National Fire and Marine Insurance Company v. Lindemann et al

Filing 112

ORDER denying 87 Motion to Dismiss Case for Lack of Jurisdiction. Signed by Judge David R. Herndon on 7/27/16. (lmp)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
NATIONAL FIRE AND MARINE
INSURANCE COMPANY,
Plaintiff,
vs.

Case No. 15-cv-910-DRH-DGW

LEE LINDEMANN, Special
Administrator of the Estate of
SUE ANN LINDEMANN, et al.,
Defendant.
MEMORANDUM AND ORDER
HERNDON, District Judge:
I. Introduction
Now before the Court is a motion to dismiss the crossclaim of defendant
Midwest Emergency Department Services (hereinafter “MEDS”) brought by
plaintiff National Fire and Marine Insurance Company’s (hereinafter “National
Fire”) (Doc. 87). MEDS opposes the motion (Doc. 97). For the following reasons,
National Fire’s motion is DENIED.
II. Background 1
This action arises out of a medical malpractice lawsuit filed in the Circuit
Court of St, Clair County, Illinois (hereinafter “State Lawsuit”). See Lindemann v.
DuMontier, et al., No. 12-L-538. In the state lawsuit, Lee Lindemann, as special
administrator of the Estate of Sue Ann Lindemann (hereinafter “Lindemann
1

The Court accepts as true all well-pleaded factual allegations and draws all reasonable inferences
in favor of the Crossclaim Plaintiff, in addition to examining other materials related to the exercise
of jurisdiction. Evers v. Astrue, 536 F.3d 651, 656 (7th Cir.2008).

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Estate”), alleged that Sue Ann Lindemann’s death was the result of negligent
treatment and care from Dr. Falconer at St. Elizabeth Hospital of the Sisters of
the Third Order of St. Francis (hereinafter “St. Elizabeth Hospital”). MEDS, Erick
Falconer, M.D., Western Healthcare, LLC, and St. Elizabeth Hospital were among
the defendants to the lawsuit (Doc. 52-5).
MEDS entered a Full-Time Professional Services Agreement (hereinafter
“Services Agreement”) with St. Elizabeth Hospital under which it would provide
healthcare staffing for the hospital. Subsequent to the Services Agreement, MEDS
entered into a Client Staffing Services Independent Contractor Agreement
(hereinafter “Contractor Agreement”) with Western for the purpose of hiring
independent contractor physicians to satisfy MEDS’ obligations under the
Services Agreement. (Doc. 52-3). The Contractor Agreement obligated Western to
ensure that all independent contractors had malpractice insurance with minimum
coverage “not less than $1 million per occurrence.” (Id.).
Thereafter, Western entered into an Independent Contractor/Physician
Agreement (hereinafter “Physician Agreement”) with Dr. Falconer, who was to
provide medical care to Western’s clients, including St. Elizabeth’s Hospital. Dr.
Falconer then obtained the requisite malpractice insurance through National Fire.
Pursuant to the contractual obligations, a Certificate of Liability Insurance was
sent to St. Elizabeth’s indicating that Dr. Falconer was insured while under
contract with Western with policy limits “Per Loss Event $1,000,000; Physician
Agg. $3,000,000.” (Doc. 52-7). During the state court lawsuit, National Fire

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undertook the defense of both Falconer and Western, pursuant to the policy (Doc.
1-2).
Subsequent to the underlying state lawsuit, National Fire filed the instant
action in this Court seeking a declaratory judgment (Doc. 1). National Fire
requested this Court to determine whether the terms of the liability insurance
policy permitted National Fire to reduce its policy’s liability limits by the costs of
defending its insureds in the state lawsuit. National Fire named as defendants in
this matter, the Lindemann Estate, the insureds (Western and Dr. Falconer), and
the remaining defendants from the pending state lawsuit (Doc. 2).
Thereafter, on September 1, 2015, a settlement was announced in the state
court (Doc. 89). On September 25, 2015, the Lindemann Estate executed a
release in favor of all defendants, except National Fire. (Doc. 90). The release
required National Fire to pay the Lindemann Estate the portion of the liability
limits that remained outstanding after deducting National Fire’s costs to defend
its insureds. This was viewed as partial consideration for the release of its
insureds. (Id.). The release also required National Fire to pay into this Court the
disputed amount of the liability limits relating to its defense costs (Docs. 89 &
90). Per the release, only the Lindemann Estate or St. Elizabeth’s Hospital would
have the right to receive the disputed liability limit amount, if determined that the
terms of the policy forbid National Fire from reducing the liability limits by its
defense costs. (Id.).

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Defendant-Crossclaim plaintiff MEDS filed its answer to National Fire’s
amended complaint (Doc. 68) and subsequently filed a Crossclaim for Declaratory
Judgment against National Fire on October 23, 2015 (Doc. 69). MEDS’ crossclaim
alleges that it remains a third-party beneficiary to the insurance contract, given
the inter-related nature of the contracts in play, and its contractual obligations
under the liability insurance policy.
Thereafter, National Fire filed a motion to voluntarily dismiss its amended
complaint for declaratory judgment against certain defendants (Doc. 86). That
same day, National Fire filed the pending motion to dismiss MEDS crossclaim for
lack of subject matter jurisdiction (Doc. 87). The Court granted National Fire’s
motion to dismiss certain defendants voluntarily on January 11, 2016, given the
state court settlement and release of the state court defendants (Doc. 102). The
Court now addresses National Fire’s motion to dismiss for lack of jurisdiction the
crossclaim of MEDS (Doc. 87).
III. Motion to Dismiss
National Fire’s motion to dismiss is made pursuant to FEDERAL RULE

OF

CIVIL PROCEDURE 12(b)(1), Rule 12(b)(1) provides that a case will be dismissed if
the court lacks the authority to hear and decide the dispute. Long v. Shorebank
Dev. Corp., 182 F.3d 548, 554 (7th Cir. 1999). A court may look beyond the
jurisdictional allegations of the complaint to consider any evidence submitted on
the issue to determine if subject matter jurisdiction exists. Id.; Hay v. Indiana
State Bd. of Tax Commis., 312 F.3d 876, 879 (7th Cir. 2002) (“the district court

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had not only the right, but the duty to look beyond the allegations of the complaint
to determine that it had jurisdiction to hear the landowner’s claim.”). “A district
court, in ruling upon an issue of subject matter jurisdiction, must accept as true
all well-pleaded factual allegations and draw all reasonable inferences in favor of
the plaintiffs”, in this case the cross Claimant. Kelley v. Med-1 Solutions, LLC,
548 F.3d 600, 604 (7th Cir.2008) (citing Capitol Leasing Co. v. Fed. Deposit Ins.
Corp., 999 F.2d 188, 191 (7th Cir.1993)).
Article III of the United States Constitution limits the jurisdiction of federal
courts to “cases” and “controversies.” Raines v. Byrd, 521 U.S. 811, 818, 117
S.Ct. 2312, 2317, 138 L.Ed.2d 849 (1997). Whether an actual controversy exists
under the Declaratory Judgment Act turns on whether there is a substantial
controversy, between the parties having adverse legal interests, of sufficient
immediacy and reality to warrant the issuance of a declaratory judgment. See 28
U.S.C. § 2201. The “actual controversy” must exist not only “at the time the
complaint is filed,” but through “all stages” of the litigation. Already, LLC v. Nike,
Inc., 133 S. Ct. 721, 726 (2013); quoting Alvarez v. Smith, 558 U. S. 87, 92, 130
S. Ct. 576, 175 L. Ed. 2d 447 (2009).
For the purposes of Article III, when the issues presented no longer exist, or
the parties no longer have a legal interest in the outcome, a case or controversy no
longer exists, therefore the case is moot. Already, LLC, 133 S. Ct. at 723. The
burden of proof is on the party asserting jurisdiction, in this case, the cross
claimant. United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 946 (7th

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Cir.2003), overruled on other grounds by Minn–Chem, Inc. v. Agrium, Inc., 683
F.3d 845 (7th Cir.2012) (en banc). With these principles in mind, the Court turns
to the allegations of the motion.
IV.Analysis
In its motion to dismiss, National Fire argues that MEDS no longer has a
justiciable claim by virtue of the terms of the settlement of the state lawsuit (Doc.
87). National Fire argues that the settlement terminated MEDS’ remaining legal
interest regarding whether National Fire is permitted to reduce the liability limits
by its defense costs under the terms of the insurance policy. MEDS, however,
argues that it does have a legal interest in the interpretation of insurance contract
and, in fact, an actual controversy still remains based on MEDS contractual
obligations to St. Elizabeth’s Hospital and MEDS continuing legal interest relating
to the liability limits of the National Fire policy.
MEDS asserts that although the Lindemann Estate released MEDS from the
state lawsuit under the terms of settlement, this did not extinguish MEDS legal
interest. MEDS argues that pursuant to the Services Agreement, it contracted to
provide physician services to St. Elizabeth’s Hospital, and those contractual
duties still remain. National Fire argues prior to the state court settlement, MEDS
had a legal interest “that could potentially be affected by this Court's
determination of whether National Fire's policy permitted its liability limits to be
reduced by National Fire's cost of defense.” (Doc. 88) However, National Fire
argues that the settlement of the State Lawsuit “extinguished any legal interest

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MEDS had in the outcome of whether National Fire may reduce the liability limits
by its defense costs.” (Id.)
The Services Agreement stated that:
Insurance. Hospital shall not provide physicians or Midlevel
Practitioners with professional malpractice insurance covering
Physicians and Midlevel Practitioners. [MEDS] shall procure such
insurance with minimum limits of One Million Dollars
($1,000,000.00) per medical incident and Three Million Dollars
($3,000,000.00) in the annual aggregate, or such other limits as
required by Hospital to comply with Hospital Sisters Health
System's policy. Such insurance shall cover Physicians and
Midlevel Practitioners while Physicians and Midlevel Practitioners
are providing services. [MEDS] shall be responsible to procure,
and show proof of, reasonable levels of professional liability
insurance applicable for acts (if any) that occurred prior to
Physicians’ and Midlevel Practitioners’ engagement hereunder.
Upon termination of this Agreement, regardless of the reason, if
Physicians’ and Midlevel Practitioners’ insurance is other than
occurrence-based, then [MEDS] shall procure continuing
professional liability insurance in the amounts reasonably
determined by Hospital covering Physicians’ and Midlevel
Practitioners’ Services.”
(emphasis added)(Doc. 52-1). The terms of said agreement with St. Elizabeth’s
Hospital, requires MEDS to abide by the hospital bylaws to provide insurance
coverage for $1,000,000 per occurrence (Id.). MEDS argues that it has a direct
interest in this outcome of this matter because of its contractual obligations to
provide physician services to St. Elizabeth’s with the requisite amount of
insurance coverage. The outcome of National Fire’s policy limit dispute potentially
affects what actions MEDS may take in the future.
The factual basis for MEDS crossclaim against National Fire addresses
National Fire’s responsibilities and liabilities under the policy, and National Fire’s
attempt to utilize the declining balance policy provision. If determined that
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National Fire is permitted to reduce its defense costs, MEDS argues that it will be
obligated to pay the remaining difference under its contractual obligations to St.
Elizabeth’s Hospital. National Fire’s failure to provide sufficient coverage would
burden MEDS and make it liable for the remaining balance owed to St.
Elizabeth’s Hospital—a balance MEDS expected to be covered under the policy.
Based on MEDS standing contractual obligations, MEDS has at least some
arguable interest in the outcome of this action; thus, its claim is properly before
this Court.
V. Conclusion
For the reasons stated above, National Fire’s motion to dismiss the
crossclaim is DENIED (Doc. 87).
IT IS SO ORDERED.
Signed this 27th day of July, 2016.

Digitally signed
by Judge David
R. Herndon
Date: 2016.07.27
16:25:21 -05'00'
United States District Judge

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