851 F.3d 749
7th Cir.2017Background
- In 2006 the Dribbens sued Geraldine Davidson alleging she failed to disclose that the dam on property they purchased lacked an IDNR permit; Diamond State (real estate E&O insurer) defended Davidson under a claims‑made policy in that action.
- In 2011 the Dribbens filed a much broader suit against Geraldine and her husband alleging repeated harassment, trespass, nuisance, slander, interference with property rights, and other neighbor‑disputes; the complaint references the dam/permit and Davidson’s role as the broker who sold the Favres’ parcel.
- Madison Mutual (Davidson’s homeowner and umbrella carrier) defended Davidson in the 2011 litigation and sued Diamond State for declaratory relief and reimbursement, arguing the 2011 claims relate back to the 2006 claim and therefore fall within Diamond State’s claims‑made policy (awareness clause).
- Diamond State refused to defend the 2011 suit, contending the allegations concern neighbor conduct, not professional services as a broker, and so fall outside its E&O policy.
- The district court granted summary judgment for Diamond State; the Seventh Circuit affirmed, holding the 2011 complaint does not plausibly assert a claim against Davidson in her capacity as a real estate broker and thus Diamond State had no duty to defend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend under the E&O policy | Madison Mutual: the 2011 complaint contains factual allegations (dam, lack of permit, Davidson sold the property) that could support a professional‑liability claim against Davidson, so Diamond State must defend. | Diamond State: the 2011 suit alleges neighbor/harassment torts, not claims arising from professional services as a broker, so no duty to defend. | Court: No duty to defend; underlying complaint does not plausibly assert a broker professional‑services claim. |
| Relation‑back / awareness clause (timeliness) | Madison Mutual: if 2011 claims arise from the same “wrongful act” as the 2006 suit (failure to disclose), the awareness clause deems the later claim made within the earlier policy period. | Diamond State: even if some facts overlap, the 2011 claims do not arise from the 2006 wrongful act (non‑disclosure as broker). | Court: Relation‑back fails because the 2011 complaint does not assert a claim based on the 2006 wrongful act. |
| Whether factual references to broker status and dam create a theory of recovery for professional malpractice | Madison Mutual: references to broker status and dam suffice to infer a theory of recovery for failure to disclose. | Diamond State: the complaint lacks any allegation that Davidson breached duties as a realtor or that any injury flowed from such a professional breach. | Court: Facts provide background but do not point to a recovery theory premised on professional duty; cannot convert background facts into coverage. |
| Effect of boilerplate prayer/pleading overlap | Madison Mutual: general requests for relief and background facts leave open unpleaded theories that could trigger coverage. | Diamond State: boilerplate prayer does not create an independent theory of recovery; claims must be supported by factual allegations. | Court: Boilerplate relief is insufficient to create coverage where the complaint lacks factual support for a professional‑services claim. |
Key Cases Cited
- Panfil v. Nautilus Ins. Co., 799 F.3d 716 (7th Cir.) (duty‑to‑defend standard; insurer cannot refuse defense unless underlying allegations cannot possibly be covered)
- Am. Alternative Ins. Corp. v. Metro Paramedic Servs., Inc., 829 F.3d 509 (7th Cir.) (applies Illinois law on duty to defend and eight‑corners rule)
- Health Care Indus. Liab. Ins. Program v. Momence Meadows Nursing Ctr., Inc., 566 F.3d 689 (7th Cir.) (factual background in a complaint does not create an unstated theory of recovery; allegations must point to a covered theory)
- Pekin Ins. Co. v. Precision Dose, Inc., 968 N.E.2d 664 (Ill.) (discussing eight‑corners approach and liberal construction of complaints and policies)
- Philadelphia Indem. Ins. Co. v. Chicago Title Ins. Co., 771 F.3d 391 (7th Cir.) (if any part of an underlying complaint potentially falls within coverage, insurer must defend)