Ace Rent-a-Car, Inc. v. Empire Fire & Marine Ins.

CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
Citation580 F.Supp.2d 678
Decision Date17 July 2008
Docket NumberNo. 06 C 4134.,06 C 4134.
PartiesACE RENT-A-CAR, INC., Plaintiff, v. EMPIRE FIRE & MARINE INSUANCE COMPANY, National Casualty Company and Flexicorps, Inc., Defendants.

Jose Antonio Isasi, II, Paul Alexis Del Aguila, Greenberg Traurig, LLP, Kristen Elizabeth Hudson, Schopf & Weiss LLP, Chicago, IL, Vito P. LoVerde, Law Office of Vito P. LoVerde, Wauconda, IL, for Plaintiff.

Roger K. Heidenreich, David R. Geerdes, Deborah C. Druley, Lisa M. Lilly, Sonnenschein, Nath & Rosenthal, LLP, Phillip A. Bock, Bock & Hatch, LLC, Edmund A. Stephen, III, Attorney at Law, Chicago, IL, Steven Allen Smith, Brian J. Wanca, Anderson & Wanca, Rolling Meadows, IL, for Defendants.


JAMES B. MORAN, Senior District Judge.

Plaintiff Ace Rent-A-Car, Inc. ("Ace") filed suit seeking a declaration that defendants Empire Fire and Marine Insurance Company ("Empire") and National Casualty Company ("National") owe a duty to defend and indemnify it against a class action suit brought in state court by Flexicorps, Inc.1 Ace, Empire and National all move for summary judgment. For the following reasons we deny Ace's motion and grant the motions of Empire and National.


On May 27, 2003, Flexicorps, Inc., an Illinois corporation, filed suit in the Circuit Court of Cook County, Illinois, individually and on behalf of a class of those similarly situated against Ace and Options Travel ("Options"), an Illinois travel agency. Flexicorps, Inc. v. Ace Rent-A-Car, Inc., No. 03 CH 9063(hereinafter referred to as the "underlying litigation" or the "underlying complaint"). The complaint alleges that Ace and Options sent unsolicited facsimile advertisements in violation of the Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227 (2000). It also alleges that in sending these faxes Ace and Options committed conversion, and violated the Illinois Consumer Fraud and Deceptive Practices Act, 815 ILCS 505/2. The faxes consisted of two pages, one being a letter from Options Travel, and the other a coupon for free parking at one of Ace's lots located at O'Hare International Airport.

In June 2003, Ace timely notified Empire of the underlying litigation, pursuant to several Commercial General Liability ("CGL") policies issued to Ace by Empire between June 1997 and June 2003. On July 30, 2003, Empire accepted Ace's defense in the underlying litigation under a reservation of rights. On May 8, 2006, Empire filed a declaratory judgment action in the Northern District of Illinois, claiming it no longer has a duty to defend Ace in the underlying litigation. Empire Fire and Marine Ins. Co. v. Ace Rent-Car, Inc., No. 06 CV 2558 (Norgle, J., presiding). That case is currently pending.

On July 26, 2006, Ace filed suit in the Circuit Court of Cook County against defendants Empire Fire and Marine Insurance Company ("Empire") and Scottsdale Insurance Company, alleging that they owed Ace a duty to defend and indemnify it in the underlying litigation. Empire removed the case to this court, pursuant to 28 U.S.C. § 1441, based on diversity jurisdiction. 28 U.S.C. § 1332. Ace moved to remand, alleging that removal was improper because Scottsdale did not join in the removal and there were unsettled questions of state law. We denied Ace's motion (dkt. 36), and later dismissed Scottsdale as a defendant (dkt. 52).

On April 26, 2007, Ace tendered its defense and indemnity in the underlying litigation to National, pursuant to a "Garage" insurance policy National had issued to Ace. On August 9, 2007, National, via letter, declined to defend and indemnify Ace in the underlying litigation, Ace then filed an amended complaint, adding National as a defendant and alleging that it also owed Ace a duty to defend and indemnify. Ace, National and Empire now cross-move for summary judgment.

Ace asserts that both defendants owe it a duty to defend and indemnify under two different provisions in their respective policies—an "advertising injury" provision and a "property damage" provision. The relevant language in both Empire's and National's policies is similar. Both policies define "advertising injury," inter alia, as "Oral or written publication of material that violates a person's right of privacy." Both policies define property damage as physical injury to, or loss of use of property. Empire's policy permits coverage for property damage that was the result of an "occurrence," defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The Empire policy does not define the term "accident." The National policy covers property damage as a result of an "accident," defined as "includ[ing] continuous or repeated exposure to the same conditions." Neither policy defines the terms "privacy," "publication," or "material." Both policies exclude from coverage "`property damage' expected or intended from the standpoint of the insured." National's policy also excludes coverage when the insured fails to give "prompt notice" of the accident or loss for which it seeks coverage.


Summary judgment is proper where the pleadings and evidence present no genuine issues of fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (U.S.1986). We evaluate admissible evidence in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Where, as here, both sides move for summary judgment, both are required to show that no genuine issues of fact exist, taking the facts in the light most favorable to the party opposing each motion. Lac Courte Oreilles Band of Lake Superior Chippewa Indians v. Voigt, 700 F.2d 341, 349 (7th Cir.1983). Construction of an insurance contract is a matter of law, making it suitable for summary judgment resolution. Zimmerman v. Illinois Farmers Ins. Co., 317 Ill.App.3d 360, 365, 251 Ill.Dec. 57, 739 N.E.2d 990 (Ill.App.Ct.2000); Tate v. Secura Ins., 587 N.E.2d 665, 668 (Ind.1992).

Notice Provision

National argues that Ace's four-year delay in providing notice of the underlying litigation to National violates the reasonable notice provision of the policy and relieves National from any duty to defend and indemnify Ace. The parties agree that there is no conflict between Indiana and Illinois on the subject of reasonable notice, and therefore we save our conflict-of-law analysis for the next section. In re Air Crash Disaster Near Chicago, 644 F.2d 594, 605 (7th Cir.1981). Nor do the parties dispute that Ace tendered its defense to National almost four years after the filing of the underlying litigation. They disagree as to whether the lateness of the notice is "unreasonable" as a matter of law. Indiana courts have held that whether notice is unreasonable is a twopart test. Liberty Mutual Ins. Co. v. OSI Industries Inc., 831 N.E.2d 192, 202 (Ind. Ct.App.2005). First, the court determines whether notice was given in a reasonable time. Id. Next, the court looks to whether prejudice ensued from the unreasonable delay. OSI Industries Inc., 831 N.E.2d at 202. Where such a delay exists, a rebuttable presumption of prejudice arises. Askren Hub States Pest Control Series., Inc. v. Zurich Ins. Co., 721 N.E.2d 270, 279 (Ind.Ct.App.1999). To survive summary judgment the insured must present sufficient evidence to allow a reasonable jury to conclude that prejudice did not exist in the particular situation. Id.

Illinois courts have a slightly different method for determining unreasonable delay. Illinois courts examine the circumstances of each case, and the existence of prejudice is simply one factor to consider when determining whether notice was unreasonable. Country Mut. Ins. Co. v. Livorsi Marine, Inc., 222 Ill.2d 303, 313, 305 Ill.Dec. 533, 856 N.E.2d 338 (Ill.2006). Also considered is 1) the language of the policy's notice requirement, 2) the extent of the insured's sophistication in the world of commerce and insurance, 3) awareness on the part of the insured that an occurrence has taken place, and 4) the diligence with which the insured ascertains whether coverage is available. Ankus v. Government Employees Ins. Co., 285 Ill.App.3d 819, 221 Ill.Dec. 72, 674 N.E.2d 865, 870 (Ill.App.Ct.1996). The Illinois Supreme Court has commented that "when analyzing whether notice was reasonable, some courts have stated that prejudice is not a factor unless the delay in notice is relatively brief or the insured has a good excuse." Livorsi Marine, 222 Ill.2d at 312-13, 305 Ill.Dec. 533, 856 N.E.2d 338 citing Twin City Fire Insurance Co. v. Old World Trading Co., 266 Ill.App.3d 1, 8-9, 639 N.E.2d 584, 203 Ill.Dec. 264 (1993) and Fletcher v. Palos Community Consolidated School District No. 118, 164 Ill.App.3d 921, 928, 518 N.E.2d 363, 115 Ill.Dec. 838 (1987).

While Indiana and Illinois have somewhat differing standards to determine when notice is unreasonable, we find the outcome to be the same in both cases. Under Indiana case law, a rebuttable presumption of prejudice has arisen simply from the fact that Ace waited almost four years to notify National of the underlying litigation. See Erie Ins. Exch. v. Stephenson, 674 N.E.2d 607, 611 (Ind.Ct.App. 1996)(four-year delay in notification unreasonable as a matter of law where policy required notice "as soon as possible"). Ace argues that National has not been prejudiced because for the majority of those four years Empire was defending Ace in the underlying suit, albeit under a reservation of rights. That fact may certainly set this case apart from the numerous cases where an insured is controlling defense of the litigation during the delay. However, we do not agree with Ace that simply because Empire was controlling the litigation during...

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