OneBeacon America Insurance Company v. City of Granite City et al

Filing 18

ORDER, GRANTING 13 MOTION for Summary Judgment filed by OneBeacon America Insurance Company. Signed by Chief Judge David R. Herndon on 2/13/2013. (kar)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS

ONEBEACON AMERICA INS. CO.,
Plaintiff,
v.
CITY OF GRANITE CITY, ET AL,
Defendants.

No. 12-CV-00156-DRH-DGW

MEMORANDUM AND ORDER
HERNDON, Chief Judge:
I.

Introduction and Background

Pending before this Court is plaintiff’s motion for summary judgment (Doc.
13) and memorandum in support of the motion (Doc. 14). Plaintiff claims it is
entitled to summary judgment because its insurance policy insures defendants
only against damages, not against restitution or restoration of monies wrongfully
obtained. Defendants oppose the motion (Doc. 15). Plaintiff further supports its
argument in its reply brief (Doc.16).

This case arises from a class action suit filed by David Funkhouser against
the City of Granite City (“the City”) seeking a refund on behalf of each class
member of a fee the City allegedly wrongfully collected. Funkhouser’s complaint
alleges the City charged him and other similarly situated plaintiffs a tow release
fee of $400 for the return of his vehicle after the City towed it following his arrest.
The fee at issue is alleged to be a processing fee that is required to be paid before
the automobile owners can appear at the towing facility to pay the actual towing
fee for the return of their vehicles.

The underlying suit seeks a return of all

monies for the wrongful assessment of the processing fee and an award of costs
and other relief to which Funkhouser and the other similarly situated plaintiffs
may be entitled.
OneBeacon filed its complaint seeking a declaratory judgment from this
Court that it does not owe the City a duty to defend or indemnify it for any
judgment entered on the underlying suit. OneBeacon claims its policies issued to
the City cover only liability to indemnify the City for suits seeking recovery of
damages, and do not cover an award of restitution.
II.

Summary Judgment

Summary judgment should be granted where “the pleadings, depositions,
answers to interrogatories and admissions on file, together with the affidavits, if
any, show there is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law.”

Fed. R. Civ. P. 56(c). The

moving party bears the initial responsibility of informing the district court of the

basis for its motion, and identifying those portions of the record or affidavits that
demonstrate an absence of a genuine issue of material fact.

Celotex Corp. v.

Catrett, 477 U.S. 317, 323 (1986). All justifiable inferences are to drawn in favor
of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986).
If the moving party meets its burden, the non-moving party has the burden
of presenting specific facts to show there is a genuine issue of material fact.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986).
Federal Rule of Civil Procedure 56(e) requires the non-moving party to go beyond
the pleadings and produce evidence of a genuine issue for trial. Celotex, 477 U.S.
at 324. In ruling on a motion for summary judgment, the non-moving party’s
evidence “is to be believed,” and all justifiable inferences drawn from it in the light
most favorable to the non-moving party. Hunt v. Cromartie, 526 U.S. 541, 552
(1999). Summary judgment in favor of the party with the burden of persuasion is
“inappropriate when the evidence is susceptible of different interpretations or
inferences by the trier of fact.” Id. at 553. However, there is no issue for trial
unless there is sufficient evidence that favors the non-moving party for a jury to
return a verdict for that party. Anderson, 477 U.S. at 249.
III.

Analysis

Plaintiffs argue that “damages” within the meaning of a liability policy does
not include restitution or disgorgement of funds wrongfully obtained. Plaintiffs
further argue that the underlying suit involves the return of monies the City

wrongfully collected and if it loses the suit, it has not been damaged, but merely
ordered to return monies to which it was not entitled.

Defendants dispute

plaintiff’s argument, contending that OneBeacon had a duty to defend and
indemnify them under the policy for any claim of monetary relief, regardless of
whether the claim was denominated as “money damages” or “restitution.”
In Level 3 Commc’ns, Inc. v. Fed. Ins. Co., the Seventh Circuit examined a
nearly identical situation as the case before this Court. 272 F.3d 908 (7th Cir.
2001). In Level 3, the court held that, “a ‘loss’ within the meaning of an insurance
contract does not include the restoration of an ill-gotten gain. . . “ Id. at 910.
Level 3 was a securities fraud case where the plaintiffs sought the monetary
difference between the value of their stock at time of trial and the price they had
received from Level 3 when they sold.

Id.

The Seventh Circuit held that an

insured party does not incur a loss within the meaning of the insurance contract
when the party is compelled to return property it has stolen. Id. at 911.
More than a decade later, the court reaffirmed its holding that restitution of
monies wrongfully obtained is not a loss within the definition of an insurance
policy. Ryerson Inc. v. Fed. Ins. Co., 676 F.3d 610 (7th Cir. 2012). In Ryerson,
the insured brought a diversity action against the insurers seeking coverage for
“loss” under its directors and officers liability insurance policy.

Id. at 611.

Ryerson sold a group of subsidiaries to EMC Group, Inc., but failed to disclose
that a major customer of the largest of the subsidiaries threatened to withdraw its
business unless the subsidiary substantially reduced its prices. Id. at 612. When

Ryerson and EMC finally settled the case, Ryerson agreed to return $8.5 million
obtained by fraudulent inducement. Id. The Ryerson court held that if Ryerson
was able to obtain reimbursement for that amount from its insurance company, it
would have gotten away with fraud. Id. The court stated, “[i]f disgorging such
proceeds is included within the policy’s definition of ‘loss,’ thieves could buy
insurance against having to return money they stole.” Id. at 612-13. Referencing
its holding in Level 3, the Seventh Circuit held that the surrender of profits made
by fraud was not a loss within the meaning of an insurance policy. Id. at 613.
In the case before this Court, the underlying suit seeks the return of a fee
the City allegedly wrongfully charged Funkhouser and other similarly situated
plaintiffs.

As in both Level 3 and Ryerson, the underlying suit involves the

potential “restoration of an ill-gotten gain.”

Level 3, 272 F.3d at 910.

The

Seventh Circuit has clearly held that this is not a “loss” within the meaning of an
insurance contract.

Id.

Therefore, the City’s potential liability if it loses the

underlying suit is not a loss for which it would be covered under OneBeacon’s
insurance policies.
The City relies heavily on Outboard Marine Corp. v. Liberty Mutual Ins.
Co. for its holding that an insurer is obligated to defend its insured if any of the
underlying complaint’s allegations could potentially lie within the policy’s
coverage.
inapposite.

607 N.E.2d 1204, 1220 (Ill. 1992).

However, Outboard Marine is

That case involved costs to Outboard Marine based on actions

brought by both the United States Environmental Protection Agency and the State

of Illinois for cleaning up an environmental discharge of pollutants into Lake
Michigan. Id. at 1208. It did not address restitution for improperly appropriated
funds. Thus, Outboard Marine is of no help to the City.
The City also directs this Court to General Star Indemnity Co. v. Lake
Bluff School Dist., 819 N.E.2d 784 (Ill. App. 3d 2004). In General Star, a family
sued the school district for reimbursement of out of pocket costs it incurred for a
special needs child. Id. at 787. The school district claimed the family’s request
for reimbursement was “damages” within the meaning of the policy, Id. at 788.
The court ultimately held that the family’s requests for reimbursements were
requests for damages that properly brought the claims under the insurance
policy. Id. at 794. Again, unlike the case before us, General Star did not involve
claims for restitution for monies wrongfully taken by the insured, and its holding
is likewise of no help to the City.
The Seventh Circuit cases, Level 3 and Ryerson, are clear in their holdings
that restitution of monies wrongfully taken does not constitute “damages” within
the meaning of an insurance policy.

In this case, if the underlying lawsuit is

ultimately successful, any money the City might have to pay to Funkhouser and
the other similarly situated plaintiffs is undisputedly restitution. Thus, under the
case law from the Seventh Circuit, there is no basis on which a reasonable jury
could find in favor of the City that OneBeacon would incur liability under its
insurance policies for monies the City wrongfully appropriated. Accordingly, the
Court finds that OneBeacon is entitled to judgment as a matter of law.

IV.

Conclusion

Based on the aforementioned reasons, the Court concludes no genuine
issues remain for the trier of fact regarding whether OneBeacon is liable in its
policy for any restitution monies the City might owe due to the underlying suit.
Plaintiff

owes

neither

the

duty

to

defend

nor

indemnify

under

circumstances. Accordingly, plaintiff’s motion is GRANTED on this basis.

these
The

clerk will enter judgment accordingly.

IT IS SO ORDERED.
Signed this 13th day of February, 2013.

Digitally signed by
David R. Herndon
Date: 2013.02.13
16:41:00 -06'00'
Chief Judge
United States District Court