Lincoln General Insurance Company v. Joseph T. Ryerson & Son, Inc. et al

Filing 58

MEMORANDUM OPINION AND ORDER Signed by the Honorable Harry D. Leinenweber on 6/18/2015:Mailed notice(wp, )

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

LINCOLN GENERAL INSURANCE
COMPANY,
Plaintiff,

Case No. 14 C 8446

v.

Judge Harry D. Leinenweber

JOSEPH T. RYERSON & SON,
INC., et al.,
Defendants.

MEMORANDUM OPINION AND ORDER
Before

the

Court

are

two

Motions

to

Dismiss

filed

Plaintiff Lincoln General Insurance Company (“Lincoln”).

by
The

first seeks dismissal of Defendant Illinois National Insurance
Company’s affirmative defenses and counterclaims [ECF No. 38],
and the second seeks dismissal of Defendant Travelers Property
Casualty Company’s affirmative defenses and counterclaims [ECF
No. 41].

For the reasons stated herein, the Court denies the

first Motion [ECF No. 38], and denies the second Motion [ECF
No. 41], except to the extent that it seeks to strike Travelers’
first and fifth affirmative defenses.
I.

BACKGROUND

This case is about who is responsible for paying the $27
million that a state-court jury awarded to the Hoffmans in the
underlying

personal

injury

suit.

The

evidence

in

that

suit

established that the Hoffmans were struck by a semi-truck driven
by Dorlan Crane.

The jury specifically found that Crane was

driving the semi as an agent of a joint venture between Illinois
State Motor Service, Inc. (“Illinois State”), 3pL Corporation,
and Joseph T. Ryerson & Son, Inc. (“Ryerson”), all of which were
defendants

in

the

underlying

suit.

Although

the

jury

found

there was a joint venture and that Crane was the joint venture’s
agent, it appears that Crane was initially hired by Illinois
State

to

drive

the

semi.

The

jury

awarded

the

Hoffmans

approximately $27 million, and the Illinois Court of Appeals
affirmed.
The

issues

in

underlying suit.

this

case

have

little

to

do

with

the

Instead, the various insurance companies are

battling over who owes what.

Lincoln General, Plaintiff in this

case, issued an insurance policy to Illinois State, and pursuant
to

that

policy,

Lincoln

General

hired

a

Illinois State in the underlying action.
provided
covered

a

defense

under

the

for

Crane,

policy’s

law

to

defend

Lincoln General also

presumably

definition

firm

because

of

Crane

“insured,”

was

which

includes anyone who drove one of the policy’s covered cars with
Illinois

State’s

permission.

(Compl.,

ECF

No.

1

¶

27).

Travelers, Defendant in this case, issued a policy to Ryerson,
defended Ryerson during the underlying action, and ultimately
paid

about

$3.6

million

on

behalf

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of

Ryerson

in

partial

satisfaction

of

the

judgment.

Illinois

National,

another

Defendant in this case, also issued a policy to Ryerson and
indemnified Ryerson for some of the judgment and post-judgment
interest.
After

the

underlying

action

concluded,

Lincoln

General

filed its federal Complaint, seeking a declaration that it is
not obligated to indemnify Ryerson for payments already made and
that

it

is

not

obligated

Ryerson’s behalf.

to

pay

any

additional

payments

Illinois National and Travelers answered the

Complaint asserting various defenses and counterclaims.
counterclaims
under

seek

Lincoln

contractual

on

a

declaration

General’s

subrogation

policy
and

that
and

Ryerson

both

estoppel.

is

an

include
Also,

Both
insured

claims

both

of

answers

contain the affirmative defenses of actual notice and estoppel.
In

addition

to

these

overlapping

claims,

Illinois

National’s

counter-claim includes a count for equitable subrogation, while
Travelers’

includes

contribution.
affirmative

Finally,
defenses

“reservation

counts

to

of

assert

for

waiver

Travelers’
“failure

additional

to

and

answer
state

defenses,”

equitable

includes
a

claim”

while

the
and

Illinois

National’s includes the affirmative defense of “compliance with
policy
Illinois

conditions.”
National’s

Lincoln
and

General
Travelers’

affirmative defenses.
- 3 -

now

moves

to

dismiss

counter-claims

and

II.

LEGAL STANDARD

A motion to dismiss for failure to state a claim under
Rule 12(b)(6) challenges the legal sufficiency of a complaint.
Hallinan v. Fraternal Order of Chi. Lodge No. 7, 570 F.3d 811,
820 (7th Cir. 2009).

A complaint must contain “enough facts to

state a claim to relief that is plausible on its face.”

Bell

Atlantic

When

Corp.

considering

a

v.

Twombly,

Rule

550

12(b)(6)

U.S.

motion

544,

to

570

dismiss,

(2007).
a

court

must

accept the plaintiff’s allegations as true, and view them in the
light most favorable to the plaintiff.
821 F.2d 408, 410 (7th Cir. 1987).

Meriwether v. Faulkner,

A court need not accept as

true “legal conclusions, or threadbare recitals of the elements
of a cause of action, supported by mere conclusory statements.”
Brooks

v.

Ashcroft

Ross,
v.

578

Iqbal,

F.3d

574,

556

581

U.S.

662,

(7th
678

Cir.

2009)

(2009))

(quoting
(internal

quotations and alterations omitted).
The overriding focus in the Court’s analysis is notice —
that is, whether the factual allegations in the complaint “give
the defendant fair notice of the claim for relief and show the
claim has ‘substantive plausibility.’”

Runnion ex rel. Runnion

v. Girl Scouts of Greater Chi. and Nw. Indiana, No. 14-1729,
2015 WL 2151851, at *3 (7th Cir. May 8, 2015) (quoting Johnson
v. City of Shelby, 135 S.Ct. 346, 347 (2014)).

And, because

“affirmative defenses are pleadings,” they are subject to “all
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pleading requirements of the Federal Rules of Civil Procedure.”
Heller Fin., Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1294
(7th

Cir.

applied

1989).

the

Thus,

most

plausibility

affirmative defenses.

courts

standards

in

in

this

Twombly

district
and

have

Iqbal

to

Naylor v. Streamwood Behavioral Health

Sys., No. 11 C 50375, 2012 WL 5499441, at *7 (N.D. Ill. Nov. 13,
2012) (collecting cases).
III.

ANALYSIS

Both of Lincoln General’s Motions contain similar attacks
and rely on the same cases and arguments.
consider both motions in tandem.

Thus, the Court will

Lincoln General’s overarching

contention is that Ryerson never tendered its defense to Lincoln
General,

thereby

responsibility.

absolving

Lincoln

General

of

all

Based on this contention, Lincoln General sets

forth three main arguments for why the Court should grant its
motion:

(1) Illinois National and Travelers waived their claims

against Lincoln General; (2) the allegations in the counterclaims do not show that Lincoln General had a duty to defend
Ryerson because actual notice is not enough; and (3) neither
Illinois

National

nor

Travelers

have

adequately

pleaded

estoppel.
A.
Lincoln

General

first

Waiver

argues

that

Illinois

National

and

Travelers waived their counter-claims. This is so, according to
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Lincoln General, because Illinois National and Travelers waited
about

ten

years

before

informing

Lincoln

General

that

they

intended to hold it responsible for Ryerson’s portion of the
judgment.

Illinois

National

and

Travelers

both

respond

by

arguing that they need not plead around Lincoln General’s waiver
argument because waiver is an affirmative defense that Lincoln
General must plead and prove.

The Court agrees with Illinois

National and Travelers.
Insurance companies run the risk of waiving their rights
based on their conduct in the underlying litigation.
Ins.

Co.

2004).

v.

Cincinnati

Ins.

Co.,

821

N.E.2d

269,

See, Home
282

(Ill.

“Waiver arises from an affirmative act, is consensual,

and consists of an intentional relinquishment of a known right.”
Id.

“[W]aiver may be either expressed or implied,” and “[a]n

implied waiver arises when conduct of the person against whom
waiver is asserted is inconsistent with any intention other than
to waive it.”

Id.

Under Rule 8(c), however, waiver is an

affirmative defense.

Thus, it will be up to Lincoln General to

gather facts and ultimately prove, at summary judgment or at
trial, that Illinois National and Travelers waived their rights.
Lincoln General may ultimately be correct that Illinois National
and Travelers sat on their rights too long, but that is a merits
issue that the Court cannot decide at the motion to dismiss
stage.
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B.

Actual Notice

Lincoln General also argues that, even accepting Illinois
National

and

Travelers’

allegations

as

true,

their

counter-

claims must fail because Lincoln General’s actual knowledge of
the

underlying

defend.

suit

is

not

sufficient

to

trigger

a

duty

to

And, if there is no duty to defend, then there cannot

possibly be any duty to indemnify, and Illinois National’s and
Travelers’ complaints must be dismissed.
Under

Illinois

law,

there

is

a

key

difference

having a duty to defend and triggering that duty.

between

See, Home

Ins. Co. v. U.S. Fid. and Guar. Co. (“Home”), 755 N.E.2d 122,
131–32 (Ill. App. Ct. 2001).

As to the existence of the duty,

courts simply look to the allegations in the complaint — or
here, the counter-claim — and compare those allegations to the
policy.

Id.

“If

the

complaint

alleges

facts

within

or

potentially within policy coverage, the insurer is obliged to
defend.”

Id. (internal quotation marks omitted).

As to triggering the duty to defend, courts look to when
the insurer knew (or should have known) that it was obligated to
defend the insured.

See, id.

The easiest way for an insured to

trigger the duty to defend is to tender the defense of the
underlying action to the insurer.

When this happens, there is

no doubt as to when the insurer first had notice that it might
be obligated to defend the insured.
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But tendering the defense is not the only way for the duty
to defend to be triggered; the duty is also triggered if the
insurer has “actual notice.”

Id.

An insurer has actual notice

only when two conditions are met:

“the insurer must know . . .

that a cause of action has been filed against its insured and
that the complaint falls within or potentially within the scope
of

the

coverage

quotation

marks

of
and

one

of

its

alterations

policies.”
omitted).

Id.
In

(internal

most

cases,

knowledge of the underlying action, by itself, is not enough.
Pekin Ins. Co. v. Fid. & Guar. Ins. Co., 830 N.E.2d 10, 20 (Ill.
App. Ct. 2005).
The issue in this case is how Illinois law regarding actual
notice

applies

to

omnibus

insurance

provisions,

which

are

coverage provisions that could include anyone as an “insured,”
provided they satisfy the condition in the omnibus provision.
The classic example of an omnibus provision is the permissive
driver provision often found in car insurance policies, where
the definition of “insured” includes anyone driving a covered
car with the named insured’s permission.
Lincoln General argues that, even assuming it had a duty to
defend, that duty was never triggered because the actual notice
rule does not apply to omnibus insureds.

But the cases Lincoln

General relies upon show that the rule can apply in the omnibus
insured context.

For example, Lincoln General relies heavily on
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Home, which thoroughly discussed the actual notice rule. Home,
755 N.E.2d at 131–35.

In that case, the underlying liability

lawsuit involved a tractor-trailer operator who “was killed when
a 96,000-pound concrete beam he was hauling dislodged from its
trailer moorings and crashed through [his] cab.”
The

operator

Transmedical

was

driving

Inc.,

which

the
was

truck

hired

for

to

a

Id. at 125.

company

provide

a

called

driver

for

subcontractors A&M Cartage of Tinley Park, Inc. and Tri Sons
Transportation, Inc.

Id.

The subcontractors themselves were

hired by Prestress Engineering Corporation (“PEC”) to deliver
the beam from PEC to a bridge-building job site.

Id.

The

operator’s estate sued PEC as the designer and owner of the
trailer

that

pulled

the

beam

and

the

two

subcontractors

as

providers of the tractor (and its cab) in which the operator was
killed.

Id.

PEC was an insured under a Home Insurance (“Home Ins.”)
policy,

while

one

of

the

subcontractors

was

a

named

under a U.S. Fidelity and Guaranty (“USF&G”) policy.
126.

insured
Id. at

Although the lawsuit was filed in 1993, PEC waited until

1997 to send USF&G a letter asserting that PEC was also an
insured under the USF&G policy.
insured

nor

an

additional

Id.

insured;

PEC was neither a named
instead,

itself an insured under USF&G’s omnibus provision.

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PEC
Id.

considered

While awaiting USF&G’s response to the letter, Home Ins.
filed suit against USF&G and the operator’s estate, seeking a
declaration that USF&G had a duty to defend PEC and that it
breached that duty by refusing to defend.

Id.

USF&G answered

the complaint and raised the affirmative defenses of late tender
and breach of the policy’s cooperation clause.

Id.

Home Ins.

then moved to strike those affirmative defenses and for judgment
as a matter of law.

Id.

The trial court denied both motions,

finding that USF&G had no duty to defend PEC.
appealed.

Id.

Home Ins.

Id.

On appeal, the Illinois Court of Appeals reversed and found
that USF&G had a duty to defend PEC.

Id. at 131.

The USF&G

policy’s omnibus provision defined “insured” as anyone who owned
a trailer that the subcontractor “hire[d] or borrow[ed].”
at 127.

Id.

The court looked solely at the policy’s language and

the allegations in the complaint and found that the allegations
potentially gave rise to coverage because they showed that the
subcontractor

borrowed

or

hired

PEC’s

Thus, USF&G had a duty to defend PEC.

trailer.

Id.

at

131.

Id.

As to the triggering of USF&G’s duty to defend, Home Ins.
argued that the actual notice rule applied and that USF&G had
actual notice in 1993 when the lawsuit was first filed.
132.

Id. at

This was so, according to Home Ins., because USF&G was

defending its own named insured in the same lawsuit and it also
- 10 -

knew that PEC was a defendant.

Id.

Relying largely on the

Illinois Supreme Court’s decision in Cincinnati Cos. v. West Am.
Ins. Co. (“Cincinnati”), 701 N.E.2d 499 (1998), Home Ins. argued
that

those

two

facts

put

USF&G

potentially one of its insured.

on

notice

that

PEC

was

Id.

USF&G responded by arguing that the actual notice rule did
not

apply

because

that

rule

only

applies

when

the
Id.

involves a named insured or an additional insured.

notice
Unlike

the insured at issue in Cincinnati, PEC was neither a named
insured nor an additional insured on the USF&G policy.

Id.

Thus, according to USF&G, it did not have actual notice that PEC
was a potential insured simply because it knew of the underlying
lawsuit.
The

Id.
court

found

that

there

whether USF&G had actual notice.

was

a

factual

Id. at 134.

issue

as

to

The court found

that there are two prongs to actual notice that both must be
satisfied: notice of the lawsuit and notice that the complaint
potentially falls within coverage.

Id.

The court agreed with

USF&G that because PEC was not a named insured or additional
insured,

USF&G’s

knowledge

of

the

underlying

suit

and

PEC’s

status as a defendant in that suit was not enough to satisfy the
second prong.

Id.

The issue was not when USF&G had notice of

the underlying suit (i.e., the first prong); rather, the issue
was when USF&G had notice that PEC might be covered by the
- 11 -

omnibus provision (i.e., the second prong).

Id.

The court

found judgment as a matter of law inappropriate because when
USF&G knew that PEC might be covered was a factual issue that
must be decided at trial or summary judgment.

Id.

The court

therefore remanded the case for resolution of that issue.

Id.

The court went on to note that the actual notice issue was
a prerequisite to any determination of subrogation or estoppel.
Id.

at

135.

For

example,

whether

estoppel

would

apply

and

against whom it would apply necessarily turns on when USF&G had
actual notice regarding its duty to defend PEC.

Id.

If USF&G

had notice back in 1993 and did nothing to defend PEC, USF&G
might be estopped from disputing coverage.

Id.

If, on the

other hand, USF&G did not have actual notice until 1997, then
Home Ins. might be estopped from seeking satisfaction from USF&G
since

Home

Ins.

would

have

effectively

opportunity to control PEC’s defense.

robbed
Id.

USF&G

of

its

Either way, the

court found that the trial court could only reach the estoppel
issue after first resolving the actual notice issue.
136.

The same was true for the subrogation issues.
This case is remarkably similar to Home.

Id. at

Id.
Like USF&G in

that case, here Lincoln General argues that the actual notice
rule does not apply because the insured at issue (Ryerson) is
not

a

named

insured

or

additional

insured.

But

the

actual

notice rule applies even in cases that do not involve named or
- 12 -

additional

insureds.

Id.

at

131–35.

The

only

difference

between the two types of cases is that, in the case of named or
additional insureds, mere notice of the underlying suit alone
might be enough to satisfy both actual notice prongs.

See, id.

In contrast, when the provision at issue is an omnibus clause,
mere knowledge of the underlying suit alone is not enough; the
insurer must also have actual notice of the insured’s potential
coverage under the provision.
Also,

like

Home

Id.

Ins.’s

argument

in

Home,

here

Lincoln

General might ultimately be right on the merits in arguing that
it had no actual notice of Ryerson’s potential coverage claim
until ten years after the underlying lawsuit was filed.

If that

is so, then Illinois National and Travelers might be estopped
from

going

after

Lincoln

General

now

effectively

robbed

Lincoln

General

from

defense.

because

their

controlling

delay

Ryerson’s

If, on the other hand, Lincoln General had actual

notice when the underlying suit was filed, estoppel might apply
against Lincoln General for failing to take any action as to
Ryerson until filing this declaratory judgment action.

See, id.

Either way, this is a factual issue that cannot be resolved at
the motion to dismiss stage.
C.
The
remaining

See, id.

Travelers’ First and Fifth Affirmative Defenses
Court

need

arguments

not

address

because

most

of

resolution

- 13 -

Lincoln
of

General’s

those

issues

necessarily depends on first resolving the actual notice issue.
For example, Lincoln General asks the Court to strike Travelers’
affirmative

defenses

of

estoppel

and

waiver.

But

the

Court

cannot determine whether those defenses have any merit until the
actual

notice

issue

is

first

resolved,

as

discussed

above.

Thus, the Court cannot dismiss those defenses at this stage.
See, id. at 136 (affirming trial court’s denial of motion to
strike

affirmative

defenses

because

those

issues

necessarily

turned on the unresolved actual notice issue).
Two defenses, however, can be resolved without regard to
the

actual

notice

issue.

Travelers’

answer

includes

two

additional affirmative defenses that Illinois National’s answer
does

not.

Lincoln

General
as

asks

inadequate

the

Court

under

the

to

strike

proper

these

affirmative

defenses

pleading

standards.

Travelers’ first affirmative defense says, in its

entirety, “Lincoln General’s Amended Complaint for Declaratory
Judgment

fails

granted.”

to

state

a

claim

upon

which

relief

{Travelers’ Answer, ECF No. 40 at 24).

can

be

Although

courts have reached different conclusions as to whether this
type of “failure to state a claim” defense is appropriate as an
affirmative

defense,

those

courts

that

find

such

a

defense

proper at least require the defense to contain a short, plain
statement as to why the complaint is deficient.

See, Jackson v.

Methodist Med. Ctr. of Ill., No. 06-1235, 2007 WL 128001, at *2
- 14 -

(C.D.

Ill.

Jan.

11,

in

this

allegations

2007).

Travelers

defense

Rule 12(b)(6) standard.

beyond

includes
simply

no

further

stating

the

Thus, even if the Court found such an

affirmative defense proper, which it does not, the Court would
still strike the defense for failure to comply with Rule 8(a).
See, id.

Thus, Travelers first affirmative defense is stricken.

Travelers’

fifth

affirmative

defense

is

simply

a

reservation of the right to assert more affirmative defenses at
some

unknown

later

time.

Courts

have

found

this

type

of

reservation inappropriate because any amendment to a pleading is
governed by Rule 15.

See, Ill. Wholesale Cash Register, Inc. v.

PCG Trading, LLC, No. 08 C 363, 2009 WL 1515290, at *2 (N.D.
Ill. May 27, 2009).

Should Travelers desire to amend its answer

at a later time, “it may seek leave of court to do so.”

Id.

But what Travelers cannot do is “hold the Court hostage to its
inclination
quotation

to

later

marks

and

amend

its

alteration

pleadings.”
omitted).

Id.
Thus,

(internal
the

Court

strikes Travelers’ fifth affirmative defense.
IV.

CONCLUSION

For the reasons stated herein, the Court hereby rules as
follows:
1.

Lincoln

General’s

Motion

to

Dismiss

Illinois

National’s counter-claim and affirmative defenses [ECF No. 38]
is denied; and
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2.

Lincoln

General’s

Motion

to

Dismiss

Travelers’

counter-claim and affirmative defenses [ECF No.41] is denied,
except to the extent that it seeks to strike Travelers’ first
and fifth affirmative defenses, which are hereby stricken.

IT IS SO ORDERED.

Harry D. Leinenweber, Judge
United States District Court
Dated: June 18, 2015

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