NATIONWIDE INSURANCE, Plaintiff-Appellant,
v.
Aleck ZAVALIS, Astroturf Industries, Inc., Safeco Insurance
Company of America, and the Board of Trustees of
the University of Illinois, an Illinois
Public Corporation,
Defendants-Appellees.
No. 94-1306.
United States Court of Appeals,
Seventh Circuit.
Argued Nov. 9, 1994.
Decided April 14, 1995.
Ralph Swanson, Sebat, Swanson, Banks, Garman & Townsley, Danville, IL, for Nationwide Ins.
J. Steven Beckett, Kelly K. James, Holly Clemons, Beckett & Webber, Urbana, IL, for Aleck Zavalis.
Traci E. Nally, Lorna K. Geiler, Meyer, Capel, Hirschfeld, Muncy, Jahn & Aldeen, Champaign, IL, George T. Lewis, III, Michael C. Patton, Heiskell, Donelson, Bearman, Adams, Williams & Caldwell, Memphis, TN, for Astroturf Industries, Inc., and Safeco Ins. Co. of America.
John E. Cassidy, III, Cassidy & Mueller, Peoria, IL, for Board of Trustees of University of Illinois.
Before CUMMINGS, FLAUM, and ROVNER, Circuit Judges.
ILANA DIAMOND ROVNER, Circuit Judge.
Aleck Zavalis and two other students at the University of Illinois, Champaign-Urbana, set fire to the astroturf covering the University's football field. Nationwide Insurance, which insured the Zavalis family, brought this diversity action seeking a declaratory judgment that it had no duty to defend or indemnify Zavalis in the state court suit filed against him by the University. The district court dismissed the declaratory suit, believing that it required resolution of a key factual question about the nature of Zavalis' conduct that was also presented in the state suit. Because we conclude that Nationwide's duty to defend may be determined from the face of the state court complaint, we vacate the dismissal in part.
I.
In the early morning hours of September 24, 1989, Aleck Zavalis, Glenn Schicker, and Conor Gorman, all students at the University of Illinois, Champaign-Urbana, stole into the University's Memorial Stadium, dispensed lighter fluid over a portion of the football field, and set the astroturf ablaze. The flames quickly spread, and a sizable portion of the northerly fifty yards of the playing surface was destroyed.
The University, which incurred damages in excess of $600,000, filed suit in Illinois state court against the three students as well as Astroturf Industries, Inc. and Safeco Insurance Company of America. The University's third amended complaint seeks to hold Astroturf (which manufactured the artificial turf) and Safeco (which issued a performance and warranty bond on the astroturf) liable for breach of warranty as to the flammability of the turf. The complaint asserts negligence claims against Zavalis, Schicker, and Gorman, alleging that the three intended solely to burn the letters "F-O-O"1 into the astroturf, but carelessly permitted the fire to spread out of control. The complaint attributes the following specific negligent acts and omissions to the students:
a. attempting to emblazon the lettering on the astroturf without first determining that they could do so without the fire spreading;
b. allowing the fire to spread beyond the area they intended to burn;
c. failing to extinguish the flames once it became apparent that the fire was spreading;
d. failing to contact the local fire department or take other steps to ensure that the fire would be extinguished once they became aware that it was causing damage beyond that which they intended.
(University's Third Amended Complaint at 10.)
At the time of the mishap, Zavalis' parents, who live in Pennsylvania, maintained a homeowner's insurance policy with Nationwide. That policy provides public liability coverage for all residents of the Zavalis household (including Aleck), but expressly excludes property damage "which is expected or intended by the insured."
Nationwide filed this diversity suit pursuant to the Declaratory Judgment Act, 28 U.S.C. Section 2201, contending that it has no duty to defend Zavalis against the University's tort action and no duty to indemnify him in the event he is found liable. Invoking the policy's exclusion for expected or intentional property damage, Nationwide alleged that Zavalis and his cohorts had knowingly and intentionally set fire to the stadium astroturf and reasonably expected that damage would result from their actions. Consequently, Nationwide asserted, both the policy terms and public policy barred coverage and relieved the company of any duty to defend or indemnify. (Nationwide presently is supplying Zavalis with a defense in the state action under a reservation of rights.)
The defendants moved to dismiss the suit, contending that the action was premature so long as the state suit remained unresolved. The magistrate judge recommended that the motion be denied, but the district court rejected the recommendation and dismissed the suit. The court began with the observation that its authority under the Declaratory Judgment Act was discretionary, and that it was not compelled to issue a judgment, particularly where parallel state litigation was implicated. Order at 1-2 (quoting Crowley Cutlery Co. v. United States,
While the issues to be resolved in the declaratory judgement action are not identical to the issues in the state tort case, they are so closely related that the court is persuaded to exercise its discretion to refuse to grant a declaratory judgement. Nationwide is already defending Zavalis in state court. In this court, Nationwide seeks a declaration about the nature of Zavalis' conduct--namely, did he act intentionally or negligently? The outcome of the state proceeding will in due course determine the nature of Zavalis' conduct. The state court may also determine whether Nationwide must indemnify Zavalis for any judgement entered in the tort case. Nationwide may contest the issue of coverage in the state court at no greater expense to Nationwide than this suit would be, and without asking a federal court to interfere with a state court's proceedings. Intervention by a federal court at this time would contradict the policy of the Younger doctrine. State court is the proper forum for these disputes.
Order at 2. From the dismissal, Nationwide appeals.
II.
The Declaratory Judgment Act provides, in relevant part, that "any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. Sec. 2201(a). Of course, this statute does not dispense with the Article III case or controversy requirement (Trippe Mfg. Co. v. American Power Conversion Corp.,
When a related state action is pending, concerns about comity, the efficient allocation of judicial resources, and fairness to the parties come into play. Chamberlain v. Allstate Ins. Co.,
Nationwide's declaratory suit presents a dispute that is fundamentally distinct from the matters before the state court. In the Illinois court, the University seeks to establish the liability of Zavalis and his cohorts for the damage to its football field. In the federal forum, by contrast, Nationwide (which is not a party to the state suit) seeks to resolve its obligations to defend and indemnify Aleck Zavalis under the insurance policy it issued to his parents. This issue is not before the state court, and it likely will require adjudication at some point even if the state action proceeds to judgment first. See Mhoon,
We shall assume in our inquiry that Pennsylvania rather than Illinois law supplies the rules for the interpretation of the insurance policy Nationwide issued to the Zavalis family. Applying Illinois' choice of law rules (see Klaxon Co. v. Stentor Elec. Mfg. Co.,
We find no abuse of discretion in the district court's decision not to reach the matter of indemnity. As the district court observed, resolution of that duty would necessarily require it to address a factual question at the heart of the University's state court action--namely, whether the widespread damage Zavalis and the others caused was in fact intentional or, at the least, expected--and thus beyond the policy coverage--or entirely inadvertent. But the actual nature of the students' actions is a question properly left, in the first instance, to the court deciding the underlying lawsuit. It is thus settled in Pennsylvania that the duty to indemnify is not ripe for adjudication until the insured is in fact held liable in the underlying suit. Heffernan & Co. v. Hartford Ins. Co. of America,
Resolution of the duty to defend is another matter, however. The insurance company's obligation to supply a defense is most often determined primarily, if not exclusively, from the face of the underlying complaint against the insured. Pacific Indem. Co. v. Linn,
On occasion, either the insurer or the insured may attempt to pierce the allegations of the underlying complaint and prove that the insured's conduct was not, for example, negligent as alleged, but deliberate--or vice versa. When the underlying facts and the nature of the insured's conduct are disputed, the court presiding over the declaratory action typically cannot decide whether the insured acted negligently or intentionally (and consequently whether he has coverage or not) without resolving disputes that should be left to the court presiding over the underlying tort action. This was true in Thornton v. Paul,
In other instances, where the underlying circumstances are either undisputed or, in light of previously established facts, beyond dispute, a court may be able to make a ready determination as to the insured's actual conduct and evaluate the duty to defend accordingly.6 In Carioto, for example, the insured had repeatedly stabbed a man in the course of an armed robbery. The victim filed a personal injury suit against the insured. With the limitations of the insured's coverage plainly in mind, he creatively alleged that the insured had carelessly and negligently "fallen upon" him, "come into contact with" him, "failed to refrain from avoiding" him, and "struck" him. The insurance company in turn initiated a declaratory judgment action seeking to establish that the insured's actions were in fact intentional and thus outside the coverage of the insured's homeowner's policy. Based on the circumstances of the incident, the insured's plea of guilty to a charge of attempted murder, and his deposition testimony acknowledging that his actions had not been accidental, the court was satisfied that the insured's actions were deliberate, notwithstanding the contrary allegations of the victim's complaint.
In this case, we believe that Nationwide's duty to defend can be evaluated without any excursion into factfinding that would interfere with the University's state court suit. Although the defendants insist that the district court would be compelled to decide whether Zavalis acted intentionally or negligently in the astroturf debacle, the need to do so in order to resolve Nationwide's duty to defend is not at all apparent to us. The University does not allege in its suit that Zavalis and the others intended for their exploit to culminate in a conflagration on the football field. Rather, it assumes that the students meant only to scorch a few letters into the astroturf, but carried out their mission negligently in a manner that permitted a small fire to quickly escape their control. Notably, Nationwide's declaratory complaint, as we read it, does not quibble with this premise. It merely asserts that if Zavalis deliberately spread accelerant over some portion of the playing field and set it afire, as the University has alleged, then Zavalis necessarily expected any and all damage that ensued. Amended Complaint for Declaratory Judgment p 15(A).7 Thus, Nationwide's case does not depend on proving that Zavalis intended the degree of devastation that took place. Its sole focus is on the very premise from which the state suit proceeds: that Zavalis and his cohorts deliberately set fire to the astroturf. What happened after that, and whether or not the students intended merely to etch out a few letters or burn the stadium to the ground is by and large irrelevant, from Nationwide's viewpoint. Its contention, as we understand it, is simply that once the students took the initial step of setting fire to the field, any damage that followed was necessarily "expected," as that term is used in the insurance policy--regardless of whether the subsequent measures Zavalis took to control the fire (or his failure to take other measures) are ultimately found to be negligent. Thus, the district court need not conduct a trial to decide whether Zavalis' conduct was negligent or intentional. It need only accept the allegations of the University's lawsuit as true and consider whether the damage that allegedly resulted from the students' actions must, as a matter of law, be deemed "expected" even if, as the University has alleged, Zavalis and his companions meant to do no more than burn the letters "F-O-O" into the astroturf.
Pennsylvania case law sheds some light on this question. In Elitzky, supra, the Pennsylvania Superior Court considered whether any damage that results from an intentional act (in that case, writing and distributing defamatory letters) constitutes damage that is "expected or intended" by the insured. Because the court found the terms "intended" and "expected" to be susceptible of varying interpretations, it deemed them both ambiguous and construed them against the insurer.
Such an approach would reward wrong-doers by affording them insurance coverage just because their plans went slightly awry. A gunman who intends to shoot a victim in the foot should not be awarded insurance coverage because his aim was faulty and he shot the victim in the heart. The gunman's intention never deviated from its wrongful path.
Elitzky and its progeny supply a framework within which the claim against Zavalis may be examined. It would seem clear from the face of the University's state court complaint that Zavalis and the other students intended to cause some damage to the football field--if no more than burning the letters "F-O-O" into the surface.11 Indeed, so far as we are informed, that much is undisputed.12 But whether Zavalis "expected or intended" the more widespread damage that resulted depends, under Elitzky, on whether the actual damage may be deemed "of the same general type" as the damage that Zavalis meant to inflict. That inquiry turns on a number of factors, among them the nature and character, magnitude, and location of the intended and actual injuries. State Farm Fire & Casualty Co. v. Levine,
In any event, this is a matter for the district court to resolve in the first instance. Because the district court never reached the merits of Nationwide's declaratory suit, the parties have not yet had the opportunity to brief the issue, and our own assessment as to the expected or intended nature of the damage to the football field would be premature. At this point, it is sufficient for us simply to note that the relatively discrete nature of the inquiry necessary in order to resolve Nationwide's duty to defend Zavalis poses no demonstrable need to engage in any extensive discovery or factfinding that might interfere with the progress of the University's action in state court.
III.
An insured and his insurer have a mutual interest in speedy resolution of the insurer's duty to supply him a defense against a tort claim that may fall outside the coverage of the insurance policy. See Mhoon,
AFFIRMED IN PART, VACATED IN PART, AND REMANDED.
Notes
We have not been enlightened as to the significance, if any, of the lettering
But see A.G. Edwards & Sons, Inc. v. Public Building Comm'n of St. Clair County, Ill.,
There is a "simmering circuit split" over the appropriate degree of deference to be accorded a district court's decision whether to exercise its declaratory power. State Farm Fire & Casualty Co. v. Mhoon,
The defendants suggest that Illinois law should govern because Aleck Zavalis lived in Illinois for the majority of the insured term. See Restatement (Second) of the Law of Conflicts Sec. 193, comment b (1971). Yet, the policy was written on a Pennsylvania home, Aleck's parents (the actual homeowners) were living there at the time of the incident in question, and Aleck himself can only claim coverage under the policy as a member of that household. Whatever interest Illinois might have in Zavalis and his alleged misdeeds, it has no identifiable contact with the insurance policy itself, see Horn v. Transcon Lines, Inc.,
Courts which conclude that there is no duty to defend will often add that there is no duty to indemnify, given that the former duty is broader than the latter. That may be appropriate when it is clear that the insured cannot be held liable under any theory that could potentially fall within the coverage of the policy. Where such a possibility exists, however (e.g., through amendment of the complaint in the underlying suit), the prudent thing for the court to do is to refrain from comment on the duty to indemnify. Grinnell Mut. Reins. Co. v. Reinke,
Courts will therefore on occasion look beyond the complaint to evidentiary materials that may shed additional light on the duty to defend, so long as doing so does not involve them in factfinding that may overlap or interfere with the underlying litigation. See, e.g., Heffernan & Co.,
In a like vein, Nationwide contends that if Zavalis acted deliberately in setting the fire, then the conflagration does not constitute an "accident" falling within the policy's definition of a covered "occurrence." Amended Complaint p 15(B)
Although it analyzed the terms "intended" and "expected" separately, the court in Elitzky ultimately concluded that the two terms were synonymous for purpose of the exclusion, each connoting an element of conscious awareness on the part of the insured that an injury would occur.
The wording of Nationwide's complaint requires a caveat in this regard. Nationwide alleges that Zavalis "reasonably expected" the widespread fire damage that resulted from the prank. Amended Complaint for Declaratory Judgment p 15(A)(2). If the use of the word "reasonably" is meant to suggest that the exclusion applies if Zavalis did not actually expect some damage, but merely should have expected it, then the complaint is flawed. Elitzky clearly requires some conscious awareness that damage will result, not simply that an injury be foreseeable.
In a narrow category of cases, courts have concluded based on the nature of an insured's action (e.g., child molestation) that intent to cause harm may be inferred as a matter of law. See Barthelemy,
Of course, the mere fact that Zavalis allegedly meant to start a fire is not enough; he must have intended at least some damage to occur. See Elitzky,
Whether the insured intended to cause a particular harm typically calls for a factual inquiry into his or her subjective intent. Barthelemy,