General Insurance Company of America v. Clark Mall Corp et al
Filing
253
MEMORANDUM Opinion and Order Signed by the Honorable Jeffrey Cole on 12/13/2011. (gmr, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
GENERAL INSURANCE COMPANY
OF AMERICA,
Plaintiff,
vs.
CLARK MALI. CORP. d/b/a DISCOUNT
MEGA MALL CORP., MARCOS I. TAPIA,
JUAN E. BELLO, JOSE L. GARCIA,
LETICIA HURTADO, YOUNG S. KO,
MARIANO KON, CHOONG I. KUAN,
ROSA G. MADRIGAL, HILDA MENDOZA,
MAN OK NO, HEE T. PARK,
SUNG W. PARK, MARIA L. ROMAN,
VICTOR H. VISOSO. KYUN HEE PARK,
and JENNIFER PARK,
Defendants.
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No. 08 C 2787
Magistrate Judge Jeffrey Cole
MEMORANDUM OPINION AND ORDER ON MOTION FOR RECONSIDERATION
INTRODUCTION
General Insurance Corporation of America (“GICA”) has moved, for a second time, for
reconsideration of the April 16, 2009 memorandum opinion granting the defendant insureds’ motion
for judgment on the pleadings on the issue of GICA’s duty to defend the defendants in the
underlying state court action.1 Contrary to all of the decided cases, GICA had argued that its
obligation to defend the insureds in the underlying state court case was not to be determined by
1
GICA says it is moving under Fed.R.Civ.P. 60(b), but fails to indicate which of the six subsections
of that rule is applicable. Judging from the arguments that are advanced, it would seem that it has 60(b)(2)
and/or 60(b)(6) in mind, as it relies on the Seventh Circuit’s decision dismissing its appeal of the April 2009
memorandum opinion and supposedly new evidence. In any event, I can revisit and revise my decision at any
time under Rule 54(b), as it did not dispose of all of the claims of all the parties.
resort to the complaint in the underlying case, but by resort to its declaratory judgment complaint
in the instant case, the allegations of which had to be taken as true. The argument was based on a
series of cases from the Illinois appellate Court then held that an insurer could offer “extrinsic
evidence” in order to negate a claimed obligation to defend. Although it was not quite argued this
way, inherent in the argument was the contention that the allegations in the declaratory judgment
complaint somehow satisfied the Illinois state cases that had allowed extrinsic evidence to be used
to negate a duty to defend. It was never explained how acceptance of the allegations as true was the
same as extrinsic evidence within the meaning of the Illinois Appellate Court cases. Nor was it ever
explained how those cases had anything to do with the operation of Rule 12(c) in the federal court.
The April 2009 memorandum opinion concluded that the pleadings in the underlying case
did not show that it was clear and free from doubt that Exclusion 2(j) of the insurance policy the
defendants have with GICA precluded coverage and that the allegations in the complaint in this
court effectively did not count. General Insurance Co. of America v. Clark Mall, 631 F.Supp.2d 968
(N.D.Ill. 2011). GICA filed an interlocutory appeal pursuant to Rule 54 (b). The Seventh Circuit
dismissed the appeal for lack of jurisdiction. General Insurance Co. of America v. Clark Mall, 644
F.3d 375 (7th Cir. 2011).
Relying on a snippet of the Seventh Circuit’s opinion, removed from the informing context
of the balance of the opinion, GICA now argues that the Seventh Circuit held that the allegations
in its declaratory judgment complaint must be taken as true and effectively trump the allegations in
the underlying complaint in the state court. So, along with a reversal of the April 2009 order, GICA
asks – also for a second time – for leave to file an amended declaratory judgment complaint, the
allegations of which purportedly negate an obligation to defend under the care, custody or control
2
exclusion of the GICA insurance policy. As we shall see, the argument for reconsideration is not
supported by the Seventh Circuit’s opinion in Clark Mall, is violative of the basic rules governing
motions for reconsideration, and ultimately rests on a non sequitur.
ANALYSIS
A.
The Seventh Circuit read the memorandum opinion as “oddly requir[ing]” GICA to come
forward with evidence at the pleading stage in response to the insureds’ motion for judgment on the
pleadings under Fed.R.Civ.P. 12(c). It was apparently the court’s view that the memorandum
opinion’s “requirement” that GICA produce evidence was based on a series of Illinois Appellate
Court cases that allowed (but did not require) an insurance carrier, in response to a motion for
judgment on the pleadings, to offer extrinsic “evidence” showing that it had no obligation to defend.
But, Illinois insurance law, the court held, could not trump the operation of the Federal Rules of
Civil Procedure. Here are the relevant portions of the Seventh Circuit’s decision:
On the merits this appeal presents the following question of Illinois insurance law:
Is an insurer's duty to defend determined solely by reference to the allegations in the
underlying complaint, or may the insurer present evidence to establish that the loss
alleged in the complaint is not covered under its policy? Decisions from the Illinois
Appellate Court hold that although the duty to defend is ordinarily determined by
examining the allegations of the underlying complaint, when an insurer seeks a
declaratory judgment on the issue of coverage, it may present evidence to
demonstrate that its policy does not cover the loss in question. See, e.g., Am. Econ.
Insurance Co. v. Holabird & Root, 382 Ill.App.3d 1017, 320 Ill.Dec. 97, 886 N.E.2d
1166, 1175–78 (Ill.App.Ct.2008); Fid. & Cas. Co. v. Envirodyne Eng'rs, Inc., 122
Ill.App.3d 301, 77 Ill.Dec. 848, 461 N.E.2d 471, 473–74 (Ill.App.Ct.1983). In its
recent decision in Pekin Insurance Co. v. Wilson, 237 Ill.2d 446, 341 Ill.Dec. 497,
930 N.E.2d 1011, 1019–21 (Ill.2010), the Illinois Supreme Court cited this line of
cases with approval.
The magistrate judge noted these cases but oddly required General Insurance to
present evidence on the duty-to-defend question at the pleadings stage in response
to the defendants' Rule 12(c) motion for judgment on the pleadings. It is not
3
surprising, then, that General Insurance asked the court to enter its order as a final
judgment to set up an immediate appeal. Under Rule 12(d) of the Federal Rules of
Civil Procedure, a motion for judgment on the pleadings must be treated as a motion
for summary judgment if matters outside the pleadings are submitted. Fed.R.Civ.P.
12(d) (“If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings
are presented to and not excluded by the court, the motion must be treated as one for
summary judgment under Rule 56.”). But this does not mean that a party opposing
a Rule 12(c) motion for judgment on the pleadings must submit evidence in order to
avoid entry of judgment against it. And that is precisely what the court required
General Insurance to do.
It is true that duty-to-defend questions in insurance-coverage disputes can sometimes
be resolved at the pleadings stage on a Rule 12(c) motion for judgment on the
pleadings. See, e.g., Nautilus Insurance. Co. v. 1452–4 N. Milwaukee Ave., LLC, 562
F.3d 818, 822–24 (7th Cir.2009). But not always. Illinois insurance law does not
alter the normal operation of the Federal Rules of Civil Procedure, although the
magistrate judge seemed to think that it does.
644 F.3d at 378 (emphasis in original).
That it appeared to the Court of Appeals that the memorandum opinion ignored Rule 12(c)
(and the cases construing it, which were cited in the opinion, 631 F.Supp.2d at 972), and
“require[d]” that GICA produce evidence in opposition to the insureds’ motion may have been the
result of GICA’s brief, which unfortunately ignored all but the last two pages of the memorandum
opinion, citing only to pages 16 and 17 of the 17-page opinion. (Brief of Plaintiff-Appellant, at 15,
23)). This sort of presentation can have pernicious results, as Judge Easterbrook has noted. Cf.,
Durgins v. City of East St. Louis, Illinois, 272 F.3d 841, 844-45 (7th Cir. 2001)(parties’ briefs misled
the Court of Appeals into finding it had no jurisdiction). Perhaps it was inexactness in the phrasing
of the memorandum opinion or in its organizational structure. Cf., Rodriguez v. Chandler, 492 F.3d
863 (7th Cir. 2007)(“Our original opinions’ failure to keep these subjects distinct may have
influenced the parties’ briefing choices on appeal.”); Pruitt v. Mote, 503 F.3d 647, 654 (7th Cir.
2007)(en banc)(“Nor have we always been consistent in articulating and applying the inquiries each
4
question represents.”).
In any event, it cannot be too strongly stressed that nothing in the memorandum opinion
granting the defendants’ Rule 12(c) motion or in this opinion was or is intended to require GICA
to submit “evidence” in order to defeat a Rule 12(c) motion or to subordinate the operation of Rule
12(c) to Illinois insurance law. We turn to GICA’s arguments, mindful of and guided by the opinion
of the Court of Appeals.
B.
In response to the insureds’ Rule 12(c) motion, GICA did not argue that the allegations of
the underlying complaint demonstrated it had no duty to defend. Instead, it relied on the allegations
in its declaratory judgment complaint to support its position. (Dkt. # 18, at 4-6).2 GICA argued that
those allegations had to be taken as true and were enough to defeat the Rule 12(c) motion. The
memorandum opinion concluded that, given the allegations in the underlying complaint in the state
court and the fact that GICA paid them no mind in its brief, GICA had failed to demonstrate that it
was clear and free from doubt that exclusion 2(j) of the insurance policy precluded coverage. 631
F.Supp.2d at 972-977.
There was no mention of evidence in the discussion, nor any demand for its production,
contrary to GICA’s position here and in the Court of Appeals (Brief of Plaintiff-Appellant, at 15-16,
19-22), until well into the memorandum opinion. And that reference was solely in response to
GICA’s brief, and not because of uncertainty about Rule 12(c). See 631 F.Supp.2d at 977.
2
Throughout its responsive brief, GICA referred to the complaint in the sate court proceeding as
“Underlying Complaint” and to its own declaratory judgment pleading as “Complaint.”
5
In its brief in response to the insureds’ Rule 12(c) motion in this court, GICA argued, much
as it continues to do in the current motion, that “where the insurer files a declaratory judgment action
seeking to determine its duty to defend, it may rely on facts extrinsic to the underlying complaint
as the basis for denying coverage.” (Dkt. # 18, at 5). GICA cited the following portion from
Fidelity & Cas. Co. of New York v. Envirodyne Engineers, Inc., 122 Ill.App.3d 301, 305, 461 N.E.2d
471, 474 (1st Dist.1983) to support its proposition:
the duty to defend flows in the first instance from the allegations in the underlying
complaint; this is the concern at the initial stage of the proceedings when an
insurance company encounters the primary decision of whether to defend its insured.
However, if an insurer opts to file a declaratory proceeding, we believe that it may
properly challenge the existence of such a duty by offering evidence to prove that the
insured's actions fell within the limitations of one of the policy's exclusions.
122 Ill.App.3d at 304, 461 N.E.2d at 473 (emphasis supplied).
What relevance this proposition had to the principle that well-pled allegations in a complaint
must be taken as true, GICA never paused to explain. Obviously, the passage does nothing to
support GICA’s novel take on the law that allegations in an insurer’s declaratory judgment
complaint can come into play or constitute “evidence” or trump the underlying complaint.
GICA, nonetheless, went on to argue that, because it:
brought a timely declaratory judgment action, it may offer extrinsic facts to prove
that the underlying plaintiffs’ damages fall within the care custody or control
exclusion. Moreover, at this stage in the case, when the plaintiff has moved for
judgment on the pleadings, this court must take as true [GICA]’s allegations
establishing that the underlying plaintiffs’ damages were property damage to
property within the insured’s care custody or control.
(Dkt. # 18, at 6)(Emphasis supplied).
As the memorandum opinion noted, all the state cases GICA cited made clear that evidence
meant just that – evidence that would suffice in a summary judgment case. 631 F.Supp.2d at 978.
6
See also infra at 7, et. seq. But this was not intended to mean that Illinois law governed
interpretation and application of Rule 12 (c) or that GICA was required to produce evidence in a
Rule 12(c) proceeding. Even the state court appellate cases GICA cited merely allowed an insurer
to present evidence to support its declaratory judgment claim; none of them made it a requirement.
See Envirodyne, American Economy Insurance. Co. v. Holabird and Root, 382 Ill.App.3d 1017,
1031, 886 N.E.2d 1166, 1178-1179 (1st Dist. 2008), Fremont Compensation Insurance. Co. v. AceChicago Great Dane Corp., 304 Ill.App.3d 734, 741, 710 N.E.2d 132, 137 (1st Dist. 1999), Country
Mut. Insurance. Co. v. Waldman Mercantile Co., Inc., 103 Ill.App.3d 39, 40, 430 N.E.2d 606, 608
(5th Dist. 1981).
None of these cases were judgment on the pleadings cases under Rule 12(c). Envirodyne and
Holabird were state summary judgment cases, Country Mut. involved a trial, and Fremont involved
Illinois’ voluntary dismissal rule, 735 ILCS 5/2-619(a), which allows a party to move for dismissal
on the face of the complaint or to support its motion with an affidavit.3 None of these cases say
anything about allowing insurers to rely on their own allegations in their declaratory judgment
complaints – this was just GICA’s faulty interpretation of the word “evidence” in the state court
cases on which it relied.4 In fact, it was precisely because of the rule in Illinois that a court in a
3
The movant in Fremont supported its motion with a deposition transcript. The court said that
“[a]lthough section 2-619 speaks only of supporting a motion for involuntary dismissal with affidavits..., it
has long been held that discovery depositions may also be used. 304 Ill.App.3d at 741, 710 N.E.2d at 137.
4
See Envirodyne, 122 Ill.App.3d at 305, 461 N.E.2d at 474 (“If a crucial issue will not be determined,
we see no reason why the party seeking a declaration of rights should not have the prerogative to present
evidence that is accorded generally to a party during a motion for summary judgment in a declaratory
proceeding.”)(emphasis supplied); Holabird, 382 Ill.App.3d at 1031, 886 N.E.2d at 1178-79 (“ . . . the trial
court “ ‘need not wear judicial blinders' and may look beyond the complaint at other evidence appropriate to
a motion for summary judgment.”)(emphasis supplied); Fremont, 304 Ill.App.3d at 743, 710 N.E.2d at 139
(1st Dist. 1999)(“. . . the court may consider extrinsic evidence bearing on the question of coverage and is not
(continued...)
7
declaratory judgment action looked only to the underlying complaint that the Illinois Appellate
Court had devised the “extrinsic evidence” option for insurers.
The reference to the need for evidence, which appeared three-quarters of the way through
the memorandum opinion in response to GICA’s argument was meant as nothing more than an
explanation of the only way that evidence could come into play in a Rule 12(c) proceeding, which
would occur only if the insurance company voluntarily chose to respond to a Rule 12(c). But as the
memorandum opinion noted, that would convert the proceeding into one for summary judgment
under Rule 12(d). See 631 F.Supp.2d at 977-979.
GICA’s focus on a few sentences at the end of the memorandum opinion caused it to miss
the opinion’s meaning. But, “[j]udges expect [and are entitled to have] their pronunciamentos...read
in context . . . .” Wisehart v. Davis, 408 F.3d 321, 326 (7th Cir. 2005)(emphasis supplied); see also
United States v. Ingram, 172 U.S. 327, 328 (1899)(chastising counsel for “pick[ing] out a sentence
or two in the opinion . . . , and, severing them from the balance . . . .”).
The memorandum opinion reiterated that the cases GICA relied upon and, indeed, nearly all
the cases in which evidence was considered in the duty to defend determination were summary
judgment cases. 631 F.Supp.2d at 978. The remaining cases involved trials or procedures like 735
ILCS 5/2-619(a) that specifically envision the production of evidence. It was apparent that what
GICA hoped to shoehorn into these evidence cases were its own allegations in its declaratory
judgment complaint, all the while:
4
(...continued)
restricted only to a consideration of the allegations of the complaint in the underlying litigation and the terms
of the insured's policy.”)(emphasis supplied); Country Mut. Ins. Co. v. Waldman Mercantile Co., Inc., 103
Ill.App.3d 39, 40, 430 N.E.2d 606, 608 (5th Dist. 1981)(“The facts as established by the evidence presented
in the trial court are relatively simple.”)(emphasis supplied).
8
Here, the [declaratory judgment complaint] alleges that the underlying plaintiff’s
property was destroyed in a fire in a mall, after business hours, at a time when only
the insured’s employees had access to the mall. Thus, the extrinsic facts alleged in
the [declaratory judgment complaint] established that the insured had care, custody
and control of the property sufficient to trigger the “care, custody and control”
exclusion. . . . Accordingly, Defendant’s Motion to Dismiss should be denied.
(Dkt. # 18, at 6). Despite the cases on which it relied, GICA was arguing its own allegations in its
declaratory judgment complaint, should play the decisive role and exclusive in the determination
of whether the Rule 12(c) motion should be denied.
Again, a response seemed necessary; in hindsight, perhaps that was a bad choice. The
memorandum opinion pointed out the standards under Rule 12(c) at the beginning of the Analysis
section, 631 F.Supp.2d at 972, and went on for five pages to consider the underlying complaint –
and only that pleading – in the context of applicable Illinois law. 631 F.Supp.2d at 972-77. The
opinion noted that GICA had ignored the allegations in the underlying complaint and went on to
explain that GICA’s allegations were not evidence. 631 F.Supp.2d at 978-80. But again, this was
not intended to require that GICA come forward with evidence in response to the Rule 12(c) motion.
Out of an abundance of caution, the memorandum opinion addressed the possibility that
GICA was arguing the judgment on the pleadings motion should be put off until it had the
opportunity to gather and present evidence. The opinion explained that this was not how
Fed.R.Civ.P. 12(c) and Rule (d) worked. If GICA wanted to present evidence – as it seemed it did
– Rule 12(d) transformed the proceeding into a summary judgment proceeding. 631 F.Supp.2d at
979. GICA not only did not present evidence, it didn’t even advert to any, as it had the right not to
do, under 12(c). Hence, since the underlying complaint showed a duty to defend, the Rule 12(c)
motion was granted. But not because Rule 12(c) required a party to come forth with evidence, but
9
rather because on the record as it existed, the motion was well founded. Here is what the opinion
said after its discussion about Rule 12(c) and (d):
GICA cites no case, and we have been unable to find one, that remotely suggests
let alone holds that in the context presented by this case, that an insurance carrier
can defeat a party's motion for judgment on the pleadings regarding the
applicability of a care, custody or control exclusion simply by pleading that
damaged property was in the care custody or control of the insured.
General Insurance. Co. of America, 631 F.Supp.2d at 979. Nothing in the Seventh Circuit’s opinion
suggests that this holding was in error, and there is no reason to disturb it.
C.
There is nothing in the isolated passage in the Seventh Circuit opinion on which GICA relies
that supports GICA’s conclusion that its declaratory judgment complaint, not the underlying
complaint in the state court, determines its obligation to defend its insureds. Here is the passage on
which GICA relies:
It is true that duty-to-defend questions in insurance-coverage disputes can sometimes
be resolved at the pleadings stage on a Rule 12(c) motion for judgment on the
pleadings. See, e.g., Nautilus Insurance. Co. v. 1452–4 N. Milwaukee Ave., LLC, 562
F.3d 818, 822–24 (7th Cir.2009). But not always. Illinois insurance law does not
alter the normal operation of the Federal Rules of Civil Procedure, although the
magistrate judge seemed to think that it does.
2011 WL 1663374, *3.
When this comment is put in the informing context of the paragraphs preceding it – as it must
be lest it be “quite misleading,” Walters v. National Association of Radiation Survivors, 473 U.S.
305, 322 (1985); see also United States v. Skoien, 614 F.3d 638, 640 (7th Cir. 2010)(en banc)(general
expressions in judicial opinions must be read in light of the subject under consideration) – it is
10
apparent that the Court of Appeals held no more than that a party can, if it chooses, convert a Rule
12(c) motion into one for summary judgment under Rule 12(d); but it may not be required to do so.
The topic under discussion was not whether an insurer’s duty to defend is determined “solely by
reference to the allegations in the underlying complaint. Rather, it was whether an insurer’s duty
to defend is determined “solely by reference to the allegations in the underlying complaint, or may
the insurer present evidence to establish that the loss alleged in the complaint is not covered under
its policy.” Here is what the Court of Appeals said:
On the merits this appeal presents the following question of Illinois insurance law:
Is an insurer's duty to defend determined solely by reference to the allegations in the
underlying complaint, or may the insurer present evidence to establish that the loss
alleged in the complaint is not covered under its policy? Decisions from the Illinois
Appellate Court hold that although the duty to defend is ordinarily determined by
examining the allegations of the underlying complaint, when an insurer seeks a
declaratory judgment on the issue of coverage, it may present evidence to
demonstrate that its policy does not cover the loss in question. See, e.g., Am. Econ.
Insurance. Co. v. Holabird & Root, 382 Ill.App.3d 1017, 320 Ill.Dec. 97, 886 N.E.2d
1166, 1175–78 (Ill.App.Ct.2008); Fid. & Cas. Co. v. Envirodyne Eng'rs, Inc., 122
Ill.App.3d 301, 77 Ill.Dec. 848, 461 N.E.2d 471, 473–74 (Ill.App.Ct.1983). In its
recent decision in Pekin Insurance Co. v. Wilson, 237 Ill.2d 446, 341 Ill.Dec. 497,
930 N.E.2d 1011, 1019–21 (Ill.2010), the Illinois Supreme Court cited this line of
cases with approval.
The magistrate judge noted these cases but oddly required General Insurance to
present evidence on the duty-to-defend question at the pleadings stage in response
to the defendants' Rule 12(c) motion for judgment on the pleadings. It is not
surprising, then, that General Insurance asked the court to enter its order as a final
judgment to set up an immediate appeal. Under Rule 12(d) of the Federal Rules of
Civil Procedure, a motion for judgment on the pleadings must be treated as a motion
for summary judgment if matters outside the pleadings are submitted. Fed.R.Civ.P.
12(d) (“If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings
are presented to and not excluded by the court, the motion must be treated as one for
summary judgment under Rule 56.”). But this does not mean that a party opposing
a Rule 12(c) motion for judgment on the pleadings must submit evidence in order to
avoid entry of judgment against it. And that is precisely what the court required
General Insurance to do.
11
It is true that duty-to-defend questions in insurance-coverage disputes can sometimes
be resolved at the pleadings stage on a Rule 12(c) motion for judgment on the
pleadings. See, e.g., Nautilus Insurance. Co. v. 1452–4 N. Milwaukee Ave., LLC, 562
F.3d 818, 822–24 (7th Cir.2009). But not always. Illinois insurance law does not
alter the normal operation of the Federal Rules of Civil Procedure, although the
magistrate judge seemed to think that it does.
6544 F.3d at 378.
If the court intended to say that the declaratory judgment complaint, and not the underlying
complaint control the outcome of an inquiry regarding the carrier’s duty to defend, it surely would
have said so expressly and pointedly, for that would have announced a principle that would have
been contrary to at least a dozen Seventh Circuit cases – a point made by Judge Easterbrook during
the oral argument. When GICA’s counsel said that he could not see why the federal rules did not
require a judge, faced with a motion for judgment on the pleadings by an insurance carrier, to
consider and take as true the allegations in the declaratory judgment complaint, Judge Easterbrook
made clear that the question was whether that complaint was relevant – it was not:
Judge Easterbrook: The question is not one of pleading, but of relevance, so if you
want to address the question of whether they’re relevant under Illinois law, that
would probably be more helpful.
GICA: Alright, well, your honor, I think that is; there’s no question that’s relevant
under Illinois law because the Illinois law has made a very clear distinction, between
situations where an insurance carrier does – takes no action upon receiving a
complaint, doesn’t either defend subject to reservation of rights and doesn’t file a
declaratory action and situations where . . . the insurer files a declaratory judgment
action. In cases where the insurer files a declaratory judgment action, the courts
have made it abundantly clear that facts external to the underlying complaint can be
considered. And I think the Envirodyne case is the uh, is probably the case that’s
most constructive [sic] in this regard, your Honor, . . .
Of course, that response did not begin to answer the question whether a court had to look to
12
the allegations of the declaratory judgement complaint, and ignore the underlying complaint.
GICA’s counsel then quoted the same passage from Envirodyne that GICA relied upon in its
response brief in this court – the passage that talks about evidence being admissible if the carrier
chooses to utilize it. Judge Rovner did not find that response to be pertinent to the question of
whether GICA had been required to produce evidence, at the pleadings stage, when it chose not to.
And for her, that was the issue – as it ultimately was for the other members of the panel:
Judge Rovner: But isn’t your argument that you don’t have the burden to produce
any such evidence until summary judgment?
GICA’s counsel, while answering that question affirmatively, then went on to give
the following, non-responsive answer:
GICA: Exactly. . . . until we get to the summary judgment stage, this court, the trial
court, are [sic] required to accept as true the factual allegations in my complaint.
The factual allegations were sufficient when coupled with the underlying complaint
to take this outside of the duty to defend.
*
*
*
. . . but I can provide facts outside the, uh, outside the underlying complaint. And I
think Illinois case law is very clear on this. So then the question is, do I have to
present evidence –
Judge Easterbrook left no doubt as to his disapproval of the proposition being advanced:
Judge Easterbrook: If Illinois law is that clear, we’re going to have to overrule quite
a bunch of our cases, because we have said the opposite of what you’ve said about
Illinois law.
GICA: I’m sorry, I didn’t, I didn’t, under – hear –
Judge Easterbrook: If you are correct, you’re asking us to overrule I should think at
least a dozen of our cases, which have repeatedly held the opposite about Illinois
law. Now maybe we’re wrong -13
GICA: You know, your Honor, I’m not –
Judge Easterbrook: You don’t seem to acknowledge that you’re asking for quite a
sudden change in the law of this Circuit.
*
*
*
Our norm is that when we do our best to decipher state law, we stick with it until
unless that supreme court of the state tells us we’re wrong. What you’re asking us
to do is extend language in an Illinois appellate opinion and abandon Circuit law on
that basis, without the intervention of the state supreme court, because Pekin
certainly doesn’t support your view.
(Emphasis supplied).
Judge Easterbrook’s colloquy with GICA’s counsel and statements in case after reported case
involving an insurance carrier’s duty to defend leave no doubt that in a Rule 12(c) proceeding, the
allegations of the underlying complaint control, not the allegations in the declaratory judgment
complaint. That complaint is simply irrelevant to the analysis.
Nothing in the portion of the panel opinion on which GICA relies supports its position.
When Judge Sykes said, “Illinois insurance law [which in some contexts allows a carrier to
introduce “evidence”in order to go beyond the underlying complaint] does not alter the normal
operation of the Federal Rules of Civil Procedure,” all that was meant was that Rule 12(c) does not
require a declaratory judgment plaintiff to come forward with evidence, on pain of losing the
motion. Even read without the informing context of the paragraphs preceding it, see supra at 11,
the court’s reference to the “normal operation of the Federal Rules of Civil Procedure” could not
have been to the requirement that allegations in complaint must be taken as true, since that is a
judicially created and imposed requirement in Rule 12 (b)(6) and Rule 12 (c) cases, not a “Federal
Rule[ ] of Civil Procedure.”
If GICA is right, the Court of Appeals’ decision in this case signals a radical and
14
pronounced change in the law of this Circuit. But Judge Easterbrook’s questioning and the phrasing
of the opinion, itself, make clear this was not what the court of appeals intended. If it meant to
announce the rule for which GICA contends, its decision would, by Judge Easterbrook’s count, be
overruling at least a dozen prior Seventh Circuit decisions. “Overruling a precedent is not a step [the
court] take[s] lightly, [given] the potential for ‘disruption, confusion, and uncertainty’ that can
result.” NewPage Wisconsin System Inc. v. United Steel, Paper & Forestry, Rubber, Mfg., Energy
Allied Indus. and Service Workers Intern. Union, AFL-CIO/CLC 651 F.3d 775, 779 (7th Cir. 2011).
Such a dramatic change in precedent would have been announced clearly, and the panel would have
circulated the opinion to the active members of the court pursuant to Circuit Rule 40(e) to determine
whether en banc review was desired. Neither occurred.5
GICA’s concession that “the underlying complaint did not foreclose coverage”(Dkt. # 64,
at 6) is fatal to its contention that it has no duty to defend. It does not diminish the force of that
concession to say, as GICA does, that “nothing in the underlying complaint precluded the operation
of the care custody or control exclusion.” (Dkt. # 64, at 6). In many, if not most cases, “nothing in
5
Rule 40(e) provides:
Rehearing Sua Sponte before Decision. A proposed opinion approved by a panel of
this court adopting a position which would overrule a prior decision of this court or
create a conflict between or among circuits shall not be published unless it is first
circulated among the active members of this court and a majority of them do not vote
to rehear en banc the issue of whether the position should be adopted. In the
discretion of the panel, a proposed opinion which would establish a new rule or
procedure may be similarly circulated before it is issued. When the position is
adopted by the panel after compliance with this procedure, the opinion, when
published, shall contain a footnote worded, depending on the circumstances, in
substance as follows: This opinion has been circulated among all judges of this court
in regular active service. (No judge favored, or, A majority did not favor) a rehearing
en banc on the question of (e.g., overruling Doe v. Roe).
15
the underlying complaint [will] preclude[ ] the operation” of an exclusion. But if the underlying
complaint does not show that an exclusion is “clear and free from doubt,” then the insurance carrier
has an obligation to defend. Phrased differently, if it could go either way, the underlying case is
potentially within the terms of the policy and a defense is required. See, e.g, Country Mut.
Insurance. Co. v. Olsak, 391 Ill.App.3d 295, 305, 908 N.E.2d 1091, 1101 (1st Dist. 2009)(“The court
must liberally construe the underlying complaint and the insurance policy in favor of the insured.”);
Greenwich Insurance. Co. v. RPS Products, Inc., 379 Ill.App.3d 78, 85-86, 882 N.E.2d 1202, 120809 (1st Dist. 2008)(“ an insurer may properly refuse to defend . . . if it is clear from the face of the
complaint that the allegations fail to state facts that bring the case within, or potentially within, the
policy's coverage, . . .any doubts as to coverage will be resolved in favor of the insured.”).
D.
That brings the matter back to the basis of GICA’s motion for reconsideration: its claim that
the allegations in its declaratory judgment complaint, not the allegations in the underlying complaint
are controlling and thus the order granting the insured’s 12(c) motion must be vacated. As already
explained, there is nothing in the Seventh Circuit’s opinion that indicates the former are to be part
of the calculus or to control its outcome. Quite the contrary.
Echoing Judge Easterbrook’s observations about “relevance” at the oral argument in this
case, Nautilus Insurance. Co. v. 1452-4 N. Milwaukee Avenue, LLC, 562 F.3d 818, 823 (7th Cir.
2009) held that, “[a]t this stage of the proceedings [i.e. the pleadings stage], only the allegations in
the underlying complaints are relevant . . . .” Id. at 823. Nautilus Insurance Co. was discussing
whether an exclusion operated to preclude coverage. It didn’t because the underlying complaint
didn’t mention any facts that would bring the exclusion to bear. Nautilus Insurance. Co. was cited
16
by the Court of Appeals in this case and by the memorandum opinion.
In Pekin Insurance. Co. v. Wilson, 237 Ill.2d 446, 458, 930 N.E.2d 1011, 1018 (2010), the
issue was “whether other pleadings in the underlying action may be considered in determining the
duty to defend . . . .” 237 Ill.2d at 458, 930 N.E.2d at 1018. The Illinois Supreme Court noted that
the insurer had attached several pleadings to its motion for judgment on the pleadings, including its
own declaratory judgment complaint. 237 Ill.2d at 462, 930 N.E.2d at 1021. Absent from the
attachment was the counterclaim in the underlying lawsuit which, as it turned out, decided the issue.
Id. The declaratory judgment complaint did not enter into it. This was the case Judge Easterbrook
in oral argument in the instant case told GICA’s counsel was of no help to GICA and “doesn’t
remotely deal with the question of what is the relation between the allegations in the complaint in
the underlying suit and the allegations in a declaratory judgment action.”
In short, neither the Seventh Circuit’s opinion nor the panel’s comments and questions at oral
argument support the conclusion that an insurer’s allegations in its declaratory judgment complaint
control in a case involving an insurer’s duty to defend. Yet, that is the argument GICA continues
to make. The argument being mistaken, the motion for reconsideration must be denied.
E.
GICA’s backup arguments are baseless and run afoul of the basic rules governing motions
to reconsider. First, after ignoring the allegations of the underlying complaint in the first round of
briefing on this matter, GICA finally points to a few of them in its motion for reconsideration. But
this is an argument that comes far too late in the day. In a motion for reconsideration, a party cannot
raise arguments it ought to have, and could have, raised earlier. Solis v. Current Development Corp.,
557 F.3d 772, 780 (7th Cir. 2009); Mungo v. Taylor, 355 F.3d 969, 978 (7th Cir. 2004); Bordelon v.
17
Chicago School Reform Bd. of Trustees, 233 F.3d 524, 529 (7th Cir.2000).
Moreover, because GICA did not even briefly address the allegations of the underlying
complaint in its response to the insureds’ Rule 12(c) motion – notably, GICA’s entire discussion of
this issue referred exclusively to GICA’s own allegations – the argument could be deemed waived.
In any event, the allegations GICA points to now were all considered in the memorandum opinion
because it focused on the underlying complaint, not GICA’s declaratory judgment complaint.
Specifically, GICA – about two years too late – submits that:
The underlying . . . complaint alleges that prior to and inclusive of the date of the
fire, the [insureds] owned, maintained, and operated Mega Mall prior to and
inclusive of the date of the loss. Underlying First Amended Complaint, ¶¶ 16-18
(attached hereto as Exhibit A . . . ). Specifically, the underlying complaint alleges
that the [insureds] owned, maintained and operated Mega Mall, and in doing so had
a duty to use reasonable care and skill in compliance with the City’s building code.
Exhibit A, ¶ 76. In this same regard, the underlying complaint alleges, and attached
as exhibits, facts contained within the City of Chicago’s 2002 and 2005 lawsuits
brought against the [insureds] for numerous Municipal Code violations. Exhibit A,
¶¶ 21-28. The complaints reflect the [insureds’] failure to maintain their property.
Exhibit A, ¶¶ 21-28.
Notably, the underlying complaint further alleges that a subsequent inspection of
Mega Mall by the City’s Commissioner revealed that the [insureds] illegally place
locks on the building’s emergency exit doors. Exhibit A, ¶ 29. . . . it is again alleged
that [insureds] maintained and operated Mega Mall and owed a duty of care to its
tenants to maintain the building with reasonable skill and care. Exhibit A, ¶ 76. The
allegations are supported by the 2002 and 2005 lawsuits, and further affirmed by the
allegations that the tenants were unable to access their merchandise stored inside the
building while Mega Mall was temporarily closed and on the date of the loss.
(Motion to Reconsider, at 9-10).
As was discussed in the memorandum opinion, the underlying complaint left open the types
of questions Illinois courts have found central to the application of care-custody-control exclusions:
For instance, who had access to the property, and who could have moved it? Part and
parcel of the requisite “possessory control” is “whether defendants were granted or
exercised the right of access to the equipment in order to maintain, move, or protect
18
the [merchandise].” Bolanowski, 220 Ill.App.3d at 915, 163 Ill.Dec. 394, 581 N.E.2d
at 349. And whether “defendants were accorded or exercised the prerogative to do
anything with or to the plaintiffs' equipment” is also significant. Id. Nothing in the
Underlying Complaint says one way or the other. Did the vendors have access to the
merchandise at the time of the fire or outside of business hours? See Country Mut.
Insurance. Co. v. Waldman Mercantile Co., Inc., 103 Ill.App.3d 39, 43, 58 Ill.Dec.
574, 430 N.E.2d 606, 609 (5th Dist.1981).
631 F.Supp.2d at 976. The allegations GICA now cites two years after its response to the Rule 12(c)
motion leave these questions open as well.
One may think that locks on emergency doors would be significant to the care-custodycontrol determination. They would be, given the factors Illinois courts have looked to, if they were
in place at the time of the fire, were locked, and the vendors had no key. The allegations cited say
nothing about the second two factors. As for the first, the citation for locks occurred on June 8, 2005
(Motion to Reconsider, Ex. A, ¶ 29), and the fire occurred over two years later, on September 7,
2007. (Motion to Reconsider, Ex. A, ¶ 51). In the interim, the City allowed the Mega Mall to
reopen – on November 24, 2006 – presumably because all the problems, including the locks, had
been cured. (Motion to Reconsider, Ex. A, ¶¶ 47-48). Although it turned out that some problems
remained or had recurred four months later (Motion to Reconsider, Ex. A, ¶ 50), the underlying
complaint does not list locks on emergency doors as one of them, either at that time or at the time
of the fire. (Motion to Reconsider, Ex. A, ¶ 75-80). The letter from the City’s legal department
listing remaining violations from the June 2005 citation as of March 7, 2007 – which was attached
to the underlying complaint and referenced therein – cites posting of address on building (#14),
posting of safe floor load limits (#29), adequate ventilation to outer air (# 32), holes and cracks in
interior walls and ceilings (#36), adequate bathroom ventilation (# 39), failure to submit plans and
obtain permits for repairs (#49), violations pertaining to the second floor radio station room and
19
storage (# 58), plumbing violation in beauty salon (# 71), ventilation violations (# 86-89), hot water
tank not functioning properly (# 90), no access to roof (#91), improper downspout from roof (# 105),
no strainers on some roof drains (# 106). (Underlying Complaint, Exs. 2, 10). There is nothing
about locks on emergency doors at that point.
As for the tenants having no access to their merchandise around the time of the fire, GICA
conspicuously fails to provide a citation to the underlying complaint for that purported allegation.
“An advocate's job is to make it easy for the court to rule in his client's favor . . . .” Dal Pozzo v.
Basic Machinery Co., Inc., 463 F.3d 609, 613 (7th Cir. 2006). Claiming that there is an allegation
somewhere in an eighty-one-paragraph complaint and not saying where does nothing more than
hinder a court. It is “not the district court's job to sift through the record and make [GICA’s] case
for [it],” United States v. 5443 Suffield Terrace, Skokie, Ill., 607 F.3d 504, 510 (7th Cir. 2010), or to
play “archaeologist with the record.” DeSilva v. DiLeonardi, 181 F.3d 865, 867 (7th Cir.1999). See
also Gross v. Town of Cicero, Ill., 619 F.3d 697, 705 (7th Cir.2010); Economy Folding Box Corp.
v. Anchor Frozen Foods Corp., 515 F.3d 718, 720-21 (7th Cir. 2008); Dye v. United States, 360 F.3d
744, 751 (7th Cir. 2004); Corley v. Rosewood Care Ctr., Inc. of Peoria, 388 F.3d 990, 1001 (7th
Cir.2004) (a court need not look through lengthy documents “that make up the record here to make
his case for [a party].”).6
In any event, there is no such allegation in any of the sections of the underlying complaint
from the reopening until the mall was again closed after the fire. (Motion to Reconsider, Ex. A, ¶
6
The Seventh Circuit has struck sections of briefs and factual assertions in briefs that lacks direct
citation to easily identifiable support in the record. See Casna, 574 F.3d at 424; Pourghoraishi v. Flying J,
Inc., 449 F.3d 751, 754 n. 1 (7th Cir. 2006); Corley v. Rosewood Care Ctr., Inc. of Peoria, 388 F.3d 990,
1001 (7th Cir.2004).
20
47-53; 75-80). So, even if GICA’s new argument were considered despite the rules covering
motions for reconsideration, the same questions that were cited in the memorandum opinion remain
open, as GICA would have realized had it done more than the “cursory review of the underlying
complaint” that GICA’s lawyers say they have limited themselves to. (Motion to Reconsider, at 10).
“A cursory review of the underlying complaint” disserves not only GICA, but the court as well.
Judges depend upon input from lawyers. United States v. Cronic, 466 U.S. 648, 655 (1984); Dal
Pozzo v. Basic Machinery Co., Inc., 463 F.3d 609, 613-614 (7th Cir.2006); Burdett v. Miller, 957
F.2d 1375, 1380 (7th Cir.1992). A cursory review of a critical pleading is inimical to the informed
and responsible participation of counsel on which the adversary system depends. Cf., Kay v. Board
of Educ. of City of Chicago, 547 F.3d 736, 738 (7th Cir. 2008)(Easterbrook, C.J).
F.
Even more startling than the above admission is the last argument in support of the motion
for reconsideration. It is GICA’s contention that its sudden submission of evidence in the form of
three “examinations under oath” show that the care-custody-control exclusion applies. The motion
does not pause to explain how this or any other evidence – which GICA chose not to submit in
opposition to the Rule 12(c) motion – bears in the slightest upon the question of whether the
memorandum opinion erred in looking to the allegations of the underlying complaint instead of the
allegations of the declaratory judgment complaint and accepting them as true.
But putting aside the obvious illogic of the argument, GICA’s belated submission of evidence
in support of the Motion for Reconsideration is nonetheless forbidden by and hopelessly inconsistent
with the fundamental principles governing motions for reconsideration. Both Rule 60(b) and general
21
case law on motions for reconsideration permit reconsideration upon the presentation of newly
discovered evidence – that is, evidence that could not have been discovered earlier with reasonable
diligence. See e.g., Egonmwan v. Cook County Sheriff's Dept., 602 F.3d 845, 852 (7th Cir. 2010);
Gleash v. Yuswak, 308 F.3d 758, 761 (7th Cir. 2002); Bordelon, 233 F.3d 524, 529 (7th Cir.2000);
Caisse Nationale de Credit Agricole v. CBI Industries, Inc., 90 F.3d 1264, 1269-70 (7th Cir. 1996);
Rothwell Cotton Co. v. Rosenthal & Co., 827 F.2d 246, 251 (7th Cir. 1987).
GICA’s “examinations under oath” are not newly discovered; quite the contrary. They
apparently were taken on October 23, 2007, October 29, 2007 and January 1, 2008 in connection with
its prolonged and extensive investigation of the insureds’ insurance claim. (Motion to Reconsider,
Exs. C, D, E). Consequently, all of them predate not only the April 2009 memorandum opinion, but
the filing of the declaratory judgment action on May 14, 2008.7 Absent from GICA’s motion to
reconsider is any attempt to explain why this evidence could not have been introduced earlier.
Egonmwan, 602 F.3d at 852. Accordingly, the information is not newly discovered within the
meaning of the cases and cannot provide a basis for reconsideration.
When the insureds filed their motion, GICA had an option. It could have responded with
argument discussing the allegations of the underlying complaint and explain why those allegations
precluded judgment on the pleadings. Or, presumably, it could have introduced evidence and
converted the motion into a motion for summary judgment under Rule 12(d).8 GICA rejected both
7
The January 2008 examination was continued on November 11, 2008 (Motion to Reconsider,
Ex. E), but that was still months before the April 2009 memorandum opinion issued.
8
Judge Easterbrook’s comments leave some doubt on this score. The state cases that have allowed
a court to go beyond the underlying complaint were, as he observed at the oral argument, appellate court cases
and the Supreme Court has not definitively ruled on the issue.
22
courses, preferring instead to look solely to its own irrelevant declaratory judgment complaint – all
the while conceding that the underlying complaint did not foreclose coverage. Strategic decisions
have consequences, International College of Surgeons v. City of Chicago, 153 F.3d 356,366 (7th
Cir.1998), and GICA must live with the one its lawyers made.
A motion for reconsideration is not an encore. There is no Act IV. Spiraling dockets and the
scarcity of judicial resources simply make impossible requests for judges to reconsider their decisions
by losing parties anxious to have another go at it. If that were permissible, or if a motion to
reconsider could be used as a vehicle to raise arguments or introduce evidence that could and should
have been adduced earlier, there would be a perverse incentive not to present all available arguments,
but to litigate in steps. But that would result in an interminable prolongation of cases, cf. Mungo v.
Taylor, 355 f.3d 969, 978 (7th Cir.2004); Caisse Nationale de Credit Agricole v. CBI Indus., Inc.,
90 F.3d 1264, 1269 (7th Cir.1996), and the urgent interests of other litigants in prompt resolution of
their cases would be seriously compromised. Cf. United States v. Underwood, 130 F.3d 1225, 1227
(7th Cir.1997); Chicago Observer, Inc. v. City of Chicago, 929 F.2d 325, 329 (7th Cir.1991).
Finally, as discussed, the current argument that the court erred in refusing to accept as true
the allegations in the declaratory judgment complaint has nothing to do with the evidence now
proffered, and thus, this aspect of the motion is a non-sequitur.
G.
The only appropriate change that GICA asks for – and shall receive – is the editing of the
Rule 54 order [Dkt. #178] to specifically reflect the findings in the April 2009 memorandum opinion
23
that the defendants’ motion for judgment on the pleadings was denied with respect to GICA’s
obligation to defend an entity called “Clark Mall.” Although “Clark Mall” had been dismissed from
the underlying state court action, the Seventh Circuit indicated that, as things stood, given the Rule
54 order, GICA had a duty to defend Clark Mall in that underlying action. 2011 WL 1663374,
*2(“This sweeping language conflicts with the judge’s holding that General Insurance has no duty
to defend “Clark Mall” because no such entity is named as an insured. General Insurance appealed.
Until oral argument, no one noticed the anomaly in the judgment or questioned its propriety under
Rule 54(b).”).
CONCLUSION
GICA’s motion for reconsideration does not fit into the narrow class of the “exceptional
case,” for which the “extraordinary remedy” under Rule 60(b) is reserved. Dickerson v. Board of
Education of Ford Heights, Ill., 32 F.3d 1114, 1116 (7th Cir.1994). The motion rests on a non
sequitur, is contrary to the basic rules governing motions for reconsideration, and is based on a
misinterpretation of the Seventh Circuit’s opinion. The Seventh Circuit did not hold or suggest that
in a federal action brought by an insurance carrier to determine its obligations to defend its insured,
the allegations in the declaratory judgment complaint must be taken as true and trump the allegations
in the underlying complaint. To read the opinion as GICA has is to misread it.9
9
The only error perceived by the Court of Appeals was in”oddly requir[ing] General
Insurance to present evidence on the duty-to-defend question at the pleadings stage in response to
the defendants' Rule 12(c) motion for judgment on the pleadings.” Because of that, the court found
it “ not surprising, then, that General Insurance asked the court to enter its order as a final judgment
to set up an immediate appeal.” See supra at 12. The court of appeals, neither held nor hinted that
an insurance carrier’s declaratory judgment complaint, as opposed to the underlying complaint, is
to be looked to in determining the carrier’s duty to defend. See 10 et seq., supra.
24
From the initial Rule 12(c) proceeding, through two motions for reconsideration, and an
appeal, GICA has still not cited a case that holds that an insurer can ignore the allegations in the
underlying complaint and require the court to look to the allegations in its declaratory judgment
complaint, in order to defeat a Rule 12(c) motion. There being nothing in the court of appeals
opinion that supports its arguments for reconsideration, the motion is denied except as discussed in
paragraph G, supra at 23.
ENTERED:___________________________________
UNITED STATES MAGISTRATE JUDGE
DATE: 12/13/11
25
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