Cinсinnati Insurance Company, Plaintiff-Appellant, v. Eastern Atlantic Insurance Company and Integrity Underwriters, Inc., Defendants-Appellees.
No. 00-2576
United States Court of Appeals For the Seventh Circuit
Argued May 10, 2001--Decided August 2, 2001
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 99 C 6763--James F. Holderman, Judge.
Posner, Circuit Judge. The plaintiff in this diversity suit (governed, all agree, by Illinois law) is an insurance company that we‘ll call “Cincinnati.” The complaint seeks a declaration that Cincinnati has no duty to defend the two defendants, “Eastern” and “Integrity,” under the basic liability policy that it had issued to them and under an umbrella liability policy that it had issued to Integrity alone. Eastern is another insurance company, while Integrity is an insurance
The litigation against Eastern and Integrity that Cincinnati refuses to defend began when Eastern suеd another insurance agency that produced business for it, “Midwest,” for breach of contract and related wrongs. Midwest counterclaimed and added a third-party claim against Integrity, which we‘ll pretend, for simplicity‘s sake, is part of the counterclaim. It is against the counterclaim that Eastern and Integrity asked Cincinnаti to defend.
So far as bears on this appeal, the counterclaim charges Eastern with tortiously interfering with an agreement between Midwest and still another insurance agency, “Shewmake,” which had assisted Midwest in obtaining insurance customers for Eastern. A means of interference that the counterclaim specifically alleges is a letter that Eastern wrote to Midwest demanding that it fire the Shewmake agency. The letter unfortunately is not a part of the record, but according to the counterclaim it expressed “concern over Mr. Shewmake‘s character” and was “intentionally and maliciously sent for the purpоse of inducing [Midwest] to terminate [its] relationship with” him. Why would Eastern care about Midwest‘s relationship with Shewmake? Apparently because Midwest produced insurance business not only for Eastern but, presumably with the aid of Shewmake, for Eastern‘s competitors as well; and indeed the counterclaim also charges Eastеrn and Integrity with tortious interference with “valid business relationships” that Midwest had developed with other insurance companies, besides Eastern, for which Midwest procured business. The theory of the counterclaim appears to be that Eastern wanted the Eastern customers that Midwest had obtained to switch to Integrity and the other insurance companies for which Midwest worked to drop Midwest, as “by causing notification to falsely be given to [those other] insurance carriers that [Midwest was] engaged in activities which could trigger liability under their Errors and Omissions policies.” If Midwest went out of business and Integrity procured business only for Eastern, Eastern would pick up business that Midwest had formerly given other insurance companies.
In short, the counterclaim charged interference with contractual and other business relations, achieved by various nefarious means; hence tortious interference by Eastern and its tool, the misnamed Integrity. The insurance policies оn the basis of which Eastern and Integrity seek defense and indemnity, however, do not mention tortious interference. As far as this case is concerned, the basic policy (commercial general liability--“CGL” in the trade) covers “oral or written publication of material that slanders or libels a person
or organization or disparages a person‘s or organization‘s goods, products or services,” while the umbrella policy covers “libel, slander or defamation of character.” The basic policy excludes, however, injury “arising out of oral or written publication of material if done by or at the direction of thе insured with knowledge of its falsity,” while the umbrella policy requires in addition to injury an “occurrence” defined as something that “unexpectedly or unintentionally results in personal injury,” and by this means excludes intentional or expected injury. The discrepancy between the basic and umbrella coverage may seem disquieting, since most individuals buy an umbrella policy believing that it provides uniformly larger limits; this umbrella has holes in it. But the purchasers here are not individuals;
The allegations of Midwest‘s counterclaim suggest that, like Shewmake (who has not, however, so far as we know at any rate, sued Eastern or Integrity), Midwest was defamed by the “false notification” of its insurer clients that it was engaged in activities that would trigger claims against them; by the same token, the allegations suggest disparagement of Midwest‘s services. (The tort of commercial disparagement is codified in Illinois in
protection could be lost as the result of a totally inconsequential omission by the drafter of the complаint. Such a rule would also be an invitation to strategic pleading.
The rule therefore is instead that the insured is covered against particular conduct alleged against it regardless of the label placed on that conduct by the pleader. As the Supreme Court of Illinois said in Outboard Marine Corp. v. Liberty Mutual Ins. Co., 607 N.E.2d 1204, 1212 (Ill. 1992), “Rеfusal to defend is unjustifiable unless it is clear from the face of the underlying complaint that the facts alleged do not fall potentially within the policy‘s coverage” (emphasis added). “The complaint need not allege or use language affirmatively bringing the claims within the scope of the policy, as the question of coverage should not hinge exclusively on the draftsmanship skills or whims of the plaintiff in the underlying action.” Western Casualty & Surety Co. v. Adams County, 534 N.E.2d 1066, 1068 (Ill. App. 1989). (For a case so holding that is factually similar to ours, see Tews Funeral Home, Inc. v. Ohio Casualty Ins. Co., 832 F.2d 1037, 1044 (7th Cir. 1987) (per curiam), applying Illinois law.) As we said in reference to another state‘s law (materially identical, however, to Illinois law in this regard), “The insurer‘s obligations are not circumscribed by the plaintiff‘s choice of legal theories. The plaintiff‘s complaint, upon which the insurer‘s duty depends, need not even set forth the plaintiff‘s legal theories. What is important is not the legal label that the plaintiff attaches to the defendant‘s (that is, the insured‘s) conduct, but whether that conduct as alleged in the complaint is at least arguably within one or more of the categories of wrongdoing that the policy covers. So, for example, if the complaint alleges facts that if proved would show that the insured had infringed the plaintiff‘s copyright, the policy kicks in even if the complaint charges the insured only with fraud or intentional infliction of emotional distress.” Curtis-Universal, Inc. v. Sheboygan Emergency Medical Services, Inc., 43 F.3d 1119, 1122 (7th Cir. 1994) (citations omitted).
Both insurance policies, however, exclude intentional misconduct, though
very differently defined; and we must consider
So Cincinnati had a duty to defend both Eastern and Integrity under the basic policy. The umbrella policy‘s exclusion of conduct intended (or expected) to injure is broader than the basic policy‘s, raising the spectre of illusоry coverage by excluding all intentional torts except “unintentional” intentional torts. Hurst-Rosche Engineers, Inc. v. Commercial Union Ins. Co., 51 F.3d 1336, 1345-46 (7th Cir. 1995); Tews Funeral Home, Inc. v. Ohio Casualty Ins. Co., supra, 832 F.2d at 1045; North Bank v. Cincinnati Ins. Cos., 125 F.3d 983, 986-87 (6th Cir. 1997). (Notice the paradox: the broader the exclusion, the more likely it is to fail, if by making the coverage illusory it suggests a deep
ambiguity in the insurance policy.) Some of the torts expressly covered by the umbrella policy are intentional torts, such as false arrest, battery, and malicious prosecution, and the cases just cited hold that the policy should not be interpreted as taking back with one hand what it gave with another, by excluding coverage of those torts because they are intentional.
But it is important to this case that the exclusion is not of intentional torts as such (nor is defamation an intentional tort in any simple sense), but of tortious conduct in which there is an intent to injure or an expectation of injuring. And in the case of defamation, at least, the exclusion does not track the tort. Apart from the exotic case in which defaming a fictitious person has the unintended and unexpected consequence of defaming a real person with the same name as the fictitious character, resulting in liability if the defendant should have known bеtter, or the slightly more common case, treated similarly, of mistaken identification, e.g., Ryder v. Time, Inc., 557 F.2d 824, 825-26 (D.C. Cir. 1976), defamation is often not intended or expected to injure anyone. The defamer may have made a good-faith though inadequate attempt to conceal the victim‘s name, may have thought the victim‘s reputation аlready impaired beyond possibility of further damage, or, the most common case, may have thought the defamatory statement true, in which event there would be no injury in a legal sense. So intent to injure or expectation of injuring
Still, Integrity may have acted maliciously yet not have intended a legal harm. It might, for example, have made disparaging statements about Midwest that it hoped would do Midwest in but believed
to be true. Id. But Integrity has failed in its brief in this court to respond to Cincinnati‘s contention that the umbrella policy‘s exclusion bars its claim. Now an appellee‘s failure to respond to an argument by the appellant is not in itself a forfeiture requiring that we reverse the judgment appealed from. The argument may be nondispositive or frivolous. The entire appeal, indeed, may be frivolous, in which event even the appellee‘s failure to file a brief will not warrant reversal. See
We close with a procedural matter. The jurisdictional statements in the parties’ opening briefs were incorrect. The appellant, Cincinnati, alleged that Eastern was a “Pennsylvania corporation that does business in the state of Illinois” and Integrity “a Florida corporation that does business in the state of Illinois.” There is no reference to the principal place of business of either defendant, even though for purposes of the diversity jurisdiction of the federal courts a corporation is a citizen of the state of its principal place оf business as well as of the state in which it is incorporated.
violate the rules of this court. See
We directed the parties to file supplemental statements of jurisdiction. They filed a joint statement that while at last complete and correct, and showing that the case is indeed within the diversity jurisdiction, lamely states that the reason for the erroneous allegations of jurisdiction in the original briefs was that the complaint had alleged jurisdiction so. That is a feeble excuse. Error does not excuse its repetition. We havе warned litigants about the precise pattern observed here--a patently erroneous jurisdictional statement by the appellant, and a patently erroneous statement by the appellee that the appellant‘s jurisdictional statement is complete and