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

AUTO-OWNERS INSURANCE CO. v. MUNROE (July 22, 2010)

Joshua Munroe was driving his tractor-trailer northbound on an Illinois highway when he approached three southbound tractor-trailers, all owned by Wayne Wilkins Trucking. The middle truck attempted to pass but was unable to do so successfully. Munroe's truck first struck the middle truck and then collided head on with the trailing truck. Munroe suffered very serious burns and injuries. The southbound trucks were all insured under a single policy issued by Auto-Owners Insurance Company. The policy had a $1 million per occurrence limit and included a combined limit provision which limited its liability to $1 million per occurrence regardless of the number of vehicles involved in the accident. Munroe settled with the insurers for the million dollar limit, less the amount paid in property damage. The insurance company agreed to file a declaratory judgment action -- Munroe reserved the right to seek additional damages if they court ruled that coverage exceeded the million dollars. Judge Baker (C.D. Ill.) granted summary judgment to Auto-Owners. Munroe appeals.

In their opinion, Judges Ripple, Manion, and Sykes affirmed. The Court had no difficulty in first concluding that the insurance policy was not ambiguous and limited coverage to $1 million per occurrence. Only if there were multiple occurrences would the coverage exceed $1 million. Illinois uses the "cause theory" in analyzing the number of occurrences. Under that theory, there must be multiple "separate and intervening human acts" to create multiple occurrences. Here, although Munroe alleged that each of the three drivers was individually and separately negligent, the accident was a single, uninterrupted event without intervening causes. It was thus a single occurrence. The Court also rejected Munroe's argument that the Motor Carriers Act and the MCS-90 endorsement required combined coverage of $2.25 million. The Court was "skeptical" of the argument that the endorsement applied on a per vehicle basis but found it unnecessary to decide that question. By its own terms, the endorsement is triggered only by a final judgment. With no final judgment, the endorsement does not apply.

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NATIONAL CASUALTY CO. v. MCFATRIDGE (April 28, 2010)

Randy Steidl was convicted of murder in Edgar County, Illinois in the late 1980s. The Edgar County State's Attorney at the time, Michael McFatridge, conducted the prosecution. More than fifteen years later, a federal court issued a writ of habeas corpus invalidating the conviction. Steidl brought suit against McFatridge and the County, as well as several police officers. Steidl alleged that McFatridge framed him by threatening witnesses and concealing exculpatory evidence at trial -- and that McFatridge continued his campaign long after he left office. He brought claims under § 1983 for false arrest, false imprisonment, malicious prosecution, conspiracy, and intentional infliction of emotional distress. The County tendered the complaint to its insurers. The insurers sought a declaration that they had no duty to defend. The court granted summary judgment to the insurers. McFatridge and the County appeal.

In their opinion, Chief Judge Easterbrook and Judges Bauer and Rovner affirmed. The Court first stated the well-settled rule in Illinois that an insurer has a duty to defend if the complaint alleges facts potentially within the coverage of the policy. At issue in the case were four policies: a law enforcement liability policy and three CGL policies, one per year from mid-1997 until mid-2000. First addressing the law enforcement policy, the Court agreed with the district court that it did not cover the County's liability. The principal insured under that policy was the County of Edgar Sheriff's Department. Although the County itself was an additional insured, it was so only with respect to liability arising out of the activities of the Sheriff's Department. The allegations of the complaint directed at McFatridge and the County were unrelated to any activities of the Sheriff's Department. The Court also relied on the definition of "occurrence" and the fact that McFatridge was not a County employee in affirming the coverage denial under the law enforcement policy. On the other hand, the CGL policies did insure the County and its elected officials for liability arising from offenses like false arrest and imprisonment. The Court also affirmed coverage denial under these policies, however. McFatridge was not an elected official during any of the three policy years and none of the alleged wrongs occurred during the policy years. The federal and state claims relating to false arrest and false imprisonment offenses accrued at the time of Steidl’s original arrest, long before the first policy year. The federal and state claims relating to the wrongful conviction, on the other hand, did not accrue until after Steidl’s conviction was invalidated, long after the last policy year.

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ACE AMERICAN INSURANCE CO. v. RC2 CORP. (April 5, 2010)

RC2 produces and markets children's toys. In 2007, it recalled some of its wooden train sets that had been manufactured in China and sold in the United States. The recalled trains contained lead. A number of class-action suits were filed. RC2 looked to its insurers. It first filed a claim with its domestic insurer. That insurer denied coverage because its policies expressly excluded damages caused by lead paint. RC2 turned to its international insurer, ACE American Insurance Co. ACE denied coverage as well, on the grounds that its policies excluded damages from occurrences that took place in the United States. ACE sought a declaration that it had no duty to indemnify or defend – RC2 counterclaimed for declaratory relief and damages. The district court granted summary judgment to RC2 and awarded $1.6 million in defense costs. ACE appeals.

In their opinion, Judges Posner, Manion, and Hamilton reversed and remanded. The Court first looked at the language of the policies to determine if any ambiguity existed, giving the words their ordinary meaning. The policies cover bodily injury and property damage caused by an "occurrence" that takes place in the “covered territory" (which is defined as anywhere in the world other than the United States). "Occurrence" is further defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Court found that this language, particularly the connection between the accident and the exposure, supported ACE’s position that the occurrence took place in the United States. Nevertheless, it concluded that the use of the word "accident" in the policy itself might be considered ambiguous. An otherwise ambiguous term in the policy, however, can be rendered unambiguous when considered against the interpretation of that term by the courts over the years. Applying that principle, the Court concluded that Illinois and most other courts take a consistent approach -- that it is the location of the injury, not the location of some precipitating negligent act, the determines the location of an accident for insurance purposes. The Court rejected RC2's position that Illinois' adoption of the "cause theory" is dispositive. The "cause theory" is relevant only to a determination of the number of occurrences, not the location of occurrence. Therefore, the accident occurred were all the factors combined to create the force that inflicted the injury – and that is the United States.  

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EBERTS v. GODERSTAD (June 29, 2009)

The Goderstads sold their large, vintage Wisconsin home to the Ebertses for $1.85 million. Within months of their occupancy, they began to notice significant defects. The Ebertses brought a seven count complaint in the district court. American Family Mutual Insurance Company, the Goderstad’s insurer, reserved its rights, appointed counsel, and moved to intervene to protect its interests. The district court concluded that none of the claims were covered under any of the Goderstad’s policies. It granted summary judgment to American Family and certified its judgment under Rule 54 (b). The Goderstads appeal.

In their opinion, Judges Ripple, Williams and Sykes affirmed. The Court noted that American Family has a duty to defend if the allegations of the complaint raise the possibility of coverage. The Goderstads have four policies, each of which insures against “property damage” caused by an “occurrence,” an “occurrence” being defined as an “accident.” On appeal, the Goderstads argue that two of the allegations of the Ebertses’ complaint trigger coverage – fraudulent misrepresentation and negligent misrepresentation. The Court looked to the Stuart case in Wisconsin, which had been decided by the court of appeals shortly after the district court ruled and decided by The Wisconsin Supreme Court shortly after oral argument in the Seventh Circuit. The unanimous decision in Stuart effectively disposed of the Goderstad’s argument with respect to fraudulent misrepresentation. The court reversed the court of appeals and held that a fraudulent misrepresentation claim by definition has a degree of volition inconsistent with “accident.” With respect to negligent misrepresentation, the Court blocked both avenues attempted by the Goderstads. First, the Court held that Wisconsin law predating and unaffected by Stuart held that negligent misrepresentation was not covered by a policy insuring against an “accident.” Next, the Court held that the Goderstad’s attempts to get around that principle by arguing that theirs was a non-disclosure claim failed because Wisconsin does not recognize such a tort. Finally, the Court noted that the Goderstads suffered no “property damage” as defined in the policy and was not entitled to a defense for that reason as well.

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