Altom Transport, Inc. v. Westchester Fire Insurance Com, et al
Filing
Filed opinion of the court by Chief Judge Wood. Michael Stampley is DISMISSED as a party in this case, and the judgment of the district court is otherwise AFFIRMED. Diane P. Wood, Chief Judge; William J. Bauer, Circuit Judge and Ann Claire Williams, Circuit Judge. [6751954-1] [6751954] [15-2279, 15-2363]
Case: 15-2279
Document: 53
Filed: 05/20/2016
Pages: 10
In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 15‐2279 & 15‐2363
ALTOM TRANSPORT, INC.,
Plaintiff‐Appellant,
v.
WESTCHESTER FIRE INSURANCE CO.,
Defendant‐Appellee,
and
MICHAEL STAMPLEY,
Defendant‐Appellant.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 14 C 9547 — Sharon Johnson Coleman, Judge.
____________________
ARGUED FEBRUARY 17, 2016 — DECIDED MAY 20, 2016
____________________
Before WOOD, Chief Judge, and BAUER and WILLIAMS, Cir‐
cuit Judges.
WOOD, Chief Judge. This is an insurance coverage dispute.
Michael Stampley, a truck driver, sued Altom Transport, Inc.,
alleging that Altom had failed to pay him enough for driving
Case: 15-2279
Document: 53
Filed: 05/20/2016
2
Pages: 10
Nos. 15‐2279 & 15‐2363
his truck for it. Altom turned to its insurer, Westchester Fire
Insurance Co., for coverage in the suit. Westchester denied
coverage; Altom handled its own defense; and the parties
tried to settle the case. At that point, counsel for both
Stampley and Altom tried to pull Westchester back into the
case, by making settlement offers within the limits of the
Westchester policy and seeking Westchester’s approval.
Westchester was having none of it, however, so Altom sued in
state court for 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.
Westchester removed the insurance coverage dispute to
federal court. Once there, it filed a motion to dismiss the cov‐
erage dispute for failure to state a claim. The district court
granted that motion, and we affirm. Stampley’s suit arises
from his contract with Altom, and so it falls within a policy
exclusion that Westchester is entitled to invoke.
I
Altom is an interstate motor carrier that focuses on the
hauling of liquid products throughout North America. It typ‐
ically hires independent‐contractor drivers to handle its busi‐
ness. Stampley was one of those drivers. He owned and oper‐
ated his own truck and leased his services to Altom.
In the wake of various disputes, Altom terminated its con‐
tract with Stampley on March 24, 2014. On May 21, Stampley
sued Altom, alleging that Altom had wrongfully withheld
payment from him and other similarly situated owner‐opera‐
tor drivers who leased their services to Altom. Stampley of‐
Case: 15-2279
Document: 53
Nos. 15‐2279 & 15‐2363
Filed: 05/20/2016
Pages: 10
3
fered three theories in support of this claim: (1) that the con‐
tract violated the Department of Transportation’s regulations,
49 C.F.R. § 376.12, because it failed to include aspects of how
Stampley’s compensation would be calculated; (2) that Altom
breached the contract by failing to pay the required compen‐
sation; and (3) that Altom unjustly enriched itself by failing to
pay Stampley and other drivers 70% of the gross revenue per
shipment, as contractually required.
Altom had purchased an ACE Express Private Company
Management Insurance Policy from Westchester, effective
August 3, 2013 through August 3, 2014. When the Stampley
litigation came along, Altom promptly asked Westchester to
defend against the suit and indemnify it pursuant to the pol‐
icy. Westchester denied coverage, and so Altom defended it‐
self. On October 14, 2014, Stampley submitted a settlement
demand to Altom for $1.9 million, an amount within the
Westchester policy limits. Altom delivered the demand to
Westchester and asked Westchester to reconsider its denial of
coverage. Westchester was silent. Stampley then withdrew
his settlement demand and replaced it with a higher one, for
$2.3 million. Altom again delivered the demand to Westches‐
ter, and Westchester again did not respond.
At that point, Altom sued Westchester in state court for a
declaratory judgment. Altom alleged that Westchester had
wrongfully refused to defend it, in violation of § 155 of the
Illinois Insurance Code, 215 ILCS 5/155, and that Westchester
was estopped from asserting noncoverage. Altom also named
Stampley as a defendant, because it believed it was required
to name as a defendant any party with a stake in the insurance
policy proceeds, based on M.F.A. Mut. Ins. Co. v. Cheek, 363
N.E.2d 809, 811 (Ill. 1977).
Case: 15-2279
Document: 53
Filed: 05/20/2016
4
Pages: 10
Nos. 15‐2279 & 15‐2363
Westchester removed the suit to federal court and moved
to dismiss Altom’s complaint for failure to state a claim. FED.
R. CIV. P. 12(b)(6). Westchester argued that the policy’s plain
language excluded coverage for Stampley’s suit because the
suit was covered by two policy exceptions: one for claims
about unpaid wages, and the other for claims based on a con‐
tract. The unpaid wages exception states:
Insurer shall not be liable for Loss under this
Coverage Section on account of any Claim:
(m) alleging, based upon, arising out of, at‐
tributable to, directly or indirectly resulting
from, in consequence of, or in any way in‐
volving:
(i) improper payroll deductions, unpaid
wages or other compensation, misclassi‐
fication of employee status, or any viola‐
tion of any law, rule or regulation, or
amendments thereto, that governs the
same topic or subject; or
(ii) any other employment or employ‐
ment‐related matters brought by or on
behalf of or in the right of an applicant
for employment with the Company, or
any of the Directors and Officers, includ‐
ing any voluntary, seasonal, temporary
leased or independently‐contracted em‐
ployee of the Company … .
The contract claim exception states:
Insurer shall not be liable for Loss on account of
any Claim:
Case: 15-2279
Document: 53
Filed: 05/20/2016
Nos. 15‐2279 & 15‐2363
Pages: 10
5
(a) alleging, based upon, arising out of, attribut‐
able to, directly or indirectly resulting from,
in consequence of, or in any way involving
the actual or alleged breach of any contract
or agreement; except and to the extent the
Company would have been liable in the ab‐
sence of such contract or agreement … .
The district court granted Westchester’s motion to dis‐
miss, and Altom now appeals.
II
We first address subject‐matter jurisdiction. Altom, the re‐
moving party, asserted that this case falls within the district
court’s diversity jurisdiction. See 28 U.S.C. § 1332. Section
1332 requires complete diversity: no plaintiff may be a citizen
of the same state as any defendant. Newman‐Green, Inc. v. Al‐
fonzo‐Larrain, 490 U.S. 826, 829 (1989). A corporation is a citi‐
zen of any state in which it is incorporated, and the state
where it has its principal place of business. 28 U.S.C.
§ 1332(c)(1); Hertz Corp. v. Friend, 559 U.S. 77, 80 (2010). A nat‐
ural person is a citizen of the state in which she is domiciled.
Gilbert v. David, 235 U.S. 561, 568–69 (1915). For cases that
originate in federal court, diversity is assessed at the com‐
mencement of the action, as defined by Federal Rule of Civil
Procedure 3 as the time of pleading; it not destroyed by a
party’s subsequent change in domicile. Smith v. Sperling, 354
U.S. 91, 93 n.1 (1957). Cases that reach the federal court by re‐
moval are not so straightforward, but this court has held that
diversity must exist both at the time of the original filing in
state court and at the time of removal. See Thomas v. Guards‐
mark, Inc., 381 F.3d 701, 704 (7th Cir. 2004) (quoting Kanzel‐
berger v. Kanzelberger, 782 F.2d 774, 776 (7th Cir. 1986)).
Case: 15-2279
6
Document: 53
Filed: 05/20/2016
Pages: 10
Nos. 15‐2279 & 15‐2363
Both at the time Altom filed its coverage suit in state court
and at the time Westchester removed it to federal court, Al‐
tom was an Illinois corporation with its principal place of
business in Illinois. (Altom has since moved to Indiana).
Westchester is a Pennsylvania corporation with its principal
place of business in Pennsylvania. Stampley, however, who
was a party to the action on Westchester’s side at the time of
removal, is also an Illinois citizen. That poses a problem under
the old “complete diversity” rule of Strawbridge v. Curtiss,
7 U.S. (3 Cranch) 267 (1806), which governs suits brought un‐
der the general diversity statute, 28 U.S.C. § 1332(a). One
might think that this case must be dismissed for want of juris‐
diction.
The Supreme Court, however, has endorsed a more flexi‐
ble rule, under which even a court of appeals may dismiss
dispensable, nondiverse parties to preserve subject‐matter ju‐
risdiction. Newman‐Green, Inc., 490 U.S. at 834–35; see also
FED. R. CIV. P. 21. Stampley is just such a party. Under Illinois
law, an injured third party is indispensable when an insurer
sues an insured for a declaratory judgment defining coverage.
See M.F.A. Mut. Ins. Co., 363 N.E.2d at 864. This makes sense:
in such suits, the insurer’s interests are adverse to the injured
third party. See id. But when an insured sues an insurer, the
insured can represent both its own interests and the interests
of the third party and thereby obviate the need to join the in‐
jured third party. See id.; see also Winklevoss Consultants, Inc.
v. Fed. Ins. Co., 174 F.R.D. 416, 418 (N.D. Ill. 1997) (explaining
this rationale).
Stampley can also be dropped from the suit without rais‐
ing problems under the Federal Rules of Civil Procedure. Rule
Case: 15-2279
Document: 53
Filed: 05/20/2016
Nos. 15‐2279 & 15‐2363
Pages: 10
7
19 describes those persons who are “required to be joined if
feasible,” and it addresses what the court should do if such a
person cannot be joined. Stampley does not meet the criteria
of Rule 19(a)—it is entirely possible to accord complete relief
among the existing parties in his absence, and there are no
practical problems that would be created by his dismissal. In
fact, Stampley has no legal interest in this suit: he has no
claims against Altom or Westchester; nor do they have any
claims against him. Stampley may therefore stay or go, as far
as the joinder rules are concerned. Since his continued pres‐
ence destroys the district court’s subject‐matter jurisdiction,
he is someone who should be dismissed under Newman‐
Green. We therefore order Stampley dismissed from this ac‐
tion and proceed to the merits.
III
Because we sit in diversity, we apply the substantive law
that Illinois’s courts would choose—in this instance, the law
of Illinois. Nat’l Am. Ins. Co. v. Artisan and Truckers Cas. Co.,
796 F.3d 717, 723 (7th Cir. 2015); see Klaxon Co. v. Stentor Elec.
Mfg. Co., 313 U.S. 487 (1941). Illinois interprets insurance pol‐
icies to “give effect to the intention of the parties, as expressed
in the policy language.” Gillen v. State Farm Mut. Auto. Ins. Co.,
830 N.E.2d 575, 582 (Ill. 2005). We give undefined terms “their
plain, ordinary and popular meaning.” Id. We construe am‐
biguous language against the insurer and interpret exceptions
to coverage narrowly. Id. (citing Nat’l Union Fire Ins. Co. of
Pittsburgh, Pa. v. Glenview Park Dist., 632 N.E.2d 1039 (Ill.
1994)).
Case: 15-2279
8
Document: 53
Filed: 05/20/2016
Pages: 10
Nos. 15‐2279 & 15‐2363
An insurer’s duty to defend arises when “facts alleged in
the underlying complaint fall even potentially within the pol‐
icy’s coverage.” Country Mut. Ins. Co. v. Olsak, 908 N.E.2d
1091, 1098 (Ill. App. Ct. 2009). The duty to defend is broader
than the duty to indemnify. Id. (citing Ill. Masonic Med. Ctr. v.
Turegum Ins. Co., 522 N.E.2d 611 (Ill. App. Ct. 1988)).
Nevertheless, the language of the policy is King, and the
policy here unambiguously excludes coverage for lawsuits
stemming from the insured’s contracts with third parties.
Stampley’s claim against Altom, no matter what the legal the‐
ory may be, rests fundamentally on the lease agreement un‐
der which he was performing his carriage services. We can
think of no reason why that lease agreement is not a “con‐
tract” as the policy uses the term, and if it is, then Westchester
has no duty to defend or indemnify Altom from claims arising
out of it. The policy states that “[Westchester] shall not be lia‐
ble for Loss on account of any Claim … arising out of … or in
any way involving the actual or alleged breach of any con‐
tract[.]” That seems to cover this case.
Altom argues that Stampley’s claims falls under an excep‐
tion to the exception. It looks to the last clause, which states
that claims arising from a contract are excluded “except and
to the extent the Company would have been liable in the ab‐
sence of such contract or agreement[.]” Stampley’s allegations
need not depend on the contract, Altom argues, but instead
could stand alone. But that is not the suit that Stampley
brought. His first claim asserts that the lease agreement failed
to comply with relevant federal regulations. It depends en‐
tirely on the content of the agreement. Whether the regula‐
tion, 49 C.F.R. § 376.12, could impose liability without the
presence of a contract is irrelevant where, as here, the party
Case: 15-2279
Document: 53
Nos. 15‐2279 & 15‐2363
Filed: 05/20/2016
Pages: 10
9
had an actual contract and the question is whether it is incon‐
sistent with § 376.12.
Stampley’s breach of contract and unjust enrichment
claims are likewise excluded under the policy. Altom’s en‐
richment is “unjust” only if it failed to pay Stampley every‐
thing to which the contract entitled him (and hence retained
too much of the profit from Stampley’s hauls). But that is just
another way of describing a possible breach of contract.
Stampley’s requested damages underscore this point: he
seeks the difference between the amount he says he was owed
under the contract and the amount Altom actually paid him.
This describes expectation damages, the classic measure of
contract damages, to a “T”. See Nilsson v. NBD Bank of Illinois,
731 N.E.2d 774, 781 (Ill. App. Ct. 1999) (“The proper measure
of damages in a breach of contract action … places the injured
party in the same position at the time of judgment as he would
have been had the contract been performed.”). All three of
Stampley’s claims in his underlying suit arise directly from
his lease agreement with Altom, and therefore fall within the
policy’s contract claim exception.
Altom’s last argument is that Westchester is estopped
from claiming noncoverage. Under Illinois law, if an insurer
neither defends nor seeks a declaratory judgment defining its
coverage obligation, “it will be estopped from raising the de‐
fense of noncoverage in a subsequent action.” Country Mut.
Ins. Co., 908 N.E.2d at 1098 (internal quotation marks omit‐
ted). But estoppel applies only when the insurer breaches its
duty to defend in the later action. Emp’rs Ins. of Wausau v. Eh‐
lco Liquidating Trust, 708 N.E.2d 1122, 1135 (Ill. 1999).
Westchester did not breach its duty, and so Altom cannot as‐
sert estoppel.
Case: 15-2279
Document: 53
Filed: 05/20/2016
10
Pages: 10
Nos. 15‐2279 & 15‐2363
IV
Because all of Stampley’s claims fall within the policy’s
contract claim exception, we do not reach the question
whether his claims are within the unpaid wages exception.
Michael Stampley is DISMISSED as a party in this case, and the
judgment of the district court is otherwise AFFIRMED.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?