Nat'l Am. Ins. Co. v. Artisan & Truckers Cas. Co.
| Decision Date | 06 August 2015 |
| Docket Number | No. 14–2694.,14–2694. |
| Citation | 796 F.3d 717 |
| Parties | NATIONAL AMERICAN INSURANCE COMPANY, Plaintiff–Appellee, v. ARTISAN AND TRUCKERS CASUALTY COMPANY, Defendant–Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Cristine Verzani Anto, Michael L. Resis, Attorney, Smithamundsen, LLC, Chicago, IL, for Plaintiff–Appellee.
Jason Orleans, Attorney, Chilton, Yambert & Porter LLP, Waukegan, IL, for Defendant–Appellant.
Before POSNER, RIPPLE, and KANNE, Circuit Judges.
This case provides a warning for insurance companies who refuse to defend their insureds. On August 23, 2010, Viktor Barengolts was driving a tractor-trailer on Route 30 in Wheatland Township, Illinois. That same day, on that same road, Gustavo and Maria Bernal were driving in their pickup truck. Their fates joined when Barengolts's tractor-trailer rear-ended the Bernals' truck. Serious injuries and property damage resulted. The Bernals sued.
Whom did they sue? Smartly, everyone. In their Second Amended Complaint, the Bernals first sued Unlimited Carrier—the company whose placard appeared on the tractor at the time of the accident— and Viktor Barengolts, the apparent driver.1
They next sued, in counts 3 through 4, Unlimited Carrier and Eduard Gaidishev. Gaidishev was in the tractor with Barengolts during the accident. At the time the Bernals filed their complaint, it was unclear whether Gaidishev had been the driver instead of Barengolts.
Notably, in each of these first four counts, the complaint alleged an agency relationship with either Viktor Barengolts or Eduard Gaidishev as the agent and Unlimited Carrier as the principal.
Counts 5 through 8, by contrast, alleged an agency relationship with Michael Barengolts, Viktor's father, who owned the tractor.
Specifically, counts 5 and 6 alleged that “Viktor Barengolts was operating a tractor ... as the agent and/or servant of Michael Barengolts[.]” Thus, in these counts, Michael Barengolts, not Unlimited Carrier, was the alleged principal.
Counts 7 and 8 replicated this theory with one change: they alleged Gaidishev rather than Viktor Barengolts was operating the tractor.
In summary, these latter counts ostensibly pled vicarious liability with either Viktor Barengolts or Eduard Gaidishev as the agent and Michael Barengolts as the principal. These counts also stated that “[a]t all times relevant ... Unlimited Carrier exercised authority and control” over the tractor. We'll return to this point later.
As soon as Viktor learned of the Bernals' lawsuit, he contacted Appellant Artisan and Truckers Casualty Company (“Artisan”), his insurance provider, to determine coverage. Artisan denied him coverage. It told Viktor that the policy's Contingent Liability Endorsement (“CLE”) excluded coverage because he was driving the tractor on behalf of Unlimited Carrier at the time of the accident.
Some background. Artisan Policy 07572918–0 lists Viktor as an insured and Michael as an additional insured. So they ordinarily should be covered under the policy. Michael's tractor is also covered; it is included in the “auto coverage schedule” in the policy agreement. At first blush, then, it would appear that Artisan was on the hook to cover and defend the Barengolts against the Bernals' lawsuit.
Indeed, Artisan expressly agreed to “pay damages ... for bodily injury, property damage, and covered pollution cost or expense, for which an insured becomes legally responsible because of an accident arising out of the ownership, maintenance or use of an insured auto.”
But not so fast, says Artisan. It points to the CLE, which states:
Because the tractor displayed placards for Unlimited Carrier at the time of the accident, Artisan construed it as being “used for or on behalf of” Unlimited Carrier—an organization, and a use, not covered by the policy. So Artisan refused to defend Viktor and Michael Barengolts against the lawsuit.
For example, counsel for Unlimited Carrier wrote to Artisan on January 7, 2011, demanding that it defend Viktor and Michael. Artisan refused. On April 8, 2011, counsel for the Barengoltses tendered the defense to Artisan. Counsel also requested the evidence on which Artisan based its decision to deny coverage. Artisan refused to defend and refused to offer any such evidence. Counsel for the Barengoltses again wrote to Artisan, this time on August 18, 2011. That letter also provided notice that counsel would seek reimbursement from Artisan for defense costs, attorney's fees, and any money judgments stemming from the lawsuit. Artisan once again refused.
Then Viktor and Michael exposed a fact that they thought could change Artisan's decision: Michael Barengolts, the owner of the tractor, did not actually sign a lease with Unlimited Carrier for use of the tractor until eight days after the accident. To be sure, the placard for Unlimited Carrier was displayed on the tractor at the time of the accident. But the absence of the signature on the lease agreement seemed to at least create a question as to whether Artisan should cover Viktor and Michael for the Bernals' lawsuit. Consequently, on February 17, 2012, counsel for the Barengoltses sent another letter to Artisan, again tendering the defense and seeking indemnity for Viktor and Michael. Counsel enclosed a copy of the lease agreement with the letter. Artisan, unflappable, said the lease issue did not change its position with respect to the CLE. It again refused to defend.
While Artisan was busy refusing to defend, Appellee National American Insurance Company (“NAICO”) was busy defending. It had issued a policy to Unlimited Carrier on December 7, 2009, and that policy was in effect on the date of the accident. Interestingly, besides covering and defending Unlimited Carrier, NAICO also agreed to defend Viktor and Michael Barengolts. Its policy with Unlimited Carrier stated that it would cover “[a]nyone ... while using with your permission a covered ‘auto’ you own, hire, or borrow[,]” subject to some exceptions. The NAICO policy further provided coverage for an “agent or driver of the lessor [of a covered ‘auto’] while the ‘auto’ is leased to you under a written agreement[,]” subject to some conditions. Perhaps recognizing some uncertainty regarding application of the policy, NAICO defended Viktor and Michael under a reservation of rights. But defend it did.
The case ultimately settled at mediation on November 1, 2012. Pursuant to the settlement agreement, NAICO paid $50,000 to Gustavo Bernal and $48,750 to Maria Bernal on behalf of Viktor and Michael Barengolts, Eduard Gaidishev, and Unlimited Carrier. Also in accordance with the settlement agreement, Viktor and Michael assigned to NAICO their rights to recover under the Artisan Policy.
That assignment brings us, finally, to this lawsuit. On February 19, 2013, NAICO filed a four-count complaint against Artisan in the Northern District of Illinois. In count 1, NAICO sought a declaratory judgment against Artisan, asserting that: (1) Artisan had a duty to defend and indemnify Viktor and Michael in the Bernal case; (2) Artisan breached that duty; and (3) Artisan is now estopped from raising policy defenses to its duty to defend and indemnify Viktor and Michael. Counts 2 and 3 raised claims of equitable and contractual subrogation, respectively, and Count 4 sought equitable contribution.
NAICO's complaint alleged facts it uncovered during its discovery in the Bernal case. First and foremost, NAICO alleged that Viktor Barengolts “was not under dispatch or in the process of picking up a load” for Unlimited Carrier at the time he hit the Bernals, implying he was not in the course of some purported agency relationship. Second, and as we noted above, Michael Barengolts did not sign an equipment lease with Unlimited Carrier until August 31, 2010–eight days after the accident. The day after Michael signed the lease, Viktor signed his remaining employment documents. And finally, in light of the outstanding paperwork, Viktor and Michael did not have authority to display the Unlimited Carrier placard on the trailer until September 1, 2010.
More important, NAICO's complaint alleged that Artisan's duty to defend sprang from counts 5 through 8 in the Bernals' underlying complaint. Recall those counts pled vicarious liability with Michael Barengolts named as the principal—not Unlimited Carrier. And if Michael Barengolts was the principal, then Artisan's duty to defend would be triggered. See Menard, Inc. v. Country Preferred Ins. Co., 372 Ill.Dec. 801, 992 N.E.2d 643, 648 (Ill.App.Ct.2013) ().
Consistent with its approach in the underlying action, Artisan denied all liability in its Answer. It then filed a counterclaim seeking a declaratory judgment that it owed nothing for the Bernals' settlement. NAICO eventually filed a motion for summary judgment regarding (1) Artisan's duty to defend and indemnify Viktor and Michael, and (2) application of estoppel. Artisan responded, and then filed a cross-motion for summary judgment.
The parties consented to dispositive proceedings before U.S. Magistrate Judge Michael T. Mason. On May 15, 2014, Magistrate Judge Mason found that Artisan had a duty to defend against the Bernals' lawsuit, and that it breached that duty. Nat'l Am. Ins. Co. v. Progressive Corp., 43 F.Supp.3d 873, 888 (N.D.Ill.2014). Given the breach, Judge Mason estopped Artisan from asserting defenses under its policy with Viktor and Michael Barengolts, and granted summary judgment (with reimbursement...
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