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

Bellin Memorial Hospital hired Kinsey & Kinsey, Inc. to upgrade its computer software. Kinsey failed to implement the agreed-upon software, leading Bellin to sue Kinsey in Wisconsin state court for breach of contract and other claims. Bellin also sued Kinsey’s president and a senior product consultant. Kinsey’s insurer, Philadelphia Indemnity Insurance Company, provided a defense under a professional liability insurance policy. During the trial, Bellin and Philadelphia Indemnity entered into a partial settlement, resolving some claims and specifying the conditions under which Bellin could collect damages from Kinsey. Bellin prevailed at trial and was awarded damages.The Wisconsin circuit court ruled that the limited liability provision in the Agreement did not apply due to Kinsey’s material breach. The court granted a directed verdict on the breach of contract claim against Kinsey, leaving the question of damages to the jury. The jury awarded Bellin $1.39 million, later reduced to $750,000 plus costs. The jury found Kinsey and its president not liable for intentional misrepresentation and misleading representation.Philadelphia Indemnity filed a declaratory judgment action in the United States District Court for the Northern District of Illinois, seeking a declaration that the state court’s judgment was covered by the insurance policy and that the $1 million settlement offset the $750,000 judgment. The district court ruled for Bellin, concluding that the state court judgment was not covered by the insurance policy.The United States Court of Appeals for the Seventh Circuit affirmed the district court’s decision. The court held that the insurance policy covered only negligent acts, errors, or omissions, and the state court’s judgment was based on a breach of contract, not negligence. Therefore, the $1 million set-off provision did not apply, and Bellin could recover the full amount of the judgment. View "Philadelphia Indemnity Insurance Co. v Kinsey & Kinsey, Inc." on Justia Law

In January 2021, Bertrand Nedoss, an 87-year-old resident of an assisted-living facility in Morton Grove, Illinois, wandered out of the facility, developed hypothermia, and died of cardiac arrest. His estate filed a negligence and wrongful-death lawsuit against Welltower Tenant Group, the facility’s owner, and Frontier Management, its operator. Welltower and Frontier were insured under a "claims made" policy by Church Mutual Insurance Company, effective from July 1, 2020, to July 1, 2021. The estate filed the lawsuit in October 2021, after the policy expired. However, nine days after Bertrand’s death, an attorney for the Nedoss family sent a letter to the facility, claiming an attorney’s lien and demanding evidence preservation.The United States District Court for the Northern District of Illinois ruled that the attorney’s letter qualified as a "claim" under the policy, triggering Church Mutual’s duty to defend. The court entered partial summary judgment for Welltower and Frontier and stayed the rest of the federal case pending the outcome of the state lawsuit.The United States Court of Appeals for the Seventh Circuit reviewed the case. On the eve of oral argument, Welltower and Frontier settled with the estate, and the state-court case was dismissed. This development mooted the appeal. The stay order was the only possible basis for appellate jurisdiction, and the partial summary judgment was not a final order. The Seventh Circuit dismissed the appeal as moot, noting that the dismissal of the state-court case removed the justification for the stay and rendered any appellate ruling on the stay irrelevant. View "Church Mutual Insurance Company v. Frontier Management, LLC" on Justia Law

National Casualty Company and Nationwide Mutual Insurance Company entered into reinsurance agreements with Continental Insurance Company, which included arbitration clauses. A billing dispute arose, leading Continental to demand arbitration. National Casualty and Nationwide filed a lawsuit in federal court, claiming that prior arbitral awards resolved the billing dispute and precluded new arbitration. They appealed the district court's order compelling arbitration under the Federal Arbitration Act.The United States District Court for the Northern District of Illinois granted Continental's motion to compel arbitration and dismissed the action. National Casualty and Nationwide argued that the prior arbitral awards precluded the new arbitration proceeding, but the district court ruled that the arbitration clauses required the dispute to be arbitrated.The United States Court of Appeals for the Seventh Circuit reviewed the case. The court affirmed the district court's decision, holding that the preclusive effect of prior arbitral awards is an issue for the arbitrator to decide, not the federal court. The court relied on its precedent, which aligns with Supreme Court rulings, stating that procedural questions arising from an arbitrable dispute are for the arbitrator to resolve. The court also rejected Continental's motion to vacate the district court's dismissal order and stay the action pending arbitration, as it was not properly before the court and lacked merit. The court concluded that the district court correctly compelled arbitration and dismissed the case. View "National Casualty Co. v. Continental Insurance Co." on Justia Law

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