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

Flameproof, a distributor of fire retardant and treated lumber (FRT lumber), maintained liability insurance through Lexington, covering liability for "property damage” that is “caused by an occurrence that takes place in the coverage territory.” “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” “Property damage” is “physical injury to tangible property, including all resulting loss of that property,” or loss of use of property that is not physically injured. Three lawsuits arose from Flameproof’s sale of lumber to Minnesota-based contractors. The contracts called for FRT lumber meeting the requirements of the International Building Code (IBC). The complaints alleged that Flameproof “unilaterally” decided to deliver its in-house FlameTech brand lumber, which purportedly was not IBC-compliant. After the material was installed, the owners discovered that the lumber was not IBC-certified. Flameproof “admitted” that it had shipped FlameTech lumber rather than the FRT lumber advertised on its website and ordered. The FlameTech lumber was removed and replaced, damaging the surrounding materials. The lawsuits alleged negligent misrepresentation, fraudulent misrepresentation, deceptive business practices, false advertising, consumer fraud, breach of warranties, and breach of contract. Lexington sought a ruling that it owed no duty to defend Flameproof. The Seventh Circuit affirmed summary judgment for Lexington. The underlying complaints do not allege an “occurrence”—or accident—as required to trigger Lexington’s duty to defend under the policy. View "Lexington Insurance Co. v. Chicago Flameproof & Wood Specialties Corp." on Justia Law

Dorris, a company president, had Unum long-term disability insurance. Her endometriosis became disabling; Unum started paying her benefits in 2002. Later, Dorris was diagnosed with Lyme disease. By 2007, the Social Security Administration granted her disability benefits. To maintain Unum benefits after two years, an employee had to prove that she “cannot perform each of the material duties of any gainful occupation for which [she is] reasonably fitted” or that she is “[p]erforming at least one of the material duties" of any occupation and “[c]urrently earning at least 20% less" due to the disability. In 2015, Dorris told Unum that she was improving and had started golfing and volunteering. Dorris’s Lyme disease specialist indicated that Dorris still had major symptoms and could not work. Unum’s consulting physicians found no evidence of limitations that would preclude sedentary work nor of an active Lyme infection. Unum ended her benefits.In her Employee Retirement Income Security Act (29 U.S.C. 1132(a)(1)(B)) lawsuit, Dorris was denied permission to depose witnesses to clarify the administrative record. Dorris never sought further discovery; nor objected to the ruling. Unum rested on its physician’s conclusions that Dorris could perform the duties of a president. Dorris asserted, without evidence, that such jobs required “55–70 hours a week,” and focused on how little she did as a volunteer. The court limited its review to the administrative record and found that Dorris could not perform the duties of her regular occupation, but nonetheless ruled in Unum's favor, because Dorris's arguments based on the "20% less" option were conclusory. The Seventh Circuit affirmed. The plaintiff bears the burden of proving that she is entitled to benefits. The court did not abuse its discretion in denying Dorris the opportunity to supplement the record after judgment nor were its factual findings in error. View "Dorris v. Unum Life Insurance Co. of America" on Justia Law

Prime, a trucking company, covered its own liability without insurance for the first $3 million per occurrence and bought excess liability insurance from multiple insurers, following a common industry practice of stacking policies into sequential “layers” of excess insurance coverage. Two accidents occurred in 2015 when Prime was covered by RLI and AIG policies. The two cases settled for $36 million. Prime was covered $3 million for each occurrence. The RLI Policy provided the next layer of coverage with an “Aggregate Corridor Deductible” (ACD) that obligated Prime to pay out an additional $2.5 million annually before RLI began to pay. RLI argued that the ACD sat within RLI’s $2 million layer, leaving RLI with no responsibility for any payment until Prime had both paid $3 million per occurrence and the year’s ACD. AIG argued that the ACD sat below RLI’s $2 million layer, so AIG’s duty to pay would not be triggered until Prime and RLI had together paid $7.5 million for the first occurrence.The district court found that payments toward the ACD erode RLI’s policy layer. The Seventh Circuit affirmed. The custom-tailored ACD feature of the RLI Policy was ambiguous but undisputed extrinsic evidence shows that RLI is correct. RLI has consistently expressed that Prime’s ACD payments reduce its responsibility for losses; Prime did not disagree before this dispute. The only reasonable inference from the parties’ negotiations is that AIG did not believe the ACD affected the threshold at which its layer began—$5 million per occurrence. View "Lexington Insurance Co. v. RLI Insurance Co." on Justia Law

A storm caused minor hail damage at the Winding Ridge condominium complex located in Indiana, which was not discovered until almost a year later when a contractor inspected the property to estimate the cost of roof replacement. Winding Ridge submitted an insurance claim to State Farm. The parties inspected the property and exchanged estimates but could not reach an agreement. Winding Ridge demanded an appraisal under the insurance policy. State Farm complied. After exchanging competing appraisals, the umpire upon whom both sides agreed issued an award, which became binding. Winding Ridge filed suit alleging breach of contract, bad faith, and promissory estoppel. The Seventh Circuit held that the appraisal clause is unambiguous and enforceable; there is no evidence that State Farm breached the policy or acted in bad faith when resolving the claim. Winding Ridge’s own appraiser found no hail damage to the roofing shingles on 20 buildings. The fact that Winding Ridge independently replaced the shingles on all 33 buildings for $1.5 million while its claim was pending does not obligate State Farm under the policy or mean State Farm breached the policy. There is no evidence that State Farm delayed payment, deceived Winding Ridge, or exercised an unfair advantage to pressure Winding Ridge to settle. View "Villas at Winding Ridge v. State Farm Fire and Casualty Co." on Justia Law

DVO was to design and build an anaerobic digester for WTE to generate electricity from cow manure to be sold to the electric power utility. WTE sued DVO for breach of contract. Crum initially provided a defense under a reservation of rights, but a later advised DVO that it would no longer provide a defense. The court ordered DVO to pay WTE $65,000 in damages and $198,000 in attorney’s fees. DVO’s Crum insurance policies provided commercial general liability, pollution liability, and Errors & Omissions coverage. Under the E&O professional liability coverage, Crum is required to pay “those sums the insured becomes legally obligated to pay as ‘damages’ or ‘cleanup costs’ because of a ‘wrongful act’ to which this insurance applies.” An endorsement provides that the Policy does not apply to claims or damages based upon or arising out of breach of contract. DVO argued that the exclusion was so broad as to render the E&O professional liability coverage illusory. The district court disagreed. The Seventh Circuit reversed and remanded for contract reformation. The exclusion’s language is extremely broad. It includes claims “based upon or arising out of” the contract, thus including a class of claims more expansive than those based upon the contract, rendering the professional liability coverage in the E&O policy illusory. The court considered DVO's reasonable expectations in purchasing E&O coverage to insure against professional malpractice claims. View "Crum & Forster Specialty Insurance Co. v. DVO, Inc." on Justia Law

Trek, a Wisconsin bicycle manufacturer, had agreements with Taiwanese companies. Trek purchases bicycles from Giant, sells them under its own brand name, and purchases bicycle parts from Formula. The purchase orders required Giant and Formula to have Trek named as an additional insured in their products-liability insurance policies with Zurich and Taian, Taiwanese insurers. Those policies agreed to indemnify the insured and its listed vendors, including Trek, for judgments, expenses, and legal costs incurred “worldwide,” allowed the insurer to control the litigation or settlement of a covered claim but did not require it to do so; included a Taiwanese choice of law provision; and required disputes to be resolved by arbitration in Taiwan.Giessler rented Trek bicycle in Texas. The front-wheel detached from the bicycle's frame, Giessler fell, and the resulting injuries rendered him a quadriplegic. Although Giant had manufactured the bicycle and Formula had manufactured the front-wheel release, neither was a party to Giessler’s lawsuit. Trek’s insurer, Lexington, defended Trek and attempted to notify the Taiwanese companies of Giessler’s lawsuit. The case settled. Lexington paid Giessler on Trek’s behalf. Lexington unsuccessfully sought reimbursement from Zurich and Taian then sued them in Wisconsin.The Seventh Circuit affirmed that the district court lacked personal jurisdiction. Lexington failed to demonstrate that either insurer made any purposeful contact with Wisconsin before, during, or after the formation of the insurance contracts. They did not solicit Trek’s business or target the Wisconsin market. They negotiated and drafted these contracts in Taiwan with Taiwanese companies. The insurers may be liable to Trek and included worldwide coverage provisions but that does not establish Wisconsin's jurisdiction. View "Lexington Insurance Co. v. Hotai Insurance Co., Ltd." on Justia Law

The Plaintiffs, purportedly the assignees of certain private insurers (Medicare Advantage Organizations), brought a putative class action against State Farm to recover payments State Farm allegedly should have made to them as reimbursement for certain medical costs. The district court dismissed the action with prejudice, and imposed sanctions under Federal Rule of Civil Procedure 11 against one of the plaintiffs, MSP. and its attorneys. The Seventh Circuit concluded that the district court erred in dismissing plaintiffs’ case with prejudice, when the problem was a fundamental lack of Article III standing so that the court lacked jurisdiction to decide the case. However, the court acted within its discretion when it denied plaintiffs a third opportunity to cure the defects in their pleadings. The court’s order, in substance, was a jurisdictional dismissal without prejudice with denial of leave to amend dismissal is without prejudice. The district court exceeded the bounds of its discretion when it imposed Rule 11 sanctions on Recovery Claims and its attorneys. View "MAO-MSO Recovery II, LLC v. State Farm Mutual Automobile Insurance Co." on Justia Law

In 2008, Deerfield’s employee, Graff, had an automobile accident with Keeping. Deerfield had a primary commercial automobile insurance policy through American that covered it for up to $1 million in liability. Deerfield's broker, Gallagher, also helped Deerfield obtain an excess insurance policy from Landmark, to kick in after Deerfield’s liability exceeded $1 million. After Graff’s accident, Deerfield informed American and Gallagher through an intermediary company, Laurus. No one notified Landmark, even after Keeping filed suit. American assumed the defense and hired attorney Olmstead. American never offered the full policy value to settle the suit. More than a year before trial, Keeping made a $1.25 million demand, which was high enough to trigger Deerfield’s excess insurance coverage. American counter-offered $75,000. In 2014, weeks before trial, Landmark learned about Keeping’s lawsuit. Its claims adjuster evaluated the case at $500,000-$750,000. Before trial, Landmark was receiving regular updates as a passive bystander. Before the verdict was announced, American assumed that the jury had sided with the defense and did not resume settlement negotiations. Deerfield did not know about the negotiations, although Olmstead was involved. Landmark knew and advised that American should settle within the primary policy limit. The jury reached a verdict that remitted to $2.3 million. Landmark sought a declaratory judgment that it did not have to cover the loss. The Seventh Circuit affirmed summary judgment for Landmark, holding that Deerfield’s notice was unreasonably late as a matter of law. View "Landmark American Insurance Co. v. Deerfield Construction, Inc." on Justia Law

A 2014 hail and wind storm damaged Windridge buildings that were insured by Philadelphia Indemnity. The storm physically damaged the aluminum siding on the buildings’ south and west sides. Philadelphia argued that it is required to replace the siding only on those sides. Windridge argued that replacement siding that matches the undamaged north and east elevations is no longer available, so Philadelphia must replace the siding on all four sides so that all of the siding matches. The Seventh Circuit affirmed summary judgment in favor of Windridge. Each building suffered a direct physical loss, which was caused by or resulted from the storm, so Philadelphia must pay to return the buildings to their pre‐storm status—i.e., with matching siding on all sides. Having mismatched siding on its buildings would not be the same position. The district court’s conclusion that the buildings as a whole were damaged—and that all of the siding must be replaced to ensure matching—is a sensible construction of the policy language as applied to these facts. View "Windridge of Naperville Condominium Association v. Philadelphia Indemnity Insurance Co." on Justia Law

In 2010, Baby Fold, which provides Illinois foster-care services, placed three-year-old Kianna in the care of Lamie, who killed Kianna in 2011 and was convicted of murder. The administrator of Kianna’s estate maintained a state court wrongful death action against Baby Fold, which settled for $4 million. Baby Fold’s insurer, Philadelphia, sought a declaratory judgment that its maximum indemnity is $1 million under a primary policy and $250,000 under an excess policy. Baby Fold and the administrator argued that the excess policy’s limit is $5 million. The district court entered judgment in favor of Philadelphia and dismissed the counterclaims. The Seventh Circuit affirmed, rejecting an argument that the policies were ambiguous. The primary policy comprises several “coverage parts,” each of which outlines specific types of losses. One part covers losses arising out of negligent supervision of foster parents who commit physical abuse; this part provides $1 million of coverage. The excess policy then provides additional coverage for physical-abuse claims, but the background limit of $5 million drops to $250,000 for each instance of “abusive conduct”, a term that aggregates multiple acts of abuse by multiple persons. The policies contain anti-stacking provisions to prevent an insured from benefiting from consecutive policies’ limits when injuries or losses span multiple periods. The primary policy accomplishes this by defining “abusive conduct” to aggregate multiple acts of abuse into one unit. View "Philadelphia Indemnity Insurance Co. v. Chicago Trust Co." on Justia Law