Am. Highway, Inc. v. Travelers Cos.

• Court: U.S. District Court — Northern District of Illinois
• Writing for the Court: Martha M. Pacold, Judge
• Citation: Am. Highway, Inc. v. Travelers Cos., 686 F.Supp.3d 745 (N.D. Ill. 2023)
• Docket Number: Case No. 19 C 01660
• Decision Date: 14 August 2023
• Parties: AMERICAN HIGHWAY, INC., Plaintiff, v. The TRAVELERS COMPANIES, INC., Defendant.

686 F.Supp.3d 745

AMERICAN HIGHWAY, INC., Plaintiff, v. The TRAVELERS COMPANIES, INC., Defendant.

Case No. 19 C 01660

United States District Court, N.D. Illinois, Eastern Division

Signed August 14, 2023

Bradley Albert Bertkau, Devin Michael Lindsay, Jason Orleans, Canty Novy Bertkau Gordon, LLC, Chicago, IL, Dylan Shiver, Metra, Chicago, IL, for Plaintiff.

Matthew S. Ponzi, Collin M. Kent, John Eggum, Foran Glennon Palandech Ponzi & Rudloff P.C., Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

Martha M. Pacold, Judge

This is an insurance dispute between Travelers Property Casualty Company of America ("Travelers") and American Highway, Inc. ("American Highway"). Travelers denied American Highway coverage, and American Highway initiated this suit in the Circuit Court of Cook County. [1] at 1.¹ Travelers removed the action to this court. Id. The court has subject-matter jurisdiction under 28 U.S.C. § 1441.² Before the court are Travelers's and American Highway's cross motions for summary judgment. [53], [56]. Travelers's motion, [53], is granted and American Highway's motion, [56], is denied.

BACKGROUND

In November of 2017, a company called Kerry Foods contacted freight broker C.H. Robinson to ship 19 pallets of a potato-based, food-grade product called ProtaStar from Illinois to California. [62] ¶ 10. C.H. Robinson selected American Highway, the plaintiff, to carry the load. Id. ¶ 11.

American Highway picked up the load at Kerry's distribution center in Illinois on November 29, 2017. Id. ¶ 13; see [62-2] at 1 (giving the date). Kerry sealed the trailer that contained the ProtaStar with a metal identification tag. [62] ¶ 14. Kerry seals the trailers to ensure that the load is not contaminated or otherwise adulterated during transit. [61] ¶ 14.

On the way to California, the trailer experienced a mechanical issue, so American Highway broke the trailer's seal and moved the ProtaStar to a new trailer with a new seal. Id. ¶ 15. Upon delivery, the recipient rejected the load because the original seal had been broken. Id. ¶ 17.

On January 5, 2018, American Highway issued a "Guaranty" to Kerry that stated, "[American Highway] represents and guarantees to Kerry that during the time the Goods have been in the possession of [American Highway] that such goods have not been tampered, contaminated, adulterated, or otherwise altered." [62] ¶ 23; [66] ¶¶ 46-47. The record is unclear on what a Guaranty is or why American Highway issued this one; the parties do not discuss its background. From the deposition of Kristina Sheahan, a Kerry employee, it appears that the Guaranty was a letter that American Highway wrote, and that C.H. Robinson passed along to Kerry, to explain what happened to the load. [54-2] at 45:1-46:1 (Sheahan Dep.). Regardless, American Highway does not dispute that it issued the Guaranty, and it does not dispute the Guaranty's contents. [62] ¶ 23; [66] ¶¶ 46-47.

Kerry made a claim to C.H. Robinson for a breach of their carriage contract due to the broken seal, and C.H. Robinson paid the full amount of the claim ($48,296.17) on September 17, 2018, without a suit or any adversarial proceeding. [62] ¶¶ 21, 26-27.

C.H. Robinson's contract with American Highway allowed C.H. Robinson to exercise a setoff right where American Highway's actions created liability for C.H. Robinson to its customers. [62] ¶ 29; [66] ¶ 52. To recoup its loss, C.H. Robinson exercised its setoff right by withholding $48,296.17 that it owed to American Highway for unrelated jobs. [62] ¶ 29; [66] ¶ 52, [61] ¶ 19.³

With this background, the court turns to the dispute between American Highway and Travelers.

Travelers was American Highway's insurer; Travelers issued American Highway a Commercial Inland Marine insurance policy (the "Policy"). [62] ¶¶ 30, 36; [54-10] at 19 (verified copy of the Policy). In the Policy, Travelers committed to paying American Highway "those sums you become legally obligated to pay as damages as a Motor Carrier, Warehouseman, Freight Forwarder, Logistics Service Provider or Other Bailee for direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss." [61] ¶ 30.

American Highway made a claim under the Policy in February 2018 for the money it lost when C.H. Robinson exercised its contractual setoff right. See [61] ¶ 20; see [62] ¶ 36 (stating that American Highway pursued a claim).

On May 25, 2018, Travelers denied coverage because "a missing seal does not constitute physical damages" under the Policy and there was no physical damage noted on the delivery date. [61] ¶ 22.

On October 30, 2018, American Highway asked Travelers to reconsider, and Travelers reconfirmed its denial on December 13, 2018. Id. ¶¶ 24-25.

This suit followed, and both parties moved for summary judgment.

LEGAL STANDARD

Summary judgment is proper where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Rule 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A genuine dispute as to any material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The substantive law controls which facts are material. Id. The party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex, 477 U.S. at 323, 106 S.Ct. 2548.

For cross motions aimed at the same claim or defense, the court adopts "a dual, 'Janus-like' perspective." Hotel 71 Mezz Lender LLC v. Nat'l Ret. Fund, 778 F.3d 593, 603 (7th Cir. 2015) (quoting Shiner v. Turnoy, 29 F. Supp. 3d 1156, 1160 (N.D. Ill. 2014)). For the first motion, the court views the facts and inferences in the light most favorable to the nonmovant. If the court denies the first motion, it turns to the cross-motion and gives the unsuccessful movant all the favorable factual inferences that it has just given to the movant's opponent. Id. (citing R.J. Corman Derailment Servs., LLC v. Int'l Union of Operating Eng'rs., Loc. Union 150, AFL-CIO, 335 F.3d 643, 647-48 (7th Cir. 2003)).

DISCUSSION

American Highway seeks summary judgment on four issues: (1) its claim falls within the Policy's relevant coverage provision; (2) Travelers's pre-suit conduct estops Travelers from raising certain policy defenses; (3) the Carmack Amendment, 49 U.S.C. § 14706, preempts the state contract law governing this dispute and requires entering judgment in American Highway's favor; and (4) Travelers's conduct was "vexatious and unreasonable" under Section 155 of the Illinois Insurance Code, 215 ILCS 5/155.

In the cross-motion, Travelers argues that the Policy does not cover American Highway's claim, or in the alternative, other provisions in the Policy bar the claim.

I. Coverage

Beginning with coverage: Travelers committed to paying American Highway "those sums you become legally obligated to pay as damages as a Motor Carrier, Warehouseman, Freight Forwarder, Logistics Service Provider or Other Bailee for direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss." [61] ¶ 30.

The parties do not dispute that the ProtaStar is the Covered Property. Compare [65] at 5 (American Highway: "It is undisputed that the Covered Property here is the cargo that American Highway was transporting, i.e., the food product ('ProtaStar').") with [60] at 9 (Travelers: "The 'Covered Property' is the goods inside the truck . . . ."). The crux of the parties' dispute is what "direct physical loss of or damage to Covered Property" means.

Further discussion follows, but in short, because there is no genuine issue of material fact that the ProtaStar did not suffer "direct physical loss" or "direct physical damage," American Highway's claim falls outside the Policy language and is not covered.

Sitting in diversity, the court applies the substantive law of the forum state—here, Illinois. R3 Composites Corp. v. G&S Sales Corp., 960 F.3d 935, 941 (7th Cir. 2020).

In Illinois, "[a]n insurance policy is a contract, and the general rules governing the interpretation of other types of contracts also govern the interpretation of insurance policies." Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill.2d 11, 291 Ill. Dec. 269, 823 N.E.2d 561, 564 (2005). American Highway bears the burden to show that its claim falls within the policy's coverage. Addison Ins. Co. v. Fay, 232 Ill.2d 446, 328 Ill.Dec. 858, 905 N.E.2d 747, 752 (2009).

The court's task is to "predict how the Supreme Court of Illinois would resolve the issue." Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327, 331 (7th Cir. 2021). The Supreme Court of Illinois has not yet interpreted the Policy's operative phrase, "direct physical loss of or damage to Covered Property."

In Sandy Point, the Seventh Circuit interpreted a similar phrase, "direct physical loss or damage." The court noted that the phrase "direct physical" is most logically read as modifying both the words "loss and damage." Id. at 332; see also Bradley Hotel Corp. v. Aspen Specialty Ins. Co., 19 F.4th 1002, 1006 (7th Cir. 2021) (same and interpreting same phrase here). Illinois appellate courts interpreting the same phrase in this case have also read the word "physical" as modifying both loss and damage. See ABW Dev., LLC v. Cont'l Cas. Co., 461 Ill.Dec. 320, 203 N.E.3d 922, 929 (Ill. App. Ct. 2022); Bottleneck Mgmt., Inc. v. Zurich Am. Ins. Co., 2022 IL App (1st) 211462-U, ¶ 31, 2022 WL 2390058 (unpublished); Ark Rest. Corp. v. Zurich Am. Ins. Co., 2022 IL App (1st) 211147-U, ¶ 16 (unpublished). Accordingly, under the Policy, damage to Covered Property must be physical for the insured's claim to be covered.

The Policy does not define the word "physical," so it must be given its "plain, ordinary, and popular meaning." ABW Dev., ...