Justia Insurance Law Opinion Summaries

Articles Posted in US Court of Appeals for the Seventh Circuit

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The Plaintiffs, purportedly the assignees of certain private insurers (Medicare Advantage Organizations), brought a putative class action against State Farm to recover payments State Farm allegedly should have made to them as reimbursement for certain medical costs. The district court dismissed the action with prejudice, and imposed sanctions under Federal Rule of Civil Procedure 11 against one of the plaintiffs, MSP. and its attorneys. The Seventh Circuit concluded that the district court erred in dismissing plaintiffs’ case with prejudice, when the problem was a fundamental lack of Article III standing so that the court lacked jurisdiction to decide the case. However, the court acted within its discretion when it denied plaintiffs a third opportunity to cure the defects in their pleadings. The court’s order, in substance, was a jurisdictional dismissal without prejudice with denial of leave to amend dismissal is without prejudice. The district court exceeded the bounds of its discretion when it imposed Rule 11 sanctions on Recovery Claims and its attorneys. View "MAO-MSO Recovery II, LLC v. State Farm Mutual Automobile Insurance Co." on Justia Law

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In 2008, Deerfield’s employee, Graff, had an automobile accident with Keeping. Deerfield had a primary commercial automobile insurance policy through American that covered it for up to $1 million in liability. Deerfield's broker, Gallagher, also helped Deerfield obtain an excess insurance policy from Landmark, to kick in after Deerfield’s liability exceeded $1 million. After Graff’s accident, Deerfield informed American and Gallagher through an intermediary company, Laurus. No one notified Landmark, even after Keeping filed suit. American assumed the defense and hired attorney Olmstead. American never offered the full policy value to settle the suit. More than a year before trial, Keeping made a $1.25 million demand, which was high enough to trigger Deerfield’s excess insurance coverage. American counter-offered $75,000. In 2014, weeks before trial, Landmark learned about Keeping’s lawsuit. Its claims adjuster evaluated the case at $500,000-$750,000. Before trial, Landmark was receiving regular updates as a passive bystander. Before the verdict was announced, American assumed that the jury had sided with the defense and did not resume settlement negotiations. Deerfield did not know about the negotiations, although Olmstead was involved. Landmark knew and advised that American should settle within the primary policy limit. The jury reached a verdict that remitted to $2.3 million. Landmark sought a declaratory judgment that it did not have to cover the loss. The Seventh Circuit affirmed summary judgment for Landmark, holding that Deerfield’s notice was unreasonably late as a matter of law. View "Landmark American Insurance Co. v. Deerfield Construction, Inc." on Justia Law

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A 2014 hail and wind storm damaged Windridge buildings that were insured by Philadelphia Indemnity. The storm physically damaged the aluminum siding on the buildings’ south and west sides. Philadelphia argued that it is required to replace the siding only on those sides. Windridge argued that replacement siding that matches the undamaged north and east elevations is no longer available, so Philadelphia must replace the siding on all four sides so that all of the siding matches. The Seventh Circuit affirmed summary judgment in favor of Windridge. Each building suffered a direct physical loss, which was caused by or resulted from the storm, so Philadelphia must pay to return the buildings to their pre‐storm status—i.e., with matching siding on all sides. Having mismatched siding on its buildings would not be the same position. The district court’s conclusion that the buildings as a whole were damaged—and that all of the siding must be replaced to ensure matching—is a sensible construction of the policy language as applied to these facts. View "Windridge of Naperville Condominium Association v. Philadelphia Indemnity Insurance Co." on Justia Law

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In 2010, Baby Fold, which provides Illinois foster-care services, placed three-year-old Kianna in the care of Lamie, who killed Kianna in 2011 and was convicted of murder. The administrator of Kianna’s estate maintained a state court wrongful death action against Baby Fold, which settled for $4 million. Baby Fold’s insurer, Philadelphia, sought a declaratory judgment that its maximum indemnity is $1 million under a primary policy and $250,000 under an excess policy. Baby Fold and the administrator argued that the excess policy’s limit is $5 million. The district court entered judgment in favor of Philadelphia and dismissed the counterclaims. The Seventh Circuit affirmed, rejecting an argument that the policies were ambiguous. The primary policy comprises several “coverage parts,” each of which outlines specific types of losses. One part covers losses arising out of negligent supervision of foster parents who commit physical abuse; this part provides $1 million of coverage. The excess policy then provides additional coverage for physical-abuse claims, but the background limit of $5 million drops to $250,000 for each instance of “abusive conduct”, a term that aggregates multiple acts of abuse by multiple persons. The policies contain anti-stacking provisions to prevent an insured from benefiting from consecutive policies’ limits when injuries or losses span multiple periods. The primary policy accomplishes this by defining “abusive conduct” to aggregate multiple acts of abuse into one unit. View "Philadelphia Indemnity Insurance Co. v. Chicago Trust Co." on Justia Law

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Emmis bought a directors-and-officers liability policy covering October 1, 2009 to October 1, 2010, from Chubb Insurance. Emmis later bought, from Illinois National, a policy covering liability from October 1, 2011, to October 1, 2012, with an exclusion for any losses in connection with “Event(s),” which included “[a]ll notices of claim of circumstances as reported” under the Chubb policy. In 2012, Emmis tried to gain control of enough of its shares to go private. Shareholders filed suit to stop Emmis’s effort. Emmis reported the suit to Chubb and also sought coverage under the Illinois National policy. Illinois National refused coverage. Emmis sued, seeking damages for breach of contract and breach of the duty of good faith and fair dealing. The district court granted Emmis summary judgment for breach of contract, rejecting Illinois National’s interpretation of the “as reported” language. The Seventh Circuit reversed. Illinois National’s proposed interpretation is correct. The phrase “as reported” has no discernable temporal limitations. Once Emmis reported a claim to Chubb, at any time, then that claim was “reported” and excluded. View "Emmis Communications Corp. v. Illinois National Insurance Co" on Justia Law

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In 2002, Condominium sued TSS, claiming defective building design and construction. TSS never responded. In 2003, the state court declared TSS in default. In 2009, the court entered a default judgment and awarded damages of $1,356,435. Essex did not insure TSS until it sold TSS a policy for claims “first made” from May 2012 to May 2013. The policy defined “first made” to mean the time when TSS received either a “written demand for money damages” or “the service of suit or institution of arbitration proceedings.” In 2012, when TSS became aware of efforts to collect the judgment, no proof of service was found. The Illinois court vacated the judgment. Essex, with the mistaken belief that Condominium first made a claim in 2012, began funding and monitoring the defense. Essex rejected a settlement offer although Condominium had begun to compile evidence that TSS’s agent had been served. In 2014, the state court reinstated the judgment. Essex continued its defense but notified TSS that it was denying coverage. TSS, without any involvement by Essex, settled the case for $550,000. In 2015, Essex sought a federal declaratory judgment that it had no indemnification obligation. The district court granted Essex summary judgment. The Seventh Circuit affirmed, rejecting an estoppel argument because TSS suffered no prejudice. TSS never lost control of its defense, was aware that Essex would not cover the matter if proof of service was found, and settled without Essex’s approval. View "Essex Insurance Co. v. Structural Shop, Ltd." on Justia Law

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Fessenden’s employment was terminated after he began receiving short-term disability benefits. He then applied for long‐term disability benefits through his former employer’s benefits plan. The plan administrator, Reliance, denied the claim. Fessenden submitted a request for review with additional evidence supporting his diagnosis of Chronic Fatigue Syndrome. When Reliance failed to issue a decision within the timeline mandated by regulations governing the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1132, he filed suit. Eight days later, Reliance finally issued a decision, again denying Fessenden’s claim. The district court granted Reliance summary judgment. The Seventh Circuit vacated. If the decision had been timely, the court would have applied an arbitrary and capricious standard because the plan gave Reliance the discretion to administer it. When a plan administrator commits a procedural violation, however, it loses the benefit of deference and a de novo standard applies. The court rejected Reliance’s argument that it “substantially complied” with the deadline because it was only a little bit late. The “substantial compliance” exception does not apply to blown deadlines. An administrator may be able to “substantially comply” with other procedural requirements, but a deadline is a bright line. View "Fessenden v. Reliance Standard Life Insurance Co." on Justia Law

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Lacko began working for BKD’s predecessor in 1999 and worked until September 2015, when she was Senior Manager in the Audit Department, with an annual salary of $93,250.04. She applied for benefits under the short term disability (STD) plan, claiming gastroparesis, diabetes, rheumatoid arthritis, congestive heart failure, breathing difficulties, anxiety, musculoskeletal impairments, and cognitive difficulties related to the medication needed to manage the other conditions. Although United approved her claims for STD benefits three times, it denied benefits in June 2016 for the period beyond November 22, 2015, concluding there was no change in Lacko’s medical condition when she stopped working or subsequently. United also denied her claim for long term disability benefits. Lacko sued under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001.. The district court granted United summary judgment. The Seventh Circuit reversed. United failed to adequately address a determination that Lacko was entitled to Social Security disability benefits and failed to recognize the significant distinction between her ability to perform unskilled work and the job of Senior Manager. The court noted that the Plan’s requirement of a “change” in a person’s physical or mental capacity in order to qualify for benefits does not by its terms preclude a degenerative condition from qualifying a claimant for benefits and noted United's conflict of interests, having issued the policies and serving as claims review fiduciary. View "Lacko v. United of Omaha Life Insurance Co." on Justia Law

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Chicago awarded a construction contract to a joint venture formed by Gillen and other entities. The joint venture subcontracted some of the work to Gillen, which subcontracted with others for labor and materials. The joint venture obtained over $30 million in Fidelity performance and payment bonds. Fidelity received an indemnity agreement and a net worth retention agreement, both executed by Gillen. Gillen promised to maintain a net worth greater than $7.5 million. During 2012, several subcontractors sued Gillen in state court and named Fidelity as a co-defendant based on its bond obligations. Fidelity sued Gillen in federal court, alleging: breach of the indemnity agreement; a request for an accounting of contract payments; breach of the net worth retention agreement; quia timet; and a demand for access to books and records. Historically, litigants have used bills quia timet to pursue preemptive relief; on that claim, Fidelity sought $2.5 million from Gillen as bond collateral and an order requiring Gillen to satisfy all bond obligations and prohibiting Gillen from disbursing money without court approval. The parties settled all claims in mediation, except for Fidelity’s quia timet claim, agreeing their settlement would not impact the quia timet claim or Gillen’s defenses. The district court granted Gillen summary judgment on the quia timet claim. The Seventh Circuit affirmed. Fidelity negotiated for specific indemnification and collateralization rights, sued on those rights, and settled its breach of contract claims. It may not augment its contractual rights with the ancient equitable doctrine of quia timet. View "Fidelity and Deposit Co. of Maryland v. Edward E. Gillen Co." on Justia Law

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Llenos hung a noose from a basement ceiling beam, stood on a stool with the noose around his neck, and stepped off. Llenos died as a result. When Tran came home, she found her husband’s body. Though his death was initially reported as suicide, the medical examiner concluded from sexual paraphernalia on Llenos’s body that he died performing autoerotic asphyxiation, a sexual practice by which a person purposefully restricts blood flow to the brain to induce a feeling of euphoria. Llenos was covered by basic and supplemental life insurance policies, providing $517,000 in coverage, and including Accidental Death & Dismemberment (AD&D) policy riders providing an additional $60,000 in coverage. Minnesota Life paid $517,000 but denied Tran’s claim for the additional $60,000 in AD&D coverage, concluding that Llenos’s death was not “accidental” and fell under an exclusion for intentionally self-inflicted injury. Tran filed suit under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1132(a)(1)(B). The district court awarded Tran judgment, reasoning that the insurer had conceded the death was accidental. The Seventh Circuit reversed, finding that autoerotic asphyxiation was the ultimate and the proximate cause of Llenos’s death. Strangling oneself to cut off oxygen to one’s brain is an injury. When that injury kills, it is “an intentionally self-inflicted injury which resulted in death,” regardless of whether it was done recreationally or with an intent to survive. View "Tran v. Minnesota Life Insurance Co." on Justia Law