119 F. Supp. 3d 821
N.D. Ill.2015Background
- GSSE sued the City of Zion, Mayor Lane Harrison, Economic Development Director Delaine Rogers, and others alleging a "2011 Fake Stadium Scheme": fraud, breach of contract (City), and civil conspiracy, arising from representations that a stadium would be built for GSSE's minor-league team but was not.
- OneBeacon, insurer of the City under a policy with both a CGL (Personal & Advertising Injury) section and a Public Officials Errors & Omissions (E&O) section, refused to defend or indemnify and filed this declaratory-judgment action.
- Relevant policy provisions: Coverage B (Personal & Advertising Injury) with exclusions for knowing violation of rights, breach of contract, and material published with knowledge of falsity; E&O section covering wrongful acts by public officials with exclusions for contracts, criminal/dishonest acts, and profit/advantage/remuneration.
- The state complaint alleges public statements (radio, letter) and omissions by Harrison and Rogers that GSSE relied on, causing economic loss; City’s only direct claim against it is breach of the Olson construction contract.
- The district court evaluated whether the underlying pleadings potentially fall within coverage and whether asserted policy exclusions defeat the insurer’s duty to defend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether OneBeacon owes duty to defend Individual Defendants under E&O for wrongful acts (fraud/conspiracy) | No duty: exclusions (contracts; profit/advantage) apply and claims allege illicit financial motivations | Duty exists: underlying complaint alleges wrongful acts (public statements, omissions) that arguably trigger E&O coverage; exclusions inapplicable | Duty to defend Individual Defendants under E&O: YES (OneBeacon must defend) |
| Whether Contracts Exclusion bars coverage for City of Zion under E&O/CGL | No duty: breach-of-contract and related allegations exclude coverage | City: other non-contract wrongful acts could trigger coverage | Contracts exclusion applies to City: NO duty to defend or indemnify City (coverage excluded) |
| Whether Profit/Advantage/Remuneration Exclusion bars coverage for Individual Defendants | Exclusion applies because complaint alleges bribery and financial motives | Exclusion inapplicable: bribery allegations are not an element of fraud or conspiracy and profit is not required to prove those claims | Profit exclusion does not bar defense of Individual Defendants (exclusion not triggered) |
| Whether OneBeacon must defend City against GBC counterclaim (breach/indemnity) | No duty: counterclaim is contract-based and excluded under CGL and E&O | No opposition (City did not contest in response) | OneBeacon has no duty to defend or indemnify City on GBC counterclaim; summary judgment for OneBeacon on Count III |
Key Cases Cited
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill.2d 90 (Ill. 1992) (duty-to-defend inquiry compares underlying complaint to policy and looks for potential coverage)
- Wilkin Insulation Co. v. United States Fid. & Guar. Co., 144 Ill.2d 64 (Ill. 1991) (insurer must defend if complaint allegations fall within or potentially within coverage)
- Santa’s Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339 (7th Cir. 2010) (burden to prove exclusion rests with insurer)
- Axiom Ins. Managers, LLC v. Capitol Specialty Ins. Corp., 876 F.Supp.2d 1005 (N.D. Ill. 2012) ("arising out of" in exclusions construed as but-for where ambiguity favors insured)
- Nautilus Ins. Co. v. 1452-4 N. Milwaukee Ave., LLC, 562 F.3d 818 (7th Cir. 2009) (contractual exclusions can bar coverage for intertwined claims based on same factual core)