Catlin Indemnity Company v. Goeke et al

Filing 27

ORDER AND OPINION entered by Chief Judge James E. Shadid on 5/14/2018. IT IS ORDERED: the Swanson Defendants' Motion to Dismiss for Lack of Jurisdiction 22 is DENIED and Goeke and West Bend Defendants' Motion to Stay 23 is GRANTED. The Parties are to file a status report informing the Court of the status of the underlying litigation on or before September 1, 2018. SEE FULL WRITTEN ORDER.(SAG, ilcd)

E-FILED

Monday, 14 May, 2018 03:53:09 PM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
CATLIN INDEMNITY COMPANY,
Plaintiff,
v.
KARL A. GOEKE, individually, JEAN
SWANSON, individually, CHARLES
SWANSON, individually, MCLEAN
COUNTY UNIT DISTRICT NO. 5, and
WEST BEND MUTUAL INSURANCE
COMPANY,
Defendants.

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Case No. 18-cv-1047-JES-JEH

ORDER AND OPINION
Now before the Court is a Motion to Dismiss for Lack of Jurisdiction (Doc. 22) by
Defendants Charles and Jean Swanson and a Motion to Stay (Doc. 23) by Defendants Goeke and
West Bend Mutual Insurance Company. For the reasons set forth below, the Motion to Dismiss
for Lack of Jurisdiction (Doc. 22) is DENIED and the Motion to Stay (Doc. 23) is GRANTED.
The Parties are to file a status report informing the Court of the status of the underlying litigation
on or before September 1, 2018.
BACKGROUND
This declaratory judgment action was filed by Plaintiff, Catlin Indemnity Company
(“Catlin”), and names as Defendants Karl A. Goeke (“Goeke”), Jean and Charles Swanson (“the
Swansons”), McLean County Unit District No. 5 (“the District”), and West Bend Mutual
Insurance Company (“West Bend”). Doc. 1. In October 2017, the Swansons filed a complaint
against Goeke and the District in the Circuit Court of the Eleventh Judicial Circuit in McLean
County, Illinois, alleging that they suffered personal injuries when Goeke negligently operated
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his 2007 Toyota Prius and crashed into the Swansons. Jean Swanson and Charles Swanson v.
Karl Goeke and McLean County Unit District No. 5, Case No. 2017 L 122 (McLean Cnty Cir.
Ct. filed Oct. 17, 2017).
According to Catlin’s Complaint, Goeke previously taught for the District, but at the time
of the accident he was employed solely as President of the Unit Five Education Association.
Doc. 1, at 4. At the time of the accident, the District had in place a commercial automobile policy
(“the Policy”) issued by Catlin. The Policy provided coverage for anyone using the District’s
automobiles, but excluded coverage for automobiles owned by employees. Id. at 5. However, the
Policy also contained an endorsement which appears to provide coverage for District employees
when they use their own vehicle while performing the District’s business or personal affairs. Id.
Finally, the Policy provided that coverage for automobiles not owned by the District was excess
over any other collectible insurance. Goeke and his wife were insured under a West Bend
personal automobile policy that covered their 2007 Prius. Id. at 5–7.
Catlin filed this declaratory judgment action based on this Court’s diversity jurisdiction
under 28 U.S.C. § 1332(a)(1). Catlin alleges in its Complaint that, for the purposes of diversity
jurisdiction, it is a citizen of Delaware and Georgia, that Goeke is an Illinois citizen, the
Swansons are Illinois citizens, the District is an Illinois citizen, and West Bend is a Wisconsin
citizen. Id. at 1–2. Catlin alleges in its Complaint that Goeke does not qualify as an insured under
the Catlin Policy because at the time of the accident he was either not an employee of the
District, or he was not using his vehicle in the District’s business or personal affairs. Second,
Catlin alleges that its Policy is excess to West Bend’s policy. Id. at 7–12.
On April 2, 2018, the Swanson Defendants filed a Motion to Dismiss for Lack of
Jurisdiction. Doc. 22. Therein, the Swansons argue that they should be realigned in this action as

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a plaintiff with Catlin because the Swansons are adverse to Goeke and the District in the
underlying litigation. Id. at 4. The Swansons also argue that Catlin’s duty to defend is at issue in
this Court, and thus the Swansons and Goeke will have adverse interests until judgment has been
reached in the underlying litigation. Because realignment of the Swansons as plaintiffs would
destroy diversity, the Swansons argue that this action should be dismissed for lack of subject
matter jurisdiction. Catlin responded to the Swansons’ Motion, arguing that realignment of the
Swansons as plaintiffs is improper because Catlin and the Swansons have directly adverse
interests as to whether Goeke qualifies as an insured under the Policy. Doc 26, at 5–10. Further,
Catlin argues that realignment is not warranted in this case because West Bend is providing a
defense in the underlying litigation and therefore the duty to defend is not at issue. Id. at 10–12.
Also pending is an unopposed Motion to Stay by the Goeke and West Bend Defendants. Doc. 23.
LEGAL STANDARD
“The principal federal statute governing diversity jurisdiction, 28 U.S.C. § 1332, gives
federal district courts original jurisdiction of all civil actions ‘between ... citizens of different
States’ where the amount in controversy exceeds $75,000.” Lincoln Prop. Co. v. Roche, 546 U.S.
81, 89 (2005). “Ordinarily, a court will not interfere with the consequences of a plaintiff's
selection in naming parties, unless the plaintiff has impermissibly manufactured diversity or used
an unacceptable device to defeat diversity.” Lincoln Prop. Co., 546 U.S. at 93 (quoting 16 J.
Moore et al., MOORE’S FEDERAL PRACTICE § 107.14[2][c], p. 107–67 (3d ed. 2005)). However,
“[w]here jurisdiction is based on diversity of citizenship, the court may ascertain whether the
alignment of the parties as plaintiff and defendant conforms with their true interests in the
litigation.” American Motorists Ins. Co. v. Trane Co., 657 F.2d 146, 149 (7th Cir. 1981) (quoting
Indianapolis v. Chase National Bank, 314 U.S. 63 (1941)). “Realignment is proper when … no

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actual, substantial controversy exists between parties on one side of the dispute and their named
opponents, although realignment may destroy diversity and deprive the court of jurisdiction.” Id.
DISCUSSION
In their Motion to Dismiss for Lack of Jurisdiction, the Swanson Defendants argue that
they should be realigned in this action with Plaintiff Catlin because the Swansons are adverse to
Goeke and the District in the underlying litigation. Doc. 22, at 4. Although the Swansons
acknowledge that “the normal alignment of parties in a suit seeking a declaratory judgment of
non-coverage is Insurer versus Insured and Injured Party,” Home Ins. Co. of Illinois v. Adco Oil
Co., 154 F.3d 739, 741 (7th Cir. 1998), they argue that this rule is inapplicable when the issue
involves a duty to defend prior to judgment in the underlying litigation. Id. at 5–6. In support of
their argument, the Swansons cite to Preferred Chiropractic, an opinion from the Southern
District of Illinois, and Nath, an opinion from this District, for the proposition that, unlike the
post-judgment determination of an insurer’s duty to indemnify a purported insured, “[i]n the
actions underlying declaratory judgment actions regarding duties to defend, the insured and
injured often have adverse interests—an adversity which does not end until after a judgment.”
Preferred Chiropractic, LLC v. Hartford Cas. Ins. Co., No. 10-CV-972-DRH, 2011 WL 2149091,
at *3 (S.D. Ill. May 31, 2011) (citing Grinnell Select Ins. Co. v. Glodo, No. 08-CV-891-JPG,
2009 WL 455126, at *2 (S.D. Ill. Feb. 23, 2009)); Nath v. Lexington Ins. Co., No. 17-cv-2147CSB-EIL, 2017 WL 4276642, at *1 (C.D. Ill. Sept. 11, 2017), report and recommendation
adopted, 2017 WL 4270625 (C.D. Ill. Sept. 26, 2017).

As Catlin points out in its Response, nothing in the present declaratory judgment action
justifies deviating from the normal rule that “alignment of parties in a suit seeking a declaratory

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judgment of non-coverage is Insurer versus Insured and Injured Party.” Home Ins. Co. of Illinois,
154 F.3d at 741. Although the Swansons and Goeke have directly adverse interests in the
underlying litigation, at issue in this declaratory judgment action is whether Goeke is an insured
under the Catlin Policy and, if a judgment is entered against the state court defendants in the
underlying litigation, whether Goeke must look first to the West Bend policy to satisfy that
judgment. Catlin’s interest in this litigation is to absolve itself of any potential liability to the
Swansons. In contrast, the Swansons, Goeke, and the District all have an interest in making sure
Catlin foots the bill for any judgment in excess of West Bend’s policy limits. Therefore, an
actual, substantial controversy exists between Catlin and the named Defendants. Indianapolis v.
Chase National Bank, 314 U.S. 63, 69 (1941). A finding that Catlin owes a duty to indemnify
Goeke mutually benefits Goeke and the Swansons; Goeke would be relieved of having to pay the
judgment out of his own pocket, at least to the extent of the policy limit, and the Swansons
would be assured that they will be able to collect at least a portion of the judgment owed them.
See, e.g., Grinnell Select Ins. Co. v. Glodo, No. 08-CV-891-JPG, 2009 WL 455126, at *2 (S.D.
Ill. Feb. 23, 2009) (“[A]ny finding that the insurer owes a duty to indemnify an insured mutually
benefits the insured party and the injured party.”); Hulliung Gymnastics, Inc. v. Philadelphia
Indem. Ins. Co., No. 13-CV-1279-JPG-DGW, 2014 WL 3400549, at *2 (S.D. Ill. July 9, 2014)
(“[I]n a declaratory judgment action such as the instant case, the insurance company is really the
adversary of the insured and the insured’s victim.”).
The Swanson Defendants attempt to distinguish this case from the normal rule on
alignment of parties by insisting that Catlin’s duty to defend is at issue, and therefore Goeke and
the Swansons will have adverse interests that will not end until a final judgment is reached in the
underlying litigation. Doc. 22, at 7. True, the Swansons’ interest in the underlying litigation is to

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obtain a quick, large judgment against Goeke and the District. The provision of a defense to
Goeke and the District will likely impede that goal, thus running counter to the Swansons’
interests. But West Bend is already providing a defense to the District and Goeke in the
underlying action, and West Bend appears to concede that Catlin’s policy is excess to West
Bend’s obligations under its own policy. See Answer, Doc. 13, at ¶ 57. The Swansons do not
attempt to explain why they should have any say in whether Catlin or West Bend provides that
defense.
Moreover, the issue of who provides a defense to Goeke further justifies the current
alignment of the Parties. Assume that Goeke qualifies as an insured under the Catlin Policy, and
the Swansons obtain a judgment well in excess of the West Bend policy limits. As far as West
Bend is concerned, there is no difference between a judgment against Goeke for the policy limits
and a judgment against Goeke for triple the policy limits. The same does not hold true for Catlin,
who may later wish to provide Goeke a defense so that it can control the litigation and limit its
potential exposure. Again, the Swansons and Catlin have adverse interests. Therefore, “the
normal alignment of parties in a suit seeking a declaratory judgment of non-coverage”—i.e.,
“Insurer versus Insured and Injured Party”—applies, and the Parties are properly aligned. Home
Ins. Co. of Illinois, 154 F.3d at 741. Because the present alignment of the Parties meets the
statutory requirements for diversity jurisdiction under 28 U.S.C. § 1332, the Swanson
Defendants’ Motion to Dismiss for Lack of Jurisdiction is denied.
Having resolved the jurisdictional issue, the remaining issue before the Court is the
unopposed Motion to Stay by Defendants Goeke and West Bend. Doc 23. Therein, Defendants
argue that a stay of all discovery and proceedings in this case until the underlying litigation has
been resolved is required under Illinois law. See e.g., Allianz Ins. Co. v. Guidant Corp., 355 Ill.

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App. 3d 721, 731, 839 N.E.2d 113, 120 (2d Dist. 2005) (“[A]s a general matter, a declaratory
judgment action to determine an insurer’s duty to indemnify its insured should not be decided
prior to the adjudication of the underlying action where the issues to be decided in both actions
are substantially similar.”). The Court agrees. All discovery and proceedings in this matter are
therefore stayed until further order of the Court. The Parties are to file a status report informing
the Court of the status of the underlying litigation on or before September 1, 2018.
CONCLUSION
For the reasons set forth above, the Swanson Defendants’ Motion to Dismiss for Lack of
Jurisdiction (Doc. 22) is DENIED and Goeke and West Bend Defendants’ Motion to Stay (Doc.
23) is GRANTED. The Parties are to file a status report informing the Court of the status of the
underlying litigation on or before September 1, 2018.

Signed on this 14th day of May, 2018.
s/ James E. Shadid
James E. Shadid
Chief United States District Judge

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