Big Bridge Holdings, Inc. v. Twin City Fire Insurance Company

Filing 30

MEMORANDUM Opinion and Order Signed by the Honorable Robert M. Dow, Jr on 9/15/2015. Mailed notice(cdh, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

BIG BRIDGE HOLDINGS, INC.,
Plaintiff,
v.
TWIN CITY FIRE INSURANCE COMPANY,
Defendant.

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Case No. 14-cv-8052
Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER
This is an insurance dispute regarding whether a certain claim is covered under an
insurance policy, or whether that claim falls into a coverage exception within the policy. Before
the Court are Defendant’s motion for summary judgment [19] and Plaintiff’s cross-motion for
partial summary judgment [22]. For the reasons set forth below, Defendant’s motion for
summary judgment [19] is denied and Plaintiff’s cross-motion for partial summary judgment
[22] is granted. The case is set for a status hearing on 10/6/2015 at 9:00 a.m. to discuss how the
parties wish to proceed with the remaining claims.
I.

Background
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.1 Here, the identity of the
nonmoving party depends on whose motion the Court is considering.

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Local Rule 56.1 requires a party moving for summary judgment to submit a statement of material facts
as to which the movant contends there is no genuine issue and entitles the movant to judgment as a matter
of law. The rule permits a movant to file up to 80 separately-numbered statements of undisputed facts.
L.R. 56.1(a)(3). The rule also requires the nonmovant to file a concise response to the movant’s statement
of facts setting forth “any disagreement, specific references to the affidavits, parts of the record, and other
supporting materials.” L.R. 56.1(b)(3)(A).

A.

Undisputed Facts
1.

The Insurance Dispute

Plaintiff Big Bridge purchased a $3 million liability-insurance policy (the “Policy”) from
Defendant Twin City, covering the period from March 1, 2011 to March 1, 2012. The Policy
covers the entire Big Bridge organization, including its subsidiary, Sempris, LLC. Sempris sells
membership programs that provide discounts at various restaurants and retailers.
Between July of 2011 and August 2013,2 Sempris was sued eight times in various federal
courts across the country. The claims against Sempris, as explained in more detail below, allege
generally that Sempris enrolled consumers in fee-based monthly membership programs without
their consent. The claims allege a myriad of state- and federal-law violations, brought on behalf
of putative classes.
In accordance with its obligations under the Policy, Defendant confirmed via letter dated
September 2, 2011 that it would provide a defense for Sempris with regards to the first-filed
lawsuit. By July 3, 2013, the number of cases increased to seven. When the eighth and final case
was filed, Defendant informed Plaintiff (by letter dated November 22, 2013) that it was denying
coverage for any losses exceeding $1,000,000. And indeed, Defendant did pay $1,000,000 in
defense costs to or on behalf of Sempris in connection with these eight lawsuits, with the final
payment processed as of September 25, 2014.
On October 15, 2014, Plaintiff filed this two-count lawsuit, raising (1) a declaratoryjudgment claim that Defendant has breached its duty to defend and/or indemnify Sempris, and
that Defendant has waived, or is estopped from asserting, Policy exclusions or other coverage
defenses, and (2) a related breach-of-contract claim that Defendant has breached the Policy by
2

Even though some of the claims at issue arose outside of the coverage period, the parties agree that those
claims are included under the Policy because the later-filed claims share allegations of “Interrelated
Wrongful Acts” with the timely-filed claim, creating a single interrelated claim. [See 23, at 7–8.]

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failing to provide coverage in the full amount of the Policy. In its answer [12], Defendant raised
a counter-claim for declaratory relief, seeking (1) a declaration that Plaintiff’s claim is barred by
Section V(A)(5) of the Policy, and (2) a declaration that Plaintiff’s claim is barred in whole or in
part on other grounds (not relevant to this motion). Now before the Court are Defendant’s motion
for summary judgment [19] seeking resolution in its favor on all counts of the complaint and
Count I of its counterclaim, and Plaintiff’s cross-motion for partial summary judgment [22]
seeking only a declaration that its claim is not barred by Section V(A)(5) and thus that Defendant
cannot refuse coverage on that basis.3
2.

The Underlying Cases

The Court provides the following overview of the eight underlying lawsuits at issue:
(1)

Dioquino v. Sempris, LLC, No. 11-cv-05556-SJO-MRW (C.D. Cal.)
 Filing Date: July 6, 2011
 Claims Against Sempris: Putative class action alleging violations of (1) California
Consumers Legal Remedies Act (Cal. Civ. Code § 1750, et seq.), (2) California
Unfair Competition Law (Cal. Bus. & Prof. § 17200, et seq.), (3) Electronic Funds
Transfer Act (15 U.S.C. § 1693e), (4) Unjust Enrichment, (5) Negligence, and
(6) Fraud by Omission.

(2)

Daniell v. Sempris, LLC, No. 13-cv-6938 (N.D. Ill.)
 Filing Date: December 13, 2012
 Claims Against Sempris: Putative class action alleging violations of (1) Illinois
Consumer Fraud and Deceptive Business Practices Act (815 ILCS § 505/1, et seq.),

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There is some ambiguity as to exactly which claims and/or counterclaims are at issue here. For example,
in its motion for partial summary judgment, Plaintiff asks the Court to “declare that Twin City has a duty
to defend Sempris against the Underlying Claims up to and including the full $3 million Policy Limit.”
[22, at 2.] Because Plaintiff requests a declaration, this implies that Plaintiff is seeking summary
judgment on Count I of its complaint (i.e., the declaratory judgment count) [see 1, at 14]. But Count I
contemplates two potential declarations—“that Twin City has breached its duty to defend and/or
indemnify Sempris, and that Twin City has waived, or is estopped from asserting, Policy exclusions or
other coverage defenses [1, at 14 (emphasis added)]—but Plaintiff only briefs the first of those two issues.
Similarly, Defendant moved for summary judgment on both Counts I and II of Plaintiff’s complaint, but
Defendant also failed to brief the second issue in Count I (which, incidentally, corresponds somewhat
with Count II of Defendant’s counterclaim [see 12, at 36–37], which is not at issue in this order). While
it’s unclear exactly which counts (or parts of counts) are at issue here, what is clear is the parties’ concern
over whether coverage of the underlying lawsuits is subject to the Section V(A)(5) exception. The parties
can hash out what, if any, issues remain after this core issue is decided.

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(2) Fraud by Omission, (3) Fraudulent Inducement, (4) Breach of Contract, and
(5) Unjust Enrichment.
(3)

Valencia v. Sempris, LLC, No. 12-cv-2985 (S.D. Cal.)
 Filing Date: December 14, 2012
 Claims Against Sempris: Putative class action alleging violations of (1) California
Consumers Legal Remedies Act (Cal. Civ. Code § 1750, et seq.), (2) California
Unfair Competition Law (Cal. Bus. & Prof. § 17200, et seq.), (3) Fraud by Omission,
and (4) Unjust Enrichment.

(4)

Herman v. Sempris, LLC, No. 13-cv-0020 (W.D. Mich.)
 Filing Date: January 7, 2013
 Claims Against Sempris: Putative class action alleging violations of (1) Michigan
Consumer Protection Act (M.C.L. § 445.903 et seq.), (2) Electronic Funds Transfer
Act (15 U.S.C. § 1693e), (3) Fraudulent Inducement, (4) Breach of Contract,
(5) Unjust Enrichment, and (6) Violation of the Telephone Consumer Protection Act
(47 U.S.C. § 227).

(5)

Kist v. Sempris, LLC, No. 13-cv-10262 (D. Mass.)
 Filing Date: February 11, 2013
 Claims Against Sempris: Putative class action alleging violations of (1) Mass.
Consumer Protection Law (M.G.L. c. 93A), (2) Fraud by Omission, (3) Breach of
Contract, (4) Breach of Implied Covenant of Good Faith and Fair Dealing, and
(5) Unjust Enrichment.

(6)

Noonan v. Sempris, LLC, No. 13-cv-0257 (W.D. Wash.)
 Filing Date: July 6, 2011
 Claims Against Sempris: Putative class action alleging violations of (1) Washington
Consumer Protection Act (RCW ch. 19.86), (2) Washington Consumer Protection Act
(RCW ch. 19.56), and (3) Unjust Enrichment.

(7)

Augustine v. Sempris, LLC, No. 13-cv-2007 (D.N.J.)
 Filing Date: March 31, 2013
 Claims Against Sempris: Putative class action alleging violations of (1) New Jersey
Consumer Fraud Act (N.J.S.A. § 56:8-1 et seq.), (2) Common Law Fraud by
Omission, (3) Unjust Enrichment, and (4) Truth in Consumer Contract, Warranty and
Notice Act (N.J.S.A. § 56:12–14 et seq.).

(8)

Maher v. Sempris, LLC, No. 13-cv-2202 (D. Minn.)
 Filing Date: August 14, 2013
 Claims Against Sempris: Putative class action alleging violations of (1) Minnesota
Prevention of Consumer Fraud Act (Minn. Stat. § 325F.68 et seq.), (2) Minnesota
Deceptive Trade Practices Act (Minn. Stat. § 325D.43 et seq.), (3) Minnesota
Consumer Prevention; Solicitation of Sales Act (Minn. Stat. § 325G.12 et seq.),
(4) Fraud by Omission, (5) Fraudulent Inducement, (6) Breach of Contract, and
(7) Unjust Enrichment.
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II.

Legal Standard
A.

Summary Judgment 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
(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
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[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.
B.

Applicable Substantive Law

The parties are before this Court on diversity jurisdiction pursuant to 28 U.S.C. § 1332.
Plaintiff Big Bridge is a Delaware corporation with its principal place of business in Minnesota.
Twin City is an Indiana corporation with its principal place of business in Connecticut. The
parties agree that Minnesota law governs.4 [20, at 5 n.2; 23, at 7 n.1.]
Under Minnesota law, “the interpretation of insurance policies is a question of law”
properly decided on a motion for summary judgment. Home Ins. Co. v. Nat’l Union Fire Ins. of
Pittsburgh, 658 N.W.2d 522, 527 (Minn. 2003) (citing Sentinel Mgmt. Co. v. Aetna Cas. & Sur.
Co., 615 N.W.2d 819, 827 (Minn. 2000).
III.

Analysis
A.

The Insurance Policy

The dispute essentially boils down to the parties’ competing interpretations of the
following provision, Section V(A)(5) of the Policy’s Directors, Officers and Entity Liability
Coverage Part:
The insurer shall not pay Loss under Insuring Agreement (C) in connection with
any Claim based upon, arising from, or in any way related to any actual or
alleged:
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Federal courts sitting in diversity apply the choice of law principles of the forum state (Illinois here) to
determine which state’s law governs the proceeding. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S.
487, 496 (1941); West Bend Mut. Ins. Co. v. Arbor Homes LLC, 703 F.3d 1092, 1095 (7th Cir. 2013).
Illinois law says that when an insurance contract covers risk located in multiple states (assuming there is a
conflict in those states’ laws), “courts focus on the domicile of the insured, and where the negotiations,
purchase, and issuance of the insurance policies took place. G.M. Sign, Inc. v. Pennswood Partners, Inc.,
--- N.E.3d ---, 2015 WL 2231752, at *9 (Ill. App. Ct. May 13, 2015). Here, Big Bridge has its principal
place of business in Minnesota, and the policy was delivered to Big Bridge in Minnesota. As such, if there
is a conflict amongst the insurance laws of the states involved, the Court agrees that Minnesota law would
govern the substantive issues here. As explained below, the choice-of-law analysis is inconsequential to
this order because both Illinois and Minnesota law align as to the basic principles governing this issue.

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***
(5) price fixing, restraint of trade, monopolization, unfair trade practices or any
violation of the Federal Trade Commission Act, Sherman Antitrust Act, Clayton
Act, or any similar law regulating antitrust, monopoly, price fixing, price
discrimination, predatory pricing or restraint of trade activities; provided,
however, this exclusion shall not apply to Defense Costs incurred to defend such
allegations up to a maximum of the lesser of (i) the remaining amount of the
applicable limit of liability listed on the Declarations or (ii) $1,000,000.
[7-8, at 25 (italics added); 21-2, at 25 (same).] The question is whether the eight underlying
lawsuits should be considered, in the aggregate, a “[c]laim based upon, arising from, or in any
way related to any actual or alleged * * * unfair trade practices.”
The phrase “unfair trade practices” is not defined in the Policy. Defendant is not bothered
by this omission, relying instead on a plain-language argument that each of the eight complaints
includes claims of unfair business practices that clearly trigger the exception in Section V(A)(5).
Defendant buttresses its argument by noting the broadly-worded prefatory language in the
exception, which incorporates any claim based upon, arising from, or in any way related to any
actual or alleged unfair trade practices. [See 20, at 8 (citing cases).] While the Court agrees that
the prefatory language is broad, that does not help to define “unfair trade practices.”
In order to understand the scope of a contractual term, it is necessary to consider the
context in which the term appears, reading the provision as a whole. See Econ. Premier Assur.
Co. v. Western Nat’l Mut. Ins. Co., 839 N.W.2d 749, 752 (Minn. 2013); Halla Nursery, Inc. v.
City of Chanhassen, 781 N.W.2d 880, 884 (Minn. 2010) (“[T]he terms of a contract are not read
in isolation.”). In Section V(A)(5), there are eight separate categories of claims that are excluded
from coverage:
1.
2.
3.
4.
5.

Claims involving price fixing;
Claims involving restraint of trade;
Claims involving monopolization;
Claims involving unfair trade practices;
Claims involving violations of the Federal Trade Commission Act;
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6.
7.
8.

Claims involving violations of the Sherman Antitrust Act;
Claims involving violations of the Clayton Act;
Claims involving violations of any similar law regulating antitrust, monopoly,
price fixing, price discrimination, predatory pricing or restraint of trade activities.

Read as a whole, these eight categories are best described as relating to antitrust violations. One
need look no further than the catch-all exception (No. 8) to reach this conclusion, as that
exclusion describes the prior seven exclusions (or at least the prior three) as laws “regulating
antitrust, monopoly, price fixing, price discrimination, predatory pricing or restraint of trade
activities.”
In contrast, the claims in the eight underlying lawsuits are best described as fraud-based
consumer-protection claims alleging deceptive (not anti-competitive) business practices. But
again, Defendant is not bothered by this, arguing that the phrase “unfair trade practices”
encompasses both consumer-protection and antitrust claims (much like the FTC Act, which has
both a consumer-protection component and an antitrust component). While there is some appeal
to this argument, the total absence of any mention of fraud-based or consumer-protection claims
in Section V(A)(5), coupled with the plain-language categorization of these exceptions in the
catch-all provision as anti-competitive in nature, counsel in favor of reading “unfair trade
practices” as referencing that term as used in the antitrust context. See Brookdale Pontiac-GMC
v. Federated Ins., 630 N.W.2d 5, 9 (Minn. App. Ct. 2001) (“[L]ooking at the contact as a
whole,” a list of illustrative terms “must be construed as a list of similar terms.”).
At a minimum, the phrase “unfair trade practices” is ambiguous as used in Section
V(A)(5). And in the insured-friendly state of Minnesota, “[a]ny ambiguity is resolved in favor of
the insured, and the burden is on the insurer to prove that the claim clearly falls outside the
coverage afforded by the policy.” Prahm v. Rupp Const. Co., 277 N.W.2d 389, 390 (Minn. 1979)
(“If any part of a cause of action is arguably within the scope of coverage, the insurer must
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defend.”); Carye v. Ill. Farmers Ins. Co., 2006 WL 3719479, at *2 (Minn. Ct. App. Dec. 19,
2006) (“Exclusions are interpreted strictly against the insurer and any ambiguity is resolved in
favor of the insured.” (citations omitted)).5 Even construing the facts in the light most favorable
to Defendant, Defendant’s arguments (at best) create an ambiguity as to the meaning of “unfair
trade practices.” As such, Defendant has failed to meet its burden, and the ambiguity must be
resolved in Plaintiff’s favor.
Other courts have reached similar conclusions. In Beyer v. Heritage Realty, Inc., 251
F.3d 1155 (7th Cir. 2001), the Seventh Circuit decided whether a real estate company’s
insurance claim for losses it incurred litigating a class-action lawsuit—involving allegations that
the real estate company violated the Real Estate Settlement Procedures Act of 1974 (“RESPA”)
by failing to make certain disclosures required under the Act—was covered by the real estate
company’s insurance policy. The policy excluded coverage for claims based on “deceptive trade
practices,” and so the question was whether the underlying RESPA violation qualified as a
“deceptive trade practice” as contemplated by the policy, which read as follows:
Price fixing. We won’t cover loss that results from any violation of any state or
federal antitrust, price fixing, restraint of trade or deceptive trade practice law,
rule or regulation * * *.
Beyer, 251 F.3d at 1157.
Reading the provision as a whole, the court recognized the antitrust-nature of the
exclusion, commenting that “RESPA has nothing to do with antitrust or ‘restraint of trade’ in
general, or price fixing in particular.” Id. at 1157. However, analogizing to the FTC Act as “the
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Even if the Court were to apply the law of the forum state, Illinois law also says that “where language in
an insurance policy is subject to different interpretations such ambiguity is to be construed in favor of the
insured, and not the insurance company, which drafted the contract of insurance.” Dora Twp. v. Ind. Ins.
Co., 400 N.E.2d 921, 922 (Ill. 1980); Am. Economy Ins. Co. v. DePaul Univ., 890 N.E.2d 582 (Ill. App.
Ct. 2008) (“Further, ‘[p]rovisions in an insurance policy that limit or exclude coverage are also construed
liberally in favor of the insured and against the insurer.’” (quoting United Servs. Auto. Ass’n v. Dare, 830
N.E.2d 670, 678 (Ill. 2005))).

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model ‘deceptive trade practice law,” the court noted that “[t]he FTC is divided internally into a
Bureau of Competition and a Bureau of Consumer Protection,” and “deceptive trade practices”
could describe claims that fall into both categories, meaning that a broad reading of the phrase
would extend the exclusion beyond the antitrust realm. But the court then noted that putting the
emphasis on trade in “deceptive trade practices” would point more toward a Bureau of
Competition (read: antitrust) issue, and “if this is a potentially sensible reading of the exclusion,
then the rule of insurance law resolving ambiguities in favor of policyholders” would require a
resolution in favor of the insured. Id. at 1157–58 (internal citation omitted). The court also
referenced the fact that “[t]he insurance policy at issue [wa]s limited to participants in the real
estate business,” and that it would be “weird” (and possibly deceptive) for the insurer to exclude
coverage for all violations of RESPA without even mentioning RESPA at all in the policy. Id. at
1158. Ultimately the court scoffed at the insurers attempt to shoehorn RESPA (and, by
extension, many other laws proscribing forms of nondisclosure) “in[to] a clause captioned ‘Price
fixing’ and sounding distinctly like an antitrust exclusion,” holding that violations of RESPA
were covered by the policy. Id.
Similarly here, even if “unfair trade practices” could refer to both antitrust violations and
consumer-fraud violations, Minnesota’s rule of insurance law resolving ambiguities in favor of
insureds would put Plaintiff’s claim outside of the exception. In addition, it would be an odd bit
of contract drafting to aim to incorporate consumer-protection and other fraud-based violations
into an exclusion that self-identifies as relating to “antitrust, monopoly, price fixing, price
discrimination, predatory pricing [and] restraint of trade activities” without mentioning the words
“fraud” or “consumer protection” at all.

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And in Integra Telecom, Inc. v. Twin City Fire Ins. Co., 2010 WL 1753210 (D. Or. Apr.
29, 2010), the district court rejected a similar argument (from Defendant Twin City) based on a
substantively identical policy exclusion in a factually analogous case. The policy at issue in
Integra excluded coverage for any claim:
based upon arising from, or in any way related to price fixing, restraint to trade,
monopolization, unfair trade practices or any violation of the Federal Trade
Commission Act, Sherman Anti-Trust Act, Clayton Act, or any similar law
regulating anti-trust, monopoly, price fixing, price discrimination, predatory
pricing or restraint of trade activities.
Integra, 2010 WL 1753210, at *1. In that case, the insured’s claim stemmed from losses it
incurred in an underlying lawsuit where the insured was found to have engaged in an “unfair or
deceptive act or practice” in violation of Washington’s Consumer Protection Act by charging
and collecting improper surcharges for telecommunications services. Id. at *2. The district court
held that the underlying “unfair or deceptive act or practice” was not an “unfair trade practice” as
contemplated by the policy, primarily because the exclusion was reasonably read as limited to
anti-competitive conduct, rendering the provision (at a minimum) ambiguous, and thus requiring
a construction of the exclusion in the insured’s favor. Id. at *4. The court focused on the catch-all
exclusion at the end of the provision, noting that the phrase “any similar law” modified all
preceding laws listed in the exclusion, meaning that the provision as a whole was properly
defined as one excluding claims involving “anti-trust, monopoly, price fixing, price
discrimination, predatory pricing [and] restraint of trade activities.” Id. at *5.
Beyer and Integra are directly on point. The plain language of Section V(A)(5), read as a
whole, excludes antitrust violations and other anti-competitive conduct. Any argument that the
exclusion should be read broadly because certain antitrust laws mentioned in the exclusion (e.g.,
unfair trade practices and the FTC Act) have applications beyond the antitrust realm is
unavailing. If the insurers wanted to include consumer-protection or consumer-fraud violations
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into the exclusion, they should have mentioned those well-known bodies of law expressly, not
indirectly through a provision clearly aimed at antitrust laws. But to resolve the issue, the Court
need only find ambiguity in the language of the exclusion. Because “unfair trade practices” is, at
a minimum, ambiguous, the Court must follow Minnesota law, whereby “[a]ny ambiguity is
resolved in favor of the insured.” Prahm, 277 N.W.2d at 390.
IV.

Conclusion
For the foregoing reasons, Defendant’s motion for summary judgment [19] is denied and

Plaintiff’s cross-motion for partial summary judgment [22] is granted. The underlying claims at
issue lie beyond the scope of the Section V(A)(5) exclusion, and thus that exclusion is not a
viable basis for Defendant Twin City to deny Sempris coverage with regard to the underlying
claims up to and including the full $3 million Policy limit. The case is set for a status hearing on
10/6/2015 at 9:00 a.m. to discuss how the parties wish to proceed with their remaining claims not
resolved in this order.

Dated: September 15, 2015

_________________________________
Robert M. Dow, Jr.
United States District Judge

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