Cincinnati Insurance Company v. Society Insurance Company et al
Filing
39
SUMMARY JUDGMENT ORDER & OPINION entered by Judge Joe Billy McDade on 3/4/2015: IT IS ORDERED that Society's Motion for Summary Judgment 19 is GRANTED and Society's Motion to Dismiss 31 is GRANTED. Defendant Society Insurance is TERMINATED from this case. This case is REFERRED to Magistrate Judge Hawley for further pretrial proceedings. IT IS SO ORDERED. (SEE FULL WRITTEN ORDER)(JRK, ilcd)
E-FILED
Thursday, 05 March, 2015 12:57:05 PM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION
CINCINNATI INSURANCE COMPANY, )
)
Plaintiff,
)
)
v.
)
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SOCIETY INSURANCE, a mutual
)
company, and HABANERO GRILL
)
CANTINA, INC.
)
)
Defendants.
)
Case No. 14-CV-1319
ORDER & OPINION
This matter is before the Court on Defendant Society Insurance’s Motion for
Summary Judgment (Doc. 19) and Motion to Dismiss Habanero Grill Cantina’s
Crossclaim (Doc. 31). Both motions are fully briefed and ready for decision. For the
reasons explained below, both motions are granted.
PROCEDURAL HISTORY
On August 12, 2014, Plaintiff Cincinnati Insurance Company (“Cincinnati”)
filed the present case against Defendants Society Insurance (“Society”) and
Habanero Grill Cantina, Inc. (“Habanero”) after a fire originating in Habanero’s
building damaged the building of Cincinnati’s insured, Heath Farrell d/b/a Total
Aquarium Needs Keeping Services (“Tanks”). Plaintiff brings five claims:
declaratory judgment against Society (Count I); subrogation against Society (Count
II); subrogation against Habanero (Count III); private nuisance against Habanero
(Count IV); and constructive trust against Habanero. (Count IV).
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Rather than filing an Answer or a Rule 12 motion, Society filed a motion for
summary judgment on November 3, 2014. (Doc. 19). Cincinnati filed a motion
pursuant to Rule 56(d) on November 21, 2014, in which it requested that the Court
either deny Society’s motion for summary judgment or defer its consideration of it
pending discovery. (Doc. 20). The Court denied Cincinnati’s motion on December 12,
2014, and directed it to respond to Society’s motion for summary judgment. (Doc.
26). Cincinnati responded to Society’s motion for summary judgment on December
30, 2014 (Doc. 30), and Society filed its reply on January 13, 2015. (Doc. 33).
After receiving a number of extensions to file its Answer, Habanero filed an
answer together with affirmative defenses and crossclaims against Society on
December 22, 2014. (Doc. 27). Society filed a motion to dismiss the crossclaims on
January 12, 2015 (Doc. 31), to which Cincinnati responded on January 29, 2015
(Doc. 36) and Habanero responded on February 12. (Doc. 37).
FACTUAL BACKGROUND1
Before March 6, 2013, Habanero operated a restaurant at 630 Main Street in
Princeton, Illinois. Next door, at 628 Main Street, Tanks operated a pet store. The
two buildings are alleged to share a common party wall.
Each business carried separate insurance. Cincinnati insured Tanks under
policy number EBP 006 78 69, while Society insured Habanero under policy number
Unless otherwise indicated, these background facts reflect the Court’s
determination of the undisputed facts, and are drawn from Society and Cincinnati’s
statements of facts and responses thereto. (Docs. 19, 30, 33). Facts relevant to
Society’s Motion to Dismiss Habanero’s crossclaims are not discussed in this section,
but are rather discussed infra at 9-10.
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2
ROP 552823. Tanks is not insured under Society’s policy with Habanero, and
Habanero is not insured under Cincinnati’s policy with Tanks.
Cincinnati alleges in its Complaint that it paid $259,867.50 in order to repair
or replace the common party wall, which was damaged by the fire that originated in
Habanero’s building. (See Doc. 1 at ¶¶ 18-20).
Under the terms of Cincinnati’s policy with Tanks, Tanks’ rights to recover
damages are transferred to Cincinnati. (Id. at ¶¶ 25-26). On or before September 26,
2013, Cincinnati notified Habanero and Society of its request that Habanero share
in the cost of repairing the common party wall. After the fire, Habanero elected not
to repair or replace the Habanero building. Both Habanero and Society have refused
to reimburse Cincinnati for the costs that it incurred when it repaired or replaced
the common party wall.
SUMMARY JUDGMENT STANDARD
Summary judgment shall be granted where “the movant shows that there is
no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). In ruling on a motion for summary
judgment, the Court must view the evidence in the light most favorable to the nonmoving party. SMS Demag Aktiengesellschaft v. Material Scis. Corp., 565 F.3d 365,
368 (7th Cir. 2009). All inferences drawn from the facts must be construed in favor
of the non-movant. Moore v. Vital Prods., Inc., 641 F.3d 253, 256 (7th Cir. 2011).
To survive summary judgment, the “nonmovant must show through specific
evidence that a triable issue of fact remains on issues on which he bears the burden
of proof at trial.” Warsco v. Preferred Technical Grp., 258 F.3d 557, 563 (7th Cir.
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2001) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)). If the evidence on
record could not lead a reasonable jury to find for the non-movant, then no genuine
issue of material fact exists and the movant is entitled to judgment as a matter of
law. See McClendon v. Ind. Sugars, Inc., 108 F.3d 789, 796 (7th Cir. 1997). At the
summary judgment stage, the court may not resolve issues of fact; disputed
material facts must be left for resolution at trial. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 249-50 (1986).
DISCUSSION
I. Society’s Motion for Summary Judgment
Cincinnati’s five-count Complaint includes two counts against Society. The
first is for a declaratory judgment that the common party wall is covered by
Society’s policy and that Society is required to pay one-half the cost to repair or
rebuild the common party wall. (Doc. 1 at ¶ 31). The second is a claim for
subrogation, in which Cincinnati alleges that it extinguished Society’s liability to
pay for the cost of repairing or replacing the common party wall, and seeks
reimbursement for one-half the cost. (Id. at ¶¶ 32-39). Society has moved for
summary judgment on both counts. It argues that it does not owe any obligation to
Cincinnati or Cincinnati’s insured, Tanks, because, among other things, Tanks is
not one of its insureds.2
Society also argues that it has executed a valid Policyholder’s Release with
Habanero that frees it of any additional liability resulting from the fire on March 6,
2013 under its policy with Habanero. (See Doc. 19 at 7-8; Doc. 33 at 5-6). The same
Policyholder’s Release is implicated in one of Habanero’s crossclaims against
Society. (See Doc. 27 at ¶¶ 71-79). As explained below, the Court determines that
Cincinnati’s claims against Society fail for other reasons, and it therefore does not
need to reach the validity or scope of the Policyholder’s Release at this point.
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a. Cincinnati’s Declaratory Judgment
Cincinnati argues in its response to Society’s Motion for Summary Judgment
that it is basing its request for a declaratory judgment on a theory of contribution.
(See Doc. 30 at 8). Contribution “is an equitable principle arising among coinsurers
which permits one insurer who has paid the entire loss, or greater than its share of
the loss, to be reimbursed from other insurers who are also liable for the same loss.”
Home Ins. Co. v. Cincinnati Ins. Co., 821 N.E.2d 269, 276 (Ill. 2004). Contribution is
“only available where the concurrent policies insure the same entities, the same
interests, and the same risks.” Id.
It is undisputed that Tanks is not insured under the relevant Society policy
and that Habanero is not insured under the relevant Cincinnati policy. (See Doc. 30
at 4). Therefore, Cincinnati has admitted that the concurrent policies do not insure
the same entities, and has failed to meet the first prerequisite necessary to state a
contribution claim. See Home Ins. Co., 821 N.E.2d at 276.
Cincinnati glosses over this essential element to a contribution claim, and
asserts that it is entitled to contribution because both its policy and Society’s policy
protect the entire common party wall. (See Doc. 30 at 9 (citing Citizens’ Fire Ins. Co.
v. Lockridge, 116 S.W. 303 (Ky. App. 1909) and Nelson v. Continental Ins. Co., 182
F. 783 (6th Cir. 1910) for the proposition that an insured has a fee interest in one
part of a common party wall and an easement interest in the remaining part of the
common party wall)). As Cincinnati cannot establish the first prerequisite for a
contribution claim, its claim fails. The Court need not address the parties’ other
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arguments as to whether Cincinnati and Society insure the same interests or the
same risks.
b. Cincinnati’s Subrogation Claim
Cincinnati’s claim against Society for subrogation must fail for similar
reasons. Subrogation is “designed to place the ultimate responsibility for a loss upon
the one on whom in good conscience it ought to fall and to reimburse the innocent
party who is compelled to pay.” Reich v. Tharp, 521 N.E.2d 530, 533 (1987). “It is
axiomatic that for a right of subrogation to exist, the subrogor must possess a right
that he could enforce against a third party and that the subrogee must seek to
enforce the subrogor’s right.” Id. Courts analogize this to a subrogree “stepping into
the shoes” of a subrogor. See Am. Nat. Fire Ins. Co. ex rel. Tabacalera Contreras
Cigar Co. v. Yellow Freight Sys., Inc., 325 F.3d 924, 936 (7th Cir. 2003). In such a
case, the insurer “acquires no greater or lesser rights than those of the insured.” Id.
In the insurance context, a subrogation claim has three elements. See Home
Ins. Co., 821 N.E.2d at 280. First, the defendant insurer “must be primarily liable to
the insured for a loss under a policy of insurance.” Id. Second, “the plaintiff carrier
must be secondarily liable to the insured for the same loss under its policy.” Id.
Third, “the plaintiff carrier must have discharged its liability to the insured and at
the same time extinguished the liability of the defendant carrier.” Id.
In this case, Cincinnati seeks damages from Society as Tanks’ subrogee. (See
Doc. 1 at ¶¶ 24-26; Doc. 30 at 10). Therefore, in order for Cincinnati to succeed in its
subrogation claim, it must establish that Tanks had a right that it could enforce
against Society. See Reich, 521 N.E.2d at 533.
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Unfortunately for Cincinnati, Tanks does not have a right under Society’s
policy with Habanero. In Illinois, “[p]roperty insurance does not insure property but
the interest of the insured named in the policy.” Goldstein v. Scott, 439 N.E.2d 1039,
1042 (Ill. App. Ct. 1982). Therefore, as a rule, entities that are not insured by a
particular policy do not have a right to recover on the policy, even when they suffer
a property loss in which they have an interest.” Id.; see also Redfield v. Cont’l Cas.
Corp., 818 F.2d 596, 606 (7th Cir. 1987); Complaint of Midwest Equip. Leasing
Corp., 703 F. Supp. 727, 730 (N.D. Ill. 1988).
As explained above, Cincinnati admits that Tanks is not insured under the
relevant Society policy. (See Doc. 30 at 4). For that reason, Tanks does not have a
right to recover under Society’s policy, see Goldstein, 439 N.E.2d at 1042, and
Cincinnati therefore does not have a right to subrogation. See Reich, 521 N.E.2d at
533.
Cincinnati misconstrues Society’s argument as an argument that “Cincinnati
has no subrogation right because Society and Cincinnati did not insure the same
interests,” and goes on to suggest that Society and Cincinnati did insure the same
interest: the common party wall. (Doc. 30 at 10-11). Although Society has argued
that Habanero and Tanks each had different insurable interests in the common
party wall, Society concluded that “the carriers were not liable to the same insured
for the same loss.” (Doc. 19 at 6-7) (emphasis added). As explained above, a claim of
subrogation requires that the defendant carrier and plaintiff carrier be liable to the
same insured. See Home Ins. Co., 821 N.E. 2d at 280. Therefore, even if Cincinnati
and Society were liable for the loss of the common party wall under their respective
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policies, and even if Cincinnati discharged Society’s liability when it paid to repair
the common party wall, the fact of the matter is that Cincinnati and Society would
be liable to separate insureds. See id. In such a case, a subrogation claim is not
viable. See id.
Cincinnati suggests that these rules ought not to apply in this case because
none of these cases involve common party walls and are therefore “not controlling
on the unique issues presented by the common party wall in this case.” (Doc. 30 at
11). Cincinnati is asking the Court to disregard the elements of equitable
subrogation which have been cited with approval by the Illinois Supreme Court, see
Home Insurance Co., 821 N.E.2d at 280, because of a unique factual situation for
which it could not locate applicable Illinois authority. (See Doc. 30 at 9).
The Court is not persuaded by Cincinnati’s appeal, which relies upon two
non-controlling cases from other jurisdictions that were decided over a century ago.
In fact, each of the cases upon which Cincinnati relies to support its theory of
liability is inapposite. One even suggests that the traditional rule ought to apply in
exactly this sort of context. Both cases establish that an insured has an insurable
interest in an entire common party wall, and establish that its insurer may be liable
for replacing the wall even when the adjoining property has caused damage to the
wall. See Citizens Fire Ins. Co. 116 S.W. at 304; Nelson, 182 F. at 786-87. However,
in both cases, the adjoining property owner and the adjoining property owner’s
insurer were not parties. See Citizens Fire Ins. Co. 116 S.W. at 304; Nelson, 182 F.
at 786-87. Therefore, the holdings of these cases do not address the contribution and
subrogation issues presented here.
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Although these cases do not address the issues presented here, the Citizens
Fire Insurance Co. court assumed that the traditional rule would apply in exactly
this sort of context. In dicta, it suggested that the adjoining property owner and its
insurer only had limited responsibilities to the defendant insurer and the plaintiff
insured. See Citizens Fire Ins. Co., 116 S.W. at 304. The court wrote, “even if [the
adjoining property owner] had insurance upon her building, which was paid to her,”
the owner could not be compelled to contribute toward rebuilding or repairing the
party wall, unless, perhaps, she “subsequently elect[ed] to rebuild her house so as to
tie onto or build into the party wall . . .” Id. In conclusion, these cases, which do
concern the so-called unique issues presented by a common party wall, suggest no
reason to deviate from established principles of law. The Court has applied the
established elements for a subrogation claim to the undisputed facts of this case,
and finds that Cincinnati’s claim fails.
c. Conclusion
It is undisputed that Cincinnati and Society insure separate parties:
Cincinnati insures only Tanks and Society insures only Habanero. As explained
above, this fact alone is enough to dispose of both of Cincinnati’s claims against
Society. For that reason, Society’s Motion for Summary Judgment is granted.
II. Society’s Motion to Dismiss
Society has also moved to dismiss Habanero’s crossclaims on abstention
grounds. On December 22, 2014, Habanero filed an Answer with the Court, in
which it also brought three crossclaims against Society. (See Doc. 27 at 16-30). It
seeks from the Court declaratory judgments that (1) the underlying litigation that
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Cincinnati has brought against it is within the scope of its policy with Society, (id.
at 25); (2) Society has a duty to defend it against Cincinnati’s claims, (id. at 27-28);
and (3) the Policyholder Release that it executed with Society does not preclude
coverage. (Id. at 28-30).
Six days earlier, Society had filed a similar declaratory judgment action in
Cook County Circuit Court. (See Doc. 32-1). That complaint seeks a declaratory
judgment that this litigation is not within the scope of Society’s policy with
Habanero and that Society has no duty to defend or indemnify Habanero, (id. at 7,
10), and a declaratory judgment that the Policyholder’s Release precludes coverage.
(Id. at 10).
Society urges the Court to abstain under the doctrine of Brillhart v. Excess
Insurance Co. of America, 316 U.S. 491 (1942) and Wilton v. Seven Falls Co., 515
U.S. 277 (1995).3 Wilton-Brillhart abstention permits federal courts to abstain from
proceeding in a declaratory judgment suit “where another suit is pending in state
court presenting the same issues, not governed by federal law, between the same
parties.” Arnold v. KJD Real Estate, LLC, 752 F.3d 700, 707 (7th Cir. 2014) (quoting
Brillhart, 316 U.S. at 495).
This doctrine is based upon permissive language
included in the Declaratory Judgment Act, which states that a federal court “may
declare the rights and other legal relations of any interested party seeking such a
declaration.” 28 U.S.C. § 2201 (emphasis added).
In the alternative, Society has asked the Court to abstain pursuant to Colorado
River Conservation District v. United States, 424 U.S. 800 (1976). As explained
below, the Court concludes that abstention under Wilton-Brillhart is appropriate,
and therefore needs not discuss abstention pursuant to Colorado River.
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Under Wilton-Brillhart abstention, “district courts possess significant
discretion to dismiss or stay claims seeking declaratory relief, even though they
have subject matter jurisdiction over such claims.”
Envision Healthcare, Inc. v.
PreferredOne Ins. Co., 604 F.3d 983, 986 (7th Cir. 2010). Courts considering
whether to abstain consider whether the federal declaratory judgment action
presents questions distinct from those presented by the state court action, whether
the parties in the two actions are identical, whether the federal court declaratory
judgment action can serve a useful purpose in clarifying the parties’ legal
relationships rather than amounting to duplicative and piecemeal litigation, and
whether the plaintiff seeking the federal declaratory judgment can obtain
comparable relief in another forum. Medical Assur. Co., Inc. v. Hellman, 610 F.3d
371, 379 (7th Cir. 2010) (quoting Nationwide Ins. v. Zavalis, 52 F.3d 689, 692 (7th
Cir. 1995). “There is no set criteria for when a court should exercise its discretion to
abstain . . . but the classic example of when abstention is proper occurs where . . .
solely declaratory relief is sought and parallel state proceedings are ongoing.”
Envision Healthcare, Inc., 604 F.3d at 986.
In deciding whether to abstain, the first thing the Court considers is whether
the two pending cases are parallel. “Two actions are parallel when substantially the
same parties are contemporaneously litigating substantially the same issues in two
fora.” Id. Two cases need not have exactly the same parties in order to be parallel.
Envision Healthcare presents what is close to a mirror-image of this case.
There, a man sued his insurance company in state court and alleged that it had
improperly rescinded his policy. Id. at 984. Shortly thereafter, the insurance
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company filed a third-party complaint in the state court action seeking a
declaration that a wholesale insurance broker needed to indemnify it. Id. The
broker then filed a declaratory judgment action in Illinois federal court, in which it
sought a declaration that it had no obligation to indemnify the insurer. Id. The state
court plaintiff was not a party to the federal declaratory judgment action. Id.
In that case, the Seventh Circuit upheld the district court’s decision to
abstain. It concluded that the state court case (which included an additional party,
the state court plaintiff) and the federal case were parallel because “the third-party
suit in Minnesota involves the same parties as the federal case,” and “the same
precise legal question will be answered in both suits: whether [the insurance
broker] owes [the insurer] a duty to indemnify it for any loss incurred in the [state
court lawsuit.” Id. at 987.
Before this Court are three parties, but the crossclaim only includes two
parties: both Defendants. The only two parties in the state court action are the
Defendants in this case. Both Cincinnati and Habanero argue that these cases are
not parallel because Cincinnati is not present in the state court action. (See Doc. 36
at 2-3; Doc. 37 at 6). Further, they argue that although the pending state case
involves some of the same issues that are present in this case, the state case only
involves a subset of the larger issues. (See Doc. 36 at 3-4; Doc. 37 at 7). Specifically,
they argue that the state case only implicates Society’s obligations under the
general liability coverage of its policy with Habanero and does not implicate
Society’s obligations under the first-party property coverage part of the policy. (See
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Doc. 36 at 3; Doc. 37 at 7). Habanero also points out that this Court must address
Cincinnati’s subrogation claim against Society. (Doc. 37 at 7).
Habanero and Cincinnati attempts cannot muddy water that has been
clarified by the Court’s decision granting Society summary judgment with respect to
Cincinnati’s claims. (See supra at 4-9). At this stage, the only claims remaining
against Society are Habanero’s crossclaims for declaratory judgment. No
subrogation claim remains pending against Society, and no claim implicating the
scope of the first-party property coverage under Society’s policy with Habanero
remains pending. (See id.). The only claims that remain pending against Society
relate to its obligation to indemnify Habanero, it’s obligation to defend Habanero,
and the effectiveness of the release entered into by it and Habanero. (See Docs. 27,
32-1). Habanero’s crossclaims and Society’s state court complaint address all of
these issues, and only these issues. (See id.). Therefore, this Court and the state
court have been asked to decide identical factual and legal questions. See Envision,
604 F.3d at 986. Contrary to Cincinnati’s suggestion, the federal action cannot at
this point “clarify Society’s legal obligations to a significantly greater degree than
would the state action.” (Doc. 36 at 3); see also Medical Assur. Co., 610 F.3d at 379.
Further, the fact that there is one more party present in this case than there
is in the state case cannot skew the parallel nature of the two cases. Cincinnati
attempts to distinguish Envision by arguing that “the Envision court deferred . . . to
the state action over the federal action because the parties in the federal action . . .
were a mere subset of the parties in the state action.” (Id. at 3). This distinction,
however, is not compelling in light of the guidance offered by the Envision court, as
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Cincinnati’s interest may be practical but is not legal.4 Cincinnati is not named in
either the crossclaims or in the state court action; it is a stranger to both. Therefore,
in this case, Habanero’s crossclaim and Society’s state court action not only present
the exact same legal questions, but also involve the exact same parties. (Compare
Doc. 27 at 27-30 with Doc. 32-1 at 7-10). Because “the same parties are
contemporaneously litigating substantially the same issues in two fora,” the cases
are parallel. Envision Healthcare, Inc., 604 F.3d at 986.
In light of this, the Court will exercise its prerogative to abstain. See 28
U.S.C. § 2201. Each of the factors identified in Medical Assurance Co. are present.
See 610 F.3d at 379. Here, where the relevant parties are the same and the relevant
legal questions are identical, the Court would not clarify the legal obligations and
relationships among the parties with any greater ability than the state court would.
See id. Rather, this Court’s consideration of these issues would just be duplicative of
the state court’s consideration. See id. Further, Habanero can seek the same relief
that it seeks in federal court in state court. See 735 ILCS 5/2-701 (providing for
declaratory judgments in Illinois state court). Finally, no parties dispute that
Illinois law governs the questions presented in both the state court action and
Habanero’s crossclaims. See Medical Assur. Co., 610 F.3d at 381 (noting that the
Declaratory Judgment Act “has no effect on the substantive law that governs a
Without citation to legal authority, Cincinnati and Habanero both argue that
Cincinnati has an interest in the state court action, where it is not present. Of
course Cincinnati has some interest in the outcome of any declaratory judgment
involving Society and Habanero. It would like Society to indemnify Habanero
because it would like to collect against Society in the event that it succeeds against
Habanero. However, the parties have failed to argue that Cincinnati has any legal
interest in either Society’s declaratory judgment claims against Habanero or in
Habanero’s declaratory judgment crossclaims against Society.
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case). The fact that Illinois law governs Habanero’s crossclaims also favors
abstention. Cf. Clark v. Lacy, 376 F.3d 682, 688 (7th Cir. 2004) (noting, in context of
Colorado River abstention, that “a state court’s expertise in applying its own law”
favors abstention). For these reasons, the Court dismisses Habanero’s crossclaims.
CONCLUSION
For the foregoing reasons, Society’s Motion for Summary Judgment (Doc. 19)
is GRANTED and Society’s Motion to Dismiss (Doc. 31) is GRANTED. Defendant
Society Insurance is TERMINATED from this case. This case is REFERRED to
Magistrate Judge Hawley for further pretrial proceedings. IT IS SO ORDERED.
Entered this 4th day of March, 2015.
s/ Joe B. McDade
JOE BILLY McDADE
United States Senior District Judge
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