Justia U.S. 7th Circuit Court of Appeals Opinion Summaries

This case involves a dispute over insurance coverage following a family business conflict. Brian Flood and his sons, Chris and Shawn, were involved in a waste collection business, Flood Brothers Waste Disposal Company. After being pushed out of the family business, they started a new company, S.B.C. Flood Waste Solutions, Inc. They obtained insurance from Grinnell Mutual Reinsurance Co. without disclosing the ongoing dispute with Flood Brothers over the use of the "Flood" name. When Flood Brothers sued them for improper use of the name, they sought coverage from Grinnell, which refused and sought to rescind the policies due to material misrepresentations.The United States District Court for the Northern District of Illinois granted summary judgment in favor of Grinnell, finding that S.B.C. Flood Waste Solutions, Inc. had made material misrepresentations in their insurance applications. The court identified three categories of false statements: failure to disclose potential claims or occurrences, failure to disclose the existence of another business venture (Flood, Inc.), and misrepresenting the start date of business activities. The court found these misrepresentations material based on the testimony of Grinnell’s underwriter, who stated that the insurance would not have been issued if the true facts were known.The United States Court of Appeals for the Seventh Circuit affirmed the district court’s decision. The appellate court agreed that the misrepresentations were material under Illinois law, which allows for rescission of an insurance policy if a false statement materially affects the acceptance of risk. The court emphasized that the undisclosed dispute and the existence of Flood, Inc. were significant factors that would have influenced Grinnell’s decision to issue the policies. The court did not need to address the alter ego argument, as the material misrepresentations alone were sufficient to justify rescission. View "Grinnell Mutual Reinsurance Company v. S.B.C. Flood Waste Solutions, Inc." on Justia Law

Paul Carnes, an employee of Consolidated Grain and Barge Co., was diagnosed with degenerative disc disease in 2019 and received medical treatment for it. HMO Louisiana, Inc., the administrator of Consolidated Grain’s employer-sponsored health plan governed by ERISA, paid for some of Carnes’s treatments but not all. Carnes filed a workers’ compensation claim against his employer, which was settled without the employer accepting responsibility for his medical claims. With an outstanding medical balance of around $190,000, Carnes sued HMO Louisiana, alleging it violated Illinois state insurance law by not paying his medical bills and sought penalties for its alleged "vexatious and unreasonable" conduct.The United States District Court for the Central District of Illinois dismissed Carnes’s complaint on the grounds that his state law insurance claim was preempted by ERISA. The court allowed Carnes to amend his complaint to plead an ERISA claim, but instead, Carnes moved to reconsider the dismissal. The district court denied his motion and ordered the case closed. Carnes then appealed the final order.The United States Court of Appeals for the Seventh Circuit reviewed the case de novo. The court affirmed the district court’s decision, agreeing that Carnes’s state law claim was preempted by ERISA. The court noted that ERISA’s broad preemption clause supersedes any state laws relating to employee benefit plans, and Carnes’s claim fell within this scope. The court also found that ERISA’s saving clause did not apply because the health plan in question was self-funded, making it exempt from state regulation. The court concluded that Carnes’s attempt to frame his suit as a "coordination of benefits dispute" was an impermissible effort to avoid ERISA preemption. Consequently, the court affirmed the dismissal of Carnes’s case. View "Carnes v. HMO Louisiana, Inc." on Justia Law

AXIS Insurance Company sought indemnification from American Specialty Insurance & Risk Services for claims AXIS settled, based on a contract between the two parties. The contract did not require AXIS to offer American Specialty the choice to approve the settlement or assume the defense. However, American Specialty argued that Indiana law imposed such an obligation. The district court agreed with American Specialty and granted summary judgment in its favor.The United States District Court for the Northern District of Indiana found that AXIS's settlement payment was voluntary because AXIS did not give American Specialty the opportunity to approve the settlement or assume the defense. The court concluded that AXIS had to show actual liability on the underlying claim to seek indemnification, which AXIS could not do. Therefore, the district court ruled that American Specialty had no duty to indemnify AXIS for the settlement payment.The United States Court of Appeals for the Seventh Circuit reviewed the case and reversed the district court's decision. The appellate court held that the contract did not require AXIS to tender the defense to American Specialty before settling claims. The court also found that Indiana law does not imply such a requirement in indemnification agreements. The Seventh Circuit concluded that AXIS was not obliged to offer American Specialty the opportunity to approve the settlement or assume the defense as a condition precedent to indemnification. The case was remanded for further proceedings consistent with this opinion. View "Axis Insurance Company v. American Specialty Insurance & Risk Services" on Justia Law

Angela Midthun-Hensen and Tony Hensen sought insurance coverage for therapies for their daughter K.H.'s autism from Group Health Cooperative between 2017 and 2019. The insurer denied coverage, citing a lack of evidence supporting the effectiveness of speech therapy for a child K.H.'s age and sensory-integration therapy for autism at any age. The family's employer-sponsored plan only covered "evidence-based" treatments. After several medical reviews and appeals upheld the insurer's decision, the parents sued, alleging violations of the Employee Retirement Income Security Act (ERISA) and state law regarding autism coverage.The United States District Court for the Western District of Wisconsin ruled in favor of the insurer, finding no violations of state law or ERISA. The plaintiffs then focused on their claim that the insurer's actions violated the Mental Health Parity and Addiction Equity Act (MHPAEA), which mandates equal treatment limitations for mental and physical health benefits. They argued that the insurer applied the "evidence-based" requirement more stringently to autism therapies than to chiropractic care, which they claimed lacked scientific support.The United States Court of Appeals for the Seventh Circuit reviewed the case and affirmed the district court's decision. The appellate court found that the insurer's reliance on medical literature, which varied in its recommendations based on patient age, was permissible under the Parity Act. The court also noted that the plaintiffs failed to demonstrate that the insurer's treatment limitations for mental health benefits were more restrictive than those applied to "substantially all" medical and surgical benefits, as required by the statute. The court concluded that the plaintiffs' focus on a single medical benefit was insufficient to prove a violation of the Parity Act. View "Midthun-Hensen v. Group Health Cooperative of South Central, Inc.," on Justia Law

This case revolves around a dispute over an insurance claim following a house fire. The plaintiff, William Werner, owned a home in Springfield, Illinois, which was in foreclosure when it burned down in 2017. Werner's home insurance policy was with Auto-Owners Insurance Company. After the fire, Werner filed a claim seeking to recover his policy limit on the home itself and two smaller coverages, totaling just over $190,000. Auto-Owners denied Werner’s claim for the full replacement value of the home, arguing that Werner had lost any insurable interest in the full value of the property after the judicial sale occurred and all of Werner’s rights of redemption had expired.The case was first heard in the United States District Court for the Central District of Illinois. The district court ruled in favor of Auto-Owners, holding that at the time of the fire, Werner’s only remaining insurable interest in the property was based on his narrow right under Illinois law to occupy the home until 30 days after the judicial sale was confirmed. The court awarded Werner the rental value of that temporary right, which amounted to just under $4,000.Werner appealed the decision to the United States Court of Appeals for the Seventh Circuit. The appellate court affirmed the district court's ruling. The court agreed with the lower court's interpretation of Illinois insurance law, stating that Werner's insurable interest at the time of the fire was limited to the value of his temporary right of possession. The court noted that Werner still held legal title to the property when the fire occurred, but he had no legal right to redeem it from foreclosure or otherwise retain it. The court concluded that Werner's insurable interest did not extend to the full value of the property. View "Werner v. Auto-Owners Insurance Company" on Justia Law

The case involves a dispute between Great American Insurance Company (Great American) and State Farm Fire and Casualty Company (State Farm) over who was responsible for paying the defense costs in a lawsuit against board members at the College of DuPage. The lawsuit was filed by Robert Breuder, the former president of the college, who alleged defamation and other claims after his employment was terminated. The board members were insured under a policy issued by the Illinois Community College Risk Management Consortium (Consortium), which was assigned to Great American, and a personal liability umbrella policy issued by State Farm. Great American sued State Farm to recoup losses from defense costs that it claimed State Farm had the duty to provide on behalf of one board member.The district court dismissed Great American's claims, finding that the language of the State Farm insurance contract was unambiguous and that State Farm had no duty to provide defense costs because the primary policy provided by Great American’s assignor covered the underlying loss. Great American appealed the decision.The United States Court of Appeals for the Seventh Circuit affirmed the district court's decision. The court found that the language of the State Farm policy was clear that it would only provide a defense if the loss was not covered by any other insurance policy. Since the Consortium policy covered the loss, State Farm had no duty to provide defense costs. The court rejected Great American's arguments that the language of the State Farm insurance contract was ambiguous and that State Farm's coverage was primary as it related to the board member's liability for conduct committed in her individual capacity. View "Great American Insurance Co. v. State Farm Fire and Casualty Co." on Justia Law

The case involves Continental Indemnity Company (Continental) and its attempt to collect a default judgment against BII, Inc. (BII) from Starr Indemnity & Liability Company (Starr), BII's insurer. Continental had paid a workers' compensation claim for an employee injured at a construction site where BII was a subcontractor. Continental then sought reimbursement from BII, which had failed to maintain its own workers' compensation insurance. When BII did not pay, Continental secured a default judgment against BII and sought to collect from Starr under Illinois garnishment procedures.The district court in the Northern District of Illinois dismissed the garnishment proceeding against Starr, finding that it lacked subject matter jurisdiction. The court reasoned that the dispute over the scope of coverage under the Starr-BII insurance policy was too distinct from the underlying suit between Continental and BII. Continental appealed this decision to the United States Court of Appeals for the Seventh Circuit.The Seventh Circuit affirmed the district court's decision. The court found that the garnishment proceeding introduced new factual and legal issues, making it essentially a new lawsuit. The court explained that while federal courts have ancillary enforcement jurisdiction to consider proceedings related to an underlying suit, the subject of those proceedings must still be sufficiently related to the facts and legal issues of the original action. In this case, the court found that the garnishment proceeding fell outside the scope of ancillary enforcement jurisdiction. The court suggested that Continental could file a new civil action against Starr to litigate the dispute over the insurance policy's coverage. View "Continental Indemnity Company v. BII, Inc." on Justia Law

The case revolves around a former coal miner, Richard McLain, who developed a serious lung condition after working underground for nearly two decades. McLain filed a claim under the Black Lung Benefits Act, alleging that his years of mine work had left him totally disabled from a pulmonary perspective. His former employer, Old Ben Coal Company, had been liquidated through bankruptcy, so Liberty Mutual Insurance Company, the surety guaranteeing Old Ben’s debts under the Act, contested liability on the coal company’s behalf.The case was initially heard by an administrative law judge (ALJ), who determined that McLain was disabled within the meaning of the Black Lung Benefits Act. The ALJ's decision was based on a thorough review of the medical record and a set of medical findings regarding how to distinguish between lung disorders arising from coal dust and those arising from tobacco smoke. Old Ben appealed the ALJ’s decision to the Benefits Review Board, arguing that the ALJ erroneously treated the 2001 preamble as if it were binding law and made factual findings unsupported by the medical record. The Review Board affirmed the benefits decision in full.The case was then brought before the United States Court of Appeals for the Seventh Circuit. The court affirmed the decision of the Benefits Review Board, emphasizing the broad discretion ALJs enjoy when evaluating competing medical theories, the weight ALJs may properly attribute to the perspective of the Department of Labor on such issues, and the significant deference owed to ALJs’ medical findings and scientific judgments on appeal. The court found no error in the ALJ's application of a regulatory preamble or in the factual findings that were challenged by Old Ben. View "Safeco Insurance/Liberty Mutual Surety v. OWCP" on Justia Law

Sun Holdings purchased a workers’ compensation policy from American Zurich Insurance, which required Sun to reimburse American Zurich for the first $250,000 of each claim. American Zurich fulfilled its obligations under the policy, but Sun did not. When Sun received bills, it ignored them without explanation or justification. American Zurich invoked the policy’s dispute-resolution clause, which called for arbitration in Illinois under New York law and the rules of the American Arbitration Association. During the arbitration, Sun offered a series of weak excuses, which the arbitrators dismissed. The arbitrators ordered Sun to pay what American Zurich claimed (approximately $1.1 million plus 9% interest from the time each bill was due) and added almost $175,000 in attorneys’ fees as a sanction for frivolous defense.American Zurich applied to the United States District Court for the Northern District of Illinois for enforcement of the arbitration award. Sun argued that the arbitrators had exceeded their authority by directing it to pay the insurer’s legal fees, citing two sentences in the contract. The district court disagreed with Sun and ordered it to pay the award in full.The case was then brought before the United States Court of Appeals for the Seventh Circuit. The court held that the arbitrators had interpreted the contract when they concluded that its reference to legal fees did no more than adopt the American Rule, which allows each side to pay its own lawyers but does not forbid sanctions for frivolous litigation. The court stated that whether the arbitrators were right or wrong in their interpretation was not its concern. The court also noted that Sun's arguments were requests to contradict the arbitrators’ findings, which the Federal Arbitration Act forbids. The court affirmed the district court's decision and issued an order for Sun to show cause why sanctions should not be imposed for its frivolous appeal. View "American Zurich Insurance Company v. Sun Holdings, Inc." on Justia Law

Thermoflex Waukegan, a company that required its hourly workers to use handprints to clock in and out, was sued for allegedly violating the Biometric Information Privacy Act (BIPA) by not obtaining workers' written consent and using a third party to process the data. Thermoflex had multiple insurance policies, including three from Mitsui Sumitomo Insurance, which declined to defend or indemnify Thermoflex, leading to this suit.The district court ruled that an exclusion in the Basic policy made it inapplicable to any claim based on BIPA. The exclusion stated that the insurance did not apply to claims arising out of any access to or disclosure of any person’s or organization’s confidential or personal information. The court found this exclusion straightforward, as BIPA identifies biometric information as confidential.The Excess and Umbrella policy had two parts. Coverage E contained the same exclusions as the Basic policy, and the court agreed with the district court's ruling that it did not apply to claims under BIPA. Coverage U lacked an exclusion relating to nonpublic information. The district court found that none of the three arguably applicable exclusions to Coverage U clearly foreclosed a duty to provide Thermoflex with a defense in the state-court suit.The United States Court of Appeals for the Seventh Circuit affirmed the district court's decision. It agreed with the district court's interpretation of the Basic policy and Coverage E of the Excess and Umbrella policy. It also agreed that the three exclusions to Coverage U did not apply to BIPA. Therefore, it held that Mitsui owed Thermoflex a defense under the Umbrella policy, provided that the limits of another policy that applies to the BIPA claims, plus deductibles, have been exhausted. View "Thermoflex Waukegan, LLC v. Mitsui Sumitomo Insurance USA, Inc." on Justia Law