860 F.3d 1026
7th Cir.2017Background
- Double D Warehouse stored PQ Corporation’s chemical products; PQ’s products discolored, allegedly from vapors of other chemicals stored at Double D.
- Double D had warehouse-operator liability policies (2010–11 and 2011–12) with Lexington that covered direct physical loss to customers’ property only if Double D produced a signed warehouse receipt, signed storage agreement, or a prior rate quotation accepted by the customer.
- Double D did not use warehouse receipts for PQ’s goods; it tracked inventory with bills of lading and an online system. Lexington denied coverage citing the documentation condition and a pollution/contamination exclusion.
- Double D settled with PQ, assigning its policy rights to PQ and admitting liability; Lexington had denied coverage before the settlement and had not reserved rights or offered a defense.
- District court granted summary judgment to Lexington, holding Double D failed the documentation condition and that Lexington’s prior denial estopped it from asserting the consent-to-settle clause; PQ appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bills of lading/online records satisfied the policy's “warehouse receipt” requirement | PQ: bills of lading served the same commercial function and Lexington knew of Double D’s practices, so strict formality should be excused | Lexington: policy unambiguously required a signed warehouse receipt, storage agreement, or rate quote; bills of lading are distinct and not listed | Held: Terms unambiguous; bills of lading are not warehouse receipts and Double D failed the condition, so no coverage |
| Whether Lexington can invoke policy clause forbidding insured to admit liability without insurer consent (loss-adjustment/consent requirement) | PQ: Lexington estopped from asserting the consent clause because Lexington denied coverage before the settlement | Lexington: Double D admitted liability without consent, breaching the clause | Held: Lexington’s denials were clear; insurer’s prior denial estops it from invoking the consent requirement as a defense |
| Whether Lexington waived or is estopped from enforcing the documentation condition | PQ: underwriting file (a 2008 application with a handwritten note) and course of dealing put Lexington on notice and amounted to waiver/estoppel | Lexington: no clear, unequivocal act showing intentional relinquishment of rights; any notation was ambiguous and not relied upon as a waiver | Held: PQ failed to prove clear, unequivocal waiver; estoppel argument not preserved on appeal; no waiver or estoppel established |
| Whether PQ is entitled to attorney fees under Ill. Ins. Code §155 | PQ: insurer’s conduct warranted fees | Lexington: denial was based on a bona fide coverage dispute | Held: No §155 fees—denial was reasonable as to a bona fide coverage dispute |
Key Cases Cited
- Davis v. United Fire & Casualty Co., 81 Ill. App. 3d 220 (Ill. App. 1980) (insurer denying coverage cannot later assert insured’s noncompliance with post-denial obligations)
- Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill. 2d 11 (Ill. 2005) (insurance-policy language is enforced as written when unambiguous)
- Indianapolis Airport Authority v. Travelers Property Casualty Co., 849 F.3d 355 (7th Cir. 2017) (summary-judgment standard and interpreting insurance contracts under Illinois law)
- Title Industry Assurance Co. v. First American Title Ins. Co., 853 F.3d 876 (7th Cir. 2017) (insurer estoppel principles where insurer declines defense)