Arch Insurance Company v. PCH Healthcare Holdings, LLC et al

Filing 74

MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang. For the reasons stated in the Opinion, Plaintiff Arch's motion for judgment on the pleadings 34 is granted as to Counts 1, 4, and 5 of the complaint, as well as Countercl aim 1. Plaintiff Arch's motion 35 to dismiss Counterclaim 2 is also granted. The cross-motion 56 for judgment on the pleadings filed by Defendants PCH Healthcare Holdings, LLC; The Peoples Choice Hospital, LLC; PCH Management Newman, LLC; PC H Lab Services, LLC; PCH Labs, Inc.; Seth Guterman; and David Wanger is denied. A declaratory judgment will be entered for Arch declaring that there is no duty to defend the PCH Defendants against Case No. 17 C 4354, filed in the Eastern District of Pennsylvania. The status hearing of 08/22/2019 is vacated. Civil case terminated. Emailed notice(slb, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Arch Insurance Company,
Plaintiffs,
v.
PCH Healthcare Holdings, LLC,
The People’s Choice Hospital, LLC
PCH Management Newman, LLC,
PCH Lab Services, LLC,
PCH Labs, Inc.,
Seth Guterman, David Wanger,
Aetna, Inc., and
Aetna Life Insurance Company,
Defendants.

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

No. 18 C 02691
Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER
The plaintiff in this insurance-coverage dispute, Arch Insurance Company,
seeks a declaration that it has no duty to defend the PCH Defendants from a lawsuit
brought by the Aetna Defendants.1. R. 1, Compl.2 PCH also filed counterclaims for
breach of contract and damages under 215 ILCS 5/155. R. 33, Am. Counterclaim. The
parties have now cross-moved for judgment on the pleadings. R. 34, Pl.’s Mot. J.
1The

PCH Defendants are PCH Healthcare Holdings, LLC; The People’s Choice
Hospital, LLC; PCH Management Newman, LLC; PCH Lab Services, LLC; PCH Labs, Inc.;
Seth Guterman; and David Wanger. This Opinion will call them, collectively, PCH unless
noted otherwise. The Aetna Defendants are Aetna Inc. and Aetna Life Insurance Company
(Aetna).
2Citations to the record are noted as “R.” followed by the docket number and the page
or paragraph number.
The Court has subject matter jurisdiction over this case under 28 U.S.C. § 1332. The
parties are completely diverse: Arch Insurance Company is a citizen of Missouri and New
Jersey, while the Defendants are citizens of Illinois and Arizona. See R. 1, R. 7, R. 9. The
amount in controversy alleged exceeds $75,000. R. 1, Compl. ¶ 19.

Pleadings; R. 56, Def.’s Resp. and Cross-Mot. Arch has also moved to dismiss PCH’s
Counterclaim 2. R. 35, Mot. Dismiss. For the reasons explained below, Arch’s motions
for judgment on the pleadings and to dismiss are granted, and PCH’s motion for
judgment on the pleadings is denied.
I. Background
In deciding each party’s motion for judgment on the pleadings, the Court takes
all well-pled allegations as true and draws all reasonable inferences in the nonmovant’s favor. Hayes v. City of Chi., 670 F.3d 810, 813 (7th Cir. 2012). So when the
Court evaluates PCH’s motion, Arch gets the benefit of reasonable inferences;
conversely, when evaluating Arch’s motion, the Court gives PCH the benefit of the
doubt.
A. The Underlying Complaint
In September 2017, Aetna filed a complaint against the PCH Defendants in
the United States District Court for the Eastern District of Pennsylvania. See R. 1-2,
Compl. Exh. 2, Underlying Compl. The complaint included claims under the
Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962, et
seq., as well as common law fraud, negligent misrepresentation, unjust enrichment,
civil conspiracy, tortious interference, and equitable accounting. See generally, id.
In that underlying complaint, Aetna alleged that the PCH Defendants created
“an extensive health care billing fraud scheme through which they bilked Aetna,
employers that sponsor health plans, and Aetna members out of more than $21
million.” Underlying Compl. ¶ 1. Aetna’s theory is that the PCH Defendants caused
Aetna to overpay for laboratory tests and services at hospitals that PCH managed.
2

Id. ¶ 2. PCH allegedly did this by taking advantage of the hospitals’ agreements with
Aetna, under which Aetna had agreed to pay higher-than-usual prices for laboratory
services conducted at the hospital. Id. But instead of having the hospitals conduct the
tests (as required for the higher prices Aetna had agreed to), PCH had the tests
performed at out-of-network laboratories that would usually have commanded a
lower rate from Aetna. Id. PCH then billed Aetna at the higher rate without
disclosing the fact that the tests had been outsourced. Id.
But, Aetna is not the only entity that has sued PCH for damages incurred as a
result of the alleged scheme. One of the hospitals that PCH managed, and which was
implicated in the scheme Aetna alleges, was Newman Memorial Hospital. Underlying
Compl. ¶ 2. Before Aetna filed its lawsuit, Newman Memorial Hospital had also sued
the very same set of defendants, “relating to the same alleged fraudulent billing
scheme.” Compl. ¶¶ 3, 37-47 (“Newman claimed, among other things, that the
defendants submitted claims to private payors, including Aetna, under Newman’s
national provider identifier number for laboratory tests in violation of Newman’s
provider agreements with payors.”); see generally also R. 1-3, Compl. Exh. 3, Second
Am. Pet. in Newman Lawsuit. The Newman lawsuit was first filed on June 30, 2017.
Compl. ¶ 37. The Second Amended petition in that case was served on PCH on August
7, 2017. Id. ¶ 38. Aetna specifically mentioned the Newman lawsuit in the underlying
complaint in its own case against PCH. Underlying Compl. ¶¶ 141-143 (explaining

3

that “Newman recently filed suit against many of the Defendants” and describing
many of the allegations in the Newman lawsuit).
B. The Insurance Policy
PCH purchased the Arch policy at issue here for the policy period of September
11, 2017 to September 11, 2018. Compl. ¶ 21; R. 1-1, Compl. Exh. 1, Policy at 1. The
Policy does not cover “claims arising from, based upon, or attributable to the same
wrongful act” as claims that were first made before the policy period began. See Policy
at 13.3 Also, the policy contains an explicit exclusion of any claim “arising from, based
upon, or attributable to any … Wrongful Act specified in [a] prior demand, suit or
proceeding or any Interrelated Wrongful Acts thereof.” Policy at 30, 41.
Among other exclusions, the Policy also bars coverage for claims resulting from
“healthcare services.” Endorsement 16 to the Policy states: “The Insurer shall not pay
Loss for any Claim against an Insured arising from, based upon, or attributable to
any Healthcare Services.” Policy at 86. “Healthcare services,” is defined as “all
healthcare and related services, including, without limitation, any … (b) laboratory,
imagining and diagnostic services; (c) billing for services rendered or products
provided; or (d) advice given in connection with any of the above.” Id.

3R.

1-1 includes the Policy and all its constituent exhibits and amendments. This
Opinion uses the PDF file page numbers to point to the relevant pages even though most of
the exhibits have their own pagination.

4

II. Legal Standard
A. Motion for Judgment on the Pleadings
A party may move for judgment on the pleadings after the pleadings are closed.
Fed. R. Civ. P. 12(c). A motion for judgment on the pleadings is subject to the same
standard as a motion to dismiss under Rule 12(b)(6). Hayes, 670 F.3d at 813. In
deciding a motion for judgment on the pleadings, the Court must accept all well-pled
allegations as true and view the alleged facts in the light most favorable to the nonmoving party. Id. Judgment on the pleadings is proper “if it appears beyond doubt
that the [non-moving party] cannot prove any set of facts” sufficient to support his
claim for relief. Id. (cleaned up).4 The Court considers the pleadings alone, which
consist of the complaint, the answer, and any documents attached as exhibits. N. Ind.
Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir. 1998).
In evaluating an insurance-coverage dispute, the Court must “look to the
allegations of the underlying complaint[]” to determine whether it “allege[s] facts
within or potentially within policy coverage.” U.S. Fid. & Guar. Co. v. Wilkin
Insulation Co., 578 N.E.2d 926, 930 (Ill. 1991) (emphasis in original). The insurer is
liable to pay whenever the allegations in the complaint match the policy’s coverage:
“An insurer may not justifiably refuse to defend an action against its insured unless
it is clear from the face of the underlying complaint[] that the allegations fail to state
facts which bring the case within, or potentially within, the policy’s coverage.” Id.

4This

opinion uses (cleaned up) to indicate that internal quotation marks, alterations,
and citations have been omitted from quotations. See Jack Metzler, Cleaning Up Quotations,
18 Journal of Appellate Practice and Process 143 (2017).

5

Both the insurance policy and the underlying complaint “must be liberally construed
in favor of the insured,” and “all doubts and ambiguities must be resolved in favor of
the insured.” Id.
B. Motion to Dismiss
Under Federal Rule of Civil Procedure 8(a)(2), a complaint generally need only
include “a short and plain statement of the claim showing that the pleader is entitled
to relief.” Fed. R. Civ. P. 8(a)(2). This short and plain statement must “give the
defendant fair notice of what the . . . claim is and the grounds upon which it rests.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (internal
quotation marks and citation omitted). The Seventh Circuit has explained that this
rule “reflects a liberal notice pleading regime, which is intended to ‘focus litigation on
the merits of a claim’ rather than on technicalities that might keep plaintiffs out of
court.” Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v.
Sorema N.A., 534 U.S. 506, 514 (2002)).
“A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to
state a claim upon which relief may be granted.” Hallinan v. Fraternal Order of Police
of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). “[A] complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible
on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S.
at 570). These allegations “must be enough to raise a right to relief above the
speculative level.” Twombly, 550 U.S. at 555. The allegations that are entitled to the

6

assumption of truth are those that are factual, rather than mere legal conclusions.
Iqbal, 556 U.S. at 678-79.
III. Analysis
The Court will evaluate each motion in turn, beginning with the cross-motions
for judgment on the pleadings.
A. Arch’s Motion for Judgment on the Pleadings
Arch’s motion for judgment on the pleadings includes various arguments on
several of the counts brought in Arch’s declaratory judgment complaint. See Pl.’s Mot.
J. Pleadings. Because Arch is the clear winner on Counts 1, 4, and 5, as well as
Counterclaim 1, as explained below, the Court need not evaluate Arch’s arguments
on Count 6. See id. at 14-15.
1. Counts 1 and 4
Arch’s primary argument in this case is that the Aetna lawsuit and the
Newman lawsuit arise from the same claim, and that claim arose before the coverage
period began. Count 1 of Arch’s complaint asserts this argument, namely, that the
Policy only covers claims that first arose during the policy period. Compl. ¶¶ 52-58.
Because the Second Amended Petition in the Newman Lawsuit was served on the
PCH Defendants on August 7, 2017, Arch argues that it and any other claims based
on the same acts—including the Aetna lawsuit—arose before the policy period and
simply were not covered under the Policy. Id. (quoting Policy at 13 (“[A]ll Claims
arising from, based upon, or attributable to the same Wrongful Act or Interrelated

7

Wrongful Acts shall be deemed a single Claim first made on the earliest date that …
any of such Claims was made.”) (emphasis omitted)).
Count 4 of the complaint is slightly different: it is based on an explicit provision
in the Policy that excludes claims arising from pending and prior litigation. Id. ¶¶ 7478. The analysis is the same as under Count 1 for all practical purposes, however, in
that the exclusion bars coverage of any claim “arising from, based upon, or
attributable to any … Wrongful Act specified in [a] prior demand, suit or proceeding
or any Interrelated Wrongful Acts thereof.” Id. ¶ 75 (quoting Policy at 30, 41).
Arch’s motion for judgment on the pleadings echoes those arguments. Pl.’s Mot.
J. Pleadings at 7-12. In response to Counts 1 and 4, PCH does not argue that the two
lawsuits did not arise from the same interrelated or wrongful acts. See R. 56, Def.’s
Resp. and Cross-Mot. at 8-11; see also R. 57, Pl.’s Reply and Resp. at 4 (noting PCH’s
silence on that point). Instead, PCH asserts an affirmative defense: Arch allegedly
has waived the policy provisions undergirding Counts 1 and 4. Def.’s Resp. and CrossMot. at 8-11; see also R. 47, Def.’s Am. Answer at 41-42 (setting out PCH’s sixth
affirmative defense of waiver). PCH’s theory is that because Arch did not uncover the
Newman lawsuit in its underwriting process before selling the Policy to PCH, Arch
waived its right to enforce policy provisions denying coverage to claims related to the
Newman lawsuit. Def.’s Resp. and Cross-Mot. at 9-10.
In response, Arch correctly points out that contract provisions cannot be
waived before a contract is in force. Pl.’s Reply and Resp. at 5-6 (citing Cent.
Contracting, Inc. v. Kenny Constr. Co., 2012 WL 832842, at *4 (N.D. Ill. March 12,

8

2012) (“[D]iscovery regarding pre-contract communications and intent is irrelevant
to waiver.”)); see also C-B Realty and Trading Corp. v. Chi. and N. W. Ry. Co., 682
N.E.2d 1136, 1142 (Ill. App. Ct. 1997) (“This court has found that a party can waive
a contract provision by failing to object to its breach.”); Chi. Coll. of Osteopathic Med.
v. George A. Fuller Co., 719 F.2d 1335, 1343 (7th Cir. 1983) (“A party to the contract
may waive a condition precedent to performance on his part or a breach of contract
provisions by conduct manifesting a continued recognition of the contract’s existence
after learning of the breach thereof.”). And more broadly, it is worth noting that
Arch’s alleged failure to ask any questions about pending lawsuits is not necessarily
in conflict with the Policy’s exclusion of claims for prior or already-pending litigation.
In fact, it is perfectly sensible that a potential insurer would not worry about
documenting claims that would clearly fall outside the scope of its coverage.
Part of PCH’s waiver theory is that Arch engaged in “post-loss” or “post-claim”
underwriting, or “waiting until a claim has been filed to obtain information and make
underwriting decisions which should have been made when the application was
made, not after the policy was issued.” Def.’s Resp. and Cross-Mot. at 10-11 (quoting
Lewis v. Equity Nat’l Life Ins. Co., 637 So.2d 183, 186 (Miss. 1994)). But as Arch
points out, post-claim underwriting is not prohibited in Illinois. Pl.’s Reply and Resp.
at 6-7 (quoting Brandt v. Time Ins. Co., 704 N.E.2d 843, 846-47 (Ill. App. Ct. 1998)
(“Illinois law imposes no duty on an insurer to conduct an independent investigation
of insurability before issuing an insurance policy.”)); see also Commercial Life Ins. Co.
v. Lone Star Life Ins. Co., 727 F. Supp. 467, 471 (N.D. Ill. 1989) (“An insurance

9

company has the right to rely on the truthfulness of the answers given by an
insurance applicant.”); Apolskis v. Concord Life Ins. Co., 445 F.2d 31, 36 (7th Cir.
1971) (“An insurance company need not make any independent investigation and
may rely on the truthfulness of answers contained in an insurance application at least
if there is nothing to put it on notice that certain answers may be false.”). And in any
case, it is hard to see why this coverage decision by Arch is one that “should have
been made when the application was made.” Lewis, 637 So.2d at 186. As explained
above, the Policy clearly excludes claims made before the coverage period began, so
there is no reason to think that knowing about the Newman lawsuit would have
changed Arch’s decision to issue the Policy. Even an Arch underwriter who knew
about the Newman lawsuit could reasonably have assumed it would not be covered
under any policy that was eventually issued.
In the course of briefing, PCH also touched upon another defense to Counts 1
and 4: the “eight-corners rule.” R. 63, Def.’s Reply at 9-13. The eight-corners rule
requires a court adjudicating coverage disputes to “compare [only] the four corners of
the underlying complaint with the four corners of the insurance contract and
determine whether the facts alleged in the underlying complaint fall within, or
potentially within, the insurance policy’s coverage.” Farmers Auto. Ins. Ass’n v.
Country Mut. Ins. Co., 722 N.E.2d 1228, 1232 (Ill. App. Ct. 2000). PCH’s argument
here is that the underlying complaint does not discuss the Newman lawsuit—or at
least that it does not provide enough information about the Newman lawsuit—so the
Court cannot take the Newman lawsuit into account in determining Arch’s potential

10

liability. See Def.’s Reply at 11-13; R. 71, Def.’s Rebutter at 2-4. As Arch points out,
however, Illinois courts only apply the eight-corners rule to bar evidence that “tend[s]
to determine an ultimate issue in the underlying proceeding.” Landmark Am. Ins. Co.
v. Hilger, 838 F.3d 821, 825 (7th Cir. 2016) (cleaned up) (citing Pekin Ins. Co. v.
Wilson, 930 N.E.2d 1011, 1020-21 (Ill. 2010)); R 70, Pl.’s Sur-Reply at 4-5.
To be clear, the Newman lawsuit is mentioned in the underlying complaint.
Underlying Compl. ¶¶ 141-143 (explaining that “Newman recently filed suit against
many of the Defendants” and describing many of the allegations in the Newman
lawsuit). PCH’s response to that fact is that the underlying complaint does not
contain enough information on the underlying lawsuit. Def.’s Rebutter at 2-3. PCH
would prefer that technical information on the Newman lawsuit be included—
information on where and when the case was filed, or a case number, such that a
party reading the complaint would have “sufficient information to locate and defend
the suit.” See id. PCH argues that that type of information is necessary because it is
the information that would be required to give an insurance company “actual notice”
of a lawsuit. Id. at 2 (quoting Cincinnati Cos. v. W. Am. Ins. Co., 701 N.E.2d 499, 505
(Ill. 1998)). But it fails to explain why that standard would be applicable here, where
no party involved is being asked to locate or defend the Newman lawsuit.
In any case, by PCH’s own account, the only information about the Newman
lawsuit that the Court needs to determine liability here are two things: (1) whether
the lawsuit began before the Policy period; and (2) whether it is “interrelated to the
claim or suit submitted for coverage.” Def.’s Rebutter at 2. On the second point, PCH

11

has never argued that the two claims are not interrelated, so this Court need not even
undertake that inquiry. On the first, the date that the Newman lawsuit began is
simply not an ultimate issue in the Aetna lawsuit—and PCH does not argue that it
is—even assuming that there is not enough information in the underlying complaint
to determine it.5 So the eight-corners rule does not apply here. The Court grants
judgment to Arch on Counts 1 and 4.
2. Count 5
Arch also moves for judgment on Count 5, which alleges that the healthcare
services exclusion in the Policy bars coverage. Endorsement 16 to the Policy states:
“The Insurer shall not pay Loss for any Claim against an Insured arising from, based
upon, or attributable to any Healthcare Services.” Policy at 86. “Healthcare services,”
in turn, is defined as “all healthcare and related services, including, without
limitation, any … (b) laboratory, imagining and diagnostic services; (c) billing for
services rendered or products provided; or (d) advice given in connection with any of
the above.” Id. Arch argues that the Aetna lawsuit arises out of “laboratory services,
billing for laboratory services, and advice given in connection with these services.”
Pl.’s Mot. J. Pleadings at 13-14. PCH does not really argue that the Aetna lawsuit is
outside the plain text of the healthcare services exclusion. Def.’s Resp. and Cross-

5Of

course, in the context of a motion for judgment on the pleadings, the Court is
limited to analysis of the pleadings in the case. See Pekin, 930 N.E.2d at 1021-21 (pointing
out this caveat in the state-court declaratory judgment context). But the Second Amended
Petition in the Newman lawsuit, stamped as filed on August 7, 2017—before the coverage
period began—is attached to the pleadings themselves. Second Am. Pet. in Newman Lawsuit
at 1. Fed. R. Civ. P. 10(c) (“A copy of a written instrument that is an exhibit to a pleading is
part of the pleading for all purposes.”); N. Ind. Gun & Outdoor Shows, Inc., 163 F.3d at 452.

12

Mot. at 11-12. Instead, PCH argues that interpreting the provisions to cover the
Aetna lawsuit “would render coverage under the Policy illusory.” Id. (citing Aetna
Cas. and Sur. Co. v. O’Rourke Bros., Inc., 776 N.E.2d 588, 593 (Ill. App. Ct. 2002);
Am. States Ins. Co. v. Koloms, 687 N.E.2d 72, 79 (1997)).
An illusory promise is one that “appears to be a promise, but on closer
examination reveals that the promisor has not promised to do anything.” W.E.
Erickson Const., Inc. v. Chi. Title Ins. Co., 641 N.E.2d 861, 864 (Ill. App. Ct. 1994). A
policy is not illusory simply because it does not provide coverage against some
category of injuries: “The policy need not provide coverage against all possible
liabilities; if it provides coverage against some, the policy is not illusory.” Nicor, Inc.
v. Assoc. Elec. & Gas. Ins. Ltd., 841 N.E.2d 78, 86 (Ill. 2005).
Here, Arch argues that even reading the healthcare services exclusion broadly,
there are many conceivable circumstances under which the Policy would still provide
coverage. For example, Arch alleges that there would be coverage “if an insured is
alleged to have breached its fiduciary duty to the company.” Pl.’s Reply and Resp. at
8. PCH does not argue—despite voluminous briefing—that such a scenario would not
be covered. And that makes sense. Even a physician—whose profession may in many
ways revolve around healthcare services—could breach her fiduciary duty to a
hospital company without actually performing any healthcare services at all. The
most sensible explanation for the exclusion is that the Policy is a narrow one—it
simply does not cover the many possible liabilities that could arise from PCH’s
healthcare services. The contract language must control.

13

PCH makes two additional shaky arguments. First, it argues that cases
evaluating illusoriness of professional services exclusions cannot be considered here.
See Def.’s Reply at 13 (“While Arch makes a fine theoretical argument about
professional services, Arch has nothing to say in the face of the assertion that the
Healthcare Services Exclusion renders coverage illusory to these healthcare services
defendants.”) (emphasis in original) (citing Pl.’s Reply and Resp. at 9). But Arch does
not attempt to “shift the Policy language discussion” away from the healthcare
services exclusion, as PCH claims it does. See Def.’s Reply at 13. It simply analogizes
the healthcare services exclusion in this Policy to professional services exclusions in
other policies—a reasonable thing to do. See Pl.’s Reply and Resp. at 8-9 (citing
Neighborhood Housing Serv. of Am., Inc. v. Turner-Ridley, 742 F. Supp. 2d 964, 973
(N.D. Ind. 2010) (“As such, while the professional services exclusion excludes some
D&O coverage, it does not exclude all D&O coverage.”)).
PCH is also wrong in its assertion that Arch “attempts to shift the discussion
away from D&O policies, such as the one at bar, to E&O policies.” Def.’s Reply at 1314. In reality, Arch seems to be attempting to do the opposite and keep the focus on
D&O policies. See Pl.’s Reply and Resp. at 8-9 (“Importantly, the Policy is a D&O
policy and provides D&O coverage. It is not an E&O policy.”). Arch mentions PCH’s
E&O coverage in a single footnote in its briefing, in an attempt to differentiate a
related dispute about PCH’s E&O coverage. See Pl.’s Reply and Resp. at 9 n.5. PCH’s
argument that Arch is attempting to shift attention away from the D&O coverage at

14

issue here is a mischaracterization of Arch’s brief argument attempting to ensure
that the focus stays on D&O coverage.
3. Counterclaim 1
Arch’s motion also seeks summary judgment against PCH’s Counterclaim 1,
which alleges that Arch’s refusal to cover the Aetna lawsuit amounts to a breach of
contract. Pl.’s Mot. J. Pleadings at 2, 7; Am. Counterclaim ¶¶ 1-15. Arch argues that
its refusal to cover the Aetna lawsuit and its filing of this declaratory judgment action
cannot amount to a breach of contract, because “the duty to defend is suspended upon
[the insurer’s] filing for a declaratory judgment that there is no coverage.” Arch Reply
and Resp. at 19 (quoting Those Certain Underwriters at Lloyd’s v. Prof’l Underwriters
Agency, Inc., 848 N.E.2d 597, 601 (Ill. App. Ct. 2006)) (cleaned up). PCH does not
allege that Arch breached the insurance contract in any way except in its refusal to
cover the Aetna lawsuit thus far. See Am. Counterclaim ¶¶ 1-15. So on the pleadings,
there has been no conduct by Arch that could amount to a breach of contract.
B. PCH’s Motion for Judgment on the Pleadings
Because Arch prevails on the issue of coverage, there is no need to discuss
PCH’s motion for judgment on the pleadings as it relates to Arch’s declaratory
judgment claims. PCH’s motion must also be denied on PCH’s Counterclaim 1 for the
reasons explained above: First, and fundamentally, Arch is not liable for coverage of
the Aetna lawsuit. And second, to the extent PCH intended to allege an actual breach
of contract—and not just a claim for declaratory judgment on the issue of coverage—
Arch’s duty to defend was suspended when it filed the declaratory judgment suit.

15

C. Arch’s Motion to Dismiss
PCH’s Counterclaim 2 seeks damages under 215 ILCS 5/155 for “vexatious and
unreasonable” conduct by Arch. Am. Counterclaim at ¶¶ 16-20. Arch moves to dismiss
it, arguing that PCH alleges no facts to suggest that Arch’s conduct was in any way
improper. Mot. Dismiss at 3-6. A claim under § 155 requires more than a simple
denial of coverage, especially where the denial of coverage is reasonable or there is at
least a bona fide dispute about it. See Golden Rule Ins. Co. v. Schwartz, 786 N.E.2d
1010, 1018 (Ill. 2003); Clayton v. Millers First Ins. Cos., 892 N.E.2d 613, 620 (Ill. App.
Ct. 2008). PCH’s argument in response simply points back to the allegations in
Counterclaim 2 and asserts that “Arch has failed and refused to pay the claim or to
provide a reasonable and accurate explanation of the basis in the Policy or applicable
law for such failure and refusal to pay the amount due.” Def.’s Resp. and Cross-Mot.
at 15. There are no other allegations in the Counterclaim, let alone specific facts about
any egregious conduct by Arch. That is not enough to plead a claim under § 155,
especially in a case like this one, where there are several bona fide disputes about
coverage and the plaintiff filed a declaratory judgment action setting out those
disputes. Plus, as described above, several of Arch’s arguments are winning ones.
Counterclaim 2 must be dismissed.
IV. Conclusion
For the reasons provided above, Arch’s motion for judgment on the pleadings,
R. 34, is granted as to Counts 1, 4, and 5 of the complaint, as well as Counterclaim 1.
Arch’s motion to dismiss Counterclaim 2, R. 35, is also granted. PCH’s cross-motion
for judgment on the pleadings, R. 56, is denied. A declaratory judgment will be
16

entered for Arch: there is no duty to defend the PCH Defendants against Case No. 17
C 4354, filed in the Eastern District of Pennsylvania. The status hearing of August
22, 2019 is vacated.
ENTERED:
s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: August 5, 2019

17