Acceptance Indemnity Insurance Company v. Red Dot Arms, Inc. et al

Filing 66

MEMORANDUM Opinion and Order signed by the Honorable Robert W. Gettleman on 11/14/2023: For the reasons set forth in the attached Opinion and Order, the court grants plaintiff's motion for summary judgment 50 and denies defendant Red Dot Arms' motion for summary judgment 54 . The court thus issues judgment declaring that plaintiff has no duty to defend or indemnify defendant Red Dot Arms from the claims in the underlying lawsuits. Civil case terminated. Mailed notice (cn).

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
ACCEPTANCE INDEMNITY INSURANCE
COMPANY,
Plaintiff,
v.
RED DOT ARMS, INC., KEELEY ROBERTS,
JASON ROBERTS, LORENA REBOLLAR
SEDANO, RICARDO TOLEDO, PETRA
TOLEDO, JOSEFINA TOLEDO, ALEJO
TOLEDO, AMELIA TENORIO, ANTONIA
MEGLAR, BRUCE SUNDHEIM, PETER
STRAUS, JONATHON STRAUS, SYLVIA
VERGARA, LIZET MONTEZ, GABRIELA
VERGARA, LAUREN BENNETT, MICHAEL
BENNETT, TERRIE BENNETT, JEFFREY
BENNETT, DEBORAH SAMUELS, ELLIOT
SAMUELS, MIRNA RODRIGUEZ, OSCAR
SANCHEZ, MICHAEL ZEIFERT, CHRISTINE
ZEIFERT, ELIZABETH TURNIPSEED, and
JOSHUA CHUPACK,
Defendants.

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Case No. 22 C 7145
Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER
Plaintiff Acceptance Indemnity Insurance Company has brought an action for a
declaratory judgment under Fed. R. Civ. 57 against its insured defendant Red Dot Arms, Inc.,
seeking a declaration that it has no duty to defend or indemnify Red Dot in twelve underlying
lawsuits brought against Red Dot by the victims of the mass shooting that occurred at a Fourth of
July parade in Highland Park, Illinois, in 2022. The plaintiffs in those underlying lawsuits have
been named as defendants in the instant action. The complaints in the underlying lawsuits all
allege (among other things) that Red Dot transferred the firearm that was used in the shooting to

Robert Crimo III (“Crimo”) in violation of federal law and local ordinances, and that Crimo used
the firearm to assault and batter the underlying plaintiffs.
Red Dot has sought coverage from plaintiff for the claims asserted against it in the
underlying lawsuits under a Commercial Policy (the “Policy”) issued to it by plaintiff for the
policy period October 3, 2021, to October 3, 2022. Plaintiff brings this action seeking a judicial
determination that it owes no duty under the policy either to defend or indemnify Red Dot in
connection with the claims against Red Dot in the underlying lawsuits. Red Dot has filed a
counterclaim against plaintiff, seeking a declaration that Red Dot has coverage under the Policy
and that plaintiff has a duty to defend it in the underlying actions. The parties have filed crossmotions for summary judgment. For the reasons described below, the court grants plaintiff’s
motion and denies Red Dot’s motion.
BACKGROUND
Red Dot is a retail gun store. Plaintiff issued the Policy to Red Dot for the policy period
October 3, 2021 to October 3, 2022. The policy provides for $1,000,000 Each Occurrence with
a $2,000,000 General and Products Completed Operations Aggregate limit of liability.
Coverage A of the Commercial General Liability Coverage Part provides:
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally
obligated to pay as damages because of “bodily injury” or
“property damage” to which this insurance applies. We
will have the right and duty to defend the insured against
any “suit” seeking those damages. However, we will have
no duty to defend the insured against any “suit” seeking
damages for “bodily injury” or “property damage” to which
this insurance does not apply.

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b. This insurance applies to “bodily injury
and “property damage” only if:
1) “The bodily injury” and “property damage” is caused
by an “occurrence” that takes place in the “covered
territory”;
2) The “bodily injury” or “property damage” occurs
during the policy period; . . .
The Policy contains an Outdoor Commercial Definitions and Exclusion Amendment
Endorsement B.8, which provides that the insurance does not apply to:
“bodily injury” or “property damage” arising out of any acts
committed with a “firearm” or ammunition that is sold, distributed
or transferred by any insured where such sale, distribution or
transfer is in violation of ATF, federal, state or local laws or
regulations for the lawful transfer of a “firearm” or ammunition.
The Policy also contains an “assault and battery” exclusion that provides that the
“insurance does not apply to any ‘bodily injury’ or ‘property damage’ arising out of any actual or
alleged ‘assault and battery’ . . ..”
The underlying complaints all allege that in July 2020 Crimo purchased on line a Smith
& Wesson M&P rifle from Bud’s Gun Shop. Bud’s shipped the rifle to Red Dot for Red Dot to
complete the transfer of the firearm to Crimo. The underlying complaints further allege that
Crimo lived in Highwood or Highland Park, and that ordinances enacted by both Highland Park
and Highwood make it illegal to manufacture, sell, offer or display for sale, give, lend, transfer
ownership of, acquire or possess any assault weapon or large capacity magazine. The
complaints also allege that the rifle purchased by Crimo is an assault rifle under both ordinances,
and that Red Dot transferred the rifle to Crimo knowing that he resided in a municipality that
prohibited such firearms, thereby knowingly aiding and abetting Crimo’s violation of the
ordinances. The underlying complaints also allege that Red Dot violated the National Firearms
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Act by transferring and selling the firearm without filling out the proper transfer forms, getting
approval of the ATF, paying transfer taxes, or registering the firearm.
Finally, the underlying complaints allege that on July 4, 2022, Crimo fired more than 80
rounds into the crowd at the July 4th parade, killing seven people and injuring many others, and
that Crimo’s conduct was deliberate and outrageous and made with the intent to terrify, injure,
maim, and kill people at the parade.
DISCUSSION
The parties have filed cross-motions for summary judgment under Fed. R. Civ. P.
56. Summary judgment is appropriate when “the movant shows that there is no genuine dispute
as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(a). The movant bears the burden, and the court must view all facts in the light most
favorable to the nonmovant and draw all reasonable inferences in its favor. See Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). But the nonmovant must do
more than raise “some metaphysical doubt as to the material facts.” Id. at 586. Rather, the
nonmovant “must present affirmative evidence in order to defeat a properly supported motion for
summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).
Under Illinois law, which the parties agree applies to this dispute, the duty to defend is
much broader than the duty to indemnify. Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154
Ill. 2d 90, 125 (1992).

To determine whether the insurer has a duty to defend its insured, the

court must compare the allegations of the underlying complaints to the policy language. Those
allegations must be liberally construed in favor of the insured, and if the court determines that
the allegations fall within, or potentially within, the policy’s coverage, the insurer has a duty to
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defend the insured against the underlying complaint. Id. An insurer may not justifiably refuse
to defend its insured unless “it is clear from the face of the underlying complaint that the
allegations set forth in that complaint fail to state facts that bring the case within or potentially
within the insured’s policy coverage. General Agents Ins. Co. of America, Inc. v. Midwest
Sporting Goods Co., 215 Ill.2d 146, 154-55 (2005). If the underlying complaint alleges facts
within or potentially within coverage, the insurer must defend even if the allegations are
groundless, false, or fraudulent. Id.
Additionally, if several theories of recovery are alleged in the underlying complaint
against the insured, the insurer has a duty to defend “even if only one of several theories is
within potential coverage of the policy.” Id. at 155. Coverage does not depend on how the
underlying plaintiffs characterize the insured’s alleged wrong. What is important is not the legal
label that the plaintiff attaches to the insured’s conduct, but whether that conduct as alleged in
the complaint is at least arguably within one or more of the categories of wrongdoing that the
policy covers. Cincinnati Ins. Co. v.Eastern Atlantic Ins. Co., 260 F.3d 742, 745 (N.D. Ill.
2001).
In the instant case, the underlying complaints allege four claims against Red Dot: 1)
negligence; 2) aiding and abetting Crimo’s acquisition of an illegal assault rifle and the resulting
mass shooting; 3) intentional infliction of emotional distress (IIED”); and 4) negligent infliction
of emotional distress (“NIED”).
Plaintiff argues that it has no duty to defend Red Dot because none of the factual
allegations against Red Dot that support these theories potentially fall within the policy’s
coverage. Plaintiff argues that coverage for the claims is precluded by the Operation of the
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Outdoor Commercial Definitions and Exclusions Amendment Endorsement B.8, which as noted
above, provides that “[t]his insurance does not apply to . . . ‘bodily injury’ or ‘property damage’
arising out of any acts committed with a ‘firearm’ or ammunition that is sold, distributed, or
transferred by any insured where such sale, distribution or transfer is in violation of ATF,
federal, state or local laws or regulations for the lawful transfer of a ‘firearm’ or ammunition.”
Construction of an insurance policy’s provisions is a question of law for the court to
decide. Outboard Marine, 154 Ill.2d at 108. The court must ascertain the intent of the parties
to the contract. To ascertain the meaning of the policy’s words and the intent of the parties, the
court construes the policy as a whole with due regard to the risk undertaken, the subject matter
that is insured and the purposes of the entire contract. Id. If the words are unambiguous, the
court gives them their plain, ordinary, and popular meaning. Id. If the words are susceptible to
more than one reasonable interpretation, they are considered ambiguous and must be construed
in favor of the insured and against the insurer that drafted the policy. Id. at 109.
In the instant case, the exclusion is clear and unambiguous. Coverage is excluded for
bodily injury that arises out of any acts committed with a firearm that is sold or transferred in
violation of any federal, state, or local law. All of the factual allegations of Red Dot’s alleged
wrongdoing in the underlying complaints fall squarely within this exclusion. The general
allegations in each of the underlying complaints allege that in the summer of 2020 Red Dot
transferred the rifle to Crimo after conducting a background check, verifying Crimo’s
identification, and that the federal transaction form and Crimo’s identification would have shown
that he resided in either Highwood or Highland Park, both of which prohibited him from

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acquiring or possessing the rifle. In addition, the specific counts brought against Red Dot allege
that:
1) it was subject to the general duty imposed on
all persons and entities to act reasonably and not
expose others to reasonably foreseeable risks of
injury; 2) it had a duty to exercise reasonable care in
marketing, distributing, and selling firearms and
large capacity magazines, and to refrain from
engaging in any activity creating reasonable
foreseeable risk of injury to others; 3) in June or
July 2020, Red Dot transferred the rifle to Crimo
after conducting a background check and verifying
his identification; 4) both the federal transaction
form and Crimo’s identification should have shown
that he resided in either Highland Park or
Highwood, both of which prohibited Crimo from
acquiring or possessing an assault weapon like the
rifle; 5) “despite knowing that [Crimo] resided in a
municipality that prohibited the possession of
assault weapons, Red Dot Arms transferred the
[rifle] to [Crimo], thereby knowingly aiding and
abetting the violation of the ordinances”; 6) Red
Dot is a federally licensed gun dealer and is
therefore charged with and obligated to know the
relevant firearm laws; 7) Red Dot knowingly
violated both the NFA and GCA by transferring and
selling weapons without filling out the appropriate
transfer forms, getting ATF approval of the forms,
paying occupational and transfer taxes, or
registering firearms; 8) Red Dot “transferred the
rifle without complying with any of the NFA’s
requirements and had Red Dot complied with the
requirements of the NFA, [Crimo] would not have
been able to access the weapon”; 9) Red Dot’s
“negligence and knowing violations of law were a
direct and proximate cause of the harm to Plaintiffs,
by causing [Crimo] to gain unlawful possession of
an assault weapon, which he used to shoot and
terrify Plaintiffs; and 10) “[a]s a direct and
proximate result of the aforementioned conduct and
breach of duty, Plaintiffs have sustained and will
sustain physical pain, mental suffering, loss of
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enjoyment of life, anxiety, and severe emotional
distress.”
There are no other factual allegations made against Red Dot in the underlying complaints.
Thus, each of the claims asserted against Red Dot are premised entirely on Red Dot having
transferred the firearm in violation of Federal and local law. Indeed, the underlying plaintiffs
allege that absent Red Dot’s violation of the law, Crimo would not have gained possession of the
rifle and would not have been able to “shoot and terrify Plaintiffs.” Thus, they allege that their
bodily injury arose out of acts committed with a firearm sold or transferred in violation of federal
and local law. As such, the underlying claims fall squarely within the exclusion, and plaintiff
has no duty to defend or indemnify Red Dot.
Red Dot argues that the exclusion does not clearly apply “because the underlying
complaints allege negligence apart from a violation of laws.” It suggests that there is a
“potential that Red Dot filled out the proper paperwork and complied with all ordinances, and yet
still faces liability for negligently transferring the firearm to [Crimo].” However, there are no
factual allegations of any wrongdoing or negligence by Red Dot except for violating the
ordinances, and it is the factual allegations, not the legal label that is important. Cincinnati Ins.
Co. v.Eastern Atlantic Ins. Co., 260 F.3d at 745. Absent such allegations, there is no conduct
alleged in the underlying complaints that would arguably be covered by the Policy.
Red Dot also argues that it is inappropriate for this court to determine that the exclusion
applies because “the question whether the firearm sale violated any law cannot be resolved in
this declaratory suit when the question is one of the ultimate issues on which recovery is
predicated in the underlying case.” The court agrees with this statement of law. Red Dot is
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correct that it would not be appropriate for this court to consider the merits of the underlying
allegations. See Maryland Cas. Co. v. Peppers, 64 Ill.2d 187, 197 (1976). But, this court need
not determine if Red Dot violated the ordinances to determine if plaintiff has a duty to defend.
It is the factual allegations of the underlying complaints that the court compares to the terms of
the Policy. And, as already noted, the only factual allegations against Red Dot are that it
transferred the firearm in violation of the ordinances and federal law. Consequently, the court
concludes that plaintiff owes no duty to defend Red Dot in the underlying actions.
Moreover, even if the B.8 exclusion somehow does not apply (it does), coverage for the
claims asserted against Red Dot are precluded by operation of the policy’s assault and battery
exclusion which provides that the “insurance does not apply to any ‘bodily injury’ or ‘property
damage’ arising out of any actual or alleged ‘assault and battery’ . . ..” The injuries asserted by
the plaintiffs in the underlying complaints all arise from Crimo’s alleged assault and battery of
the plaintiffs. Red Dot argues that the exclusion does not apply because although the underlying
plaintiffs allege that Crimo’s assault and battery was a proximate cause of their injuries, they also
allege that Red Dot’s sale of the firearm to Crimo was a proximate cause of their injuries and that
there can be more than one proximate cause. See U.S. Fid. And Guar. Co. v. State Farm Mut.
Auto. Ins. Co., 152 Ill. App. 3d 46, 49 (1st Dist. 1987). According to Red Dot, USF&G stands
for the proposition that for an injury to be excluded from coverage, the insurer must prove that
the underlying injury was caused solely by a proximate cause excluded under the policy. Id. at
48-49. But, Illinois courts have shown reluctance to follow USF&G due to “its assimilation of
principles from tort law into the analysis of an insurance policy. “The issue before a court
ruling on a complaint for declaratory relief is the interpretation of the insurance policy in
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accordance with the plain meaning of the policy’s terms.” Allstate Ins. Co. v. Smiley, 276 Ill.
App.3d. 971, 982 (2nd Dist. 1996). “By intermingling contract and tort principles, USF&G’s
approach fails to recognize that tort liability on the part of the insured establishes contractual
liability on the part of the insurer only where the policy affords coverage, and that determination
is subject to the rules of contract construction, and not tort principles.” Id. (internal quotations
omitted).
The court therefore rejects Red Dot’s argument that the terms of the assault and battery
exclusion to do not apply to the underlying plaintiff’s claims against it. Consequently, the court
grants plaintiff’s motion for summary judgment and denies Red Dots motion for summary
judgment.
CONCLUSION
For the reasons described above, the court grants plaintiff’s motion for summary
judgment [50] and denies defendant Red Dot Arms’ motion for summary judgment [54]. The
court thus issues judgment declaring that plaintiff has no duty to defend or indemnify defendant
Red Dot Arms from the claims in the underlying lawsuits.
ENTER:

DATE: November 14, 2023

_________________________________________
Robert W. Gettleman
United States District Judge

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