In Their Opinion : Seventh Circuit Court of Appeals Commentary : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

ENVISION HEALTHCARE v. PREFERREDONE INSURANCE CO. (May 12, 2010)

PreferredOne, a health insurance company, entered into a contract with Envision Healthcare, a wholesale insurance broker, for the marketing and sales of its insurance products. Envision sold one of those insurance products to Bradley Romer. Romer had two knee surgeries, with serious complications, that resulted in a hospital bill in excess of $100,000. Upon receiving the hospital bill, PreferredOne did a little investigating into Romer's application. It concluded that he omitted a pre-existing condition. It then rescinded the policy and refused to pay the balance of the hospital bill. Romer brought a breach of contract suit in state court against PreferredOne. PreferredOne filed a third-party complaint against Envision for indemnification. Envision then filed suit against PreferredOne in federal court seeking a declaration that it had no duty to indemnify. It then unsuccessfully sought to dismiss the state court third-party complaint on the grounds that it involved the same legal issue. PreferredOne moved to dismiss the federal action. Concluding that the federal and state cases involved the same parties and presented the same legal issue, the district court dismissed the case under the Wilton/Brillhart doctrine of abstention. Envision appeals.

In their opinion, Judges Bauer, Manion, and Tinder affirmed. The Court first noted that its standard of review of the district court's decision to abstain is for abuse of discretion. Applying that standard, the Court found no abuse. In fact, it noted that the case presented a "classic example" of the proper use of the Wilton/Brillhart doctrine -- only declaratory relief is sought and a parallel state court action, between the same parties and addressing the same issue, is proceeding.

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CAPITOL INDEMNITY CORP. v. ELSTON SELF SERVICE WHOLESALE GROCERS, INC. (March 12, 2009)

Elston Self-Service Wholesale Grocers, Inc. ("Elston") is a wholesale cigarette distributor. Lorillard Tobacco Co. ("Lorillard") filed a complaint against Elston, alleging that it sold counterfeit cigarettes bearing a Lorillard trademark. Elston was insured by Capitol Indemnity Corp. When Elston claimed coverage, Capitol Indemnity disclaimed any duty to indemnify or defend. Capitol Indemnity sought a declaratory judgment that it had no such duty. The district court ruled that Capitol Indemnity had an obligation to defend Elston in the Lorillard litigation. Capitol Indemnity appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Manion affirmed. The Court addressed the policy provisions. At issue was an exclusion to the policy's coverage of "advertising injury." The policy excluded from coverage any injury arising out of the publication of “material” whose first publication took place before the policy period. Capitol Indemnity argued that Elston's years of lawful sales of Lorillard cigarettes before the beginning of the policy term constituted a prior publication. The counterfeit packaging was nearly identical to the Lorillard packaging. The Court rejected Capitol Indemnity’s position. It interpreted the term "material" in the policy exclusion to refer to the same wrongful material alleged in the complaint. Because there was no allegation of counterfeit sales prior to the policy term, there was no prior publication. Under Illinois law, Capitol Indemnity is required to defend Elston if the underlying complaint potentially falls within the scope of coverage. Having found that the prior publication exclusion does not apply, the Court affirmed the district court’s finding of a duty to defend.

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