West Side Salvage, Inc. v. RSUI Indemnity Co.
878 F.3d 219
7th Cir.2017Background
- In 2010 a grain bin at ConAgra’s Illinois facility was found hot; West Side Salvage was hired to remediate and an explosion occurred during operations, injuring three workers and damaging the bin.
- Colony (primary insurer) tendered its $1M limits and provided defense counsel; West Side also had an $11M excess policy with RSUI, which issued reservation-of-rights letters questioning coverage for ConAgra’s property-damage claim based on a damage-to-property exclusion.
- A jury found West Side liable for the workers’ injuries and for $3M in property damage to ConAgra’s bin; on appeal this court (Jentz) held West Side solely liable for the personal injuries and affirmed liability on the property-damage claim.
- West Side sued RSUI for breach of the duty to settle ConAgra’s property-damage claim within policy limits; RSUI moved for summary judgment arguing (1) the policy excluded the property claim and (2) alternatively, West Side could not show RSUI breached any duty to settle.
- The district court granted summary judgment to RSUI on the alternate ground (no showing of a time when (a) an offer to settle all claims existed and (b) a reasonable likelihood of excess liability existed). On appeal the Seventh Circuit affirmed but on the independent ground that the policy’s damage-to-property exclusion barred coverage for ConAgra’s claim, so RSUI had no duty to settle.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Illinois or another state's law governs interpretation of the exclusion | West Side argued potential conflict (cites Iowa case) making non-Illinois law applicable | RSUI argued no outcome-determinative conflict; apply Illinois law | Court applied Illinois law because no outcome-determinative conflict was shown |
| Whether the policy’s damage-to-property exclusion bars coverage for ConAgra’s property-damage claim | West Side argued exclusion inapplicable (and relied on distinctions like ongoing operations vs. completed work and other exceptions) | RSUI argued the exclusion covers property damage caused by the insured’s faulty work (including poor remediation) | Court held the exclusion applied: damage arose from West Side’s operations/faulty work and is excluded |
| Whether RSUI had a duty to settle ConAgra’s property-damage claim | West Side contended RSUI should be liable for failing to settle the property claim and also argued estoppel because RSUI participated in defense/settlement talks | RSUI argued no duty to settle an uncovered claim and that it preserved rights via reservation letters and did not prejudice West Side’s defense | Court held RSUI had no duty to settle because the claim was excluded from coverage; estoppel and other arguments failed |
| Whether West Side can recover consequential damages from RSUI’s prior alleged bad-faith re: workers’ claims | West Side argued the $3M property judgment was consequential from RSUI’s earlier bad-faith failure to settle worker claims | RSUI pointed out West Side already settled the workers’-claim bad-faith dispute with RSUI separately | Court rejected this, noting West Side cannot recover consequential damages from a settled claim it already resolved with RSUI |
Key Cases Cited
- Jentz v. ConAgra Foods, Inc., 767 F.3d 688 (7th Cir.) (appellate disposition of liability in the underlying explosion litigation)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (U.S. 1941) (federal courts in diversity apply forum state choice-of-law rules)
- Pekin Ins. Co. v. Willett, 704 N.E.2d 923 (Ill. App. Ct.) (damage-to-property exclusion applies to property damage caused by faulty workmanship)
- State Farm Fire & Cas. Co. v. Tillerson, 777 N.E.2d 986 (Ill. App. Ct.) (general liability policies do not cover normal business risks like the insured’s faulty work)
- Am. Family Mut. Ins. Co. v. Westfield Ins. Co., 962 N.E.2d 993 (Ill. App. Ct.) (insurer’s duty to act in good faith in settlement responses exists only where there is coverage)