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

West Virginia sued pharmaceutical distributors, seeking to hold them liable for contributing to the state’s epidemic of prescription drug abuse. The complaint alleged that certain pharmacies, “pill mills,” knowingly provided citizens with hydrocodone, oxycodone, codeine, and other prescription drugs, not for legitimate uses, but to fuel and profit from their addictions. The state contends that those pharmacies ordered drugs in quantities so large that the distributors should have known they would be used for illicit purposes. H.D. Smith, a distributor, had a general commercial liability insurance policy issued by Cincinnati Insurance. The policy covered damages that H.D. Smith became legally obligated to pay “because of bodily injury,” defined as “bodily injury, sickness or disease sustained by a person, including death.” “[D]amages because of bodily injury” include “damages claimed by any person or organization for care, loss of services or death resulting at any time from the bodily injury.” Cincinnati refused to defend the suit and obtained a declaratory judgment. The Seventh Circuit reversed summary judgment. The plain language of the policy requires Cincinnati to defend a suit brought by a plaintiff to recover money paid to care for someone who was injured by H.D. Smith. West Virginia’s suit fits that description. View "Cincinnati Ins. Co. v. H.D. Smith, LLC." on Justia Law

Three female employees of Metro Paramedic Services sued Metro and Antioch Rescue Squad, alleging an unrelenting practice of egregious sexual harassment, assault and battery, retaliation for whistleblowing, and failure to supervise. They alleged that Antioch and Metro were a partnership or joint venture, jointly staffed and operated. Metro used Antioch ambulances, and employees of both entities used Antioch uniforms and gear. Two of the employees resolved their claims, based on an offer of judgment from Metro and Antioch; the third reached a settlement with both. AAIC, Antioch’s liability insurer, covered Antioch’s defense costs and indemnified its offers of judgment and settlement, but insisted that it had no obligation to cover Metro under Antioch’s policy and sought a declaratory judgment. The district court found, and the Seventh Circuit affirmed, that AAIC owed Metro a duty to defend. The policy stated, “If you are ... a partnership or joint venture, you are an insured. Your members and your partners are also insureds but only within the course and scope of your operations.” The arrangement qualified as a joint venture. View "Am. Alternative Ins. Corp. v. Metro Paramedic Servs., Inc." on Justia Law

In 2008, the Marchettis purchased real estate for $180,000, with a loan for that amount, plus $155,000, for planned improvements. Jonathon Marchetti acted as buyer, real-estate broker, mortgage broker, and general contractor. Three months earlier, Jonathon had been indicted for mortgage and wire fraud regarding other real-estate transactions. He ultimately pleaded guilty. The parcel, which the Marchettis nominally acquired from Seville, actually was owned by Lekich. A series of sham transactions orchestrated by Hodgman made it look as if Seville held title. In 2010 Lekich sought to quiet title. The Lender had the property appraised at $110,000, agreed to accept $110,000 from a Chicago Title Insurance policy as full satisfaction, and released the Marchettis from liability. Lekich’s suit settled. Chicago Title became subrogated to the Marchettis’ claims against their predecessors in title. Hodgman was indicted. Chicago Title obtained $37,500 in restitution. The Marchettis sued, claiming that Chicago Title owed them $37,500 from Hodgman, plus the $88,000 difference between the maximum value of the policy and the amount paid the Lender. The Marchettis had the property appraised for $202,000, and claimed that the insurer had to disburse the policy’s $198,000 maximum value. The Seventh Circuit affirmed summary judgment in favor of Chicago Title. Market value matters only as one determinant of how much loss the owner suffers. The Marchettis suffered no loss; they had no equity interest in the property. View "Marchetti v. Chicago Title Ins. Co." on Justia Law

BMO Harris Bank holds a security interest in the assets of Gillen, formerly in the construction business. Gillen failed to perform on a subcontract with Meyne, which received an arbitration award of $1.8 million. Liberty Mutual, Gillen’s primary insurer, paid Meyne $1 million, the policy’s limit. Gillen unsuccessfully sought to set aside the award, then appealed. To avoid execution of the judgment, Gillen posted a supersedeas bond, underwritten by F&D. The appeal was settled and dismissed; as part of that agreement, F&D paid Meyne the remaining $800,000 and stepped into its shoes as Gillen’s creditor. ICSOP, the insurer under an “excess” policy, paid $1.2 million into the court’s registry. BMO sought the entire amount, arguing that its status as a secured creditor put it ahead of F&D and Gillen. The district court awarded $800,000 to F&D, because it is subrogated to Meyne’s rights, and Meyne could have collected from ICSOP without impairing the Bank’s security interest. The remaining $400,000 was awarded to BMO as Gillen's secured creditor. The Seventh Circuit affirmed. Under Wisconsin law insurance bypasses security interests. Wisconsin is a direct‐action jurisdiction in which the victim of an insured wrong can collect from the insurer, Wis. Stat. 632.24. In Wisconsin, even the insolvency of the client and the presence of other creditors does not affect the victim’s rights. View "BMO Harris Bank N.A. v. Edward E. Gillen Co." on Justia Law

Sam was driving; his wife, Toni, was a passenger when their car slammed into a tree. Toni was injured and died within a week. Her estate sued Sam, claiming negligent driving, and sued the hospital and physicians, alleging malpractice. The medical defendants filed third-party actions against Sam, seeking contribution should they be held liable. State Farm is defending Sam in both suits, under a policy with indemnity of $250,000 per person ($500,000 total) for auto accidents. State Farm has offered to pay policy limits; its offer has not been accepted because of a dispute about the terms of the release. The couple had a Cincinnati Insurance excess policy ($5 million). Cincinnati unsuccessfully sought a declaratory judgment that its policy does not apply. The Seventh Circuit affirmed that Cincinnati must defend Sam in the suit between the estate and the medical defendants. The court found no prejudicial delay in notifying the company; rejected an argument that Cincinnati had no duty to defend because of State Farm’s failure to pay; and rejected Cincinnati’s argument that its policy does not apply because both Sam and Toni are insureds. The court cited the exclusion’s exception: “[w]hen a third party acquires a right of contribution against you or any relative.” Neither defense nor indemnity is appropriate in the estate’s suit against Sam. View "Cincinnati Ins. Co. v. Estate of Chee" on Justia Law

Stampley, an independent truck driver, sued Altom Transport, alleging that Altom had failed to pay him enough for driving his truck for it. Altom turned to its insurer, Westchester, for coverage in the suit. Westchester denied coverage; Altom handled its own defense; and the parties tried to settle. At that point, counsel for both Stampley and Altom tried to pull Westchester into the case, by making settlement offers within the limits of the Westchester policy and seeking Westchester’s approval. Westchester did not participate. Altom sought a declaratory judgment establishing that Westchester had a duty to defend, that it wrongfully had failed to do so, and that its handling of the matter had been unreasonable and vexatious. The Seventh Circuit affirmed dismissal of the suit, finding that all of the claims in the underlying suit arise directly from Stampley’s lease agreement with Altom and fell within the policy’s contract claim exception. View "Stampley v. Westchester Fire Ins. Co." on Justia Law

In 2003, a closely held corporation purchased a United life insurance policy on Clark, then its President. Buck, its COO, was the beneficiary. Clark thought that the $1 million death benefit would enable Buck to buy out his stock from Clark’s family. The policy was amended so that the benefit would go to the corporation. In 2005 Clark retired and sold his interest to Holtz, the firm’s new President. Buck remained as COO. Holtz owned 61% of the stock and Buck the rest. Holtz received a copy of the policy, including the amendment naming the corporation as the beneficiary. Another copy was in corporate files. Clark died in 2011. Buck told Holtz that the company was the beneficiary, but United paid the money to Buck. When Buck tried to use the proceeds to buy Holtz’s stock, he was removed from the board and quit as COO. The corporation sued. United conceded that the corporation was the beneficiary, but argued that the corporation knew the truth and allowed Buck to claim the money, carrying out the plan devised by Clark and Buck. During discovery,the corporation then admitted finding the amendment earlier. The judge entered summary judgment in favor of United. The Seventh Circuit affirmed, rejecting an argument that Holtz was misled by United’s error and had no reason to think that the corporation was the beneficiary. The corporation’s knowledge, not Holtz’s, is dispositive. View "Samaron Corp. v. United of Omaha Life Ins. Co." on Justia Law

Attorney Fleisher worked for two affiliated law firms. In 2013 Fleisher filed a written demand with the firms, claiming that when he retired, in 2011, he had accrued more than 90 weeks of unused vacation time and more than 322 days of unused sick leave, and that the firms were required by contract and by the Illinois Wage Payment and Collection Act, to pay him for those accruals. He estimated that he was owed about $950,000. The defendants sent a copy of Fleisher’s complaint to Hartford, seeking coverage under the “Employee Benefits Liability Provision” of their Business Owners Policy. It took five months for Hartford to reply that the matter was under consideration. Two months later Hartford denied coverage and sought a declaration that the insurance policy did not cover Fleisher’s claim, alleging that the failure to pay Fleisher was not the result of any negligent act, error, or omission in the administration of the employee benefits program, which was all that the policy covered. The district judge ruled that Hartford had no duty to defend under Illinois law and granted summary judgment. The Seventh Circuit affirmed, holding that delay was not a valid ground for estopping Hartford to deny coverage or a duty to defend. View "Hartford Cas. Ins. Co v. Karlin, Fleisher & Falkenberg" on Justia Law

Powers drove through a stop sign and caused a four-vehicle accident. The plaintiffs suffered personal injuries. Trotter was the driver of the vehicle; Jackson and Petrie were passengers. Powers was insured under a policy with liability limits of $250,000 per person and $500,000 per accident. The plaintiffs settled with Powers’s insurer for the per-accident limit of $500,000; Trotter received $250,000 and Jackson and Petrie split the remaining $250,000. The plaintiffs believed that the settlement did not make them whole and submitted claims to Harleysville, Trotter’s insurer under a policy that provides that Trotter and any occupant of his vehicle is an “insured” for purposes of underinsured motorist coverage. The policy's declaration page states that underinsured motorist coverage is limited to $500,000 for “each accident.” Because the plaintiffs had together already recovered $500,000 under the Powers policy, Harleysville denied their claims, concluding that Powers was not an “underinsured motorist.” The plaintiffs argued the policy can reasonably be construed to mean that the $500,000 limit applies on a per-person, rather than a per-accident, basis. The court entered summary judgment in favor of Harleysville. The Seventh Circuit affirmed, finding that the policy unambiguously states that coverage is subject to a $500,000 per-accident maximum, regardless of the number of insureds involved. View "Trotter v. Harleysville Ins. Co." on Justia Law

The Joyce law firm purchased professional liability insurance from Professionals Direct. In 2007 the firm won a large damages award for a class of securities-fraud plaintiffs and hired another law firm to sue to collect the money from the defendant’s insurers. Some class members thought the Joyce firm should have handled enforcement of the judgment itself under the terms of its contingency-fee agreement. They took the firm to arbitration over the extra fees incurred. Professionals Direct paid for the firm’s defense in the arbitration. After the arbitrator found for the clients and ordered the firm to reimburse some of the fees they had paid, the insurer refused a demand for indemnification. The district judge sided with the insurer, concluding that the award was a “sanction” under the policy’s exclusion for “fines, sanctions, penalties, punitive damages or any damages resulting from the multiplication of compensatory damages.” The Seventh Circuit affirmed. While the arbitration award was not functionally a sanction, another provision in the policy excludes “claim[s] for legal fees, costs or disbursements paid or owed to you.” Because the arbitration award adjusted the attorney’s fees owed to the firm in the underlying securities-fraud class action, the “legal fees” exclusion applies. View "Edward T. Joyce & Assocs. v. Prof'ls Direct Ins. Co." on Justia Law