136 F.3d 1116 (7th Cir. 1998), 96-2831, Massachusetts Bay Ins. Co. v. Vic Koenig Leasing, Inc.

Docket Nº:96-2831.
Citation:136 F.3d 1116
Party Name:MASSACHUSETTS BAY INS. CO., Plaintiff-Appellee, v. VIC KOENIG LEASING, INC., Defendant-Appellant.
Case Date:February 09, 1998
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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136 F.3d 1116 (7th Cir. 1998)

MASSACHUSETTS BAY INS. CO., Plaintiff-Appellee,


VIC KOENIG LEASING, INC., Defendant-Appellant.

No. 96-2831.

United States Court of Appeals, Seventh Circuit

February 9, 1998

Argued Jan. 21, 1997.

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[Copyrighted Material Omitted]

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Russell F. Watters, John P. Cunningham, Paul J. Schulte (argued), Brown & James, St. Louis, MO, for Plaintiff-Appellee.

Jeffrey A. Wilhite (argued), William J. Schenck, Wilhite and Associates, Evansville, IN, for Defendant-Appellant.

Before COFFEY, MANION, and DIANE P. WOOD, Circuit Judges.

COFFEY, Circuit Judge.

Plaintiff-appellee, Massachusetts Bay Insurance Company ("Massachusetts Bay"), sought a declaratory judgment in federal district court that it maintained no duty to defend its insured, the defendant-appellant, Vic Koenig Leasing, Inc. ("Koenig"), in an action arising out of Koenig's alleged wrongful repossession of an automobile from Film House, Inc. ("Film House"). Both parties filed motions for summary judgment, whereupon the court entered summary judgment in Massachusetts Bay's favor. Koenig appeals that determination. 1 We affirm.


Koenig is an enterprise engaged in the business of leasing automobiles, and from December 31, 1988, to December 31, 1989, had its liability insurance coverage placed with Massachusetts Bay. On June 6, 1985, Koenig executed a lease agreement with Film House, a corporation located in Nashville, Tennessee, on a 1983 BMW 733-I automobile for use by Film House's president and sole owner, Curt Hahn ("Hahn"). The terms of the contract expressly provided that monthly payments were to be made over a four year period of time, as well as gave Film House the option to purchase the vehicle for $2,000 once the lease term expired.

In early May, 1989, just one month before the lease was to terminate, Film House informed Koenig that it intended to exercise the $2,000 automobile purchase option set forth in their agreement. Koenig, however, notified Film House that "the price for such option should have been $6,000, that there had been a[sic] unilateral mistake and requested that [Film House] consider this information and pay [it] the sum of $6,000 for the vehicle." The parties continued to dispute the automobile's purchase option price through December of 1989, at which time Koenig retained American Lenders Service Co. ("American Lenders") to repossess the vehicle. Two American Lenders agents went to Film House's parking lot in Nashville and proceeded to attach a tow truck hitch to the BMW. Hahn, having learned of what was transpiring, appeared and attempted to thwart their efforts. A crowd gathered and a heated argument ensued, during which the agents advised Hahn that Koenig had hired them to retrieve the automobile and that "they were going to take [it] one way or another." Being unable to stop American Lenders, Hahn surrendered the vehicle out of fear that any further confrontation might result in damage to it.

On March 9, 1990, Film House filed suit against Koenig in the Circuit Court for Davidson County, Tennessee, Film House, Inc. v. Vic Koenig Leasing, Inc., No. 90C-388, alleging that Koenig "committed the tort of conversion ... through a positive act of seizure of the BMW automobile." Koenig demanded that Massachusetts Bay, as its insurer, defend it in the action. In response thereto, Massachusetts Bay examined the

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factual allegations in Film House's complaint and compared them with the express language of Koenig's insurance policy, only to eventually conclude and notify Koenig, in a letter dated March 14, 1991, that it "regretfully den[ied] coverage for the [Film House] lawsuit based upon the allegations as they are plead" because: (1) it was the insurer's "opinion that the alleged conversion would be deemed an intentional act and therefore [did] not meet the definition of 'accident' in the policy"; and (2) the policy's "[expected or intended injury] exclusion would tend to exclude coverage for the lawsuit at hand." The provisions to which Massachusetts Bay was referring read, in relevant part:


    We will pay all sums an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which this insurance applies caused by an "accident" and resulting from "garage operations."

    * * * * * *


    This insurance does not apply to any of the following:


    "Bodily injury" or "property damage" expected or intended from the standpoint of the "insured." But for "garage operations" other than covered "autos" this exclusion does not apply to "bodily injury" resulting from the use of reasonable force to protect persons or property.

    (R. 1, Ex. A, Garage Coverage Form, at 2-3 (emphasis added)).

    The Film House suit eventually went to trial and, on January 2, 1995, Koenig, by and through its counsel, made a claim in the amount of $85,096.52 for attorney's fees and costs incurred in the course of defending the action. Massachusetts Bay filed a motion for a declaratory judgment, alleging that, under the plain language of the policy, it did not maintain a duty to defend Koenig, and therefore was not obligated to pay such costs and attorney's fees. Both parties subsequently filed motions for summary judgment. Koenig also made a motion for a hearing on the motions. In an order dated January 19, 1996, the district court denied Koenig's motion for a hearing on the motions and entered summary judgment in Massachusetts Bay's favor, declaring that "the Massachusetts Bay Insurance Company did not have a duty to defend Vic Koenig Leasing, Inc., in the action Film House, Inc. v. Vic Koenig Leasing, Inc., et al." In so doing, the court found that the Film House complaint failed to set forth facts coming within the parameters of the term "accident," as defined under Illinois law, since it alleged that Koenig engaged solely in deliberate behavior; namely, the wrongful repossession of the BMW automobile.


    On appeal, Koenig does not take issue with the court's conclusion that its repossession was not an "accident." Rather, it asserts that the complaint could be read to allege facts giving rise to causes of action for slander, wrongful entry, invasion of privacy, theft, breach of an insured contract and safekeeping--claims for which its policy does provide coverage--and as such, Massachusetts Bay had a duty to defend it in the Film House suit. Massachusetts Bay, on the other hand, continues to maintain that coverage for Koenig's repossession of the BMW is precluded to the extent that: (1) an intentional act (i.e., repossession) cannot not reasonably be construed as an "accident"; and (2) the policy contains an express exclusion for damages caused by "expected or intended" injuries to property.


    As previously noted, this case comes to us on a grant of summary judgment, and it is a well-established principle of this Circuit that "[w]e review the district court's decision to grant summary judgment de novo, accepting all facts and inferences in a light most favorable to [Koenig] as the non-moving party." Oates v. Discovery Zone, 116 F.3d 1161, 1165 (7th Cir.1997). Summary judgment is appropriate whenever "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,

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    show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Moreover, insofar as interpretations of insurance contracts are questions of law, we likewise review such issues de novo. Equitable Life Assurance Soc. of U.S. v. Bell, 27 F.3d 1274, 1277 (7th Cir.1994).

  3. Choice of Law

    Before considering the merits of the parties' various arguments, we think it prudent to deal with a question which, although neither Massachusetts Bay nor Koenig directly address it in their respective briefs, is clearly an important issue before us--whether Tennessee or Illinois law governs this dispute. The district court opined that it needed not conduct a thorough, substantive choice-of-law analysis, as the litigants "seemingly" agreed that Illinois law applied:

    The first question that must be answered is what law to apply to this case. The conflict of law rules applied by a federal court are those of the state in which the federal court sits. However, a federal court should apply the law of the forum state where the parties have not identified a conflict between two bodies of state law which might apply to their case. Here, the parties have not identified a conflict and are seemingly in agreement that Illinois law applies. Therefore, the Court will apply Illinois law in resolving this case.

    (R. 30, Mem. and Order of Jan. 19, 1996, at 4 (emphasis added)). It is true, as the trial judge recognized, that "[t]he operative rule is that when neither party raises a conflict of law issue in a diversity case, the federal court simply applies the law of the state in which the federal court sits.... Courts do not worry about conflict of laws unless the parties disagree on which state's law applies." Wood v. Mid-Valley, Inc., 942 F.2d 425, 426-27 (7th Cir.1991) (emphasis added). We do not quarrel with this proposition, nor do we by any means advocate its abandonment. After all, ours is an adversary system in which it is the exceptional circumstance that a federal court, or any court for that matter, will not honor a choice of law stipulation. Id. It would be a foolish expenditure of judicial resources to do so. But here, the fact of the matter is that Massachusetts Bay and Koenig have "disagreed on which state's law applies" at...

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