West Wind Express v. Occidental Fire & Casualty Company
Filing
188
MEMORANDUM Opinion and Order Signed by the Honorable Robert M. Dow, Jr. on 9/18/2015. Mailed notice(cdh, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
WEST WIND EXPRESS,
Plaintiff,
v.
OCCIDENTAL FIRE & CASUALTY
COMPANY OF NORTH CAROLINA,
Defendant.
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Case No. 10-cv-6263
Judge Robert M. Dow, Jr.
MEMORANDUM OPINION AND ORDER
In this diversity case, Plaintiff West Wind Express filed a complaint against Defendant
Occidental Fire & Casualty Company of North Carolina seeking a declaration that West Wind is
not obligated to reimburse Occidental for payments it made to settle third-party claims following
a December 2005 motor vehicle accident (Count I), as well as an order stating that Defendant’s
handling of the request for coverage was “unreasonable and vexatious” in violation of 215 ILCS
5/155, entitling West Wind to attorneys’ fees and other statutory damages (Count II). The Court
previously granted summary judgment to West Wind on Count I. [See 68.] Now before the Court
is Occidental’s motion for summary judgment [178] on Count II. For the reasons explained
below, Occidental’s motion [178] is granted.
I.
Background1
As was the case with the parties’ summary judgment briefing on Count I, the facts here
are relatively brief and undisputed. West Wind, a trucking company, purchased an insurance
policy from Occidental, an insurer. That insurance policy contained an “MCS-90” endorsement,
1
The Court takes the relevant facts from the parties’ Local Rule 56.1 statements, construing the facts in
the light most favorable to the nonmoving party—here, Plaintiff.
which is a common provision in insurance policies for trucking companies, designed to comply
with regulations promulgated under the Motor Carrier Act of 1980.2 The MCS-90 endorsement
provides:
In consideration of the premium stated in the policy to which this endorsement is
attached, [Occidental] agrees to pay, within the limits of liability described
herein, any final judgment recovered against [West Wind] for public liability
resulting from negligence in the operation, maintenance or use of motor vehicles
subject to the financial responsibility requirements of Sections 29 and 30 of the
Motor Carrier Act of 1980 regardless of whether or not each motor vehicle is
specifically described in the policy and whether or not such negligence occurs on
any route or in any territory authorized to be served by [West Wind] or elsewhere.
* * * [West Wind] agrees to reimburse [Occidental] for any payment made by
[Occidental] on account of any accident, claim or suit involving a breach of the
terms of the policy, and for any payment that [Occidental] would not have
been obligated to make under the provisions of the policy except for the
agreement contained in this endorsement.
(emphasis added).
On December 23, 2005, a truck displaying West Wind placards and operating-authority
numbers was involved in an accident with another truck. Following the accident, three lawsuits
were filed against West Wind (two in Oklahoma, one in Illinois). West Wind sought insurance
coverage from Occidental for each of these lawsuits. In response to these claims, Occidental
issued a series of letters stating that (a) Occidental was disclaiming (i.e., denying) coverage
because West Wind’s vehicle in the accident was not an “owned vehicle” as required for
coverage, but (b) because of the MCS-90 endorsement, Occidental could be required to
indemnify Plaintiff for damages stemming from the accident, and (c) if so, Occidental would
seek reimbursement from West Wind. [See 152-3, at 5–9 (Jan. 4, 2006), at 8–11 (Feb. 1, 2006),
12–13 (June 5, 2007), 14–17 (Dec. 12, 2008).] In Occidental’s June 5 letter, it stated that while it
had “no duty to make any payments unless or until there is a final judgment, * * * it could be
2
“MCS-90” refers to the form prepared by the Federal Motor Carrier Safety Administration. See
Carolina Cas. Ins. Co. v. Yeates, 584 F.3d 868, 873–74 (10th Cir. 2009).
2
prudent to resolve certain claims prior to a final judgment, thus saving money on the total
settlement amounts and the expenses incurred,” and therefore Occidental would “attempt to
resolve the claim and lawsuit.” [152-3, at 12.] In its December 12, 2008 letter, Occidental
reiterated its strategy, identified the attorney it hired to defend West Wind, and noted that “this
defense is being provided on a courtesy basis.” [152-3, at 16.]
West Wind does not recall taking any action in response to Occidental’s letters, and there
is no evidence that West Wind expressed any disagreement with Occidental’s plan while
settlement discussions were ongoing. [183, ¶¶ 22, 25, 37, 39.] As such, despite its assertions that
it was denying coverage for West Wind’s claims, Occidental continued to pursue settlement of
these matters, purportedly based on its duties under the MCS-90 endorsement. Occidental
ultimately settled the three claims for $122,524.34, with the last settlement occurring in
December 2009. The settlement payments were not made pursuant to a verdict, court order, or
final judgment. Occidental sought reimbursement from West Wind for the settlement fees. After
all three cases were settled, West Wind (for the first time) objected to the arrangement, arguing
that it had no duty to reimburse Occidental because the monies spent were not pursuant to a
“final judgment,” as required to trigger its obligations under the MCS-90 endorsement. Unable to
reach a resolution, West Wind filed this lawsuit on September 30, 2010, approximately nine
months after the last case settled. In 2012, the Court resolved the dispute in West Wind’s favor,
relying on the holding in Auto Owners Ins. Co. v. Munroe, 614 F.3d 322 (7th Cir. 2010) that an
MCS-90 endorsement is only triggered by a “final judgment.” West Wind Exp. v. Occidental Fire
& Cas. of N. Carolina, 2012 WL 3006409 (N.D. Ill. July 23, 2012).
In the only remaining count in West Wind’s complaint (Count II), West Wind objects to
Occidental’s “ongoing and repeated demands for reimbursement,” referring to them as
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“vexatious and unreasonable,” demonstrating “utter indifference and reckless disregard for
Plaintiff’s rights, interests, and financial welfare.” [1, ¶¶ 26–27, 30.] West Wind alleges that
Occidental’s conduct violated 215 ILSC 5/155 of the Illinois Insurance Code, entitling it to
statutory damages and attorneys’ fees. Occidental has now moved for summary judgment on
Count II.3 [See 178.]
II.
Legal Standard
Summary judgment is proper where “the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); see also
Sallenger v. City of Springfield, Ill., 630 F. 3d 499, 503 (7th Cir. 2010) (citing Fed. R. Civ. P.
56(c)(2) and noting that summary judgment should be granted “if the pleadings, the discovery
and disclosure materials on file, and any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law”). In determining
whether summary judgment is appropriate, the court should construe all facts and reasonable
inferences in the light most favorable to the non-moving party. See Carter v. City of Milwaukee,
743 F. 3d 540, 543 (7th Cir. 2014). Rule 56(a) “mandates the entry of summary judgment, after
adequate time for discovery and upon motion, against any party who fails to make a showing
sufficient to establish the existence of an element essential to that party’s case, and on which that
party would bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322
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Local Rule 7.1 says that briefs in support of or in opposition to any motion shall not exceed 15 pages
without court approval, and briefs that exceed 15 pages must have a table of contents with the pages noted
and a table of cases. L.R. 7.1. Both parties violated this rule. [See 182 (21 pages); 185 (16 pages).] In
addition, West Wind violated Local Rule 5.2 by decreasing its margins below one inch on all sides. See
L.R. 5.2(c)(2). The parties are advised to comply with the Local Rules on all future filings. To the extent
that compliance is not possible, the parties should raise their concerns with the Court.
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(1986)). Put another way, the moving party may meet its burden by pointing out to the court that
“there is an absence of evidence to support the nonmoving party’s case.” Id. at 325.
To avoid summary judgment, the opposing party then must go beyond the pleadings and
“set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 250 (1986) (internal quotation marks and citation omitted). For this
reason, the Seventh Circuit has called summary judgment the “put up or shut up” moment in a
lawsuit—“when a party must show what evidence it has that would convince a trier of fact to
accept its version of events.” See Koszola v. Bd. of Educ. of City of Chi., 385 F. 3d 1104, 1111
(7th Cir. 2004). In other words, the “mere existence of a scintilla of evidence in support of the
[non-movant’s] position will be insufficient; there must be evidence on which the jury could
reasonably find for the [non-movant].” Anderson, 477 U.S. at 252.
III.
Analysis
The issue here is whether Occidental’s conduct in handling West Wind’s claims was
“unreasonable and vexatious” so as to violate 215 ILCS 5/155 of the Illinois Insurance Code.
That provision allows a court to assess statutory damages and attorneys’ fees:
In any action by or against a company wherein there is in issue the liability of a
company on a policy or policies of insurance or the amount of the loss payable
thereunder, or for an unreasonable delay in settling a claim, and it appears to the
court that such action or delay is vexatious and unreasonable * * *.
215 ILCS 5/155(1). “The Illinois legislature designed this provision to provide a remedy to
‘insureds who encounter unnecessary difficulties resulting from an insurance company’s
unreasonable and vexatious refusal to honor its contract with the insured.’” First Ins. Funding
Corp. v. Federal Ins. Co., 284 F.3d 799, 807 (7th Cir. 2002) (quoting Korte Constr. Corp. v. Am.
States Ins., 750 N.E.2d 764, 771 (Ill. App. Ct. 2001)). “An insurer’s actions are not vexatious
and unreasonable if ‘(1) there is a bona fide dispute concerning the scope and application of
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insurance coverage; (2) the insurer asserts a legitimate policy defense; (3) the claim presents a
genuine legal or factual issue regarding coverage; or (4) the insurer takes a reasonable legal
position on an unsettled issue of law.’” TKK USA, Inc. v. Safety Nat’l Cas. Corp., 727 F.3d 782,
793 (7th Cir. 2013) (quotation omitted).
As an initial matter, “Illinois courts allow a cause of action to proceed under Section 155
only if the insurer owed the insured benefits under the terms of the policy.” First Ins. Funding
Corp., 284 F.3d at 807; see also Martin v. Ill. Farmers Ins., 742 N.E.2d 848, 857 (Ill. App. Ct.
2000) (“A[n] [insurer] cannot be liable for section 155 relief where no benefits are owed.”).
Here, the allegedly violative actions are Occidental’s attempts to seek reimbursement for claims
that it paid pursuant to its assumed duties under the MCS-90 endorsement. Arguably, West
Wind’s claim falls outside of the scope of section 155.4 See Citizens First Nat’l Bank of
Princeton v. Cincinnati Ins. Co., 200 F.3d 1102, 1110 (7th Cir. 2000) (“Because this statute is
penal in nature its provisions must be strictly construed.” (internal quotation marks omitted)).
Likely motivated by its post-hoc recognition of this threshold requirement, West Wind
now argues that “it is proper for this Court to determine whether Occidental’s initial coverage
determination was correct at the outset.” [182, at 12.] While the Court understands West Wind’s
desire to sneak this issue into the case, that ship has sailed. Whether Occidental should have
covered the three claims is not an issue before the Court, nor is it a determination that the Court
must make to resolve Count II. The parties’ dispute has nothing to do with whether the
underlying claims are covered under the policy, and thus Occidental’s allegedly “vexatious and
4
The Court could imagine the Illinois Supreme Court interpreting 215 ILCS 5/155 broadly to include
instances like this, where there is no dispute over claim coverage, but rather a dispute regarding an
insurer’s right to reimbursement under a policy. After all, such a dispute could “result[] from an insurance
company’s unreasonable and vexatious refusal to honor its contract with the insured.” Korte Constr.
Corp. v. Am. States Ins., 750 N.E.2d 764, 771 (Ill. App. Ct. 2001). However, West Wind has not provided
any support for such a broad reading. In any event, the Court need not resolve this issue here because, as
explained below, West Wind’s claim fails regardless of whether section 155 applies.
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unreasonable” actions have nothing to do with its withholding of benefits (as required to trigger
section 155). Even if West Wind could establish that Occidental’s denial of coverage was
improper, that does not change the fact that West Wind’s only objections relate to Occidental’s
actions in seeking reimbursement. West Wind cannot shoehorn its claim into section 155 in this
manner; West Wind simply is not eligible for relief under section 155.
But even if West Wind’s claim were to fall within the purview of section 155,
Occidental’s actions in seeking reimbursement were not “unreasonable and vexatious.” In
assessing whether an insurer’s conduct was “unreasonable and vexatious,” a court must consider
the totality of the circumstances, and an insurer can avoid liability by demonstrating that a “bona
fide dispute” existing about coverage. See TKK USA, 727 F.3d at 793–94; Golden Rule Ins. Co.
v. Schwartz, 786 N.E.2d 1010, 1018 (Ill. 2003). A bona fide dispute is one that is “[r]eal,
genuine, and not feigned.” Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1023 (7th Cir.
2013) (quoting Medical Protective Co. v. Kim, 507 F.3d 1076, 1087 (7th Cir. 2007)). Occidental
argues that there was a bona fide dispute over its right to reimbursement because (a) despite
multiple letters spanning more than two years, West Wind never objected to Occidental’s express
denial of coverage or its claims that it would seek reimbursement for monies spent pursuant to
the MCS-90 endorsement, and (b) even though the Court found the Seventh Circuit’s opinion in
Auto Owners Ins. Co. v. Munroe, 614 F.3d 322 (7th Cir. 2010) to be dispositive on Count I, that
opinion was decided two months before the case was filed, and regardless, there is a circuit split
on the issue, demonstrating the merits of both sides of the argument.
West Wind argues that its silence during the process is irrelevant, and that Occidental’s
arguments to the contrary are “absurd.” The Court disagrees. While West Wind’s silence doesn’t
bear directly on whether there was a bona fide legal dispute, its tacit approval of Occidental’s
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legal position over (at least) two years casts doubt on West Wind’s argument that Occidental was
pursuing a vexatious, bad-faith strategy that entire time. Specifically, over a two-year period,
Occidental repeatedly told West Wind that it was denying coverage on all claims, and that if it
had to pay anything because of the MCS-90 endorsement, it would seek reimbursement. If West
Wind disagreed with Occidental’s denial of coverage or its associated reading of the MCS-90
endorsement, one would expect some sort of response from West Wind. Instead, West Wind sat
silent, allowing Occidental to assume the defense despite its written representations stating its
position on coverage. West Wind is a sophisticated party, and its silence over a two-year span
implies a tacit approval of Occidental’s reading of the contract. Even viewing the facts in the
light most favorable to West Wind, its silence cannot be read as a form of disagreement, which
weakens West Wind’s current position that Occidental was dead wrong from the outset.
Conveniently for West Wind, it was only after Occidental settled all three claims and
paid the settlement fees that West Wind spoke up, seemingly surprised that Occidental was now
seeking reimbursement for these settlements despite its repeated assurances that it would do so.
Again, even construing the facts in the light most favorable to West Wind, Occidental’s actions
amount to (at most) bad business, not bad faith. From Occidental’s perspective, it expressly
denied coverage of all claims (a position that West Wind has not, until now, contested), it hired
an attorney and defended West Wind’s claims anyway (purportedly assuming that it had a duty
to do so under the MCS-90 endorsement), it paid $122,524.34 in settlement fees (again,
assuming that it would be reimbursed for those fees per the MCS-90 endorsement), and because
of a Seventh Circuit case that came out years later, it got stuck with the bill. If Occidental were
acting in bad faith that entire time, why would it have assumed the defense of claims that it
expressly disclaimed? And what leverage did Occidental gain by fronting the six-figure
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settlement fees? See West Wind, 2012 WL 3006409, at *4 n.4 (“Occidental may have put the cart
before the horse, taking on unnecessary financial obligations.”). Viewing the totality of the
circumstances, while Occidental’s driver’s-seat, take-charge approach to West Wind’s claims
was ultimately a costly one and quite possibly a poor business decision, it hardly seems
vexatious, especially in comparison to West Wind’s back-seat, hands-off approach that led to full
coverage of arguably uncovered claims. See id. (acknowledging that the Court’s ruling on
Count I “may be viewed as providing West Wind with a wind-fall”).
West Wind also argues that Occidental’s reliance on out-of-circuit law to support its
position that there was a bona fide dispute is unavailing both because of the non-binding nature
of that law and because Occidental (potentially) failed to conduct any legal analysis on the issue
until the parties’ dispute arose. Again, the Court disagrees. Even if Occidental acted unaware of
the legal landscape on MCS-90 endorsements, there is no evidence indicating that Occidental
acted vexatiously or in bad faith in doing so (e.g., Occidental was not pursuing an agenda
knowing it to be contrary to law). To the contrary, up until the Seventh Circuit issued Munroe in
July of 2010, the leading opinion on the issue was T.H.E. Ins. Co. v. Larsen Intermodal Servs.,
Inc., 242 F.3d 667 (5th Cir. 2001), which favored Occidental’s position on the MCS-90
endorsement. And so regardless of whether Occidental acted with knowledge of this Fifth Circuit
opinion, it was still on the right side of the law at the time. True, the tables turned once the
Seventh Circuit released Munroe (two months before West Wind filed this lawsuit and
16 months before West Wind filed for summary judgment on Count I). But in opposing West
Wind’s motion for summary judgment on Count I, Occidental argued that the Fifth Circuit’s case
was still the more on-point decision, and Occidental sought to distinguish Munroe, arguing that it
was not applicable under the particular facts of this case. [See 54, at 7.] While the Court
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ultimately rejected Occidental’s arguments, that does not make them vexatious. The Seventh
Circuit’s Munroe opinion was new and unvetted in other circuits, and Occidental’s arguments for
a narrow interpretation of that case were neither misleading nor otherwise in bad faith. See, e.g.,
A.O. Smith Corp. v. Lewis, Overbeck & Furman, 979 F.2d 546, 551 (7th Cir. 1992) (noting that a
party is entitled “to argue in good faith for a change in the law”). While Occidental’s position in
light of Munroe may be near the bottom of the bona-fide-dispute barrel, it certainly is not
unreasonable and vexatious. See Medical Protective Co. v. Kim, 507 F.3d 1076, 1087 (7th Cir.
2007) (“[A]lthough [defendant] was unsuccessful, this was a bona fide dispute * * *.”).
Viewing the totality of the circumstances in the light most favorable to West Wind, there
is no evidence that Occidental’s actions—however ill-advised and ultimately costly—were borne
out of vexation or bad faith.5 Occidental repeatedly denied coverage for West Wind’s claims, but
took charge of the situation anyway, coordinating the successful settlement of all three claims.
While a later-issued Seventh Circuit opinion spelled the end of Occidental’s efforts to seek
reimbursement of those settlement fees, Occidental’s position (both before and after Munroe) has
always been a reasonable one; at no point did Occidental’s actions reflect those of a bad-faith
actor. West Wind’s allegations, even if true, at most establish an incompetent actor,6 not a
5
West Wind points to the fact that Magistrate Judge Mason granted two of its motions for sanctions based
on Occidental’s failure to comply with the rules of discovery. [See 116, 155.] Reflecting on the docket
entries in this case, the parties clearly disagreed a great deal throughout the discovery process, filing
multiple motions for sanctions. [See 104, 117, 123, 143.] The Court has considered the allegations in
these motions in conducting its totality-of-the-circumstances analysis. See TKK USA, 727 F.3d at 793 (7th
Cir. 2013) (“Section 155 of the Illinois Insurance Code allows an insured to recover attorney fees when
* * * the insurer behaves vexatiously and unreasonably during the course of coverage litigation.”
(citations omitted)).
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West Wind points to the testimony of insurance broker Bob Beck, who claimed that the policy that
Occidental issued to West Wind did not comply with the insurance that West Wind requested. West Wind
claims that this testimony raises “significant questions” in this case as to “a) why the policy was even
issued in the manner that it was, [and] b) why Occidental paid other claims for owner operators but then
changed its position and suddenly decided that owner operators were not covered.” [182, at 17.] The
Court cannot make heads or tails of this argument, which seems to imply that Occidental is an unskilled
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vexatious one. For these reasons, attorneys’ fees and statutory sanctions under section 155 are
not warranted, and Defendant Occidental’s motion for summary judgment on Count II is granted.
IV.
Conclusion
For the foregoing reasons, Defendant Occidental’s motion for summary judgment on
Count II [178] is granted. Judgment will be entered for Defendant on Count II. Because both
counts of Plaintiff’s complaint have now been resolved, the Court will enter an order terminating
this case.
Dated: September 18, 2015
____________________________________
Robert M. Dow, Jr.
United States District Judge
insurer. Regardless, it says nothing about whether Occidental acted vexatiously or in bad faith in seeking
reimbursement from West Wind, and thus is irrelevant for purposes of this motion.
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