Landmark American Insurance Co v. Peter Hilger
2016 U.S. App. LEXIS 17343
7th Cir.2016Background
- Peter Hilger, president of Allied Solutions, was sued (Michigan and Tennessee) with codefendants for allegedly inducing credit unions to fund loans by overstating life-insurance collateral values.
- Hilger sought defense under an Insurance Agents & Brokers Liability Policy issued by Landmark to O’M and Associates LLC (O’MA), claiming coverage as an O’MA "independent contractor" under the policy’s "Covered Persons and Entities" definition.
- Landmark denied coverage and filed a declaratory-judgment action seeking a declaration that it had no duty to defend Hilger or O’MA; Hilger and O’MA counterclaimed.
- The district court granted Hilger’s motion for judgment on the pleadings, concluding the underlying complaints were ambiguous about Hilger’s relationship to O’MA and resolving ambiguity in favor of the insured.
- Landmark appealed, arguing that because it sought declaratory relief it should be permitted to introduce extrinsic evidence to show Hilger was not an O’MA independent contractor.
- The Seventh Circuit reversed the judgment for Hilger and remanded, holding that under Illinois law an insurer pursuing declaratory relief may introduce evidence outside the underlying complaint so long as it does not decide an “ultimate issue” in the underlying suits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether duty to defend is determined solely from the underlying complaints | Hilger: ambiguity in complaints must be resolved for insured; court limited to four corners | Landmark: in declaratory action, insurer may use extrinsic evidence to show no coverage | Court: When insurer seeks declaratory relief, it may introduce extrinsic evidence unless it resolves an "ultimate issue" in the underlying suit |
| Whether extrinsic evidence may be considered absent a strong showing | Hilger: district court required a "strong reason to believe" insurer had no duty before permitting discovery | Landmark: no such heightened showing is required under Illinois law post-Pekin | Court: Rejected the heightened "strong reason" rule; Pekin allows extrinsic evidence so long as it doesn't decide ultimate issues |
| Whether deciding contractor status would be an "ultimate issue" | Hilger: contractor status may be bound up with joint-venture and liability theories | Landmark: contractor status here is collateral to misrepresentation and breach claims | Court: Contractor status is not an ultimate issue that would collaterally estop the plaintiffs in the underlying suits; extrinsic evidence allowed to resolve coverage issue |
Key Cases Cited
- Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092 (Ill. 2005) (ambiguities in coverage construed for the insured; insurer must defend or seek declaratory relief)
- Crum & Forster Managers Corp. v. Resolution Tr. Corp., 620 N.E.2d 1073 (Ill. 1993) (insurer's duty to defend is broader than duty to indemnify)
- Emp’rs Ins. of Wausau v. Ehlco Liquidating Tr., 708 N.E.2d 1122 (Ill. 1999) (insurer must defend under reservation or seek declaratory judgment; failure can estop defenses)
- Fid. & Cas. Co. of N.Y. v. Envirodyne Eng’rs, Inc., 461 N.E.2d 471 (Ill. App. Ct. 1983) (insurer may present extrinsic evidence in declaratory action so long as it does not determine an ultimate issue)
- Pekin Ins. Co. v. Wilson, 930 N.E.2d 1011 (Ill. 2010) (clarifies that extrinsic evidence is permissible in declaratory actions except where it decides ultimate issues)
- Old Republic Ins. Co. v. Chuhak & Tecson, P.C., 84 F.3d 998 (7th Cir. 1996) (pre-Pekin case limiting extrinsic evidence; court here explains it is inconsistent with later Illinois law)
- Edward T. Joyce & Assocs., P.C. v. Prof’ls Direct Ins. Co., 816 F.3d 928 (7th Cir. 2016) (discusses insurer’s obligations to defend or seek declaratory relief)