance of success" against the non-diverse defendant. Poulos, 959 F.2d at 73.

I. Applicability of 725 ILCS 5/13-2214.4 to Lucky Lincoln's Claim Against HUB

Here, the Court must determine whether HFIC has proved that Lucky Lincoln has no chance of success on its negligent failure to procure insurance claim against HUB. HFIC contends that it is impossible for Lucky Lincoln to maintain its claim against HUB as it is barred by the two-year statute of limitations under 725 ILCS 5/13-2214.4. Lucky Lincoln does not dispute that the two-year statute of limitations applies to the claim against HUB (Doc. 17). Lucky Lincoln also does not dispute that if the statute of limitations has run, then the claim against HUB is time-barred.

The parties' dispute focuses on when Lucky Lincoln's cause of action against HUB accrued, and thus, when the two-year Illinois statute of limitations began to run. According to HFIC, Illinois has a bright-line rule, and the statute of limitations began to run when the Policy was delivered to Lucky Lincoln on March 31, 2017 (Doc. 20). But Lucky Lincoln contests this purported bright-line rule under Illinois law (Doc. 17).

Both Lucky Lincoln and HFIC rely on the same Illinois Supreme Court case, Am. Family Mut. Ins. Co. v. Krop, 120 N.E.3d 982 (Ill. 2018). In Krop, the insurer denied the insured coverage for a claim arising from a defamation action against the insured. Id. at 984. The insurer filed a declaratory judgment to determine whether it had a duty to defend its insured in the tort action. The insured filed a counterclaim against the insurance agent for negligently selling them a deficient policy. Id. Both the insurance agent and the insurance company moved to dismiss the claims as time-barred pursuant to the two-year statute of limitation. Id. at 985.

The Illinois Supreme Court in Krop recognized a "narrow set of cases in which thepolicyholder reasonably could not be expected to learn the extent of coverage simply by reading the policy." Id. at 992. These narrow set of cases include: 1) policies "contain[ing] contradictory provisions or fail[ing] to define key terms," 2) "circumstances that give rise to the liability may be so unexpected that the typical customer should not be expected to anticipate how the policy applies[,]" and 3) a customer reasonably relying on an insurance agent's representations about the policy. Id.

Next, the Court acknowledged that the statute of limitations normally accrues upon the receipt of a nonconforming policy because insureds have an obligation to read and understand the policies. Id. at 988. The Court then found that "[t]he alleged facts of this case do not present such an exceptional circumstance where a customer reasonably should not be expected to understand the terms of the policy." Id. at 992. The Court continued noting the following:

The [ ] policy covered legal liability only if it resulted from "bodily injury or property damage." The first page of the policy includes a "DEFINITIONS" section that explicitly states that "[b]odily [i]njury does not include * * * emotional or mental distress, mental anguish, mental injury, or any similar injury unless it arises out of actual bodily harm to the person."

Id. On these facts, the Court held that the insured did "not plead[ ] facts showing that they could not have read their [ ] policy and understood its terms, so the cause of action accrued when they first purchased their policy." Id.

Lucky Lincoln argues that this situation falls into the narrow set of cases in which it could not be expected to learn the extent of coverage simply by reading the policy—thus the statute of limitations does not accrue until the denial of its claim (Doc. 17, p. 3).Lucky Lincoln points out that "[HFIC] included no virus exclusion and bases its denial on undefined terms that some courts have interpreted as providing [HFIC's] posited limitation on its policy on delivery such that the cause of action against HUB as its broker did not accrue until denial of coverage in April of 2020" (Id. at p. 5). Lucky Lincoln continues noting that "though many insurers choose to include an exclusion specific to damages occasioned by virus or pandemic, the [HFIC] policy at issue here contained no such exclusion" (Id.). "Such an exclusion might have put Plaintiff on notice of such a limitation on coverage, but, as pleaded in the Complaint, the [HFIC] policy has no such exclusion . . . ." (Id.). Lucky Lincoln also argues that HFIC fails to clearly define what constitutes as "physical loss or damage to property." (Id. at p. 6).

HFIC responds with three main arguments. First, HFIC points to the weaknesses in Lucky Lincoln's allegations to show why Lucky Lincoln is barred by the statute of limitations (Doc. 20). This argument is a nonstarter because the statute of limitations is an affirmative defense. See United States v. N. Tr. Co., 372 F.3d 886, 888 (7th Cir. 2004) (noting "[d]ismissal under Rule 12(b)(6) was irregular, for the statute of limitations is an affirmative defense"). Plaintiffs, like Lucky Lincoln, are not required to plead around defenses, and the Seventh Circuit has acknowledged that "[r]esolving defenses comes after the complaint stage." Id.

Second, HFIC contends this is not a narrow case because the phrase "physical loss or damage to property" is readily understood—"[m]ore than 60 courts nationwide—including two in this District—have interpreted that very term and applied it...