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

Crown hired LMI to construct an office building. LMI subcontracted installation of windows and doors to Frontrunner. Frontrunner was required to maintain insurance that named LMI as an additional insured. Frontrunner purchased an occurrence-based commercial general liability policy from Consolidated that covered sums that insureds became legally obligated to pay because of property damage and requiring Consolidated to defend any suit seeking damages for covered property. Late in construction, Crown experienced water infiltration at numerous locations and other construction defects. Crown filed suit. LMI tendered defense to Consolidated, but Consolidated made no coverage decision for six months. Though LMI had not obtained a coverage decision, it settled with Crown. Although informed of all settlement talks, Consolidated participated in none and later denied coverage. The district court found in Consolidated’s favor. The Seventh Circuit affirmed. Under Illinois insurance law, Consolidated had no duty to defend because the underlying complaint failed to allege damage to any covered property. Where the underlying suit alleges damage to the construction project itself because of a construction defect, there is no coverage; where the complaint alleges that a construction defect damaged something other than the project, coverage exists.

Safeco issued plaintiffs a homeowner’s policy that went into effect when they closed on the property and covered all accidental direct physical loss to property, unless limited or excluded, “occurring during the policy period.” Before receiving the policy and first seeing its terms, but after beginning renovations, plaintiffs discovered severe inner wall water leaks and significant water infiltration on three exterior walls. A mold specialist found that the home had numerous construction deficiencies that existed long before they purchased the home, resulting in chronic water intrusion that damaged interior finished walls, insulation, external plywood sheathing, and other aspects of the structure. Safeco denied coverage, stating that the prepurchase inspection confirmed multiple areas of water damage that were in need of attention and that the loss qualified as a preexisting condition that occurred outside of the policy period. The district court held that Safeco was precluded from raising the exclusions because it did not notify plaintiffs the exclusions until after they discovered the damage, awarded $485,100.64, and held that Safeco lacked a reasonable basis for denial and demonstrated reckless disregard, entitling plaintiffs to damages resulting from bad faith. The Seventh Circuit affirmed.

After discovering that she had lung cancer that had spread to her brain, Killian underwent aggressive treatment on the advice of her doctor. The treatment was unsuccessful and she died months later. Her husband submitted medical bills for the cost of the treatments to her health insurance company. The company denied coverage on most of the expenses because the provider was not covered by the insurance plan network. The husband filed suit, seeking benefits for incurred medical expenses, relief for breach of fiduciary duty, and statutory damages for failure to produce plan documents. The district court dismissed denial-of-benefits and breach-of-fiduciary-duty claims, but awarded minimal statutory damages against the plan administrator. The Seventh Circuit affirmed the dismissals, rejecting an argument that the plan documents were in conflict, but remanded for recalculation of the statutory damages award.

As part of a retention package, the bank purchased a split dollar life policy for plaintiff's trust with cash value of more than $662,000. The bank paid part of the premiums and had a senior interest in the policy to the extent of those premiums. To safeguard this interest, the trust assigned the policy to the bank as collateral. The bank paid $421,890 of the premiums. The trust interest was about $240,000. In 2009, the bank failed and was placed under FDIC receivership. The Insurer surrendered the entire cash value of the policy to the FDIC. The trustee demanded return of the value of the policy; the insurer refused. The trustee first contacted the FDIC receiver after expiration of the 90-day period for claims under the Financial Institutions Reform, Recovery, and Enforcement Act, 12 U.S.C. 1821(d)(13)(D), although he received notice 12 days before expiration of the period. The district court dismissed for lack of jurisdiction. The Seventh Circuit affirmed. It would be possible for a claim to arise so close to the bar date as to deprive a claimant of due process, but this case did not present that situation.

In 1998 Ryerson sold subsidiaries to EMC for $29 million. The following year EMC sought rescission, claiming that Ryerson concealed that a subsidiary’s largest customer had declared that unless it slashed prices, the customer would stop buying from the subsidiary. Three years later, the parties settled, with Ryerson making a $8.5 million "price adjustment." Federal refused to indemnify Ryerson under an “Executive Protection Policy.” The policy covers loss for which the insured becomes legally obligated to pay on account of any claim for a wrongful act [defined to include a "misleading statement" or "omission"] allegedly committed by the insured. Federal denied that "loss: includes restitution paid by an insured, as distinct from damages. The Seventh Circuit affirmed summary judgment in favor of Federal, stating that reimbursement of disgorgement of the profits of fraud would “encourage fraud.” Having to surrender those profits was not a loss within the meaning of the policy. The court also rejected an argument that Federal's change of position on why it denied the claim violated the doctrine of "mend the hold." In Illinois that doctrine does not forbid the defendant to add a defense after being sued.

A new customer of the bank (Ott) obtained a loan to finance the purchase of a motor home from the dealership that Ott himself owned. Ott presented the certificate of origin and pledged the motor home as collateral. When Ott defaulted two years later, the bank discovered that the certificate of origin was a fake and the motor home did not exist. The bank’s insurer denied recovery because the fake certificate of origin did not meet the insurance bond definition of "Counterfeit." The district court ruled in favor of the insurer. The Seventh Circuit affirmed. The certificate of origin did not imitate an actual, original certificate of origin for a 2007 motor home because there never was an actual, valid, original certificate for the vehicle pledged as collateral: the manufacturer never produced the vehicle described.

In 1989 Dominguez was arrested and in 1990 he was convicted of home invasion and sexual assault. In 2002 he was exonerated by DNA; in 2005 he received a pardon. Under Illinois law, his claim for malicious prosecution accrued in 2002. Under federal law, constitutional claims (42 U.S.C. 1983) accrued in 1989 and 2002. Wrongful arrest claims accrue on the date of arrest, but wrongful conviction claims accrue when conviction is invalidated. The Seventh Circuit affirmed an award of about $9 million for malicious prosecution and concealment of exculpatory evidence. The city has been insured by different companies and each asserted that the policy for another year applied. None provided a defense. The district court held that the issuer of the "occurrence" policy in force at exoneration must defend and indemnify. The Seventh Circuit affirmed. The city's misconduct occurred in 1989 and 1990, but the policy does not define the "occurrence" as misconduct by a law-enforcement officer. It defines the occurrence as the tort under state or federal law, and, in both, the tort occurs witn its last element, exoneration. Until then, Dominguez could not establish "malicious prosecution" or "violation" of section 1983.

In 2009, fire severely damaged the insureds' home. They submitted a claim to under their homeowners’ policy the next day. The insurer began requesting documents, authorizations, and interviews and learned that the insureds had at least two businesses, held numerous personal and business accounts, and were involved in several lawsuits. A fire investigator concluded that the fire was intentionally set. The insurer requested additional documents: detailed phone records, bank histories, tax returns, and mortgage information and reminded the insureds that proof of loss was due by May 2. The insurer granted extensions; on the day of the final deadline the insureds delivered almost 1,000 pages of documents. Several months later, the insurer had not received most of the requested documents or an explanation why they could not be produced. After initially acknowledging their failure to produce the documents, the insureds attempted to impose a deadline for settlement of the $2.6 million claim. The district court entered summary judgment for the insurer in the insureds' breach of contract suit. The Seventh Circuit affirmed. The insureds failed to perform the specific "duties after loss" listed in the policy.

Insurers sought a declaration that they had no duty to defend or indemnify in tort suits brought against the insured village, concerning discovery of "perc," a carcinogenic common dry cleaning solvent, in one of its wells and the village's continued use of the well without disclosure. The district court, relying on a pollution exclusion in the policies, granted summary judgment for the insurers. The exclusion refers to "actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants'" and excludes from coverage expenses for "cleaning up ... or in any way responding to, or assessing the effects of pollutants." After exploring the reasons for the exclusion, the Seventh Circuit affirmed. The court rejected an argument that this was not a pollution case, because the amount of perc in the water was below the maximum level permitted by environmental regulations. The complaints actually filed "describe in copious detail the conduct giving rise to the tort suits, and in doing so inadvertently but unmistakably acknowledge the applicability of the pollution exclusion."

Plaintiffs brought a putative class action under the Employee Retirement Income Security Act, 29 U.S.C. 1001, to recover benefits under long-term disability benefit plans maintained by their former employers. The plans provide for reduction of benefits if the disabled employee also receives benefits under the Social Security Act, as both plaintiffs do. They dispute calculation of the reduction, claiming that the plans do not authorize inclusion in the offset of benefits paid to dependent children. Both plans require offsets for "loss of time disability" benefits. The district court dismissed. The Seventh Circuit affirmed, holding that children's Social Security disability benefits paid based on a parent's disability are "loss of time disability" benefits under the language of the plans.