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Lewis Clark Marine, Inc. v. T.H.E. Insurance Company

United States District Court, S.D. Illinois
Apr 30, 2001
No. 00-CV-0161-DRH (S.D. Ill. Apr. 30, 2001)

Opinion

No. 00-CV-0161-DRH

April 30, 2001


MEMORANDUM AND ORDER


T.H.E. Insurance Company seeks summary judgment on Lewis Clark Marine's two-count Amended Complaint (Doc. 5) for damages arising out of T.H.E.'s failure to pay in full certain legal expenses incurred by lawyers for Lewis Clark. For the reasons set forth below, this Court GRANTS in part and DENIES in part the motion.

Factual Background

This dispute over attorneys fees arises from the accidental deaths of three men and the injury of another during the Fourth of July fireworks celebration on the Mississippi River near Alton, Illinois, on July 3, 1997. Lewis Clark Marine operated the tugboat that towed the Mississippi River barges that served as platforms for the fireworks display. (Doc. 37, Ex. 1, ¶ 3); (Doc. 37, Ex. 2, ¶ 3); (Doc. 37, Ex. 3, ¶ 3).

Lewis Clark was one of several defendants, including the City of Alton, sued for wrongful death and personal injuries in an Illinois state court. (Doc. 39, ¶ 5). Named as an additional insured under the City of Alton's comprehensive general liability policy, Lewis Clark timely tendered the defense of the Illinois claims to the City's insurer, T.H.E. Insurance Company ("T.H.E."). (Doc. 37, Ex. 5); (Doc. 39, ¶ 3). T.H.E. accepted the tender under a broad reservation of rights, and appointed the law firm of Hinshaw Culbertson ("Hinshaw") to defend all the insureds, including Lewis Clark, in the Illinois state case. (Doc. 37, Ex. 5).

Lewis Clark did more than just stand and defend. On October 31, 1997, Lewis Clark filed suit in the United States District Court for the Eastern District of Missouri seeking exoneration for itself under the federal limitation of vessel owner's liability statute, 46 U.S.C. § 181-195. In the Matter of the Complaint of Lewis Clark Marine, Inc., 50 F. Supp.2d 925 (E.D.Mo. 1999); (Doc. 39, ¶ 6). The law firm of Lewis, Rice Fingersh ("LRF") represented Lewis Clark in that case. (Doc. 39, ¶ 6). On May 14, 1999, Lewis Clark won the exoneration case, securing a judgment that it had no liability in the Alton fireworks accident. Lewis Clark, 50 F. Supp.2d 925 (E.D.Mo. 1999); (Doc. 39, ¶ 8).

Lewis Clark's victory in the Missouri exoneration case led directly to the dispute before this Court today. While the exoneration case was underway, Lewis Clark asserted that Hinshaw, the firm T.H.E. hired to defend it in the Illinois state case, had a conflict of interest in representing all the fireworks defendants. (Doc. 37, Ex. 6). Thereafter, T.H.E. agreed to pay for LRF to defend Lewis Clark. (Doc. 37, Ex. 8); (Doc. 39, ¶ 7).

LRF then submitted to T.H.E. various bills for legal services rendered on behalf of Lewis Clark. The first was an invoice for services rendered in November and December, 1998, totaling $30,759.51. (Doc. 37, Ex. 9); (Doc. 39, ¶ 12). T.H.E. paid those two bills, but no others. (Doc. 39, ¶ 12). LRF presented additional legal bills amounting to a further $118,342.67, but T.H.E. paid none of them. (Doc. 39, ¶ 12). LRF has since collected from other sources; Lewis Clark itself paid $32,392.99 of the LRF bill, and another insurer, American International Marine Underwriters, paid the balance of $85,949.68. (Doc. 39, ¶ 12).

Meanwhile, T.H.E. began a lawsuit of its own. T.H.E. filed a Declaratory Judgment action in the Southern District of Illinois, seeking a declaration that it had no duty to indemnify or defend any of the defendants in the Alton fireworks litigation. (Doc. 39, ¶ 9). Judge Paul E. Riley of this District agreed, holding that the comprehensive general liability policy under which Lewis Clark was named did not apply to the Fourth of July fireworks accident in Alton. (Doc. 39, ¶ 10). The Seventh Circuit affirmed that decision on May 10, 2000. T.H.E. Insurance Co. v. City of Alton, 227 F.3d 802 (7th Cir. 2000).

Notwithstanding this decision, Lewis Clark did not let T.H.E. completely off the hook. On March 6, 2000, Lewis Clark filed a Complaint alleging that T.H.E. breached its contract to pay LRF's legal bills. (Doc. 1). Two months later, on May 2, 2000, Lewis Clark filed an Amended Complaint, adding a second count under § 155 of the Illinois Insurance Code, 215 ILCS 5/155, on the theory that Defendant's failure to pay the LRF bills was vexatious and unreasonable. (Doc. 5).

T.H.E. moved for summary judgment on both counts of Lewis Clark's Amended Complaint. (Doc. 35). First, T.H.E. argued that Lewis Clark could not seek damages for T.H.E.'s failure to pay the LRF bills, because LRF received partial payment from another insurer, American International Marine Underwriters. (Doc. 35). T.H.E. argued that "[s]ince Lewis Clark has not and cannot prove the full extent of the damages being sought in this case, its breach of contract claim fails as a matter of law." (Doc. 35, ¶ 12). With respect to Count II, T.H.E. argues that its success in the Declaratory Judgment action insulates it from liability for unreasonable and vexatious delay under Section 155.

"Assuming, therefore, that Lewis Clark had sustained the damages being claimed in this case, and assuming further that T.H.E. were liable for those damages and that such liability gave rise to a Section 155 claim, the claim would still fail due to Lewis Clark's inability to establish a legitimate claim for coverage under the policy upon which the purported claim would be based."

(Doc. 35, ¶ 20). T.H.E. also argues that Lewis Clark is attempting to use § 155 of the Illinois Insurance Code for two legally unauthorized purposes — to collect unpaid legal bills, and to punish T.H.E. for disputing in good faith its obligations as an insurer.

Analysis

This Court will grant summary judgment only where the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The burden of making this showing falls on the party moving for summary judgment. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A genuine issue of material fact exists where there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party on a particular issue. Methodist Medical Center v. American Medical Sec., Inc., 38 F.3d 316, 319 (7th Cir. 1994); Karazanos v. Navistar Int'l. Transp. Corp., 948 F.2d 332, 338 (7th Cir. 1994). In the absence of a dispute of material fact, "the sole question is whether the moving party is entitled to judgment as a matter of law." Sweat v. Peabody Coal Co., 94 F.3d 301, 304 (7th Cir. 1996). In considering T.H.E.'s motion, this Court will draw all reasonable inferences from the facts in the light most favorable to Lewis Clark, and will resolve any doubts against T.H.E. Anderson v. Liberty Lobby, 477 U.S. 242, 255 (1986)

T.H.E. failed to meet its burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law with respect to Count I of Plaintiff's Amended Complaint. (Doc. 5). However, T.H.E. has met its burden of showing that Lewis Clark cannot prevail as a matter of law on Count II of the Amended Complaint (Doc. 5). Therefore, the Court DENIES the motion with respect to Count I , but GRANTS T.H.E.'s motion (Doc. 35) with respect to Count II of the Amended Complaint (Doc. 5).

I. The Court Denies Summary Judgment on Count I of the Amended Complaint; Lewis Clark's Partial Recovery From Another Insurer Does Not Preclude It From Claiming It Suffered Damages From T.H.E.'s Breach, and a Genuine Issue of Material Fact Exists As To The Necessity and Reasonableness of LRF's Legal Bills.

T.H.E. has failed to meet its burden of showing that it is entitled to judgment as a matter of law on Lewis Clark's claim for breach of contract. Fed.R.Civ.P. 56(c); Celotex, 477 U.S. at 323 . The Court rejects T.H.E.'s argument that Lewis Clark's partial recovery of litigation expenses from another insurance company relieves T.H.E. of all consequences of the breach Lewis Clark alleges.

T.H.E.'s argument that the breach of contract claim fails as a matter of law because "Lewis Clark has not and cannot prove the full extent of the damages being sought in this case," (Doc. 35, ¶ 12), is not supported by Illinois law. In effect, T.H.E. argues that summary judgment is proper because Lewis Clark seeks in damages more than it paid out of its own pocket. "In this case, Lewis Clark has not and cannot establish a loss in the amount of $118,342.67 because it has not sustained a loss in that amount. T.H.E. is entitled to summary judgment accordingly." (Doc. 36, p. 4). However, T.H.E. cites no cases in support of this proposition. This Court is aware of none.

Since our jurisdiction is founded on diversity of parties, this Court looks to the substantive law of the forum state, Illinois. Erie RR Co. v. Tompkins, 304 U.S. 64 (1938). The parties implicitly agree; both depend on Illinois state cases for the relevant substantive law.

Indeed, the cases T.H.E. cites actually undermine its argument. In Wanderer v. Plainfield Carton Corp ., the court held that the plaintiff landlord could not recover from the defendant tenant more money than plaintiff lost from defendant's breach of contract. Wanderer v. Plainfield Carton Corp., 40 Ill. App.3d 552, 558 (3rd Dist. 1976). It did not hold that the landlord's case failed as a matter of law because it sought in damages more than it could ultimately justify. Similarly, in Roboserve v. Kato Kaguku, Ltd., the Seventh Circuit partially vacated a jury's damages award because it was excessive. Roboserve v. Kato Kaguku, 78 F.3d 266, 280-81 (7th Cir. 1996). The court did not hold that an excessive damages award entitled the defendant to judgment as a matter of law under Fed.R.Civ.P. 56(c).

T.H.E. argues that Lewis Clark cannot as a matter of law pursue a claim for the entire LRF bill because its actual out-of-pocket loss was far less than that bill, and another insurance company, American International Marine Underwriters, paid the outstanding balance owed. (Doc. 36, pp. 3-5). However, even if a substantial portion of Lewis Clark's damages award (if any) should ultimately go to American International, T.H.E. would still lose. Under Illinois law, all Lewis Clark must show to maintain this lawsuit is "a de minimis pecuniary interest." Orejel v. York International Corp., 287 Ill. App.3d 592, 604 (Ill.App. 1 Dist. 1997). In their Joint Statement of Uncontroverted Facts the parties agreed that Lewis Clark paid LRF $32,392.99 for "attorneys fees and expenses." (Doc. 39, ¶ 12). The Court believes that this sum is enough to give Lewis Clark at least a de minimis interest in the outcome of this lawsuit.

In its Reply brief, T.H.E. protests that Lewis Clark's reliance on principles of subrogation law was improper, because it did not plead subrogation in its Complaint or Amended Complaint. (Doc. 38, pp. 2-3). On this issue, the Illinois Civil Practice Act states,

"Any action hereafter brought by virtue of the subrogation provision of any contract or by virtue of subrogation by operation of law shall be brought either in the name or for the use of the subrogee; and the subrogee shall in his or her pleading on oath, or by his or her affidavit if pleading is not required, allege that he or she is the actual bona fide subrogee and set forth how and when he or she became subrogee."
735 ILCS 5/2-403(c). T.H.E. seems to be arguing that American International is a subrogee, and therefore this case should have been brought either in its name or for its use. But even if that were true, it is by no means clear that summary judgment necessarily follows.

Orejel v. York International Corp illuminates this issue. Interpreting the subrogation provision of the Civil Practice Act, the Illinois Court of Appeals held that its purpose was to ensure that the subrogee's interest be fully disclosed.

"Thus, the interest of the subrogee cannot be concealed in any proceeding brought for its benefit, but it either must be named as the plaintiff or disclosed as the real party in interest. However, if an insured plaintiff has even a de minimis pecuniary interest in the lawsuit, that interest is sufficient to allow a subrogation action to be maintained in plaintiff's name."
Orejel v. York International Corp., 287 Ill. App.3d 592, 604 (1 Dist. 1997). In Orejel, the court held that the trial court correctly denied a motion to name the subrogee insurance company as plaintiff, where its interest was known to the parties and where the named plaintiff retained a substantial pecuniary interest of its own. Id . at 605. The Orejel court did not hold that summary judgment was the only remedy when the subrogee is not named as the plaintiff.

In this case, Lewis Clark filed with its response to the summary judgment motion an affidavit stating that it "will reimburse American International Marine Underwriters, out of proceeds from this lawsuit, the defense costs American International Marine Underwriters had to pay in the underlying litigation due to T.H.E.'s failure to pay." (Doc. 37, Ex. 17). This affidavit seems to provide the disclosure that the Civil Practice Act requires. In addition, T.H.E. learned of American International's interest in this case long ago through its own discovery. Plaintiff's Answers to Defendant's Interrogatories, (Doc. 35, Ex. E-F). Even if Lewis Clark's strict compliance with the Civil Practice Act was somewhat wanting, Orejel suggests that this Court can, but need not, order as a remedy that American International be named as plaintiff — a remedy far less drastic than summary judgment, and one which T.H.E. has not pursued.

T.H.E. cited no cases holding that summary judgment is proper in a situation such as this, a fact that casts considerable doubt on whether "the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In its Reply brief, T.H.E. admitted that "this case boils down to a bona fide dispute as to whether the time spent and the rate charged by LRF was reasonable and necessary in conducting Lewis Clark's defense in the underlying tort claims." (Doc. 38, p. 6). The Court agrees. A "bona fide dispute as to whether the time spent and the rate charged by LRF was reasonable and necessary" is a genuine dispute of material fact that a trial on the merits can resolve. Therefore, summary judgment on Count I of the Amended Complaint is DENIED. (Doc. 5).

II. The Court Grants Summary Judgment on Count II; As A Matter Of Law, Lewis Clark Cannot Recover Under § 155 of the Insurance Code Where T.H.E. Had No Duty to Defend Or Indemnify In The Underlying Illinois State Lawsuits.

T.H.E. also moved for summary judgment on Count II of the Amended Complaint, arguing that its victory in the Declaratory Judgment case, T.H.E. Insurance Co. v. City of Alton, 227 F.3d 802 (7th Cir. 2000), insulates it from liability under § 155 of the Illinois Insurance Code. The Court agrees, and GRANTS summary judgment on Count II of the Amended Complaint (Doc. 5).

The Illinois Insurance Code provides that,

"In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees [and] other costs, plus an amount not to exceed any one of the following amounts:
(a) 25% of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of all costs;

(b) $25,000;

(c) the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action."
215 ILCS 5/155. T.H.E. argues that its refusal to pay the LRF bills in a timely manner cannot be "vexatious and unreasonable" as a matter of law, because it secured a declaratory judgment that it had no duty to indemnify or defend Lewis Clark. T.H.E. Insurance Co. v. City of Alton, 227 F.3d 802 (7th Cir. 2000). T.H.E. cites a recent case from the Seventh Circuit interpreting § 155, Prisco Serena Sturm Architects, Ltd. v. Liberty Mutual Insurance Co., 126 F.3d 886, 893 (7th Cir. 1997). In Prisco Serena, the Seventh Circuit reviewed several recent Illinois cases interpreting § 155, and held that the statute is not available to an aggrieved insured where its insurer wins a declaration that it has no obligation to indemnify or defend on the underlying policy. Id., 126 F.3d at 893 .

Lewis Clark tries to avoid Prisco Serena by distinguishing it. Lewis Clark argues that its § 155 claim is not for insurance benefits, as in Prisco Serena, but to enforce T.H.E.'s promise to pay the reasonable and necessary legal expenses of its defense under the reservation of rights. In this case, Lewis Clark argues, T.H.E. breached its contract by failing to pay LRF's legal bills, after it accepted LRF's representation under the reservation of rights.

This argument is inventive, but the Court disagrees. Prisco Serena stands unambiguously for the proposition that an insurer is free from liability under § 155 if it wins a declaratory judgment in the underlying case. Because T.H.E. won a declaratory action on the underlying case, it is entitled to judgment as a matter of law on Count II of the Amended Complaint. (Doc. 5).

Conclusion

For the reasons set forth above, the Court DENIES summary judgment on Count I of Plaintiff's Amended Complaint. (Doc. 5). However, the Court GRANTS summary judgment on Count II of Plaintiff's Amended Complaint (Doc. 5).

IT IS SO ORDERED.

MEMORANDUM AND ORDER

T.H.E. Insurance Company seeks summary judgment on Lewis Clark Marine's two-count Amended Complaint (Doc. 5) for damages arising out of T.H.E.'s failure to pay in full certain legal expenses incurred by lawyers for Lewis Clark. For the reasons set forth below, this Court GRANTS in part and DENIES in part the motion.

FACTUAL BACKGROUND

This dispute over attorneys fees arises from the accidental deaths of three men and the injury of another during the Fourth of July fireworks celebration on the Mississippi River near Alton, Illinois, on July 3, 1997. Lewis Clark Marine operated the tugboat that towed the Mississippi River barges that served as platforms for the fireworks display. (Doc. 37, Ex. 1, ¶ 3); (Doc. 37, Ex. 2, ¶ 3); (Doc. 37, Ex. 3, ¶ 3).

Lewis Clark was one of several defendants, including the City of Alton, sued for wrongful death and personal injuries in an Illinois state court. (Doc. 39, ¶ 5). Named as an additional insured under the City of Alton's comprehensive general liability policy, Lewis Clark timely tendered the defense of the Illinois claims to the City's insurer, T.H.E. Insurance Company ("T.H.E."). (Doc. 37, Ex. 5); (Doc. 39, ¶ 3). T.H.E. accepted the tender under a broad reservation of rights, and appointed the law firm of Hinshaw Culbertson ("Hinshaw") to defend all the insureds, including Lewis Clark, in the Illinois state case. (Doc. 37, Ex. 5). Lewis Clark did more than just stand and defend. On October 31, 1997, Lewis Clark filed suit in the United States District Court for the Eastern District of Missouri seeking exoneration for itself under the federal limitation of vessel owner's liability statute, 46 U.S.C. § 181-195. In the Matter of the Complaint of Lewis Clark Marine, Inc., 50 F. Supp.2d 925 (E.D.Mo. 1999); (Doc. 39, ¶ 6). The law firm of Lewis, Rice Fingersh ("LRF") represented Lewis Clark in that case. (Doc. 39, ¶ 6). On May 14, 1999, Lewis Clark won the exoneration case, securing a judgment that it had no liability in the Alton fireworks accident. Lewis Clark, 50 F. Supp.2d 925 (E.D.Mo. 1999); (Doc. 39, ¶ 8).

Lewis Clark's victory in the Missouri exoneration case led directly to the dispute before this Court today. While the exoneration case was underway, Lewis Clark asserted that Hinshaw, the firm T.H.E. hired to defend it in the Illinois state case, had a conflict of interest in representing all the fireworks defendants. (Doc. 37, Ex. 6). Thereafter, T.H.E. agreed to pay for LRF to defend Lewis Clark. (Doc. 37, Ex. 8); (Doc. 39, ¶ 7).

LRF then submitted to T.H.E. various bills for legal services rendered on behalf of Lewis Clark. The first was an invoice for services rendered in November and December, 1998, totaling $30,759.51. (Doc. 37, Ex. 9); (Doc. 39, ¶ 12). T.H.E. paid those two bills, but no others. (Doc. 39, ¶ 12). LRF presented additional legal bills amounting to a further $118,342.67, but T.H.E. paid none of them. (Doc. 39, ¶ 12). LRF has since collected from other sources; Lewis Clark itself paid $32,392.99 of the LRF bill, and another insurer, American International Marine Underwriters, paid the balance of $85,949.68. (Doc. 39, ¶ 12).

Meanwhile, T.H.E. began a lawsuit of its own. T.H.E. filed a Declaratory Judgment action in the Southern District of Illinois, seeking a declaration that it had no duty to indemnify or defend any of the defendants in the Alton fireworks litigation. (Doc. 39, ¶ 9). Judge Paul E. Riley of this District agreed, holding that the comprehensive general liability policy under which Lewis Clark was named did not apply to the Fourth of July fireworks accident in Alton. (Doc. 39, ¶ 10). The Seventh Circuit affirmed that decision on May 10, 2000. T.H.E. Insurance Co. v. City of Alton, 227 F.3d 802 (7th Cir. 2000).

Notwithstanding this decision, Lewis Clark did not let T.H.E. completely off the hook. On March 6, 2000, Lewis Clark filed a Complaint alleging that T.H.E. breached its contract to pay LRF's legal bills. (Doc. 1). Two months later, on May 2, 2000, Lewis Clark filed an Amended Complaint, adding a second count under § 155 of the Illinois Insurance Code, 215 ILCS 5/155, on the theory that Defendant's failure to pay the LRF bills was vexatious and unreasonable. (Doc. 5).

T.H.E. moved for summary judgment on both counts of Lewis Clark's Amended Complaint. (Doc. 35). First, T.H.E. argued that Lewis Clark could not seek damages for T.H.E.'s failure to pay the LRF bills, because LRF received partial payment from another insurer, American International Marine Underwriters. (Doc. 35). T.H.E. argued that "[s]ince Lewis Clark has not and cannot prove the full extent of the damages being sought in this case, its breach of contract claim fails as a matter of law." (Doc. 35, ¶ 12). With respect to Count II, T.H.E. argues that its success in the Declaratory Judgment action insulates it from liability for unreasonable and vexatious delay under Section 155.

"Assuming, therefore, that Lewis Clark had sustained the damages being claimed in this case, and assuming further that T.H.E. were liable for those damages and that such liability gave rise to a Section 155 claim, the claim would still fail due to Lewis Clark's inability to establish a legitimate claim for coverage under the policy upon which the purported claim would be based."

(Doc. 35, ¶ 20). T.H.E. also argues that Lewis Clark is attempting to use § 155 of the Illinois Insurance Code for two legally unauthorized purposes — to collect unpaid legal bills, and to punish T.H.E. for disputing in good faith its obligations as an insurer.

ANALYSIS

This Court will grant summary judgment only where the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The burden of making this showing falls on the party moving for summary judgment. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A genuine issue of material fact exists where there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party on a particular issue. Methodist Medical Center v. American Medical Sec., Inc., 38 F.3d 316, 319 (7th Cir. 1994); Karazanos v. Navistar Int'l. Transp. Corp., 948 F.2d 332, 338 (7th Cir. 1994). In the absence of a dispute of material fact, "the sole question is whether the moving party is entitled to judgment as a matter of law." Sweat v. Peabody Coal Co., 94 F.3d 301, 304 (7th Cir. 1996). In considering T.H.E.'s motion, this Court will draw all reasonable inferences from the facts in the light most favorable to Lewis Clark, and will resolve any doubts against T.H.E. Anderson v. Liberty Lobby, 477 U.S. 242, 255 (1986) T.H.E. failed to meet its burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law with respect to Count I of Plaintiff's Amended Complaint. (Doc. 5). However, T.H.E. has met its burden of showing that Lewis Clark cannot prevail as a matter of law on Count II of the Amended Complaint (Doc. 5). Therefore, the Court DENIES the motion with respect to Count I, but GRANTS T.H.E.'s motion (Doc. 35) with respect to Count II of the Amended Complaint (Doc. 5).

I. THE COURT DENIES SUMMARY JUDGMENT ON COUNT I OF THE AMENDED COMPLAINT; LEWIS CLARK'S PARTIAL RECOVERY FROM ANOTHER INSURER DOES NOT PRECLUDE IT FROM CLAIMING IT SUFFERED DAMAGES FROM T.H.E.'S BREACH, AND A GENUINE ISSUE OF MATERIAL FACT EXISTS AS TO THE NECESSITY AND REASONABLENESS OF LRF'S LEGAL BILLS.

T.H.E. has failed to meet its burden of showing that it is entitled to judgment as a matter of law on Lewis Clark's claim for breach of contract. FED. R. CIV. P. 56(C); Celotex, 477 U.S. at 323. The Court rejects T.H.E.'s argument that Lewis Clark's partial recovery of litigation expenses from another insurance company relieves T.H.E. of all consequences of the breach Lewis Clark alleges.

T.H.E.'s argument that the breach of contract claim fails as a matter of law because "Lewis Clark has not and cannot prove the full extent of the damages being sought in this case," (Doc. 35, ¶ 12), is not supported by Illinois law. In effect, T.H.E. argues that summary judgment is proper because Lewis Clark seeks in damages more than it paid out of its own pocket. "In this case, Lewis Clark has not and cannot establish a loss in the amount of $118,342.67 because it has not sustained a loss in that amount. T.H.E. is entitled to summary judgment accordingly." (Doc. 36, p. 4). However, T.H.E. cites no cases in support of this proposition. This Court is aware of none.

Since our jurisdiction is founded on diversity of parties, this Court looks to the substantive law of the forum state, Illinois. Erie RR Co. v. Tompkins, 304 U.S. 64 (1938). The parties implicitly agree; both depend on Illinois state cases for the relevant substantive law.

Indeed, the cases T.H.E. cites actually undermine its argument. In Wanderer v. Plainfield Carton Corp., the court held that the plaintiff landlord could not recover from the defendant tenant more money than plaintiff lost from defendant's breach of contract. Wanderer v. Plainfield Carton Corp., 40 Ill. App.3d 552, 558 (3rd Dist. 1976). It did not hold that the landlord's case failed as a matter of law because it sought in damages more than it could ultimately justify. Similarly, in Roboserve v. Kato Kaguku, Ltd., the Seventh Circuit partially vacated a jury's damages award because it was excessive. Roboserve v. Kato Kaguku, 78 F.3d 266, 280-81 (7th Cir. 1996). The court did not hold that an excessive damages award entitled the defendant to judgment as a matter of law under FED. R. CIV. P. 56(C).

T.H.E. argues that Lewis Clark cannot as a matter of law pursue a claim for the entire LRF bill because its actual out-of-pocket loss was far less than that bill, and another insurance company, American International Marine Underwriters, paid the outstanding balance owed. (Doc. 36, pp. 3-5). However, even if a substantial portion of Lewis Clark's damages award (if any) should ultimately go to American International, T.H.E. would still lose. Under Illinois law, all Lewis Clark must show to maintain this lawsuit is "a de minimis pecuniary interest." Orejel v. York International Corp., 287 Ill. App.3d 592, 604 (Ill.App. 1 Dist. 1997). In their Joint Statement of Uncontroverted Facts the parties agreed that Lewis Clark paid LRF $32,392.99 for "attorneys fees and expenses." (Doc. 39, ¶ 12). The Court believes that this sum is enough to give Lewis Clark at least a de minimis interest in the outcome of this lawsuit. In its Reply brief, T.H.E. protests that Lewis Clark's reliance on principles of subrogation law was improper, because it did not plead subrogation in its Complaint or Amended Complaint. (Doc. 38, pp. 2-3). On this issue, the Illinois Civil Practice Act states,

"Any action hereafter brought by virtue of the subrogation provision of any contract or by virtue of subrogation by operation of law shall be brought either in the name or for the use of the subrogee; and the subrogee shall in his or her pleading on oath, or by his or her affidavit if pleading is not required, allege that he or she is the actual bona fide subrogee and set forth how and when he or she became subrogee."
735 ILCS 5/2-403(c). T.H.E. seems to be arguing that American International is a subrogee, and therefore this case should have been brought either in its name or for its use. But even if that were true, it is by no means clear that summary judgment necessarily follows. Orejel v. York International Corp illuminates this issue. Interpreting the subrogation provision of the Civil Practice Act, the Illinois Court of Appeals held that its purpose was to ensure that the subrogee's interest be fully disclosed.

"Thus, the interest of the subrogee cannot be concealed in any proceeding brought for its benefit, but it either must be named as the plaintiff or disclosed as the real party in interest. However, if an insured plaintiff has even a de minimis pecuniary interest in the lawsuit, that interest is sufficient to allow a subrogation action to be maintained in plaintiff's name."

Orejel v. York International Corp., 287 Ill. App.3d 592, 604 (1 Dist. 1997). In Orejel, the court held that the trial court correctly denied a motion to name the subrogee insurance company as plaintiff, where its interest was known to the parties and where the named plaintiff retained a substantial pecuniary interest of its own. Id. at 605. The Orejel court did not hold that summary judgment was the only remedy when the subrogee is not named as the plaintiff. In this case, Lewis Clark filed with its response to the summary judgment motion an affidavit stating that it "will reimburse American International Marine Underwriters, out of proceeds from this lawsuit, the defense costs American International Marine Underwriters had to pay in the underlying litigation due to T.H.E.'s failure to pay." (Doc. 37, Ex. 17). This affidavit seems to provide the disclosure that the Civil Practice Act requires. In addition, T.H.E. learned of American International's interest in this case long ago through its own discovery. Plaintiff's Answers to Defendant's Interrogatories, (Doc. 35, Ex. E-F). Even if Lewis Clark's strict compliance with the Civil Practice Act was somewhat wanting, Orejel suggests that this Court can, but need not, order as a remedy that American International be named as plaintiff — a remedy far less drastic than summary judgment, and one which T.H.E. has not pursued.

T.H.E. cited no cases holding that summary judgment is proper in a situation such as this, a fact that casts considerable doubt on whether "the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(C). In its Reply brief, T.H.E. admitted that "this case boils down to a bona fide dispute as to whether the time spent and the rate charged by LRF was reasonable and necessary in conducting Lewis Clark's defense in the underlying tort claims." (Doc. 38, p. 6). The Court agrees. A "bona fide dispute as to whether the time spent and the rate charged by LRF was reasonable and necessary" is a genuine dispute of material fact that a trial on the merits can resolve. Therefore, summary judgment on Count I of the Amended Complaint is DENIED. (Doc. 5).

II. THE COURT GRANTS SUMMARY JUDGMENT ON COUNT II; AS A MATTER OF LAW, LEWIS CLARK CANNOT RECOVER UNDER § 155 OF THE INSURANCE CODE WHERE T.H.E. HAD NO DUTY TO DEFEND OR INDEMNIFY IN THE UNDERLYING ILLINOIS STATE LAWSUITS.

T.H.E. also moved for summary judgment on Count II of the Amended Complaint, arguing that its victory in the Declaratory Judgment case, T.H.E. Insurance Co. v. City of Alton, 227 F.3d 802 (7th Cir. 2000), insulates it from liability under § 155 of the Illinois Insurance Code. The Court agrees, and GRANTS summary judgment on Count II of the Amended Complaint (Doc. 5).

The Illinois Insurance Code provides that,

"In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees [and] other costs, plus an amount not to exceed any one of the following amounts:
(a) 25% of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of all costs;

(b) $25,000;

(c) the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action."
215 ILCS 5/155. T.H.E. argues that its refusal to pay the LRF bills in a timely manner cannot be "vexatious and unreasonable" as a matter of law, because it secured a declaratory judgment that it had no duty to indemnify or defend Lewis Clark. T.H.E. Insurance Co. v. City of Alton, 227 F.3d 802 (7th Cir. 2000). T.H.E. cites a recent case from the Seventh Circuit interpreting § 155, Prisco Serena Sturm Architects, Ltd. v. Liberty Mutual Insurance Co., 126 F.3d 886, 893 (7th Cir. 1997). In Prisco Serena, the Seventh Circuit reviewed several recent Illinois cases interpreting § 155, and held that the statute is not available to an aggrieved insured where its insurer wins a declaration that it has no obligation to indemnify or defend on the underlying policy. Id., 126 F.3d at 893.

Lewis Clark tries to avoid Prisco Serena by distinguishing it. Lewis Clark argues that its § 155 claim is not for insurance benefits, as in Prisco Serena, but to enforce T.H.E.'s promise to pay the reasonable and necessary legal expenses of its defense under the reservation of rights. In this case, Lewis Clark argues, T.H.E. breached its contract by failing to pay LRF's legal bills, after it accepted LRF's representation under the reservation of rights.

This argument is inventive, but the Court disagrees. Prisco Serena stands unambiguously for the proposition that an insurer is free from liability under § 155 if it wins a declaratory judgment in the underlying case. Because T.H.E. won a declaratory action on the underlying case, it is entitled to judgment as a matter of law on Count II of the Amended Complaint. (Doc. 5).

CONCLUSION

For the reasons set forth above, the Court DENIES summary judgment on Count I of Plaintiff's Amended Complaint. (Doc. 5). However, the Court GRANTS summary judgment on Count II of Plaintiff's Amended Complaint (Doc. 5).

IT IS SO ORDERED.


Summaries of

Lewis Clark Marine, Inc. v. T.H.E. Insurance Company

United States District Court, S.D. Illinois
Apr 30, 2001
No. 00-CV-0161-DRH (S.D. Ill. Apr. 30, 2001)
Case details for

Lewis Clark Marine, Inc. v. T.H.E. Insurance Company

Case Details

Full title:LEWIS CLARK MARINE, INC., Plaintiff, v. T.H.E. INSURANCE COMPANY, Defendant

Court:United States District Court, S.D. Illinois

Date published: Apr 30, 2001

Citations

No. 00-CV-0161-DRH (S.D. Ill. Apr. 30, 2001)