Great American Insurance Company, as assignee of the Illinois Community College Risk Management Consortium v. State Farm Fire and Casualty Company

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

GREAT AMERICAN INSURANCE COMPANY,

Plaintiff, No. 22 C 3765

v. Judge Thomas M. Durkin

STATE FIRE AND CASUALTY COMPANY,

Defendant.

MEMORANDUM OPINION AND ORDER

Great American Insurance Company is the assignee of an insurance

consortium that paid for the defense of and liability for claims against board members

of the College of DuPage. Great American seeks a declaratory judgment that State

Farm Fire and Casualty Company had a duty to defend one of the board members

and has an obligation to reimburse Great American for the costs of the defense of that

board member. State Farm has moved for judgment on the pleadings in its favor.

That motion is granted.

Legal Standard

A motion for judgment on the pleadings under Federal Rule of Civil Procedure

12(c) is subject to the same standard as a motion under Rule 12(b)(6). See Gill v. City

of Milwaukee, 850 F.3d 335, 339 (7th Cir. 2017). A Rule 12(b)(6) motion challenges

the “sufficiency of the complaint.” Berger v. Nat. Collegiate Athletic Assoc., 843 F.3d

285, 289 (7th Cir. 2016). The complaint must “contain sufficient factual matter,

accepted as true, to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S.

at 678 (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw the reasonable inference

that the defendant is liable for the misconduct alleged.” Boucher v. Fin. Sys. of Green

Bay, Inc., 880 F.3d 362, 366 (7th Cir. 2018) (quoting Iqbal, 556 U.S. at 678). In

applying this standard, the Court accepts all well-pleaded facts as true and draws all

reasonable inferences in favor of the non-moving party. Tobey v. Chibucos, 890 F.3d

634, 646 (7th Cir. 2018). “Only when it appears beyond a doubt that the plaintiff

cannot prove any facts to support a claim for relief and the moving party

demonstrates that there are no material issues of fact to be resolved will a court grant

a Rule 12(c) motion.” Moss v. Martin, 473 F.3d 694, 698 (7th Cir. 2007).

Background

After the former president of the College of DuPage was fired, he sued the

College and its board members—including the board chairperson, Katherine

Hamilton—in their individual and official capacities in connection with his

termination as president. The former president brought claims for: (1) violation of

due process; (2) tortious interference with contract; and (3) defamation regarding

statements made in board meetings and to the media and general public. The College

had been issued an insurance policy by the Illinois Community College Risk

Management Consortium. The Consortium agreed to provide a defense to Hamilton

and the other board members, reserving its rights not to cover board member conduct

committed outside of their duties as board members. The Consortium has paid the

entire defense costs and has indemnified all the defendants. As the Consortium’s

assignee, Great American does not seek reimbursement of indemnification payments

here.

The Consortium also told Hamilton and the other board members to tender the

lawsuit to their respective personal liability insurers. Hamilton has a Personal

Liability Umbrella Policy issued by State Farm. Hamilton informed State Farm of

the lawsuit and State Farm advised that its defense obligations were not triggered.

Despite this, Great American claims that this policy provides that State Farm had a

duty to defend Hamilton in the lawsuit brought by the College’s former president,

and therefore State Farm should reimburse Great American for the defense costs paid

by the Consortium.

Analysis

Great American brings five claims: (Count I) declaratory relief; (Count II)

equitable contribution; (Count III) contractual subrogation; (Count IV) equitable

subrogation; and (Count V) estoppel. Great American’s primary claim is for a

declaration that “State Farm has a duty to defend Hamilton in the Underlying

Lawsuit under the State Farm Policy.” R. 6 ¶ 61. The Court’s finding in State Farm’s

favor on that claim resolves the others.

I. Duty to Defend

The State Farm policy provides:

If a suit is brought against any insured for damages

because of a loss to which this policy applies, we will

provide a defense to the insured at our expense . . . when

the basis for the suit is a loss that is not covered by any

other insurance policy but is covered by this policy.

R. 6-3 at 11 (p. 6). Here, the Consortium covered the only loss at issue, and Great

American concedes that it is not seeking reimbursement for any of the Consortium’s

indemnity payments. Because the Consortium covered the only loss at issue, that loss

was “covered by any other insurance policy,” as provided in the State Farm policy.

And because the loss was covered by an insurance policy other than State Farm’s,

State Farm has no liability for the costs of the defense.

Great American argues that the Consortium’s “indemnity obligation does not

arise unless and until liability has actually been established.” R. 23 at 6. This

sentence implies that Great American believes that State Farm had primary

obligation to indemnify Hamilton. But that is not actually what Great American is

arguing—nor could it because the Consortium indemnified Hamilton for the total

loss, and Great American concedes that it does not seek reimbursement for the

indemnity payments. Rather, Great American argues that because the Consortium’s

indemnity obligation was not implicated until a loss was finally established means

that the Consortium did not have a duty to defend. See id. (“Duties that are

contingent upon the determination of an insured’s ‘legal liability,’ or that arise only

after adjudication or compromise, are uniquely associated with indemnity and do not

imply the existence of a corresponding duty to defend.”). Great American also points

out that the Consortium’s policy expressly states that it does not have a duty to

defend, but only a right to participate in the defense. Great American argues that

because the Consortium did not have a duty to defend, State Farm’s duty to defend

must be primary and must have been implicated by the underlying claims against

Hamilton.1

But this argument ignores that State Farm’s duty to defend is expressly

predicated on the loss at issue being within its policy’s scope of coverage. State Farm’s

scope of coverage is limited to circumstances when there is no other insurance to cover

or indemnify the loss, and its duty to defend is thereby also so limited. Ignoring this

express provision, Great American’s argument assumes that indemnity coverage and

defense coverage operate in two separate silos. Great American supposes that

because the Consortium had only a right, not a duty, to defend, State Farm’s excess

coverage for defense costs must then have been implicated because there was no

primary insurer with a duty to defend. But State Farm’s duty to defend is tied to

whether its scope of coverage was implicated. Without State Farm’s indemnity

coverage being implicated (because the Consortium was covering any liability loss),

State Farm’s duty to defend wasn’t implicated either. The fact that the Consortium

exercised its right to defend rather than complied with an obligation is irrelevant to

determining whether State Farm had a duty to defend.

Contrary to the express terms of the “Defense” provision, Great American

argues that the “Other Insurance” provision shows that the scope of State Farm’s

coverage is not relevant to whether it had a duty to defend her. Great American

1 The Court notes that this argument is a bit curious because Great American

repeatedly admits in the complaint that is has a duty to defend Hamilton. See R. 6

¶¶ 2, 40, 63, 86. The Court assumes that Great American meant to allege that it had

a duty to pay defense costs only once liability was ascertained.

highlights that the “Other Insurance” clause in State Farm’s policy provides that the

“coverage provided by this policy is excess over all other insurance and self

insurance.” R. 6-3 at 16 (p. 11, ¶ 12) (emphasis added). According to Great American,

this provision “necessarily applies only to resolve priority of coverage as it relates to

State Farm’s potential indemnity obligation.” R. 23 at 14 (emphases added). Great

American argues that this provision’s assertion of being “excess” applies only to

“coverage” (or indemnity) such that the excess nature of State Farm’s policy is not

applicable to its duty to defend. In other words, Great American contends that only

State Farm’s duty to indemnify is excess, whereas its duty to defend applies to any

loss for claims covered by the State Farm policy, regardless of whether there is a

primary insurer with a duty to indemnify. But it is the “Defense” provision of the

policy, discussed above, that connects a defense to circumstances in which State Farm

will provide indemnity coverage; i.e., State Farm only provides a defense when there

is no other insurer to cover the loss. Great American’s attempt to separate the two

duties is unavailing under the express terms of State Farm’s policy.

II. Scope of Coverage

Great American argues that even if State Farm’s duty to defend is limited to

circumstances when its scope of coverage is implicated, State Farm’s coverage was

implicated here. Great American contends that “the State Farm Policy is undeniably

primary as it relates to Hamilton’s liability for conduct committed in her individual

capacity, because it fills a gap in coverage for which there is not available

underlying/primary insurance.” R. 23 at 8 (emphasis added). Perhaps this would be

true if Hamilton had been sued solely in her personal capacity and suffered a loss as

a result. But that is not the case. When the underlying case started, the Consortium

stepped in because most of the claims “undeniably” implicated the Consortium’s

indemnity obligations. Now with the underlying case settled, there is only one loss,

which the Consortium undeniably covered. See Indem. Ins. Co. of N. Am. v. Westfield

Ins. Co., 58 F.4th 276, 282 (7th Cir. 2023) (holding that if a primary insurer covers a

loss, then the excess insurer’s duty to indemnify is not triggered, even if the excess

insurer’s policy would cover the loss if there wasn’t a primary insurer). Because the

Consortium covered the only loss in the underlying case, there is no loss left for State

Farm to cover. Therefore, its coverage is not implicated here, and as discussed, that

means that its duty to defend isn’t implicated either.

III. Ambiguity

Great American next argues that there is ambiguity in the “Defense” provision.

Again, the provision in question is:

If a suit is brought against any insured for damages

because of a loss to which this policy applies, we will

provide a defense to the insured at our expense . . . when

the basis for the suit is a loss that is not covered by any

other insurance policy but is covered by this policy.

R. 6-3 at 11 (p. 6) (emphases added). According to Great American, the phrase “loss

to which this policy applies” must have a different meaning than the phrase “loss that

is [not] covered” because they use different terms. Great American explains that the

phrase “‘to which this policy applies’ connotes a potentiality of coverage based on a

theory of liability, from which a duty to defend may be determined, and ‘that is

covered’ implies actual coverage after liability has been established, from which a

duty to indemnify may be determined.” R. 23 at 11-12. Great American then

concludes that “State Farm could not possibly determine whether the loss was

‘covered’ under its policy or some other policy until after the case concluded in 2022.

At a minimum, the language is susceptible to two reasonable interpretations.” Id. at

12. Under Great American’s interpretation, State Farm’s policy creates a sort of

catch-22 where State Farm can wait until the loss is finally ascertained to determine

whether it is “covered,” at which point the defense costs will already have been paid.

Putting aside whether this is actually a problematic scenario—Great American

seems to have no problem claiming that State Farm has a duty to reimburse defense

costs already paid—the fact is that Great American never actually proposes an

alternative reasonable interpretation. See Cent. Illinois Light Co. v. Home Ins. Co.,

821 N.E.2d 206, 213 (Ill. 2004) (to be found ambiguous, contract terms must be

“reasonably susceptible to more than one meaning”). Great American contends that

the provision could be interpreted to mean that State Farm only ever provides a

defense after liability is determined. But that is not a reasonable interpretation. The

only reasonable interpretation of the provision is that State Farm pays defense costs

for losses its policy covers when there is no other insurer to cover the loss. There is

no ambiguity here because Great American has not proposed any other reasonable

interpretation of the provision.

Great American also argues that there is ambiguity in the phrase “when the

basis for the suit is a loss.” R. 23 at 13. But Great American’s argument is not that

the phrase is ambiguous; nor does it suggest a competing alternative reasonable

interpretation. Great American simply points out that the provision would appear to

have the same meaning if the words “basis for the suit is a” were deleted, and the

provision simply referred to “the loss.” Again, superfluity does not equal ambiguity.

See Stone v. Signode Indus. Grp. LLC, 943 F.3d 381, 387 (7th Cir. 2019) (“The

principle that contracts should be interpreted to avoid rendering language

superfluous or redundant is not absolute. Rather, it is a preference to be employed to

the extent possible given the range of reasonable meanings that can be ascribed to

the contractual language.”). Great American has not identified any ambiguity in the

provision’s meaning.

IV. Other Claims

At bottom, State Farm had no duty to defend because its coverage is excess

with respect to the Consortium. And because State Farm’s policy is excess, Great

American’s other claims fail as well. Notably, Great American does not address

Counts II, III, or IV in its brief.

The claim for equitable contribution (Count II) fails because that doctrine does

not apply to disputes between primary and excess insurers. See Home Indem. Co. v.

Gen. Acc. Ins. Co. of Am., 572 N.E.2d 962, 963 (Ill. App. Ct. 1st Dist. 1991) (affirming

dismissal of equitable contribution claim in dispute over whether insurer was

primary or excess). The claim for contractual subrogation (Count III) fails because an

insurer’s right to contractual subrogation depends solely on the terms of the

subrogation provisions in the insurance agreement. See Hack v. Multimedia

Cablevision, Inc., 696 N.E.2d 694 (Ill. App. Ct. 1st Dist. 1998). Here, without

establishing that State Farm had a duty to defend, Hamilton has no right to seek

contribution from State Farm, and Great American likewise has no such right.

Similarly, Great American’s claim for equitable subrogation (Count IV) fails because

State Farm is not primarily liable. See Home Ins., 821 N.E.2d at 280.

Lastly, Great American’s claim that State Farm is estopped from a “no

coverage’ defense (Count V) fails because the majority rule is that “an excess insurer

who has no duty to investigate coverage issues or to defend its insured will not be

estopped from later asserting coverage defenses by a failure to issue a reservation of

rights letter.” Intl Ins. Co. v. Sargent & Lundy, 609 N.E.2d 842, 855 (Ill. App. Ct. 1st

Dist. 1993) (collecting cases). Here, State Farm is an excess insurer without a duty to

defend, thus permitting a coverage defense without a reservation of rights letter.

Conclusion

Therefore, State Farm’s motion for judgment on the pleadings [18] is granted.

Judgement will be entered in State Farm’s favor.

ENTERED:

Arnite MY Suchor.

Honorable Thomas M. Durkin

United States District Judge

Dated: March 31, 2023

10