CREATION SUPPLY, INC., Plaintiff-Appellee, v. SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST, Defendant-Appellant.
No. 20-2509
United States Court of Appeals For the Seventh Circuit
ARGUED JANUARY 14, 2021 DECIDED APRIL 26, 2021
Before RIPPLE, KANNE, and ROVNER, Circuit Judges.
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 14-cv-8856 — Charles P. Kocoras, Judge.
KANNE,
The issue here, though, is a narrow question of statutory interpretation—whether the district court properly awarded extracontractual damages to CSI under
None of these three threshold issues remains undecided here: (1) Selective‘s liability under its policy with CSI was resolved by the Illinois Appellate Court in 2015; (2) the amount of loss payable by Selective to CSI under the policy was determined by the Illinois Appellate Court in 2017; and (3) CSI does not seek recovery for any unreasonable delay by Selective in settling CSI‘s claim. In summary, none of CSI‘s extracontractual issues remains undecided. As a result, CSI cannot pursue
This result is admittedly atypical.
I. BACKGROUND
CSI imports and sells writing markers. In 2012, a competitor sued CSI in Oregon federal court for allegedly selling copy-cat products. CSI turned to its insurer, Selective, for a defense. But Selective refused for what the district court here believed were dubious reasons.
Selective then sued CSI in Illinois state court for a declaration that it did not owe CSI a duty to defend. While this Illinois action was pending, CSI settled the Oregon action in 2013 for $0 and an injunction requiring it to stop selling the allegedly counterfeit markers.
The Illinois court granted summary judgment in favor of CSI after concluding that Selective did owe CSI a defense in the Oregon action. In 2015, that decision was affirmed by the Illinois Appellate Court, which also held in 2017 that Selective owed CSI the $195,000 it spent in the Oregon action from the time the action commenced until it settled. All other expenses fell outside the scope of the policy.
CSI filed this federal action now on appeal while the Illinois state action was still ongoing. In this suit, CSI alleges in Count I that “Selective‘s refusal to grant coverage to CSI and defend it under the Policy, and its failure to pay CSI‘s fees and expenses in the Underlying Oregon Action for over one year after having been judicially determined to have a duty to defend CSI is vexatious and unreasonable in violation of
In Count II, CSI alleges that Selective breached its insurance contract with CSI. On this claim, Selective seeks to recover “all available damages for Selective‘s breach of the contract, including, but not limited to, consequential damages,” such as “unnecessary legal fees and expenses [incurred] defending itself and seeking indemnification in the Underlying Oregon Action, and in pursuing payment from Selective.”
In 2017, the federal district court granted CSI partial summary judgment, finding that Selective breached its insurance contract with CSI by failing to provide coverage and defend CSI in the Oregon action. The federal court left the issue of CSI‘s contractual damages for a later trial.
The federal district court then held a bench trial on CSI‘s
The federal court directed entry of final judgment under
Selective now appeals the federal district court‘s
II. ANALYSIS
Following a bench trial, we review de novo the district court‘s legal conclusions, such as the interpretation of
In any action by or against a company wherein there is in issue [1] the liability of a company under a policy or policies of insurance or [2] the amount of the loss payable thereunder, or [3] for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees [and] other costs.
According to Illinois courts, “[t]he language of this section is entirely plain.” Neiman v. Econ. Preferred Ins. Co., 829 N.E.2d 907, 914 (Ill. App. Ct. 2005).
Indeed, “[t]he statute begins by stating that it applies to those insurance cases where one of three issues remains undecided: [1] the liability of the insurer, [2] the amount owed under the policy, or [3] whether a delay in settling a claim has been unreasonable.” Neiman, 829 N.E.2d at 914.
None of those three threshold issues remains undecided here.
1. Selective‘s Liability
Two Illinois cases make our decision on the first threshold issue quite straightforward. In Neiman, the Illinois Appellate Court held that the first potential issue did not permit the
Similarly, in Pryor v. United Equitable Insurance Co., the case could not fall under the first
As in Neiman and Pryor, Selective‘s liability under the policy was fully decided in 2015 when the Illinois Appellate
CSI does not offer any argument suggesting otherwise. Instead, CSI repeats many times that no authority—especially not our decision in Hennessey—requires
We agree. But one of the three threshold issues (of which liability under the policy is just one) must remain undecided. And this counterargument admits that Selective‘s liability under the policy at issue was decided in 2015.
2. CSI‘s Amount of Loss Payable Under the Policy
Neiman and Pryor also provide guidance on whether the amount of loss payable under the policy remains undecided. In Neiman, the amount of loss payable was already decided by an underlying judgment that found that the defendant-insurer “was liable under the policy to plaintiffs in the amount remaining thereunder: $8,740 plus costs.” 829 N.E.2d at 914. And in Pryor, “the amount owed under the policy w[as] determined during arbitration.” 963 N.E.2d at 302.
We see no daylight between the case before us and Neiman and Pryor. CSI settled the Oregon action (which was the only action covered by the policy) for $0. Then, in 2017 the Illinois Appellate Court held that, under the policy, Selective owed $195,000 to CSI for expenses incurred in the Oregon action from the time it started until CSI settled it and terminated Selective‘s obligations.
To put a fine point on it, the Illinois Appellate Court defined the precise scope of CSI‘s policy with Selective as follows:
The [Oregon action] plaintiffs and Creation Supply settled all their claims and counterclaims on July 29, 2013. The Oregon court dismissed the underlying lawsuit against Creation Supply on August 19, 2013 without prejudice pursuant to the settlement agreement. Therefore, as of August 19, 2013, the covered claims for intellectual property infringement fell out of the case through settlement, which precluded the possibility of a duty to indemnify after that date and ceased the duty to defend.
Selective Ins. Co. of the Se. v. Creation Supply, Inc., 2017 IL App (1st) 161899-U, ¶ 58.
Then, based on that definition of the policy‘s scope, the Illinois Appellate Court excluded from its award to CSI various costs that arose after the settlement because they were not covered by the policy. Thus, the only loss payable under the policy was the $195,000 that CSI spent in the Oregon action before reaching settlement—nothing more and nothing less. And that means there‘s nothing left to decide about the amount that Selective owed to CSI under the policy.
What CSI seeks now are consequential damages that, as the district court aptly stated, are “the amount of loss payable by virtue of the breach of contract already found by the Court.” But that loss is not, as the district court held, the same as the amount owed under the policy. As stated, the Illinois Appellate Court already determined the amount due under the policy in 2017.
CSI again does not directly refute this conclusion by pointing to some undecided amount still due under the policy. Instead, CSI sketches yet another straw man and argues that Selective is asking the court to hold that a request for consequential damages, like the request here, precludes a
But though permissible, the consequential damages at issue in this case are only those damages that arose outside of the policy‘s purview; the Illinois Appellate Court already awarded all of the damages that arose under the policy.
CSI also asserts, without elaboration, that it seeks “compensatory damages.” But we see nothing in the complaint that brings compensatory damages (which we assume means “the amount of loss payable under the policy“) into the case.
Further, we don‘t see how such damages could come into play, as they were already awarded by the Illinois Appellate Court. The district court seemed to agree as well by stating that its ruling on the
In sum, any amount due to CSI under its policy with Selective has already been resolved and thus cannot support a
3. Selective‘s Unreasonable Delay in Settling CSI‘s Claim
What‘s left is the third threshold issue—whether Selective unreasonably delayed settling a claim. For this “portion of the statute to be operational, there must have been an unreasonable delay in the ‘settling of a claim,‘” as opposed to a delay in paying a “judgment.” Neiman, 829 N.E.2d at 915. The Neiman court defined “claim” as a “[d]emand for money or property as of right, e.g. insurance claim.” Id. (alteration in original) (citing Claim, Black‘s Law Dictionary 247 (6th ed. 1990)). And it defined “judgment” as “[t]he official and authentic decision of a court of justice upon the respective rights and claims of the parties to an action or suit therein litigated.” Id. (citing Judgment, Black‘s Law Dictionary 841–42 (6th ed. 1990)).
In that case, “the underlying cause was well beyond the point of a claim, or even of a settlement, when plaintiffs filed the section 155 suit. In fact, a judgment had already been entered on the underlying suit—on August 3, 2001, for a sum certain.” Id. “Accordingly, a ‘claim’ was no longer in existence, as necessitated by the statute, but, rather, a judgment had been instituted, foreclosing any remaining issues with respect to the underlying cause.” Id. Thus, a “claim” no longer existed in the case before it, and a
The suit before us likewise does not seek damages for any unreasonable delay in settling a claim. Instead, as in Neiman, “the underlying cause [in the Oregon action i]s well beyond the point of a claim, or even of a settlement.” Id. It was put to bed by the 2013 settlement and by the Illinois Appellate Court‘s 2015 and 2017 decisions regarding Selective‘s liability and the amount due under the policy. So the only issue here is whether Selective unreasonably delayed paying the Illinois court‘s judgment relating to fees, not whether it delayed settling an insurance claim made by CSI.
In fact, CSI highlights its allegations that Selective failed to pay CSI‘s fees and
CSI also made this point plain as day in its summary judgment briefing before the district court, which stated, “Selective acted vexatiously and with delay after it was found to have a duty to defend. On December 19, 2013, the Circuit Court found that Selective owed CSI, a duty to defend in the Oregon Action ... . On January 7, 2014, CSI ... asked to be paid under the December 19 Judgment” (emphasis added).
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To start, CSI recites over and over again that this is not a “stand-alone”
Most of the above argument is correct: CSI has not brought a “stand-alone”
Why? Because it commits what logic books call the “fallacy of the undistributed middle.” See David Kelly, The Art of Reasoning 243 (3d ed. 1998) (“In a valid syllogism, the middle term must be distributed in at least one of the premises.“).
Think of CSI‘s argument like this:
- A
Section 155 claim can accompany a breach-of-contract claim. - This case includes a breach-of-contract claim.
- Therefore, a
Section 155 claim can accompany this case.
The problem is that the middle term—“breach-of-contract claim“—is “undistributed,” meaning it does not refer to all breach-of-contract claims. So the conclusion does not flow from the premises.
Here‘s an example that is easier to digest:
- Markers come in boxes.
- An egg carton is a box.
- Therefore, markers come in egg cartons.
But of course they don‘t. Not all boxes carry markers. Just some, and egg cartons aren‘t among them.
So too, not all breach-of-contract claims permit an accompanying
CSI also points to what it says are two cases in which Illinois courts did exactly what CSI asks us to do today—ignore the statute and permit a
First, in Estate of Price v. Universal Casualty Co., an arbitrator ordered the defendant-insurer to pay $20,000 plus costs and interest under an insurance policy to the plaintiffs. 750 N.E.2d 739 (Ill. App. Ct. 2001). The defendant refused to pay in full. Then, as the Illinois Appellate Court has explained,
the plaintiff filed a complaint with two counts: to confirm the arbitration and thereby enter a formal judgment against the defendant, and to recover section 155 damages. Thus, the section 155 allegations went hand-in-hand with a demand for judgment against the defendant in the amount of the arbitrator‘s award—a judgment that had yet to be declared. This situation, then, amounted to a delay in the settlement of a claim where the issue of liability had yet to be resolved. Because issues were still open, section 155 was applicable and remand was appropriate for a determination in this regard.
Neiman, 829 N.E.2d at 916 (citing Price, 750 N.E.2d at 739).
Similarly, in Siwek v. White, the plaintiffs brought their
Last, CSI makes the colorable argument that its
The Illinois Circuit Court was not wrong at the time it made this reservation, which was long before Selective‘s liability and the amount owed under the policy were resolved. But now those issues have been resolved. And though it concerns us that CSI is unable to pursue an avenue for relief that another court left open to it,
III. CONCLUSION
For the foregoing reasons, we REVERSE the decision of the district court and REMAND the case for the district court to dismiss CSI‘s
Further, because this appeal has merit, CSI‘s motion for sanctions under