American Alternative Insurance v. Metro Paramedic Services, Inc.
829 F.3d 509
7th Cir.2016Background
- Three former female employees sued Antioch Rescue Squad and Metro Paramedic Services alleging widespread sexual harassment, assault, battery, retaliation, negligent supervision, and related workplace torts; two plaintiffs accepted offers of judgment and one settled.
- Plaintiffs alleged Antioch and Metro operated as a joint venture/partnership: jointly staffed operations, shared ambulances, shared uniforms/gear, and overlapping personnel.
- Antioch was insured under a liability policy issued by American Alternative Insurance Corporation (AAIC); the policy covered employment-practices and other wrongful acts but excluded “sexual abuse” while expressly not excluding “sexual harassment.”
- AAIC defended and indemnified Antioch, but refused to defend or indemnify Metro, contending Metro was not a named insured (not on the Declarations, not a joint venturer) and that the sexual-abuse exclusion applied.
- AAIC sued for declaratory relief; the district court granted Metro judgment on the pleadings that AAIC had a duty to defend Metro; district court later entered summary judgment for Metro on all counts after a stipulation; AAIC appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Metro is a "named insured" under Antioch's AAIC policy (joint venture/partnership language) | Allegations in the complaint show Antioch and Metro operated as a joint venture/partnership, bringing Metro within the policy's “WHO IS AN INSURED” clause | Metro not a named insured because it wasn't listed on the Declarations, Antioch was not a joint venture/partnership, and service contracts disclaim a joint venture | Metro is a named insured; complaint allegations suffice under the eight-corners rule; AAIC’s procedural/waiver and substance arguments fail |
| Whether the policy’s requirement that damages "result directly but unexpectedly and unintentionally" bars coverage for intentional torts alleged | Complaint also pleads negligent supervision/retention and other non-intentional claims that fall within coverage | Allegations are intentional misconduct and thus outside covered "wrongful acts" language | Coverage potentially extends because complaint alleges negligent/unintentional theories; duty to defend remains |
| Whether the sexual-abuse exclusion precludes coverage | Most allegations constitute "sexual harassment," which the policy treats separately and explicitly excludes from the sexual-abuse definition | Alleged conduct amounts to sexual assault/molestation (sexual abuse), triggering the exclusion | Sexual-abuse exclusion does not bar coverage because complaint predominantly alleges sexual harassment (excluded from sexual-abuse definition) |
| Whether attached Metro–Antioch contracts disclaiming a joint venture defeat the plaintiffs’ allegations and insurer’s duty to defend | Third-party plaintiffs’ allegations control the duty-to-defend inquiry regardless of private contract disclaimers between Antioch and Metro | Contracts showing parties disclaimed joint venture mean Metro cannot be a named insured | Contract disclaimers do not defeat third-party allegations; substance of the relationship governs and the complaint may still invoke joint venture coverage |
Key Cases Cited
- Ball v. Kotter, 723 F.3d 813 (7th Cir.) (federal courts apply forum state law in diversity cases when no conflict raised)
- Westfield Ins. Co. v. Vandenberg, 796 F.3d 773 (7th Cir.) (review standard for judgment on the pleadings)
- Pekin Ins. Co. v. Precision Dose, Inc., 968 N.E.2d 664 (Ill. 2012) (insurer’s duty to defend determined solely by complaint allegations)
- Pekin Ins. Co. v. Wilson, 930 N.E.2d 1011 (Ill.) (describing the "eight corners" rule and duty to defend standard)
- Employers Ins. of Wausau v. Ehlco Liquidating Trust, 708 N.E.2d 1122 (Ill.) (construe policy and complaint in favor of insured for duty to defend)
- Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307 (Ill.) (duty to defend exists if any theory potentially within coverage)
- James v. Hyatt Regency Chicago, 707 F.3d 775 (7th Cir.) (waiver of issues not raised below)
- Founders Ins. Co. v. Munoz, 930 N.E.2d 999 (Ill.) (undefined policy terms given ordinary meaning via dictionaries)
- Maimon v. Telman, 240 N.E.2d 652 (Ill.) (substance of relationship controls over parties’ characterization)