Metro. Cas. Ins. Co. v. Donnelly

158 F.Supp.3d 734

Metropolitan. Cas. Ins. Co., Plaintiff,

v.James M. Donnelly, Gloria F. Donnelly, Jane Doe, a Minor, By Her Mother and Next Friend, Mary Doe, and Mary Doe, Defendants.

Case No. 15–cv–0328–MJR–PMF

United States District Court, S.D. Illinois.

Signed February 1, 2016

David S. Osborne, Joseph P. Postel, Lindsay, Rappaport, et al., Justin K. Seigler, Bates & Carey, Chicago, IL, for Plaintiff.

Samuel A. Mormino, Jr., Mormino Velloff et al, Alton, IL, Michael R. Wesley, Law Office of Michael R. Wesley LLC, Wood River, IL, for Defendants.

MEMORANDUM & ORDER

REAGAN, Chief Judge:

A. Introduction and Procedural History

On March 25, 2015, Plaintiff Metropolitan Casualty Insurance Company (“Metropolitan”) filed a complaint for declaratory judgment¹ against Defendants James M. Donnelly (“Mr.Donnelly”), Gloria F. Donnelly (“Ms. Donnelly”, collectively the “Donnellys”), Jane Doe (a minor, by an through her mother and next friend, Mary Doe), and Mary Doe (Doc. 1 at 1). According to Plaintiff's second amended and currently operative complaint (Doc. 27), Mr. Donnelly pled guilty on December 9, 2014, to predatory criminal sexual assault of an individual under the age of 13, specifically his step great-granddaughter, Jane Doe (Id. at 5; see Illinois v. James Donnelly, 14–CF–15).

On March 5, 2015, Jane Doe and Mary Doe, filed a complaint against the Donnellys, Jane Doe et al. v. James Donnelly et al., Case No. 15–L–289, which has been amended twice, most recently on June 3, 2015 (the “state complaint”) (Doc. 27 at 3). The state complaint alleges sexual abuse (of Jane Doe) and intentional infliction of emotional distress (of Mary Doe) by Mr. Donnelly, and negligent supervision by Ms. Donnelly (Doc. 27 at 3–5; Doc. 27–1). The remaining counts (IV through VII) against the Donnellys relate to alleged fraudulent transfers between the Donnellys (Doc. 27 at 6; Doc. 27–1).

Metropolitan seeks a declaratory judgment from this Court that the language of the two policies (Docs. 1–2 and 1–3) issued to the Donnellys do not provide a duty to defend or indemnify the Donnellys (Doc. 27 at 1–2; 6–14). On July 28, 2015, Metropolitan filed its motion for summary judgment (Doc. 30). Jane Doe and Mary Doe filed a response to the Plaintiff's motion (Doc. 31), in which they agree with the Plaintiff's position as to all but Count III (negligent supervision by Ms. Donnelly), but argue that, because Count III is a claim within or potentially within the coverage of the action, Plaintiff has a duty to defend (Id. ). On November 2, 2015, Ms. Donnelly filed a motion for summary judgment, mirroring much of Jane and Mary Doe's argument, to which the Plaintiff responded (Doc. 33). All motions ripe, the Court begins with a brief discussion of the legal standards.

B. Legal Standards

1. Summary Judgment

Rule 56 of the Federal Rules of Civil Procedure governs summary judgment motions. The rule states that summary judgment is appropriate only if the admissible evidence considered as a whole shows there is no genuine issue as to any material fact and the movant is entitled judgment as a matter of law. Archdiocese of Milwaukee v. Doe, 743 F.3d 1101, 1105 (7th Cir.2014), citing Fed. R. Civ. P. 56(a). The party seeking summary judgment bears the initial burden of demonstrating—based on the pleadings, affidavits and/or information obtained via discovery—the lack of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine issue of material fact remains “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Nat'l Am. Ins. Co. v. Artisan & Truckers Cas. Co, 796 F.3d 717, 723 (7th Cir.2015), quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Accord Bunn v. Khoury Enterpr., Inc., 753 F.3d 676 (7th Cir.2014).

In assessing a summary judgment motion, the district court views the facts in the light most favorable to, and draws all reasonable inferences in favor of, the nonmoving party. Hooper v. Proctor Health Care Inc., 804 F.3d 846, 849 (7th Cir.2015) ; Woods v. City of Berwyn, 803 F.3d 865, 866 (7th Cir.2015) ; Malin v. Hospira, Inc., 762 F.3d 552, 554 (7th Cir.2014). See also Spaine v. Community Contacts, Inc., 756 F.3d 542 (7th Cir.2014) ( “we set forth the facts by examining the evidence in the light reasonably most favorable to the non-moving party, giving [the non-movant] the benefit of reasonable, favorable inferences and resolving conflicts in the evidence in [the non-movant's] favor.”)

Little changes when cross-motions for summary judgments are involved. United States v. P.H. Glatfelter Co ., 768 F.3d 662, 668 (7th Cir.2014) ; Laskin v. Siegel, 728 F.3d 731, 734 (7th Cir.2013). With cross-motions for summary judgment, the Court looks “to the burden of proof that each party would bear on an issue of trial” and will “require that party to go beyond the pleadings and affirmatively to establish a genuine issue of material fact.” Diaz v. Prudential Ins. Co. of America, 499 F.3d 640, 643 (7th Cir.2007), citing Santaella v. Metropolitan Life Ins. Co., 123 F.3d 456, 461 (7th Cir.1997).

2. Insurance Policies Generally

The parties agree that the insurance coverage at issue should be interpreted under Illinois law. Where Illinois law governs, the interpretation of an insurance policy is a question of law that can be properly decided via summary judgment. Nationwide Ins. Co. v. Central Laborers' Pension Fund, 704 F.3d 522, 525 (7th Cir.2013) ; Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 189 Ill.Dec. 756, 620 N.E.2d 1073, 1077 (1993). An insurance policy is ultimately a contract, and the general rules about contract interpretation apply when a court interprets an insurance policy. Netherlands Ins. Co. v. Phusion Projects, Inc., 737 F.3d 1174, 1177 (7th Cir.2013) ; Clarendon National Ins. Co., 645 F.3d 928, 933 (7th Cir.2011) ; Founders Ins. Co. v. Munoz, 237 Ill.2d 424, 341 Ill.Dec. 485, 930 N.E.2d 999, 1003 (2010). Any interpretation by the Court must attempt to give effect to the parties' intentions as expressed by the policy, giving “due regard to the risk undertaken, the subject matter that is insured, and the purposes of the entire contract.” Schuchman v. State Auto Property and Cas. Ins. Co., 733 F.3d 231, 238 (7th Cir.2013). See also Pekin Ins. Co. v. Wilson, 237 Ill.2d 446, 341 Ill.Dec. 497, 930 N.E.2d 1011, 1017 (2010). Unambiguous language will be construed according to its plain meaning, unless doing so would contravene public policy. Clarendon, 645 F.3d at 933 ; Founders, 341 Ill.Dec. 485, 930 N.E.2d at 1004.

3. Duty to Defend

In Illinois:

An insurer taking the position that a complaint potentially alleging coverage is not covered by a policy which provides that the insurer has the right and duty to defend any claims brought against the insured cannot simply refuse to defend the insured. It must defend the suit under a reservation of rights or seek a declaratory judgment that there is no coverage.

Panfil v. Nautilus Ins. Co. , 799 F.3d 716, 719 (7th Cir.2015). A duty to defend does not exist where “there clearly was no coverage or potential for coverage.” Wausau v. Ehlco Liquidating Trust , 186 Ill.2d 127, 237 Ill.Dec. 82, 708 N.E.2d 1122, 1135 (1999). However, Illinois law also provides that the inverse is true—where the underlying complaint potentially falls within the scope of coverage, an insurer is obligate to defend. Lyerla v. AMCO Ins. Co. , 536 F.3d 684, 688 (7th Cir.2008). But Lyerla goes further than that:

In order to determine whether an insurer has a duty to defend its insured, we must compare the allegations in the underlying complaint to the language of the insurance policy. If the underlying complaint alleges facts within or potentially within policy coverage, an insurer is obligated to defend its insured even if the allegations are groundless, false or fraudulent. An insurer may not justifiably refuse to defend an action against its insured unless it is clear from the face of the underlying complaint that the allegations fail to state facts which bring the case within, or potentially within, the policy's coverage.

Id. citing Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co. , 215 Ill.2d 146, 293 Ill.Dec. 594, 828 N.E.2d 1092, 1098 (2005) and United States Fid. & Guar. Co. v. Wilkin Insulation Co. , 144 Ill.2d 64, 161 Ill.Dec. 280, 578 N.E.2d 926, 930 (1991) (emphasis added) (internal citations removed). Where an insurer denies a duty to defend based upon an exclusionary clause within the policy “its application must be clear and free from doubt.” Hurst–Rosche Eng'rs Inc. v. Commercial Union Ins. Co. , 51 F.3d 1336, 1342 (7th Cir.1995), quoting Transamerica Ins. Co. v. South , 975 F.2d 321, 327 (7th Cir.1992).

The application of a claim to a particular policy follows a burden-shifting model. The insured has the burden of demonstrating that a claims falls within the coverage of a policy. Addison Ins. Co. v. Fay, 232 Ill.2d 446, 328 Ill.Dec. 858, 905 N.E. 747, 752 (2009). Then, the insurer has the burden to prove that exclusion applies. Santa's Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 347 (7th Cir.2010). Once it has, it becomes the insured's burden to prove that an exception to the exclusion restores coverage. Id., citing 17A Steven Plitt Et Al., Couch On Insurance § 254:13 (3d ed.2005). In order to determine whether the count falls within the insurance policy, the Court must examine the “eight corners” of the insurance policy and the complaint. Insurance Co. of West v. County of McHenry, 328 F.3d 926, 929 (7th Cir.2003) ; see Farmers Automobile Ins. Ass'n v. Country Mutual Ins. Co. , 309 Ill.App.3d 694, 243 Ill.Dec. 159, 722 N.E.2d 1228 (2000) (“the court should compare the four corners of the underlying complaint with the four corners of the insurance contract”).

In determining the duty to defend, “courts liberally construe...