Hartford Underwriters Insurance Company et al v. Guarantee Trust Life Insurance Company et al

Filing 63

MEMORANDUM Opinion and Order signed by the Honorable Virginia M. Kendall on 10/10/2017. The Court denies GTL's motion to dismiss for failure to state a claim on the counts relating to Hartford's request for declarations that they have no duty to defend and no duty to indemnify GTL for claims against it in the underlying arbitration. [Dkt. 48 .Mailed notice(lk, )

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

HARTFORD UNDERWRITERS INSURANCE
COMPANY, et al.,
Plaintiffs/Counterclaim-Defendants,
v.
GUARANTEE TRUST LIFE INSURANCE
COMPANY, et al.,
Defendants/Counterclaim-Plaintiffs.

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No. 16 C 10478
Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER
Hartford Underwriters Insurance Company and Hartford Casualty Insurance Company
(collectively “Hartford”) filed suit against Guarantee Trust Life Insurance Company (“GTL”)
and Platinum Supplemental Insurance, Inc. (“Platinum”) seeking a declaratory judgment
pursuant to 28 U.S.C. § 22011 and § 1332 that Hartford, as GTL’s insurer, owes no coverage to
GTL in connection to an arbitration dispute with Platinum.2 (Dkt. No. 1, ¶ 1.) GTL filed a
Counterclaim against Hartford alleging breach of contract (Count I) and attorney fees pursuant to
215 ILCS § 5/155 for vexatious and unreasonable delay in resolving the insurance dispute
(Count II). (Dkt. No. 12, ¶¶ 41, 46.) GTL now moves to dismiss Hartford’s Complaint under
Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted. For the
reasons below, the Court denies GTL’s motion to dismiss the Complaint. [Dkt. 48.]

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“[A]ny court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal
relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any
such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.”
2
Pursuant to a stipulation by the parties, the Court dismissed Platinum Supplemental Insurance, Inc. as a party and
so the only remaining Defendant is GTL. Platinum remains in the case as a party pursuant to their relative interest
in the outcome. (Dkt. Nos. 37, 42.)

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BACKGROUND
The following facts are set forth in Hartford’s Complaint unless otherwise noted and are
accepted as true for the purpose of reviewing the motion to dismiss.
I. The Insurance Policies
GTL had two insurance policies from Hartford effective annually from January 1, 2015
through January 1, 2017: 1) a liability policy that covered liability against “Bodily Injury And
Property Damage,” as well as “Personal And Advertising Injury Liability;” and 2) an excess
umbrella liability policy which provided additional insurance “in excess of the [HUIC policy]”
as a result of “bodily injury, property damage, or personal and advertising injury.” (Dkt. No. 1,
¶¶ 14-15, 17.) Included in the policies are “Definitions” and “Exclusion” sections that explain
what terms such as “advertising” and “bodily injury” mean, as well as what particular activities
are covered under the policies. (Id.) Additional exclusions added to the policies by amendment
set forth the following:
This insurance does not apply to “bodily injury,” “property damage” or “personal
and advertising injury” for which the insured may be held liable:
1. Because of:
a.
Any obligation assumed by any insured; …
with respect to any contract or treaty of insurance, reinsured,
suretyship, annuity, endowment or employment benefit plan,
including applications, receipts or binders;
…
3. Resulting from the rendering of or failure to render the following professional
services:
a.
Advising, inspecting, reporting or making recommendations in the
insured’s capacity as an insurance company, consultant, broker,
agent or representative thereof; …
(Id. ¶¶ 16, 18.) Hartford attached copies of the full policies and addendums to those
policies as exhibits to its Complaint. (Id. ¶¶ 14, 16, 18.)

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II. The Underlying Arbitration Dispute
GTL is a legal mutual reserve company based in Glenview, Illinois. (Id. ¶ 4.) Platinum
is an Iowa corporation that does business within this District. (Id. ¶ 5.) On February 11, 2016,
GTL filed its First Amended Arbitration Demand over a contract dispute with Platinum related to
insurance programs “developed and marketed by Platinum,” for which GTL served as the
underwriter. (Id. Ex. A.) Platinum responded by filing a Counterclaim against GTL on May 5,
2016, seeking relief for breach of contract, tortious interference and other state common law and
statutory claims. (Id. Ex. B.) It was this underlying arbitration dispute between GTL and
Platinum that forms the basis of GTL’s request made July 29, 2016, demanding that Hartford
provide defense and indemnity against the arbitration Counterclaim as GTL’s insurer. (Id. ¶ 13.)
III. The Dispute between Hartford and GTL
As a result of GTL’s demand that Hartford defend and indemnify the Platinum
Counterclaims, Hartford filed this current complaint seeking declaratory relief. (Id. ¶¶ 1, 19.)
Specifically, Hartford asserts that it “owes no duty to defend or indemnify GTL in the
Underlying Arbitration.” (Id. ¶ 20.) Hartford’s Complaint requests declarations that Hartford
has no duty to defend or indemnify GTL, as well as declarations that the underlying policies do
not provide coverage for various costs and obligations that GTL claims are owed by Hartford.
(Id. at 18-27.)
LEGAL STANDARD
In lieu of a responsive pleading, a party may file a motion to dismiss for failure to state a
claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). The reviewing Court must
accept as true all of the facts set forth in the complaint. Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 572 (2007). In order to survive a motion to dismiss, the factual allegations set forth in the

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complaint, accepted as true, must “state a claim to relief that is plausible on its face,” thereby
allowing “the court to draw the reasonable inference that the defendant is liable.” Park Pet Shop,
Inc. v. City of Chicago, No. 15-3711, 2017 WL 4173707, at *2 (7th Cir. Sept. 21, 2017) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). In addition to the complaint, the Court may also
consider exhibits that are attached in support of the complaint that pertain to facts set forth within
the pleading. Thompson v. Illinois Dept. of Professional Regulation, 300 F.3d 750, 754 (7th Cir.
2002).
DISCUSSION
I. Hartford’s Claim There Was No Duty to Defend
To determine whether an insurer has a duty to defend, the Court must compare the
allegations in the underlying complaint with the provisions of the insurance policy in question.
St. Paul Fire and Marine Ins. Co. v. Village of Franklin Park, 523 F.3d 754, 756 (7th Cir. 2008).
“The duty to defend is only triggered if the facts alleged in the complaint fall within, or at least
within, the scope of the policy.” Id.
The Complaint filed by Hartford discussed the terms of the policies provided to GTL.
(Dkt. No. 1, ¶¶ 15, 17, Exs. H, F.) According to the Complaint, coverage included protection
against “bodily injury” or “property damage,” which were specifically defined in the policies, as
well as “personal and advertising injury liability.” (Id.) Additionally, the policies outlined
exceptions to coverage such as limitations on coverage depending on the provision of immediate
notice to Hartford of an occurrence. (Id.) Hartford seeks a declaratory judgment that they owed
no duty to defend GTL in the underlying arbitration action against Platinum because the scope of
Platinum’s Counterclaim does not fall within the policies’ coverage limits. See c.f. U.S. Fidelity
& Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 73 (Ill. 1991) (where an underlying
complaint alleges a theory of discovery against an insured, the insurer’s duty to defend arises
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even if only such theory falls within the coverage of the policy). Although GTL disagrees that
the policy does not cover the underlying arbitration action, when viewing the factual allegations
within the Complaint in the light most favorable to Hartford, it is plausible that the terms of the
policies do not require a duty to defend GTL in the underlying arbitration action. It is therefore
inappropriate to dismiss under Rule 12(b)(6) on the issue of whether Hartford had a duty to
defend GTL.
II. Hartford’s Claim There Was No Duty to Indemnify
The duty to indemnify, or “reimburse (another) for a loss suffered because of a third
party’s or one’s own act or default,”3 is both narrower than the duty to defend and arises only “if
the insured has already incurred liability in the underlying claim against it.” Outboard Marine
Corp. v. Liberty Mut. Ins. Co., 154 Ill.2d 90, 128 (Ill. 1992); see also Nat’l American Ins. Co. v.
Artisan and Truckers Cas. Co., 796 F.3d 717, 724 (7th Cir. 2015). Generally, “a principal has a
duty to indemnify the agent against expenses and other losses incurred by the agent in defending
against actions brought by third parties if the agent acted with actual authority in taking the
action challenged by the third party’s suit.” Hollingsworth v. Perry, 133 S.Ct. 2652, 2667 (2013)
(quoting 2 Restatement § 8.14, Comment d). Viewed through the lens of a principal-agent
relationship, GLT is the principal seeking indemnification from Hartford – its agent – for
damages incurred during the arbitration proceeding with Platinum. Here, Hartford’s Complaint
provides plausible factual allegations suggesting that they never agreed – by the terms of the
insurance policies – to indemnify GLT for actions such as the underlying arbitration dispute.
The two insurance policies between Hartford and GLT contain “exceptions” clauses as
outlining particular areas where coverage is prohibited. (Dkt. No. 1, ¶¶ 15, 17, Exs. F, H.)

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INDEMNIFY, Black's Law Dictionary (10th ed. 2014).

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Hartford’s Complaint specifically identifies provisions within the addendum to the policies that
further prohibit coverage in circumstances where GLT is acting as an insurer. (Id. ¶¶ 16, 18,
Exs. G, I.) They further allege that the underlying arbitration dispute arises as a result of GLT
acting as insurer. (Id. ¶ 27.) The problem for GLT in the context of a Rule 12(b) motion to
dismiss is that Hartford does not identify any underlying resolution of a dispute that requires
indemnification. Hartford’s allegations within the Complaint, taken as true for the purpose of the
motion to dismiss, are that the insurance policies specifically exclude indemnification on the type
of claim that GLT seeks because of its dispute with Platinum.

These factual assertions are

enough to preclude dismissal for failure to state a claim because the Complaint does not make
reference to any “liability or expense already incurred” that fall within the scope of coverage for
either policy.
III. Claim Sufficiency Based on the Pleadings
GTL argues there is no case or controversy because Hartford, as GTL’s insurer, settled
the underlying arbitration dispute between GTL and Platinum and so there is no claim requiring
a declaratory judgment that Hartford owes a duty to defend or indemnify. (Dkt. No. 49, at 3-5.)
GTL supports this theory on the basis set forth in its position paper and the memorandum in
support of the motion to dismiss that Hartford settled the underlying coverage claim directly with
Platinum, thereby nullifying any active case or controversy as to the duty to defend. (Dkt. No.
45, at 6-8; Dkt. No. 49; at 3-4.) Similarly, GTL points out the lack of any case or controversy as
to Hartford’s duty to indemnify (or not indemnify) because they have in fact indemnified GTL
through a settlement with Platinum. (Dkt. No. 49, at 4-5.) Alternatively, GTL argues that
Illinois law requires Hartford, as the insurer, to pay the defense costs already incurred by GTL,

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as the insured, until Hartford obtains written notice that it no longer has a duty to defend. (Id.
49, at 3-5.)
The issue with these arguments, as pointed out by Hartford in its opposition to the motion
to dismiss, is that GTL asks the Court to grant a Rule 12(b)(6) motion based on materials in the
record other than the complaint itself, or in supporting documents attached to the complaint.
(Dkt. No. 57, at 6.) This method is contrary to the traditional approach when ruling on Rule
12(b)(6) motions. Thomason v. Nachtrieb, 888 F.2d 1202, 1205 (7th Cir. 1989) (consideration of
a motion to dismiss is limited to the pleadings); See Fed. R. Civ. P. 10(c) (written instruments
attached as exhibits to a pleading are part of the pleading); see also Levenstein v. Salafsky, 164
F.3d 345, 347 (7th Cir. 1998) (the exception allowing ‘documents attached to a motion to
dismiss’ is very narrow and not intended to ignore the distinction between a motion to dismiss
and a motion for summary judgment). GTL asks the Court to dismiss Hartford’s Complaint
because the underlying dispute – the claims levied against GTL by Platinum in arbitration
proceedings – is no longer a live case or controversy as proven by subsequent filings that detail
how Hartford settled those claims on behalf of GTL as its insurer. (Dkt. No. 45, at 3-6.) For its
part, Hartford now concedes there was a settlement, but it contests whether or not a resolution as
to “all of the underlying issues” occurred because of the settlement, and also whether the details
of the settlement agreement with Platinum are admissible against Hartford in this current action.
Procedurally, the position papers filed by both parties fall outside of the “four corners” of
the original complaint, as well as the narrowly-construed exception of exhibits attached to the
complaint, and so they are inadmissible when deciding a motion to dismiss. Venture Associates
Corp. v. Zenith Data Systems Corp., 987 F.2d 429, 431 (7th Cir. 1993). GTL used the position
paper, filed shortly before its second motion to dismiss in order to argue there is no existing case
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or controversy because Hartford settled the underlying dispute, which warrants dismissal in the
present action for failure to state a claim capable of review.

However, when the Court utilizes

materials outside of the pleading to decide a motion to dismiss, it must first convert the motion
into a motion for summary judgment and permit applicable discovery. Fed. R. Civ. P. 12(b); see
Venture Associates Corp., 987 F. 2d at 431; see also Covington v. Illinois Sec. Service, Inc., 269
F.3d 863 (7th Cir. 2001). On the other hand, when a party requesting a motion to dismiss relies
on exhibits that are not referenced in the Complaint, the Court needn’t convert the motion into
one for summary judgment. Venture Associates Corp., 987 F. 2d at 431. This goes to the issue
before the Court: GTL argues for dismissal because subsequent filings identify a settlement of
the “the Underlying Arbitration” (Dkt. No. 45, at 3-6), however it is inappropriate to rule on such
an issue when there is no inclusion of the settlement in the complaint itself.
CONCLUSION
For the reasons explained above, the Court denies GTL’s motion to dismiss for failure to
state a claim on the counts relating to Hartford’s request for declarations that they have no duty
to defend and no duty to indemnify GTL for claims against it in the underlying arbitration. [Dkt.
48.]

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Hon, Virginia M. Kendall
United States District Judge
Date: October 10, 2017

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