Am. Family Mut. Ins. Co. v. C.M.A. Mortgage Inc. D/b/a Eminent Mortgage Co.

• Decision Date: 12 January 2010
• Docket Number: No. l:06-cv-1044-SEB-JMS.,l:06-cv-1044-SEB-JMS.
• Citation: 682 F.Supp.2d 879
• Parties: AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Plaintiff, v. C.M.A. MORTGAGE, INC. d/b/a Eminent Mortgage Company and Jason Wanek, Defendants.
• Court: U.S. District Court — Southern District of Indiana

682 F.Supp.2d 879

AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Plaintiff,

v.C.M.A. MORTGAGE, INC. d/b/a Eminent Mortgage Company and Jason Wanek, Defendants.

No. l:06-cv-1044-SEB-JMS.

United States District Court,

S.D. Indiana,

Indianapolis Division.

Jan. 12, 2010.

Robert Scott O'Dell, O'Dell & Associates PC, Carmel, IN, for Plaintiff.

Rhonda Hanna Veen, Scott A. Weathers, The Weathers Law Office, P.C., Indianapolis, IN, Cassandra P. Miller, Daniel A. Edelman, Edelman Combs Latturner & Goodwin LLC, Chicago, IL, for Defendants.

ENTRY ON CROSSMOTIONS FOR

SUMMARY JUDGMENT ON IN

DEMNITY AND SETTLEMENT IS

SUES

SARAH EVANS BARKER, District Judge.

This case is before the Court on cross-motions for summary judgment, which the parties have filed in an effort to resolve the remaining issues between them in this declaratory judgment lawsuit. This is an insurance coverage dispute arising under a business owners policy and a commercial liability umbrella policy issued by Plaintiff, American Family Insurance Company ("American Family"). We have previously ruled that American Family owed Defendant, C.M.A. Mortgage, Inc. d/b/a Eminent Mortgage Company ("CMA"), a defense to a Fair Credit Reporting Act (FCRA) class action lawsuit brought by Defendant, Jason Wanek, in the U.S. District Court for the Northern District of Illinois. In that order, which we issued on March 31, 2008, 2008 WL 906230, we examined the coverage issue, but stopped short of ruling that American Family was obligated to indemnify CMA because, while the parties' crossmotions for summary judgment were under advisement, American Family filed its amended declaratory judgment complaint. That amended pleading was prompted by Wanek and CMA's voluntary unilateral settlement of the class action lawsuit, which American Family did not consent to and which now, according to American Family, provides and additional basis on which the court should find that American Family is not liable under the insurance policies it issued to CMA.

According to American Family, the class action settlement agreement entered into by CMA with Wanek was unauthorized by it and unreasonable. In order to settle the class action suit in Illinois and another which had been filed in Wisconsin, CMA agreed to enter into a stipulated judgment in the amount of $2,999, 000.00, which judgment was to be satisfied only from the proceeds of the insurance policies issued to CMA by American Family. In addition, CMA agreed to assume up to $200,000.00 of the costs of noticing class members and for the administration of claims. Because the settlement was reached over American Family's objection, the insurer argues that the agreement violated certain contractual provisions and justifies American Family's denial of coverage.

Once again, the parties have filed cross-motions for summary judgment—this time two each—which require us to provide a reprise of the factual and legal disputes underlying this litigation. Though the emphasis in this ruling is on the facts and circumstances leading up to the settlement of the underlying class action, we shall include an outline of the relevant facts pertaining to the settlement negotiations.

Factual Background

On August 18, 2005, Jason Wanek, an Illinois resident, filed a lawsuit against CMA in the Northern District of Illinois claiming that he had received a solicitation from CMA in the mail which violated the requirements of FCRA. CMA is an Indiana corporation engaged in the mortgage lending business in several states, including Illinois. The solicitation Wanek received contained the following statement: "Information contained in your credit report was used in connection with this offer." Wanek claimed that the solicitation constituted a willful violation of FCRA because he had never given CMA permission to access his credit report. Thus, he alleged, CMA accessed his and others' credit reports as part of a "pres-creening" process which prompted letters of solicitation to him and an entire class of consumers who, by virtue of the prescreen-ing, were identified by CMA as having certain credit traits suggesting they might be more receptive to CMA's sales pitch offering its services to them.

Wanek claimed in his lawsuit that the FCRA violation occurred when CMA accessed his and other consumers' credit reports without permission and without a permissible purpose, that is, to make a "firm offer of credit," as that phrase is defined in the Act. See 15 U.S.C. § 1681a(Z). FCRA requires that firm offers of credit contain certain disclosures, and Wanek claimed such disclosures were omitted from the solicitation he and others in the class received and that CMA's offer of credit was not a firm offer of credit. See 15 U.S.C, § 1681m(d). While Wanek did not claim specific monetary damages from his receipt of something other than a firm offer of credit, he sought to recover the statutory penalties available when a violation is established. See 15 U.S.C. § 1681n. At the time Wanek filed his lawsuit, the Seventh Circuit's holding in Cole v. U.S. Capital, 389 F.3d 719 (7th Cir.2004) was the seminal decision explicating the requirements of a valid "firm offer of credit" along with the accompanying disclosures. The Cole decision has been viewed generally as favorable to FCRA plaintiffs, including Wanek, and thus prompted numerous settlements of class actions which had been filed in response to similar credit solicitations.

CMA sought a defense and coverage from American Family, pursuant to its business owners and umbrella policies. American Family responded by notifying CMA that there were coverage issues which it believed disqualified the claim from coverage, but indicated that it would provide CMA with a defense under a reservation of rights. Several potential bases for denying indemnity were detailed in the reservation of rights letters, including the exclusion for personal and advertising injury resulting from an act the insured knew would inflict the injury. American Family did agree to reimburse an attorney of CMA's choice for the fees associated with defending the class action during the time American Family would file a declaratory judgment to determine if it owed CMA indemnity and a defense. The case at bar was filed for that purpose by American Family on July 7, 2006.

Subsequent to Wanek's filing of his class action lawsuit, the Seventh Circuit handed down a decision in Perry v. First National Bank, 459 F.3d 816 (7th Cir.2006), which held that a defendant bank's credit offer was sufficiently firm to pass muster under the FCRA. The effect of this ruling was to place some limits on the benefits otherwise extended to FCRA plaintiffs under the Cole analysis. Citing the Perry decision as well as a variety of district court decisions which also interpreted the Cole decision and FCRA mandates more narrowly, e.g. Cavin v. Home Loan Center Inc., 469 F.Supp.2d 561 (N.D.I11.2007), CMA filed a motion for summary judgment in the Illinois class action litigation on February 8, 2007. CMA contended that it had, in fact, made a "firm offer of credit," as defined and required by FCRA, and therefore had a permissible purpose in obtaining Wanek's credit report. Wanek filed simultaneously his own Motion for Partial Summary Judgment on the "firm offer" issue, claiming that CMA's solicitation did not satisfy the requirements of "a firm offer of credit." The district court had previously stayed any ruling on the issue of the willfulness of any alleged FCRA violation in order to allow the Supreme Court decisions in two cases then pending before it involving the issue of willfulness under FCRA to be handed down.

On March 19, 2007, Wanek's counsel proffered a settlement demand to CMA of $4 million to resolve the Illinois class action, which agreement would take the form of a consent judgment and include Plaintiffs' agreement not to execute on anything other than CMA's insurance proceeds from its policies with American Family. In the demand letter, counsel for Wanek cited the Indiana Court of Appeals decision, Cincinnati Ins. Co. v. Young, 852 N.E.2d 8 (Ind. App.2006), which he viewed as binding precedent allowing an insured to settle a case without receiving the consent of its insurer, if the case was being defended under a reservation of rights. Counsel for American Family was given a copy of Wanek's counsel's demand letter.

Two days later, American Family's in-house counsel wrote to the attorneys representing CMA both in this action and in the Illinois class action stating its opinion that the settlement demand was unreasonable in light of the pending summary judgment motion, the related litigation pending before the Supreme Court, and the unresolved issue of whether coverage was owed to CMA on this claim. The letter informed CMA that American Family would regard any settlement by CMA of the class action litigation along the lines proposed by Wanek to be a violation of CMA's obligations under its two insurance policies with American Family, in particular, those provisions which provide that no insured shall make a voluntary payment, assume any obligation or incur any costs without the insurer's consent.

The following day, on March 22, 2007, counsel for Wanek wrote to counsel for CMA with a reduced demand of $2.99 million plus costs of notice and administration to settle the Illinois class action as well as a pending Wisconsin class action. Counsel for CMA responded to Wanek's settlement proposal on April 5, 2007, without having obtained the consent of American Family. CMA agreed to allow a stipulated judgment to be entered against it in the amount of $2.99 million, with the express proviso that the judgment could only be satisfied by its insurance proceeds under the policies with American Family. CMA also agreed to assign its rights under those American Family insurance policies to Plaintiffs and pay an amount not to exceed $200,000 to offset the costs of notice to the class and the administration of the...