States Self-Insurers Risk Retention Group, Inc. v. City Of Waukegan

Filing 69

MEMORANDUM Opinion and Order written by the Honorable Gary Feinerman on 3/16/2018.Mailed notice.(jlj, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
STATES SELF-INSURERS RISK RETENTION
GROUP, INC.,
Plaintiff/Counter-Defendant,
vs.
CITY OF WAUKEGAN; ADRENE YANCEY,
Administrator of the Estate of ARTIS YANCEY,
deceased; Special Representative for LUIS MARQUEZ,
deceased; Special Representative for JOHN MORAN,
deceased; EDWARD DENNIS; and ANGEL
GONZALEZ,
Defendants/Counter-Plaintiffs.

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17 C 1028
Judge Gary Feinerman

MEMORANDUM OPINION AND ORDER
In 1994, City of Waukegan police officers arrested Angel Gonzalez for rape and
kidnapping, and in 1995 he was convicted and imprisoned. More than twenty years later, after
DNA evidence exonerated him, Gonzalez sued Waukegan and several officers involved in his
arrest and prosecution (collectively, unless context requires otherwise, “Waukegan”) under 42
U.S.C. § 1983 and Illinois law. Waukegan tendered the case to one of its insurers, States SelfInsurers Risk Retention Group, and States brought the present coverage suit under the diversity
jurisdiction against Waukegan and Gonzalez—who, as the plaintiff in the underlying suit, is a
necessary party, see Great W. Cas. Co. v. Mayorga, 342 F.3d 816, 817 (7th Cir. 2003); M.F.A.
Mut. Ins. Co. v. Cheek, 363 N.E.2d 809, 811 (Ill. 1977)—seeking a declaration of non-coverage.
Doc. 11. Waukegan and Gonzalez counterclaimed separately, seeking a declaration of coverage.
Docs. 25, 35.

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Waukegan and States have cross-moved for judgment on the pleadings under Federal
Rule of Civil Procedure 12(c). Docs. 49, 52. Gonzalez has not moved for judgment, but did file
an opposition to States’s motion. Doc. 59. States’s motion is granted and Waukegan’s motion is
denied.
Background
As on a Rule 12(b)(6) motion, the court on a Rule 12(c) motion assumes the truth of the
operative complaint’s well-pleaded factual allegations, though not its legal conclusions. See
Zahn v. N. Am. Power & Gas, LLC, 815 F.3d 1082, 1087 (7th Cir. 2016); Adams v. City of
Indianapolis, 742 F.3d 720, 727-28 (7th Cir. 2014); Pisciotta v. Old Nat’l Bancorp, 499 F.3d
629, 633 (7th Cir. 2007). The court must also consider “documents attached to the complaint,
documents that are critical to the complaint and referred to in it, and information that is subject to
proper judicial notice,” along with additional facts set forth in the parties’ briefs opposing
judgment, so long as those additional facts “are consistent with the pleadings.” Phillips v.
Prudential Ins. Co. of Am., 714 F.3d 1017, 1020 (7th Cir. 2013); see also N. Ind. Gun & Outdoor
Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir. 1998). In setting forth the facts at
the pleading stage, the court does not vouch for their accuracy. See Jay E. Hayden Found. v.
First Neighbor Bank, N.A., 610 F.3d 382, 384 (7th Cir. 2010). That said, the pertinent facts are
undisputed.
A.

The Gonzalez Lawsuit

Waukegan police officers arrested Gonzalez in July 1994 and later caused him to be
charged with aggravated sexual assault and aggravated kidnapping. Doc. 11-1 at ¶ 2; Doc. 25 at
p. 5, ¶ 14; Doc. 33 at p. 4, ¶ 14; Doc. 35 at ¶ 17. He was convicted in 1995 and sentenced to 55
years’ imprisonment. Doc. 11-1 at ¶ 4; Doc. 25 at p. 5, ¶ 14; Doc. 33 at p. 4, ¶ 14; Doc. 35 at

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¶ 19. Gonzalez moved for post-conviction DNA testing of the available physical evidence,
which ultimately showed that his genetic profile did not match the perpetrator’s. Doc. 11-1 at
¶¶ 5, 78-80; Doc. 25 at p. 6, ¶¶ 15-16; Doc. 33 at p. 5, ¶¶ 15-16. His conviction was vacated in
March 2015, and a certificate of innocence issued months later. Doc. 11-1 at ¶¶ 5-7, 81-83; Doc.
25 at p. 6, ¶¶ 15-16; Doc. 33 at p. 5, ¶¶ 15-16; Doc. 35 at ¶ 21.
Gonzalez then sued the City of Waukegan and several Waukegan police officers in
federal court under federal and state law. Gonzalez v. City of Waukegan, 16 C 2906 (N.D. Ill.
filed Mar. 7, 2016) (complaint reproduced at Doc. 11-1); Doc. 25 at p. 5, ¶ 13; Doc. 33 at p. 4,
¶ 13; Doc. 35 at ¶ 16. Gonzalez alleges that, pursuant to Waukegan’s policies and practices and
its failure to properly train its police, the officers fabricated incriminating evidence and withheld
exculpatory evidence, fabricated and coerced false confessions, filed false police reports, and
committed perjury, resulting in his wrongful conviction and imprisonment. Doc. 11-1; Doc. 25
at pp. 5-8, ¶¶ 13, 18-21; Doc. 33 at pp. 4-8, ¶¶ 13, 18-21; Doc. 35 at ¶¶ 16, 22-23.
B.

The States Policy

Waukegan notified States of the Gonzalez suit in April 2016, seeking coverage under its
Public Entity Excess Liability Insurance Policy, which was in place from July 1, 2015 to July 1,
2016 (the “States Policy”). Doc. 11-4 at 4; Doc. 25 at pp. 9-13, ¶¶ 24, 34-35; Doc. 33 at pp. 913, ¶¶ 24, 34-35; Doc. 35 at ¶¶ 25, 32-33, 83. The policy became effective on November 1,
2013, and was renewed on the same terms on November 1, 2014, and again on July 1, 2015.
Doc. 11-2 at 4; Doc. 11-3 at 4; Doc. 11-4 at 4. The policy is an occurrence policy, which means
that Waukegan was insured against covered events that took place during the coverage period
regardless of when it made claims for coverage. Doc. 25 at p. 10, ¶ 26; Doc. 33 at pp. 9-10, ¶ 26;
Doc. 35 at ¶ 26; see Truck Ins. Exch. v. Ashland Oil, Inc., 951 F.2d 787, 790 (7th Cir. 1992)

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(“Whereas an occurrence policy protects the insured against the financial consequences of an
accident or other liability-creating event that occurs during the policy period, no matter when the
claim is made—it might be many years later—a claims-made policy protects the insured against
the financial consequences of a legal claim asserted against him during the policy period.”).
The States Policy includes a “Public Entity Liability Insuring Agreement” and a “Public
Entity Management Practices Liability Insuring Agreement.” Doc. 11-2 at 8-9. The Public
Entity Liability Insuring Agreement, set forth in Section I.A of the policy, provides:
SECTION I – INSURING AGREEMENTS
A.

Public Entity Liability Insuring Agreement

1. States will pay damages the insured is legally obligated to pay that are the
result of bodily injury, property damage, or personal injury if:
a. the applicable self-insured retention has been exhausted by the actual
payment of covered damages or legal expenses by or on behalf of the
named insured; and
b. the bodily injury or property damage is first sustained during the policy
period in the coverage territory and results from an occurrence; or
c. the personal injury is first committed during the policy period in the
coverage territory. For the purposes of the coverage afforded for the
offense of malicious prosecution, the personal injury will be deemed to
have been committed at the time the prosecution was initiated.
Id. at 8. The Public Entity Management Practices Liability Insuring Agreement, set forth in
Section I.B of the policy, provides:
B.

Public Entity Management Practices Liability Insuring Agreement

1. States will pay damages the insured is legally obligated to pay that are the
result of a wrongful act if:
a. the applicable self-insured retention has been exhausted by the actual
payment of covered damages or legal expenses by or on behalf of the
named insured; and
b. the wrongful act is first committed during the policy period in the

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coverage territory.
Id. at 8-9.
The States Policy defines the following italicized terms:
•

“Bodily injury means physical injury, sickness or disease sustained by a
person, including death,” and further including “emotional distress and
mental anguish that results from the physical injury, sickness or disease.”
Id. at 21.

•

“Claim means a demand for damages. Claim also means a civil proceeding
seeking damages, and includes: 1. an arbitration submitted to with States’
consent; or 2. any other alternative dispute resolution proceeding in which
covered damages are claimed and to which the insured submits with States’
consent.” Id. at 21-22.

•

“Damages means … a monetary amount paid to compensate an individual
or entity for an injury or loss covered by this policy” together with pre- and
post-judgment interest and attorney fees. Id. at 22.

•

“Personal injury means: 1. false arrest; 2. false imprisonment; 3. libel or
slander; 4. invasion of privacy; 5. wrongful eviction; 6. malicious
prosecution; 7. abuse of process; and 8. infringement of copyright, title or
slogan in a named insured’s advertisement.” Id. at 25.

•

“Wrongful Act means an act, error, omission or breach of duty arising out of
the operations of a named insured.” Id. at 27.

The parties agree that “bodily injury,” “personal injury,” and “wrongful act” encompass the acts
alleged in Gonzalez, and that “named insured” and “insured” encompass Waukegan and the
officer defendants in Gonzalez. Doc. 25 at p. 11, ¶¶ 27-29; Doc. 33 at pp. 10-11, ¶¶ 27-29; Doc.
35 at ¶¶ 27-29.
Significant here, the States Policy includes “nose” coverage, which extends coverage to
acts committed during the twenty-two years prior to the policy’s effective date of November 1,
2013. Doc. 25 at p. 12, ¶ 30; Doc. 33 at p. 11, ¶ 30. That time period includes 1994 and 1995,
when the events alleged in Gonzalez took place. Ibid. The nose coverage’s terms appear in the
“Prior Acts Endorsement,” which amends Section I.A.1.b. of the States Policy as follows:

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Section I, A. 1. (b.) is deleted and replaced with the following:
b. the bodily injury or property damage is first sustained during the policy
period in the coverage territory or; the bodily injury or property damage is
first sustained in the coverage territory during 22 years prior to the
inception date shown in the Declarations of this policy and;
1. the named insured had no knowledge at the inception of this policy of
the bodily injury or property damage or could not have reasonably
foreseen that the bodily injury or property damage might give rise to a
claim;
2. there is no insurance or other indemnity agreement that applies, in
whole or in part, to the claim arising from the bodily injury or property
damage;
3. the policy providing coverage for bodily injury or property damage
immediately preceding this policy was claims-made, not occurrence,
coverage;
4. the insured had public entity general liability insurance in effect during
the five years prior to the inception of this policy; and
5. no claim was made seeking damages for the bodily injury or property
damage prior to the inception of this policy.
Doc. 11-2 at 33. The five enumerated conditions of nose coverage are henceforth referred to as
the conditions precedent. The Prior Acts Endorsement makes an identical modification to
Section I.A.1.c. of the policy, except that the term “bodily injury or property damage” is replaced
with “personal injury,” and the term “sustained” is replaced with “committed.” Id. at 33-34. The
Prior Acts Endorsement makes the same modification to Section I.B.1.b. of the policy, except
that the term “bodily injury or property damage” is replaced with “wrongful act,” the term
“sustained” is again replaced with “committed,” and the term “public entity general liability
insurance” is replaced with “public entity management practices liability insurance.” Id. at 34.
Shortly after Waukegan notified it of the Gonzalez suit, States sent Waukegan a letter
denying coverage. Doc. 25 at p. 13, ¶¶ 34-35; Doc. 33 at pp. 12-13, ¶¶ 34-35; Doc. 35 at ¶¶ 3233. States’s letter asserted that Waukegan was covered for the acts alleged in Gonzalez under a

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different insurance policy, issued by Certain Underwriters at Lloyd’s and Northfield Insurance
Company, that was in effect when Gonzalez was arrested and charged in July 1994 (the “Lloyd’s
Policy”). Doc. 35 at ¶¶ 12 n.2, 50 n.3, 70; see also Doc. 25 at p. 13, ¶ 36; Doc. 33 at p. 13, ¶ 36.
As a result, States concluded, Waukegan failed to satisfy the Prior Acts Endorsement’s second
condition precedent for nose coverage—that “there is no insurance or other indemnity agreement
that applies, in whole or in part, to the claim arising from” the acts alleged in Gonzalez. Doc. 35
at ¶ 59. States added several other bases for denying coverage, but did not invoke the third
condition precedent for nose coverage. Doc. 25 at pp. 15-17, ¶¶ 42-47; Doc. 33 at pp. 15-16,
¶¶ 42-47.
C.

The Lloyd’s Policy

The “Comprehensive General Liability” provision of the Lloyd’s Policy, set forth in
Section II.A of the policy, states in pertinent part:
Underwriters hereby agree, subject to the limitations, terms and conditions
hereunder mentioned, to indemnify the Assured for all sums which the Assured
shall be obligated to pay by reason of the liability imposed upon the Assured by
law or assumed by the Assured under contract or agreement for damage direct
or consequential, and expenses, all as more fully defined by the term ‘ultimate
net loss’, on account of personal injuries, including death at any time resulting
therefrom, suffered or alleged to have been suffered by any person or persons
(excepting employees of the Assured injured in the course of their
employment) … happening during the period of this insurance except as
covered under Section II B & C.
Doc. 48-1 at 19. The “Law Enforcement Liability” provision, set forth in Section II.C, states in
pertinent part:
Underwriters hereby agree, subject to the limitations, terms and conditions
hereunder mentioned, to indemnify the Assured for all sums which the Assured
shall be obligated to pay by reason of errors, omissions or negligent acts arising
out of the performance of the Assured’s duties while acting as a law
enforcement official or officer in the regular course of public employment as
hereinafter defined, arising out of any occurrence from any cause on account of
Personal Injury, Bodily Injury, Property Damage happening during the period of
the insurance except as covered under Section II A and B.
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Ibid. Both of these Section II provisions extend occurrence-based coverage. Ibid.
The Lloyd’s Policy defines the term “Personal Injury” to include “Bodily Injury, Mental
Anguish, … Malicious Prosecution, [and] Discrimination,” as well as, but only for purposes of
the Law Enforcement Liability provision, “False Arrest, False Imprisonment, Detention and
Violation of Civil Rights arising out of Law Enforcement activities.” Ibid. The term “Bodily
Injury” means “physical injury to any person … and any mental anguish or mental suffering
associated with or arising from such physical injury.” Id. at 20. The term “Named Assured”
includes “[t]he City of Waukegan and all boards, departments, divisions, commissions,
authorities and any other activities under the supervision or control of the City whether now or
hereafter constituted.” Id. at 7. The term “Assured” includes “not only the Named Assured but
also … any official, trustee, Director, Officer, Partner, Volunteer or employee of the Named
Assured while acting within the scope of his duties as such.” Id. at 11.
The Lloyd’s Policy also contains a separate “Errors and Omissions” provision, set forth
in Section IV, which states: “If during the Policy Period, any Claim is first made against the
Assured for a Wrongful Act, [Lloyd’s] will indemnify the Assured, for all Loss incurred by the
Assured by reason of any Wrongful Act as hereinafter defined.” Id. at 26. Unlike the
Comprehensive General Liability and Law Enforcement Liability coverage provided in Section
II, which is occurrence-based, the Errors and Omissions coverage provided in Section IV is
claims-based. Ibid.; see Truck Ins. Exch., 951 F.3d at 790 (distinguishing claims-based coverage
from occurrence-based coverage). The policy defines the term “Wrongful Act” as “any actual or
alleged error or mis-statement, omission, act of neglect or breach of duty including misfeasance,
malfeasance, and non-feasance by the Assured.” Doc. 48-1 at 26. Although the term
“‘Wrongful Act’ includes actual or alleged violations of the United States Constitution … or any

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law affording protection for civil rights,” the Errors and Omissions provision does not apply to
“any Claim made against the Assured … arising out of law enforcement activities” or to “any
claim for damages … which is covered under any other Section of this Policy.” Id. at 27.
Waukegan tendered the Gonzalez lawsuit to Lloyd’s and Northfield under the Lloyd’s
Policy. Doc. 59-1 at 5, 12. Waukegan, on the one hand, and Lloyd’s and Northfield, on the
other, ultimately entered into materially identical “Risk Management Agreement[s]” in June
2017. Id. at 2, 4, 11. Each Agreement provides:
[T]he Parties wish to resolve their present coverage disputes related to the
Gonzalez Lawsuit by way of compromise and without waiver of or prejudice to
their respective positions in respect of these or other current or future coverage
disputes, but strictly as a means of avoiding the expense, time and uncertainty
of coverage litigation and without regard to the merits of each other’s claims,
defenses or positions.
Id. at 5, 12.
Pursuant to the Agreements, Lloyd’s and Northfield agreed to pay Waukegan $270,000
and $630,000, respectively, for a total of $900,000. Id. at 6, 13. Each insurer represented that
those amounts comprised “the full limits of [its] liability” under the Lloyd’s Policy. Ibid. In
exchange, Waukegan agreed to release Lloyd’s and Northfield from “any and all claims” against
them, including “any demand, request or claim for past or future costs of defense, settlement or
indemnity arising out of, related to or in connection with the Gonzalez Lawsuit.” Id. at 6, 13.
D.

The Indian Harbor Policy

Indian Harbor Insurance Company issued the policy (the “Indian Harbor Policy”) that
Waukegan had in place from November 1, 2012 to November 1, 2013, immediately prior to the
States Policy’s effective date. Doc. 35 at ¶ 52; Doc. 35-1 at 66-102. Like the States Policy, the
Indian Harbor Policy provided occurrence-based “Law Enforcement Liability Coverage” for “all
damages resulting from a wrongful act(s) which arise out of … law enforcement activities.”

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Doc. 35-1 at 68; see also Doc. 33 at p. 27; Doc. 35 at ¶ 52. For purposes of the Law
Enforcement Liability Coverage, the Indian Harbor Policy defined the term “wrongful act” to
“mean[] an actual or alleged error or omission, negligent act, neglect or breach of duty by an
insured while conducting law enforcement activities, which result in: a. personal injury, or b.
bodily injury, or c. property damage, caused by an occurrence.” Doc. 35-1 at 72.
The Indian Harbor Policy separately provided claims-based coverage for a different
category of wrongful act. Doc. 35-1 at 86, 96-97. Under the policy’s “Public Officials and
Public Employment Practices Liability Coverage,” Waukegan was covered for “wrongful
employment practice(s),” which included “employment related discrimination in connection with
hiring, promotion, advancement or opportunity demotion, discipline, pay, or termination”;
“sexual harassment, including unwelcome sexual advances, requests for sexual favors, or other
verbal or physical conduct of a sexual nature”; and “any of the following employment related
acts: misrepresentation, invasion of privacy, defamation, retaliation, negligent infliction of
emotional distress, wrongful discipline, negligent evaluation, negligent hiring, or negligent
supervision.” Ibid.
Discussion
The court resolves a Rule 12(c) motion under the same standard as a Rule 12(b)(6)
motion. See Guise v. BWM Mortg., LLC, 377 F.3d 795, 798 (7th Cir. 2004). The parties agree
that this suit is governed by Illinois law. Doc. 50 at 2; Doc. 53 at 7. The Seventh Circuit has
summarized Illinois law governing the interpretation of insurance policies as follows:
In Illinois, insurance policies are contracts; the general rules governing the
interpretation and construction of contracts govern the interpretation and
construction of insurance policies. Illinois courts aim to ascertain and give
effect to the intention of the parties, as expressed in the policy language, so
long as doing so does not contravene public policy. In doing so, they read the
policy as a whole and consider the type of insurance purchased, the risks

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involved, and the overall purpose of the contract. If the policy language is
unambiguous, courts apply it as written. Policy terms that limit an insurer’s
liability are liberally construed in favor of coverage, but only when they are
ambiguous, or susceptible to more than one reasonable interpretation.
Clarendon Nat’l Ins. Co. v. Medina, 645 F.3d 928, 933 (7th Cir. 2011) (citations omitted). “[A]
court will not search for ambiguity where there is none.” Valley Forge Ins. Co. v. Swiderski
Elecs., Inc., 860 N.E.2d 307, 314 (Ill. 2006); see also Native Am. Arts, Inc. v. Hartford Cas. Ins.
Co., 435 F.3d 729, 732 (7th Cir. 2006).
According to States, this case is simple. States concedes that the Gonzalez suit is a
“claim” within the meaning of the States Policy for bodily injury (Gonzalez’s pain and suffering,
mental anguish, and severe emotional distress), personal injury (malicious prosecution, false
arrest, false imprisonment, and detention), and wrongful acts (Waukegan’s actions related to its
law enforcement efforts). Doc. 53 at 8-9. States argues, however, that pursuant to the Prior Acts
Endorsement’s second condition precedent, Gonzalez falls within the scope of the States Policy’s
nose coverage only if Waukegan has “no insurance or other indemnity agreement that applies” to
the suit. Ibid. And because the Lloyd’s Policy applies to Gonzalez, States maintains, the second
condition precedent is not satisfied and there accordingly is no nose coverage. Ibid.; Doc. 11 at
¶ 40 (“Because … the Lloyd’s Policy applies ‘in whole or in part’ to the Gonzalez action, there is
no coverage for Waukegan under the States Policy’s Prior Acts Endorsement.”).
In response, Waukegan first argues that because certain of the Prior Acts Endorsement’s
conditions precedent render illusory the States Policy, none of the conditions precedent may be
enforced to deny nose coverage. In the alternative, assuming that the States Policy is not
illusory, Waukegan argues that it in fact has satisfied the second condition precedent, while
Gonzalez maintains that it cannot be determined on the pleadings whether that condition
precedent has been satisfied. Those responses fail to persuade.

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I.

The Prior Acts Endorsement’s Conditions Precedent Do Not Render Illusory the
States Policy.
Waukegan contends that because the Prior Acts Endorsement’s third condition precedent

can never be satisfied, the States Policy is worthless and illusory, which under Illinois law
renders unenforceable all five conditions precedent. Doc. 50 at 9-10; Doc. 61 at 5-6.
Waukegan’s logic runs as follows. The third condition precedent provides that nose coverage
under the States Policy applies only if “the policy providing coverage for [bodily injury, property
damage, personal injury, or a wrongful act] immediately preceding this policy was claims-made,
not occurrence, coverage.” Doc. 11-2 at 33-34. However, the applicable coverage Waukegan
had in place immediately prior to the States Policy—under the Indian Harbor Policy’s Law
Enforcement Liability Coverage provision—was occurrence-based, thus defeating the third
condition precedent. Doc. 50 at 10. Consequently, Waukegan contends, applying and enforcing
the third condition precedent “renders [the States Policy] substantially worthless and inherently
illusory,” as “there is no scenario possible under which Waukegan could ever be covered for any
law enforcement related claim of bodily injury, property damage or personal injury because it
would always be barred under Condition 3.” Ibid. In turn, because the five conditions
precedent “serve as an integrally dependent unit,” invalidating the third condition precedent
because it can never be satisfied invalidates them all. Id. at 11. And once the conditions
precedent are invalidated, Waukegan contends, Gonzalez’s malicious prosecution claim is
covered under Section I.A.1.c. of the Prior Acts Endorsement because, under that provision, the
personal injury he alleges (malicious prosecution) is “deemed to have been committed at the time
the prosecution was initiated”—in this case, July 1994, which falls within the nose provision’s
twenty-two year coverage period. Ibid.

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The pertinent legal principles are as follows. Under Illinois law, “[a]n illusory promise
appears to be a promise, but on closer examination reveals that the promisor has not promised to
do anything. … An illusory promise is also defined as one in which the performance is optional.”
Regensburger v. China Adoption Consultants, Ltd., 138 F.3d 1201, 1206-07 (7th Cir. 1998)
(quoting W.E. Erickson Constr., Inc. v. Chi. Title Ins. Co., 641 N.E.2d 861, 864 (Ill. App. 1994));
see also 3 Williston on Contracts § 7:7 (4th ed. 2017) (“Where an illusory promise is made, that
is, a promise merely in form, but in actuality not promising anything, it cannot serve as
consideration.”). For an insurance policy to be illusory, the insurer’s promise, construing the
policy as a whole, must be “empty” or “optional.” W.E. Erickson, 641 N.E.2d at 864; see also
Sears, Roebuck & Co. v. Reliance Ins. Co., 654 F.2d 494, 499 (7th Cir. 1981) (“But if this
exclusion is construed as Commercial suggests, there would never be any coverage for
Sears … . The law cannot countenance such illusory ‘coverage.’”); Aetna Cas. & Sur. Co. v.
O’Rourke Bros., 776 N.E.2d 588, 598 (Ill. App. 2002) (“[A]llowing Aetna to apply the retained
limit to each and every settlement by every plaintiff would, in effect, deny O’Rourke all
coverage and make Aetna’s … policy coverage illusory.”); Empl’rs’ Fire Ins. Co. v. Berg, 2007
WL 273559, at *4 (N.D. Ill. Jan. 25, 2007) (“Illusory coverage means that the policy, when read
as a whole, provides no coverage at all.”) (citing W.E. Erickson, 641 N.E.2d 861); Murray Ohio
Mfg. Co. v. Cont’l Ins. Co., 705 F. Supp. 442, 444 (N.D. Ill. 1989) (“The small print cannot
‘taketh away’ one hundred percent of what the large print ‘giveth.’”). A policy provision that
would render coverage under the policy truly illusory may not be enforced. See O’Rourke Bros.,
776 N.E.2d at 598; Archer Daniels Midland Co. v. Burlington Ins. Co. Grp., 785 F. Supp. 2d
722, 735 (N.D. Ill. 2011); Murray Ohio Mfg., 705 F. Supp. at 444; 3 Williston on Contracts
§ 7:7.

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A.

Regardless of whether Waukegan could satisfy the nose coverage’s
conditions precedent, the States Policy is not illusory because they do
not apply to the policy period coverage.

The States Policy is not illusory because States’s obligations thereunder are neither
empty nor optional. Examining the Prior Acts Endorsement’s text shows that the conditions
precedent apply only to the nose coverage, not to coverage for the policy period. The Prior Acts
Endorsement provides for coverage where:
the bodily injury or property damage [or personal injury or wrongful act] is
first sustained [or committed] during the policy period in the coverage
territory or; the bodily injury or property damage [or personal injury or
wrongful act] is first sustained [or committed] in the coverage territory during
22 years prior to the inception date shown in the Declarations of this policy
and; [the five conditions precedent are met].
Doc. 11-2 at 33-34 (emphasis added). The word “or” and the following semicolon set off the
first part of the passage—providing coverage during the “policy period”—as a separate and
independent provision not subject to the conditions precedent, which apply only to the coverage
set forth after the semicolon, the nose coverage.
The Appellate Court of Illinois reached the same conclusion under analogous
circumstances in Smith v. Neumann, 682 N.E.2d 1245 (Ill. App. 1997). The policy in Smith set
forth two coverage alternatives, in subsections (aa) and (bb), with the insurer agreeing to:
pay on behalf of the Insured all sums in excess of the Deductible
amount … which the Insured shall become legally obligated to pay as
damages … by reason of any act, error or omission in professional services
rendered or that should have been rendered by the insured[,] PROVIDED
ALWAYS THAT such act, error or omission or such Personal Injury happens:
aa. during the policy period, or bb. prior to the policy period provided
that, prior to the effective date of this policy: 1. the Insured did not
give notice to any prior insurer of any such act, error, omission or
Personal Injury, and 2. the Insured did not have a basis to believe that
the act, error or omission or Personal Injury was a breach of
professional duty or may result in a claim, and 3. there is no prior
policy or policies which provide insurance for such liability or claim
….
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682 N.E.2d at 1248 (emphasis added). As in the States Policy, the disjunctive “or” set off the
policy period coverage (in subsection (aa)) from the prior period coverage (in subsection (bb)),
and the conditions precedent were set forth after the prior period coverage language. Given this
sequence, Smith held that the conditions precedent applied only to the prior period coverage. As
the court explained, the policy “sets forth two different principles for determining when the
coverage is available … . No limitation on coverage is listed when a negligent act occurs during
[the policy] period. However, when the negligent act occurs prior to the effective date of the
policy period, coverage [pursuant to the condition precedent in subsection (bb)(3)] extends only
when no other policy can provide coverage.” Id. at 1251. The same holds true under the
materially identical policy language here.
Even putting aside Smith, the Prior Acts Endorsement’s first, third, fourth, and fifth
conditions precedent presuppose that the insured seeks coverage for an event that predates the
policy period, which necessarily means that they cannot sensibly be read to apply to a claim
made during the policy period. Consider the first condition precedent, which provides “that the
named insured had no knowledge at the inception of this policy of the [bodily injury, property
damage, personal injury, or wrongful act] or could not have reasonably foreseen that the [bodily
injury, property damage, personal injury, or wrongful act] might give rise to a claim.” Doc. 11-2
at 33-34. Knowing or reasonably foreseeing at the inception of the States Policy that some event
qualified as bodily injury, property damage, personal injury, or wrongful act requires that the
event have taken place before the States Policy came into effect.
The third condition likewise makes sense only if it applies to events occurring before the
policy’s effective date. That condition provides that “the policy providing coverage for [bodily
injury, property damage, personal injury, or a wrongful act] immediately preceding this policy

15

was claims-made, not occurrence, coverage.” Ibid. For a claim made during the policy period, it
would not matter what kind of insurance Waukegan had in place before the States Policy came
into effect. For the nose coverage, however, it would matter a great deal. Nose coverage exists
to indemnify an insured for an event that occurred in the past, but for which the deadline to file a
claim has already passed. For that reason, an insured needs nose coverage only when its
previous insurance is claims-based; occurrence-based coverage, by definition, does not impose
filing deadlines, so long as the event giving rise to the claim took place during the coverage
period. See Ernie Haire Ford, Inc. v. Universal Underwriters Ins. Co., 541 F. Supp. 2d 1295,
1302 n.9 (M.D. Fla. 2008) (nose coverage is “designed to provide an insured—during an initial
policy period when the insured is changing from claims-made to occurrence-type coverage—
with coverage for prior acts”). The third condition precedent thus sensibly applies only to the
nose coverage, not to the policy period coverage.
The same holds true for the fourth and fifth conditions precedent. As to the fourth—
which provides that “the insured had public entity general liability insurance [or public entity
management practices liability insurance] in effect during the five years prior to the inception of
this policy,” Doc. 11-2 at 33-34—the insured’s previous insurance would not be relevant to a
claim filed during the policy period. And as to the fifth—which provides that “no claim was
made seeking damages for [or as a result of the bodily injury, property damage, personal injury,
or wrongful act],” ibid.—a claim could have been filed prior to the inception of the States Policy
only if the event underlying it also took place before the policy came into effect.
The bottom line, then, is that the States Policy obligates States to indemnify Waukegan
for any bodily injury, property damage, personal injury, or wrongful act committed or sustained
during the policy period in the coverage territory regardless of whether the Prior Acts

16

Endorsement’s conditions precedent were all satisfied. In turn, because “the policy, when read
as a whole,” is not illusory, Berg, 2007 WL 273559, at *4 (emphasis added), it does not matter
under Illinois law whether Waukegan’s inability to satisfy the Prior Acts Endorsement’s third
condition precedent makes the nose coverage illusory. Berg illustrates the point. In that case, an
uninsured motorist injured the president of a company while he was working approximately
fifteen feet away from the company-owned car he had driven to a job site. Id. at *2. The
president sought to recover under the car’s uninsured motorist coverage, which defined the term
“insured” to mean: “1. You[.] 2. If you are an individual, any ‘family member.’ 3. Anyone else
‘occupying’ a covered ‘auto’ or a temporary substitute for a covered ‘auto.’ … 4. Anyone for
damages he or she is entitled to recover because of ‘bodily injury’ sustained by another
‘insured.’” Ibid. The president argued that, to avoid rendering illusory the coverage, the term
“You” had to include the company’s “employees and agents.” Id. at *4. In rejecting that
argument and agreeing with the insurer’s contention that the term “You” applied only “to the
corporation itself,” Berg explained that even though the term did not include the company’s
employees and agents, the term “Anyone else ‘occupying’ a covered ‘auto’” could. Ibid. Thus,
although one part of the definition of “insured” covered no person or entity—corporations, after
all, cannot drive cars—that did not render illusory the whole provision. Ibid.
So, too, here. Because the States Policy provides coverage for events occurring during
the policy period, the policy is not illusory, regardless of whether the nose coverage, viewed in
isolation, offers an effectively empty promise. See W.E. Erickson, 641 N.E.2d at 864 (holding
that a policy is not illusory if it “clearly covers losses” in at least some circumstances); Polzin v.
Phoenix of Hartford Ins. Cos., 283 N.E.2d 324, 328 (Ill. App. 1972) (same result as Berg on

17

comparable facts); Berg, 2007 WL 273559, at *4 (citing W.E. Erickson in holding that “[o]nly
where there is no possibility under any set of facts for coverage is the policy deemed illusory”).
B.

Even if the States Policy as a whole would be illusory if the nose
coverage were illusory, and even if Waukegan could not satisfy the
third condition precedent, States’s promise to provide nose coverage
was not illusory.

Even if analysis of whether the States Policy is illusory turned on the nose coverage in
isolation as opposed to the policy as a whole, Waukegan’s argument still would fail under the
analysis set forth in W.E. Erickson. The insured in that suit sued its title insurer after learning
that the federal government held title to property that the insured believed, based on the insurer’s
title commitment, it had rightfully purchased. 641 N.E.2d at 862-63. The title insurance policy,
however, provided that the insurer would be liable “only for actual loss incurred in reliance” on
the commitment. Id. at 863. That posed a problem “because [the insured] acquired whatever
interest it had in the property before acquiring the title commitment.” Id. at 864. Accordingly,
the insured “could not have relied on the commitment” in acquiring that property interest,
meaning the policy did not provide coverage in the circumstances presented there. Ibid.
As Waukegan does here, the insured argued that because it “paid a premium to [the
insurer] in return for nothing,” the policy was illusory. Ibid. The court disagreed, explaining
that, because “[t]he commitment only excludes recovery for damages caused by a defect in title
if the insured did not rely on the commitment to acquire the title,” the policy covered “losses
suffered by an insured who relies on the commitment.” Ibid. As a result, the title insurer’s
“promise [was] not illusory, but contingent upon the loss occurring after the insurance takes
effect.” Ibid. As the court explained, “[t]hat [the insured] could never show such losses
resulting from reliance, does not negate the promise of the title company to reimburse were [the
insured] able to do so.” Ibid. Several post-W.E. Erickson decisions reach the same result on

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comparable facts. See Am. Country Ins. Co. v. Kraemer Bros., Inc., 699 N.E.2d 1056, 1062 (Ill.
App. 1998) (holding that a policy was not illusory because it provided “real coverage for strict
liability claims,” even if it was relatively unlikely that such claims could be brought against a
general contractor like the insured); Archer Daniels Midland, 785 F. Supp. 2d at 735 (citing W.E.
Erickson and holding that an exclusion did not render the policy illusory under Illinois law
because it “does not preclude any possibility of coverage under other facts”); Century Sur. Co. v.
John B., Inc., 2006 WL 140551, at *7 (N.D. Ill. Jan. 17, 2006) (citing W.E. Erickson and holding
that the policy was not illusory under Illinois law because it “covers some injuries resulting from
certain factual situations,” even though those factual situations were not presented in the case).
W.E. Erickson and its progeny teach that the fact that a particular insured may be unable
to satisfy a condition precedent does not make the policy illusory, provided that the condition
could be satisfied under other realistic factual circumstances. See W.E. Erickson, 641 N.E.2d at
864 (“Had [the insured] relied on the commitment in its acquisition of the Crestwood property
only to discover that the federal government owned the property, [the insured] would be entitled
to damages. It is also undisputed that the chronology of this case makes such reliance an
impossibility.”). For that reason, even if analysis of whether the States Policy is illusory rested
solely on the nose coverage and not on the policy period coverage, Waukegan’s inability to
satisfy the third condition precedent because it had occurrence- rather than claims-based
coverage under the Indian Harbor Policy immediately prior to obtaining coverage under the
States Policy does not make the States Policy illusory. As in W.E. Erickson, the fact that the
applicable contingency did not—and could not—materialize under the present circumstances
does not “negate the promise” of coverage were the contingency to be met, as in the
counterfactual where Waukegan previously had claims-based coverage. Ibid.; see also John B.,

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2006 WL 140551, at *7 (explaining that if the insureds “had wanted coverage for the situations
excluded by [their] policy, they should have paid for them in this policy, or alternatively, sought
coverage for the types of claims at issue elsewhere”).
This is particularly so given that the third condition precedent’s language is clear,
unambiguous, and exceptionally simple. As noted, the condition states that “the policy providing
coverage for [bodily injury or property damage or personal injury or a wrongful act] immediately
preceding this policy was claims-made, not occurrence, coverage.” Doc. 11-2 at 33-34. The
term “policy … immediately preceding this policy” is not difficult to decipher, particularly for a
sophisticated party like Waukegan. Given that this term undoubtedly was clear to Waukegan
from the outset, Waukegan knew what it was getting into. Its dissatisfaction with the coverage it
purchased does not render it illusory. See Archer Daniels Midland, 785 F. Supp. 2d at 735-36
(holding that a policy was not unenforceable as illusory where “the exclusion is plain and clear
and does not surreptitiously take away the coverage that the [relevant endorsement] or other
policy provisions purport to grant”); John B., 2006 WL 140551 at *7 (noting that the policy was
not illusory in part because the “the exclusionary language is clear and straightforward”).
Waukegan argues in the alternative that construing the policy in States’s favor would
violate Illinois law by privileging the interpretation of the “party in control of the agreement and
for whose benefit the condition precedent runs.” Doc. 61 at 8. According to Waukegan, it was
States’s responsibility to draft a set of conditions that could be satisfied. Ibid.; Doc. 63 at 10.
But Waukegan itself certainly knew what kind of insurance—claims-based or occurrencebased—it had in place immediately prior to the States Policy’s effective date. Because
compliance with the third condition precedent was in Waukegan’s control, this situation is
materially different from that presented in Grill v. Adams, 463 N.E.2d 896, 900 (Ill. App. 1984),

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where the defendants “attempt[ed] to use their own non-compliance with a condition, inserted
into the contract for their benefit, as the justification for concluding that the parties’ contractual
duties never ripened.” Accordingly, the principle announced in Grill that Waukegan invokes
here—“[a] party cannot take advantage of his own conduct and claim that failure of the
fulfillment of a condition therefore defeats his liability,” ibid.—is inapplicable.
Nor does the rule requiring that ambiguous policy provisions be construed against the
insurer apply here. The third condition precedent’s text is unambiguous, plainly requiring that
Waukegan have previously had in place claims-based coverage in order to trigger nose coverage
under the States Policy. See Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204,
1217 (Ill. 1992) (“If the terms in the policy are clear and unambiguous, the court must give them
their plain, ordinary, popular meaning. … Ambiguous terms [by contrast] are construed strictly
against the drafter of the policy and in favor of coverage.”). Moreover, the ordinary information
asymmetries between parties that motivate the rule do not apply here. See Smith v. Allstate Ins.
Co., 726 N.E.2d 1, 7 (Ill. App. 1999), opinion modified on denial of reh’g (Mar. 17, 2000)
(“‘Where one party chooses the terms of a contract, he is more likely than the other party to have
reason to know of uncertainties of meaning. Indeed, he may deliberately obscure, intending to
decide at a later date what meaning to assert.’”) (alterations omitted) (quoting Restatement
(Second) of Contracts, § 206, cmt. a (1981)). Waukegan, not States, was best positioned to know
whether the Prior Acts Endorsement applied to Waukegan’s particular circumstances. See
Brandt v. Time Ins. Co., 704 N.E.2d 843, 846 (Ill. App. 1998) (“Illinois law imposes no duty on
an insurer to conduct an independent investigation of insurability.”).
Waukegan advances another alternative argument—that it could satisfy the third
condition precedent because part of its previous coverage, the Indian Harbor Policy’s Public

21

Officials and Employment Practices Liability Coverage, was claims-based. Doc. 50 at 14; Doc.
61 at 14. That argument defeats Waukegan’s central point, for if Waukegan were right that there
is a factual scenario under which it could satisfy the third condition, then the States Policy could
not possibly be illusory. See W.E. Erickson, 641 N.E.2d at 864; Archer Daniels Midland, 785 F.
Supp. 2d at 735; John B., 2006 WL 140551, at *7.
The foregoing analysis applies with equal force to Waukegan’s argument that it could
never satisfy the Prior Acts Endorsement’s second condition precedent because Waukegan’s
“self-insured retention” would apply to any claim it might file under the States Policy. Doc. 61
at 5. As noted, the second condition precedent requires that “there is no insurance or other
indemnity agreement that applies, in whole or in part, to the claim arising from” the asserted
bodily injury, property damage, personal injury, or wrongful act. Doc. 11-2 at 33-34. Even
assuming that Waukegan were correct that its self-insured retention constitutes “other insurance”
that would always apply to any claim, Doc. 61 at 5, that would not, for the reasons set forth as to
the third condition precedent, render illusory the States Policy. After all, not every insured has a
self-insured retention.
In sum, neither the second nor third conditions precedent renders illusory the States
Policy. It follows that the conditions precedent may be enforced.
II.

Because The Lloyd’s Policy Applies to the Gonzalez Suit, the Second Condition
Precedent Is Not Satisfied, Thereby Defeating Nose Coverage Under the States
Policy’s Prior Acts Endorsement.
The remaining question is whether States is right that its policy does not cover the

Gonzalez suit because Waukegan fails to satisfy the second condition precedent of the States
Policy’s Prior Acts Endorsement—in other words, because the Lloyd’s Policy “applies, in whole
or in part, to the claim arising from” Gonzalez. Doc. 11-2 at 33-34. Given its unambiguous
language, the Lloyd’s Policy’s Law Enforcement Liability provision applies to Gonzalez, which
22

means that the second condition precedent is not satisfied, which in turn means that Gonzalez
does not trigger the States Policy’s nose coverage. See Keystone Consol. Indus., Inc. v. Emps.
Ins. Co. of Wausau, 456 F.3d 758, 762 (7th Cir. 2006) (“[T]he next logical question is what is
required to trigger an insurer’s duty to indemnify. The answer to that question is found in the
language of the policies. Under Illinois law, construction of insurance policies is a question of
law.”).
As noted, the Lloyd’s Policy’s Law Enforcement Liability provision provided coverage
for any occurrence “during the period of this insurance” for “all sums which the Assured shall be
obligated to pay by reason of errors, omissions or negligent acts arising out of the performance
of the Assured’s duties while acting as a law enforcement official.” Doc. 48-1 at 19 (emphasis
added). The term “Assured” includes both Waukegan and its employees. Id. at 11 (providing
that “Assured” includes “not only the Named Assured but also … any official, trustee, Director,
Officer, Partner, Volunteer or employee of the Named Assured while acting within the scope of
his duties as such”). And the term “Personal Injury” includes “Bodily Injury,” “Malicious
Prosecution,” and “Discrimination,” as well as, but only for purposes of the Law Enforcement
Liability Provision, “False Arrest, False Imprisonment, Detention and Violation of Civil Rights
arising out of Law Enforcement Activities,” while the term “Bodily Injury” includes both
“physical injury to any person” and related “mental anguish or mental suffering.” Id. at 19-20.
Waukegan concedes that the Lloyd’s Policy applies to at least some of Gonzalez’s
claims—specifically, to his malicious prosecution claims against the individual officers. Doc. 50
at 13-14. But, Waukegan contends, the policy’s Law Enforcement Liability provision does not
encompass “Gonzalez’s … pattern and practice claims, which constitute separate and discrete
claims against the City of Waukegan” under Monell v. Department of Social Services, 436 U.S.

23

658 (1987). Ibid. Instead, Waukegan continues, Gonzalez’s Monell claims are covered under a
different part of the Lloyd’s Policy—the Errors and Omissions provision—which, Waukegan
argues, was issued on a claims-made basis, unlike the Law Enforcement Liability provision,
which was issued on an occurrence basis. Ibid.; see Doc. 48-1 at 19, 26-27. And because
Waukegan did not file a claim under the Errors and Omissions provision before the Lloyd’s
Policy expired, it concludes that the States Policy’s Prior Acts Endorsement’s second condition
precedent is satisfied, insofar as there is no other policy that applies, either in whole or in part, to
Gonzalez’s Monell claims against the City. Doc. 50 at 13-14. This is mistaken for two reasons.
First, the Lloyd’s Policy’s occurrence-based Law Enforcement Liability provision—
which provides coverage for “all sums which the Assured shall be obligated to pay by reason of
errors, omissions or negligent acts arising out of the performance of the Assured’s duties while
acting as a law enforcement official,” Doc. 48-1 at 19 (emphasis added)—and not the claimsbased Errors and Omissions provision, applies to Gonzalez’s Monell claims. Under Illinois law,
the term “arising out of” in an insurance policy is synonymous with but-for causation—it means
“‘originating from,’ ‘having its origin in,’ ‘growing out of,’ and ‘flowing from.’” Shell Oil Co.
v. AC&S, Inc., 649 N.E.2d 946, 951-52 (Ill. App. 1995) (quoting Md. Cas. Co. v. Chi. & N.W.
Transp. Co., 466 N.E.2d 1091, 1094 (Ill. App. 1984)); see also State Auto. Mut. Ins. Co. v.
Kingsport Dev., LLC, 846 N.E.2d 974, 982 (Ill. App. 2006) (applying Shell Oil); Am. States Ins.
Co. v. Liberty Mut. Ins. Co., 683 N.E.2d 510, 513 (Ill. App. 1997) (same); Great W. Cas. Co. v.
Marathon Oil Co., 2001 WL 103426, at *4 (N.D. Ill. Jan. 31, 2001) (same). Gonzalez alleges
that the City is liable under Monell (and also under state law) for the officers’ unlawful acts in
investigating and prosecuting him, including their fabricating and withholding evidence,
fabricating and coercing confessions, filing false police reports, and committing perjury—all of

24

which, Gonzalez alleges, caused him injury. Doc. 11-1 at ¶¶ 115-118 (Monell claim); 134-136
(state law claim). Thus, any damages that the City would be ordered to pay in Gonzalez
originated, grew out of, or flowed from the performance of its employees’ duties while acting as
law enforcement officials. See Am. Safety Cas. Ins. Co. v. City of Waukegan, 776 F. Supp. 2d
670, 711 (N.D. Ill. 2011) (“To begin, the Underwriters/Northfield policies contemplated
coverage for the types of injuries alleged in the Dominguez Civil Case. The ‘law enforcement
liability’ section of the policy states that the insurers will ‘indemnify the Assured for all sums
which the Assured shall be obligated to pay by reason of errors, omissions, or negligent acts
arising out of the performance of the Assured’s duties while acting as a law enforcement official
or officer in the regular course of public employment … arising out of any occurrence from any
cause on account of Personal Injury … .’ This provision makes clear that the policy covers
injuries like Dominguez’s for false arrest and malicious prosecution arising out of the police
duties of Waukegan police officers.”) (alterations in original), aff’d, 678 F.3d 475 (7th Cir.
2012).
Given all this, the second condition precedent is not satisfied. Because the acts at issue in
Gonzalez indisputably occurred while the Lloyd’s Policy was in effect, the City could have filed
a claim under that policy’s occurrence-based Law Enforcement Liability provision. As a result,
the City could not have filed a claim under that policy’s claims-based Errors and Omissions
provision, which states that it “shall not apply to any Claims made against the Assured … arising
out of law enforcement activities” and “does not apply to any claim for damages, whether direct
or consequential, or for any cause of action which is covered under any other Section of this
Policy.” Doc. 48-1 at 27.

25

Second, even if only Gonzalez’s claims against the individual defendants and not his
Monell claims against the City were covered by the Lloyd’s Policy’s Law Enforcement Liability
Provision, it would not matter. As noted, under the second condition precedent, the States
Policy’s nose coverage is triggered only where “there is no insurance or other indemnity
agreement that applies, in whole or in part, to the claim arising from” the relevant bodily injury,
property damage, personal injury, or wrongful act. Doc. 11-2 at 33-34. The States Policy further
defines the term “claim” to mean either “a demand for damages” or “a civil proceeding seeking
damages,” with “damages” defined as a “monetary amount paid to compensate … for an injury
or loss covered by this policy” and including both pre- and post-judgment interest and attorney
fees. Id. at 21-22. Applying that definition to Gonzalez yields the conclusion that the suit, even
though it names multiple defendants and asserts multiple causes of action, constitutes a single
claim because Gonzalez’s complaint makes a single demand for damages. Doc. 11-1 at 27
(“Wherefore, Angel Gonzalez prays as follows: A. That the court award compensatory damages
to Plaintiff and against all Defendants, jointly and severally, in an amount to be determined at
trial.”); see Bancorpsouth, Inc., v. Fed. Ins. Co., 873 F.3d 582, 587 (7th Cir. 2017) (construing
under Mississippi law the same definition of “claim” in an insurance policy, and concluding that,
insofar as the underlying complaint had a single “gravamen,” courts should not “uncouple
allegations, read them in isolation, and disregard their context”); cf. NAACP v. Am. Family Mut.
Ins. Co., 978 F.2d 287, 292 (7th Cir. 1992) (in construing the term “claim” under Civil Rule
54(b), explaining that “different legal theories … do not multiply the number of claims for relief”
because “[o]ne set of facts producing one injury creates one claim for relief, no matter how many
laws the deeds violate”). As a result, even if only Gonzalez’s malicious prosecution cause of
action against the individual defendants were covered under the Lloyd’s Policy’s occurrence-

26

based Law Enforcement Liability provision, the States Policy’s Prior Acts Endorsement’s second
condition precedent would remain unsatisfied because there is at least one other policy that
applies to the claim Gonzalez asserts.
For his part, Gonzalez contends that the question whether the Lloyd’s Policy applies to
Gonzalez cannot be adjudicated at the pleading stage because the term “applies” in the States
Policy’s Prior Acts Endorsement’s second condition precedent is ambiguous. Doc. 59 at 6. In
support, Gonzalez cites Fontana Builders, Inc. v. Assurance Co. of America, 882 N.W.2d 398,
403 (Wis. 2016). The policy in Fontana excluded coverage “when permanent property
insurance applies,” and the Supreme Court of Wisconsin held that the term “applies” was
ambiguous under Wisconsin law because it was not clear “[t]o whom or to what must permanent
property insurance apply for coverage to end.” Id. at 412. Fontana may be right as far as it
goes, but it is inapposite here because there is no such ambiguity in the States Policy. The States
Policy’s Prior Acts Endorsement is triggered where “there is no insurance or other indemnity
agreement that applies, in whole or in part, to the claim arising from” the relevant bodily injury,
property damage, personal injury, or wrongful act. Doc. 11-2 at 33-34 (emphasis added). Thus,
unlike the policy in Fontana, the term “applies” in the States Policy is not ambiguous on the
ground that it lacks a grammatical object; to the contrary, the “insurance … that applies” must
apply “to the claim arising from” the relevant bodily injury, property damage, personal injury, or
wrongful act—here, Gonzalez’s arrest, detention, and prosecution, and his subsequent suit for
damages.
Gonzalez next argues that the term “applies” is ambiguous because it could mean either
that the Lloyd’s Policy “potentially applies” or that it “actually applies” to Gonzalez. Doc. 59 at
8-9. In support, Gonzalez cites In re Deepwater Horizon, 807 F.3d 689 (5th Cir. 2015). Like the

27

States Policy’s Prior Acts Endorsement, the policy in Deepwater Horizon provided that “‘[i]f
other insurance applies to a ‘loss’ that is also covered by this policy, this policy will apply excess
of such other insurance.’” 807 F.3d at 694. But that policy was “primary insurance,” not nose
coverage. Id. at 695. And the “other insurer” (the party in the position held by Lloyd’s here) in
Deepwater Horizon “refused [the insured’s] demands for indemnification.” Id. at 694.
Accordingly, the Fifth Circuit reasoned that construing the “other” policy as though it applied to
the loss put the insured in a worse position than if it had not “chose[n] to maintain a potential
alternative source of protection for its loss—something [the primary insurer] did not require it to
do,” as the insured would now “have to litigate with that alternative source before recovering
anything” under its primary insurance. Id. at 695.
There is no such tension here. Construing the Lloyd’s Policy to apply to the Gonzalez
suit does not make Waukegan any worse off because it has already received a payout under the
Lloyd’s Policy comprising “the full limits of [Lloyd’s and Northfield’s] liability under” that
policy. Doc. 59-1 at 6, 13. By the same token, Waukegan is not deprived of the benefit of the
nose coverage it purchased from States, which is designed to hedge against the risk that
Waukegan would lack coverage for acts outside the coverage period as it transitioned from
claims-based to occurrence-based coverage. See Ernie Haire Ford, 541 F. Supp. 2d at 1302 n.9
(noting that nose coverage is “designed to provide an insured—during an initial policy period
when the insured is changing from claims-made to occurrence-type coverage—with coverage for
prior acts”).
Gonzalez finally contends that because Lloyd’s disputes that its policy applies to the
Gonzalez suit, that question cannot be decided on the pleadings. Doc. 59 at 9-10. The trouble
with Gonzalez’s contention is that the second condition precedent of the States Policy’s nose

28

coverage is not ambiguous, which means that Lloyd’s view of its policy with Waukegan—
whatever it may be—does not bear on how to construe relevant provisions of either the States
Policy or the Lloyd’s Policy. See Cannon v. Burge, 752 F.3d 1079, 1088 (7th Cir. 2014)
(holding that, under Illinois law, “[w]here a written agreement is clear and explicit, a court must
enforce the agreement as written. Both the meaning of the instrument, and the intention of the
parties must be gathered from the face of the document without the assistance of parol evidence
or any other extrinsic aids.”) (quoting Rakowski v. Lucente, 472 N.E.2d 791, 794 (Ill. 1984));
People ex rel. Dep’t of Pub. Health v. Wiley, 843 N.E.2d 259, 268 (Ill. 2006) (“The intention of
the parties to contract must be determined from the instrument itself, and construction of the
instrument where no ambiguity exists is a matter of law.”) (citation omitted). Gonzalez is
similarly mistaken in contending that the fact that Lloyd’s has already settled its claims with
Waukegan means that the Lloyd’s Policy no longer “applies” (in the present tense) to the
Gonzalez suit. Doc. 59 at 13-14. For the reasons just given, Lloyd’s decision to enter into the
Risk Management Agreement with Waukegan cannot inform the meaning of the Lloyd’s Policy.
Conclusion
For the foregoing reasons, States is awarded judgment on the pleadings. The States
Policy does not require States to defend or indemnify Waukegan in the Gonzalez suit. Judgment
will be entered in favor of States and against Waukegan and Gonzalez.

March 16, 2018
United States District Judge

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