US Specialty Insurance Company v. Rhoads et al
Filing
55
OPINION entered by Judge Michael P. McCuskey on 6/4/2013. USSIC's Motion for Summary Judgment 34 is GRANTED. Defendants' Motion for Partial Summary Judgment 41 46 are DENIED. See written opinion. This case is terminated. (JMW, ilcd)
E-FILED
Tuesday, 04 June, 2013 03:51:00 PM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
URBANA DIVISION
______________________________________________________________________________
U.S. SPECIALTY INSURANCE COMPANY, )
a Texas corporation,
)
)
Plaintiff,
)
v.
)
Case No. 11-CV-2217
)
KENT A. RHOADS, JASON R. BALL, and
)
COURTNEY UTTERBACK,
)
)
Defendants.
)
OPINION
This case is before the court for ruling on the Motion for Summary Judgment (#34)
filed by Plaintiff, U.S. Specialty Insurance Company (USSIC), the Motion for Partial
Summary Judgment (#41) filed by Defendant, Courtney Utterback, and the Motion for Partial
Summary Judgment (#46) filed by Defendant, Kent A. Rhoads. This court has carefully
reviewed the arguments of the parties and the documents provided by the parties. Following
this careful review, USSIC’s Motion for Summary Judgment (#34) is GRANTED and
Defendants’ Motions for Partial Summary Judgment (#41, #46) are DENIED.
BACKGROUND
On May 19, 2011, Courtney Utterback filed a Complaint in Case No. 11-CV-2131
against Kent A. Rhoads, Jason R. Ball and Terry Weger1 pursuant to 42 U.S.C. § 1983.
Utterback stated that she was incarcerated at the Edgar County jail from January 7, 2010
1
Utterback stated that Weger was employed by the Edgar County Sheriff as the
administrator of the Edgar County jail. For her claim against Weger, Utterback alleged that he
refused to allow Utterback the opportunity to have the mental health counseling that had been
ordered as part of her sentence.
through July 4, 2010. Utterback alleged that Rhoads and Ball were employees of the Edgar
County Sheriff working in the Edgar County jail at the time she was incarcerated there.
Utterback alleged that Ball took nude photographs of her for his own benefit and without
penological purpose. Utterback also alleged that Ball had intimate sexual relations with her
without her consent. In addition, Utterback alleged that Rhoads had intimate sexual relations
with her without her consent and that Ball and Rhoads provided her with unlawful drugs and
alcohol. Utterback alleged that Ball and Rhoads violated her rights under the Eighth
Amendment to the Constitution to be free from cruel and unusual treatment. Utterback
alleged that, as a result of the conduct of Ball and Rhoads, she suffered emotional distress,
physical injury, embarrassment and the loss of enjoyment of life.
On June 6, 2012, Ball was convicted of unlawfully engaging in sexual conduct with
a person (Utterback) who was in the custody of a penal institution in violation of 720 Ill.
Comp. Stat. 5/11-9.2(a)(1). On June 6, 2012, Rhoads was also convicted of unlawfully
engaging in sexual conduct with a person (Utterback) who was in the custody of a penal
institution in violation of 720 Ill. Comp. Stat. 5/11-9.2(a)(1).
PROCEDURAL HISTORY
On September 13, 2011, USSIC filed its Complaint for Declaratory Relief (#1) in this
case, naming Ball, Rhoads and Utterback as Defendants.2 USSIC stated that this court has
jurisdiction over the case based upon diversity. See 28 U.S.C. § 1332(a)(1). USSIC stated
2
Terry Weger was not named as a defendant in this action.
2
that it issued Policy No. PKG80310141 to Edgar County for the period July 1, 2009 to July
1, 2010 (Policy). The Policy is a multi-form policy that provides coverage to Edgar County
and its employees. USSIC attached a copy of the Policy to the Complaint. In Count I,
USSIC sought a declaration that it has no duty to defend or indemnify Ball and Rhoads under
the General Liability Coverage Part of the Policy. In Count II, USSIC sought a declaration
that it has no duty to defend or indemnify Ball and Rhoads under the Law Enforcement
Coverage Part of the Policy. In Count III, USSIC sought a declaration that it has no duty to
defend or indemnify Ball and Rhoads under the Public Officials Liability Coverage Part of
the Policy. The case was stayed pending the outcome of the criminal charges in Edgar
County. After the criminal proceedings were terminated, Rhoads’ attorney was allowed to
withdraw. Both Rhoads and Ball are now pro se in this case.
On November 1, 2012, USSIC filed a Motion for Summary Judgment (#34), a
Memorandum in Support (#35), with attached exhibits, a Statement of Facts (#36), with
attached exhibits, and two Affidavits in Support of Motion for Summary Judgment (#37,
#38). USSIC argued that, based upon the undisputed facts and the Policy language, it has
no duty to defend or indemnify Ball and Rhoads because the allegations of the underlying
Utterback Complaint do not come within the scope of coverage provided by the Policy issued
by USSIC. On November 1, 2012, Utterback filed a Motion for Partial Summary Judgment
(#41) and a Memorandum in Support (#42). Utterback said that she agreed with USSIC that
summary judgment was appropriate in USSIC’s favor on Count I of the Complaint regarding
the General Liability Coverage Part of the Policy. Utterback argued, however, that she was
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entitled to summary judgment on Counts II and III of the Complaint. She argued that USSIC
has an obligation to defend Ball and Rhoads under the Law Enforcement Coverage Part of
the Policy and the Public Officials Liability Coverage Part of the Policy. On November 27,
2012, Rhoads filed a pro se Motion for Partial Summary Judgment (#46) and Memorandum
in Support (#47). Rhoads’ Motion was essentially identical to Utterback’s Motion for Partial
Summary Judgment. On November 26, 2012, Ball filed a pro se “Answer” (#45). Ball stated
that he could not afford representation and did not know how to respond.
On November 29, 2012, Utterback filed her Memorandum in Opposition to USSIC’s
Motion for Summary Judgment (#49) and USSIC filed its Response to Utterback’s Motion
for Partial Summary Judgment (#50). On December 14, 2012, USSIC filed its Response to
Rhoads’ Motion for Partial Summary Judgment (#54). Also on December 14, 2012, USSIC
filed its Reply Memorandum in Support of its Motion for Summary Judgment (#53) and
Utterback filed her Reply Memorandum in Support of her Motion for Partial Summary
Judgment (#52). In her Reply, Utterback conceded that USSIC was entitled to summary
judgment regarding the Public Officials Liability Coverage Part of the Policy as “the public
officials liability provisions do not apply to law enforcement personnel.”
ANALYSIS
I. SUMMARY JUDGMENT STANDARD
Summary judgment is proper when “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 this case, three of the parties have moved for summary judgment and have
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asserted there is no genuine dispute as to any material fact. The parties have agreed that
Illinois law applies to the issues in this case. Under Illinois law, the interpretation of an
insurance policy is a question of law which is properly decided by way of summary
judgment. BASF AG v. Great Am. Assur. Co., 522 F.3d 813, 818-19 (7th Cir. 2008); see also
Ace Am. Ins. Co. v. RC2 Corp., Inc., 600 F.3d 763, 767 (7th Cir. 2010). “Contract
interpretation lends itself to resolution by summary judgment because ‘the determination of
whether a contract is ambiguous is a matter of law.’” Central States, S.E. & S.W. Areas
Pension Fund v. Waste Mgmt. of Mich., Inc., 674 F.3d 630, 634-35 (7th Cir. 2012), quoting
Barnett v. Ameren Corp., 436 F.3d 830, 833 (7th Cir. 2006). When cross motions for
summary judgment have been filed, this court must review the record construing all
inferences in favor of the party against whom the motion under consideration is made. See
BASF AG, 522 F.3d at 818.
II. DUTY TO DEFEND
An insurer’s duty to defend is broader than its duty to indemnify. Nat’l Cas. Co. v.
McFatridge, 604 F.3d 335, 338 (7th Cir. 2010). Therefore, “[i]f an insurer has no duty to
defend, it has no duty to indemnify.” McFatridge, 604 F.3d at 338. This court must
determine whether USSIC has a duty to defend “by examining the underlying complaint and
the language of the insurance policy.” McFatridge, 604 F.3d at 338. Any doubts as to
whether particular claims fall within the policy must be resolved in favor of coverage.
McFatridge, 604 F.3d at 338. “So if the ‘complaint asserts facts within or potentially within
policy coverage, an insurer is obligated to defend its insured.’” McFatridge, 604 F.3d at 338,
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quoting Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092,
1098 (Ill. 2005). “On the other hand, an insurer may refuse to defend an action in which,
from the face of the complaint, the allegations are clearly outside the bounds of the policy
coverage.” McFatridge, 604 F.3d at 338, citing U.S. Fid. & Guar. Co. v. Wilkin, 578 N.E.2d
926, 930 (Ill. 1991); see also ProLink Holdings Corp. v. Fed. Ins. Co., 688 F.3d 828, 830 (7th
Cir. 2012).
In Illinois, in construing an insurance policy, the general rules governing the
interpretation and construction of contracts apply. See Hobbs v. Hartford Ins. Co. of the
Midwest, 823 N.E.2d 561, 564 (Ill. 2005). The court’s “primary objective is to ascertain and
give effect to the intention of the parties, as expressed in the policy language.” Hobbs, 823
N.E.2d at 564. “If the policy language is unambiguous, the policy will be applied as written,
unless it contravenes public policy.” Hobbs, 823 N.E.2d at 564. “Whether an ambiguity
exists turns on whether the policy language is subject to more than one reasonable
interpretation.” Hobbs, 823 N.E.2d at 564. “Although ‘creative possibilities’ may be
suggested, only reasonable interpretations will be considered.” Hobbs, 823 N.E.2d at 564,
quoting Bruder v. Country Mut. Ins. Co., 620 N.E.2d 355, 362 (Ill. 1993). Courts need not
strain to find an ambiguity where none exists. Hobbs, 823 N.E.2d at 564.
Because the court must assume that every provision in an insurance policy was
intended to serve a purpose, the policy must be construed as a whole, giving effect to every
provision. Rich v. Principal Life Ins. Co., 875 N.E.2d 1082, 1090 (Ill. 2007). This court
must take into account the “type of insurance purchased, the nature of the risk involved, and
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the overall purpose of the contract.” McFatridge, 604 F.2d at 340, quoting Nicor, Inc. v.
Associated Elec. & Gas Ins. Servs. Ltd., 860 N.E.2d 280, 286 (Ill. 2006). Courts give little
weight to the legal label that characterizes the underlying allegations and, instead, must
“determine whether the alleged conduct arguably falls within at least one of the categories
of wrongdoing listed in the policy.” Lexmark Int’l, Inc. v. Transp. Ins. Co., 761 N.E.2d
1214, 1221 (Ill. App. Ct. 2001). An exclusion in a policy serves the purpose of taking out
persons or events otherwise included within the defined scope of coverage. Rich, 875 N.E.2d
at 1094. Insurers have the burden of proving that an exclusion applies. Santa’s Best Craft,
LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 347 (7th Cir. 2010). “However, where
an exclusion is clear and unambiguous, it must be applied as written.” Standard Mut. Ins.
Co. v. Mudron, 832 N.E.2d 269, 271 (Ill. App. Ct. 2005).
III. USSIC’S MOTION FOR SUMMARY JUDGMENT
USSIC has argued that it is entitled to summary judgment on Counts I, II and III of
its Complaint for Declaratory Judgment. This court first concludes that USSIC is entitled
to summary judgment on Counts I and III. This court agrees with USSIC and Utterback that
USSIC has no obligation to defend or indemnify Ball and Rhoads under the General Liability
Coverage Part of the Policy and the Public Officials Liability Coverage Part of the Policy.
USSIC has shown that there is no coverage under the General Liability Part of the Policy
because the alleged conduct of Ball and Rhoads was not “within the scope of their duties.”
USSIC has also shown that there is no coverage under the Public Officials Liability Coverage
Part of the Policy because the provisions of this part of the Policy exclude coverage for any
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lawsuits “arising from the activities of any law enforcement agency or law enforcement
personnel, including the operation of adult and juvenile detention facilities.”
This court therefore agrees with Utterback’s Reply (#52) that the only real issue is
whether USSIC is entitled to summary judgment on Count II and the sole question for this
court to decide is whether USSIC has an obligation to defend Ball and Rhoads under the
provisions of the Law Enforcement Coverage Part of the Policy.
This court will therefore set out the pertinent provisions of the Policy at issue. The
Named Insured under the Policy is Edgar County. The Policy provides that the term
“INSURED” includes “All full or part-time employees of the NAMED INSURED and all
persons who were, now are or shall be lawfully elected, appointed or employed officials of
the NAMED INSURED with respect to liability arising out of LAW ENFORCEMENT
ACTIVITIES.” The Policy states that it provides coverage to Insureds because of Wrongful
Acts to which this insurance applies. The Policy defines “WRONGFUL ACT” as “any
actual or alleged act, error or omission, neglect or breach of duty by the INSURED while
conducting LAW ENFORCEMENT ACTIVITIES that results in” personal injury, bodily
injury or property damage. The Policy states that the covered Wrongful Acts “must arise out
of the performance of the INSURED’S LAW ENFORCEMENT ACTIVITIES.” Law
Enforcement Activities are defined in the Policy as:
1.
Those activities conducted by the NAMED INSURED’S
Law Enforcement Department or Agency as shown on
the Declarations; and
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2.
Departmentally approved activities that are declared in
the application.
Under the Exclusions section of the Policy, the Policy states, in pertinent part:
This insurance does not apply to and WE shall not be obligated
either to make any payment or to defend any SUIT in
connection with any claim or SUIT made against the INSURED
for WRONGFUL ACT(S):
...
2.
Arising from the deliberate violation of any federal, state,
or local statute, ordinance, rule or regulation committed
by or with the knowledge and consent of the INSURED.
USSIC argued that the alleged acts of Ball and Rhoads are not Law Enforcement
Activities as defined in the Policy and thus are not Wrongful Acts covered by the Policy.
USSIC argued that custodial sexual misconduct and providing contraband to a prisoner are
not law enforcement activities. USSIC argued that the alleged acts of Ball and Rhoads are
not acts within the scope of the duties of a correctional officer but rather are acts that
deliberately violate the law. In support of this argument, USSIC cited case law which holds
that sexual misconduct, which by its nature is solely for the personal benefit of the
transgressor, cannot be done to serve the employer’s interest. See, e.g., Dorsey v. Givens,
209 F. Supp. 2d 850, 851-53 (N.D. Ill. 2001) (under Illinois law, correctional officer’s
improper sexual touching of a prisoner outside scope of employment). USSIC also argued
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that there is no coverage under the quoted exclusion included in the Policy because the acts
of Ball and Rhoads constituted deliberate violations of federal and state law.
In Response, Utterback has argued that USSIC’s argument that the alleged conduct
of Ball and Rhoads was not within the scope of their employment is not persuasive because
the Policy does not provide that covered activities must be within the scope of their
employment. Utterback argued that, unfortunately for USSIC, this language is absent from
the Law Enforcement Coverage Part of the Policy. Utterback argued that, instead, the Policy
provides coverage for actions which occurred “while conducting LAW ENFORCEMENT
ACTIVITIES.” Utterback argued that this language expands coverage to incidents that occur
while conducting law enforcement activities and, undoubtedly, overseeing inmates is a “law
enforcement activity.” Utterback argued that her claim is that the actions of Ball and Rhoads
took place while they were conducting law enforcement activities so that her allegations fall
squarely within the parameters of the Law Enforcement coverage. Utterback also argued that
this court does not need to consider whether the actions of Ball and Rhoads “arise out of” the
performance of Law Enforcement Activities because this language is not included in the
portion of the Policy which describes the duty to defend.
This court first concludes that Utterback’s argument that this court does not need to
consider the “arise out of” language is without merit. The Policy specifically states that “WE
will have no duty to defend the INSURED against any SUIT seeking damages for
WRONGFUL ACT(S) to which this insurance does not apply.” Therefore, this court
concludes that it must determine whether there is coverage provided by the Policy in order
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to determine if there is a duty to defend. As stated previously, “an insurer may refuse to
defend an action in which, from the face of the complaint, the allegations are clearly outside
the bounds of the policy coverage.” McFatridge, 604 F.3d at 338.
After careful consideration, this court concludes that, under the unambiguous terms
of the Policy, coverage is provided only for wrongful acts which “arise out of” the
performance of Law Enforcement Activities, which is defined as “[t]hose activities
conducted by” Edgar County’s Law Enforcement Department. In the underlying complaint,
Utterback alleged that Ball took nude photographs of her for his own benefit and without
penological purpose, that Ball and Rhoads had intimate sexual relations with her without her
consent and that Ball and Rhoads provided her with unlawful drugs and alcohol. This court
concludes that, although the policy does not specifically state that covered actions must be
within “the scope of employment,” the language used can only be interpreted as meaning
essentially the same thing. Utterback has suggested “creative possibilities” as to how the
Policy language is ambiguous and potentially provides coverage based upon the allegations
of the underlying complaint. These court concludes, however, that Utterback’s suggestions
are not a reasonable interpretation of the Policy. See Hobbs, 823 N.E.2d at 564. This court
concludes, without hesitation, that the alleged actions of Ball and Rhoads did not “arise out
of” the performance of Law Enforcement Activities, as defined by the Policy. Therefore,
there is no coverage for their actions under the unambiguous language of the Policy and
USSIC has no duty to defend.
However, even if this court agreed with Utterback that the Policy language is
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ambiguous and could potentially provide coverage for her claims, this court concludes that
the exclusion relied upon by USSIC clearly excludes any coverage for the actions of Ball and
Rhoads alleged in Utterback’s underlying complaint. USSIC has argued that Utterback’s
claims in the underlying complaint are for injuries that arose from illegal conduct that was
the result of deliberate violations of state and federal statutes. USSIC argued that coverage
is thereby excluded because the Policy excludes coverage for any suit made against the
Insured for Wrongful Acts “arising from the deliberate violation of any federal, state or local
statute, ordinance, rule or regulation committed by or with the knowledge or consent of the
Insured.” USSIC pointed out that Ball and Rhoads were convicted of unlawfully engaging
in sexual conduct with a person (Utterback) who was in the custody of a penal institution in
violation of 720 Ill. Comp. Stat. 5/11-9.2(a)(1) and that their alleged conduct of providing
Utterback with illegal drugs and alcohol violates 720 Ill. Comp. Stat. 5/31A-1.1 (West 2010).
USSIC argued that coverage for these alleged acts is specifically excluded under the Policy.
Utterback has argued that the exclusion does not apply because her complaint does
not arise under a “statute, ordinance, rule, or regulation.” Utterback argued that her claims
are not premised upon a violation of any federal, state or local statute, ordinance, rule or
regulation but rather on a violation of her rights under the Eighth Amendment to the
Constitution. Utterback contended that the exclusion relied upon by USSIC does not purport
to exempt violations of constitutional rights. Utterback also argued that giving effect to this
exclusion would make the portion of the Policy which states that it provides coverage for
claims alleging violations of the Federal Civil Rights Act superfluous.
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An “exclusionary provision will negate a duty to defend only if it is clear and free
from doubt that the policy’s exclusion prevent coverage.” Travelers Ins. Cos. v. Penda
Corp., 974 F.2d 823, 833 (7th Cir. 1992); see also AMCO Ins. Co. v. Swagat Group, LLC,
2009 WL 331539, at *3 (C.D. Ill. 2009). However, “where an exclusion is clear and
unambiguous, it must be applied as written.” Standard Mut. Ins. Co., 832 N.E.2d at 271.
This court agrees with USSIC that Utterback’s claims in the underlying complaint are for
injuries that arose from illegal conduct that was the result of deliberate violations of state
statutes. Although Utterback has brought a § 1983 claim alleging violations of her rights
under the Eighth Amendment to the Constitution, the basis for the claim is the illegal conduct
of Ball and Rhoads. The “legal labels used by a plaintiff in the underlying case are not
dispositive as to whether a duty to defend exists.” ProLink Holdings Corp., 688 F.3d at 831,
quoting Conn. Indem. Co. v. DER Travel Serv., Inc. 328 F.3d 347, 349 (7th Cir. 2003). This
court agrees with USSIC that the alleged acts of Ball and Rhoads, which are the foundation
for Utterback’s underlying complaint against them, constitute deliberate violations of the law,
and, in fact, resulted in criminal convictions. This court concludes that USSIC has met its
burden to show that coverage for Ball and Rhoads’ conduct is excluded by the express Policy
language excluding coverage for wrongful acts “[a]rising from the deliberate violation of any
federal, state, or local statute.” This court rejects Utterback’s argument that the exclusion
should not be given effect because it would take away coverage provided in another section
of the Policy. This court agrees with USSIC that it has long been recognized that an
insurance policy may narrow the scope of coverage through the use of exclusions. See Rich,
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875 N.E.2d at 1094.
For all the reasons stated, this court concludes that USSIC is entitled to summary
judgment in its favor and a declaratory judgment that it has no duty to defend or indemnify
Ball and Rhoads in relation to the claims asserted by Utterback in Case No. 11-CV-2131.
IV. DEFENDANTS’ MOTIONS FOR PARTIAL SUMMARY JUDGMENT
Because this court has concluded that USSIC is entitled to summary judgment,
Defendants’ Motions for Partial Summary Judgment (#41, #46) must be DENIED.
IT IS THEREFORE ORDERED THAT:
(1) USSIC’s Motion for Summary Judgment (#34) is GRANTED.
(2) Defendants’ Motions for Partial Summary Judgment (#41, #46) are DENIED.
(3) Declaratory Judgment is entered in favor of USSIC and against Defendants. This
court declares that USSIC has no duty to defend or indemnify Ball and Rhoads in relation
to the claims asserted by Utterback in Case No. 11-CV-2131.
(4) This case is terminated.
ENTERED this 4th day of June, 2013
s/ Michael P. McCuskey
MICHAEL P. McCUSKEY
U.S. DISTRICT JUDGE
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