Atl. Specialty Ins. Co. v. AC Chi., LLC, Case No. 15–cv–10972
| Decision Date | 17 August 2017 |
| Docket Number | Case No. 15–cv–10972 |
| Citation | 272 F.Supp.3d 1043 |
| Parties | ATLANTIC SPECIALTY INSURANCE COMPANY, Plaintiff, v. AC CHICAGO, LLC, Great Lakes Repair, Inc., and Paul D. Schulz, Defendants, AC Chicago, LLC and Paul D. Schulz, Counter–Plaintiffs, v. Atlantic Specialty Insurance Company, Counter–Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Christopher J. Bannon, Amber Oleson LaFevers, Aronberg, Goldgehn, Davis & Garmisa, Chicago, IL, for Plaintiff.
Stephen C. Veltman, Kelly Ann Kono, Pretzel & Stouffer, Chtd., Joseph W. Barber, Howard & Howard Attorneys, Chicago, IL, for Defendants.
Plaintiff Atlantic Specialty Insurance Co. seeks a declaration that it has no duty to defend Defendants AC Chicago, LLC ("ACC"), Great Lakes Repair, Inc., and Paul D. Schulz in the underlying lawsuit. Defendants ACC and Schulz bring counterclaims seeking a declaratory judgment that they are entitled to coverage under the insurance policy at issue, alleging that Plaintiff breached the insurance contract, and requesting sanctions under § 155 of the Illinois Insurance Code. Before the Court are Plaintiff's motion for summary judgment [32], and Defendant's motion for summary judgment [35]. For the reasons that follow, the Court grants Plaintiff's motion for summary judgment [32] and denies Defendant's motion for summary judgment [35]. The Court will enter a final judgment and close the case.
The following facts are drawn primarily from the parties' Local Rule 56.1 statements, [34], [37], [40], and [42]. This action is an insurance coverage dispute. Plaintiff is an insurance company incorporated in New York with its principal place of business in Minnesota. [34, at ¶ 1.] Defendant ACC is an Illinois limited liability company with its principal place of business in Chicago, Illinois. Defendant Schulz is one of three members of ACC, along with Ryan Weber and Joe Rickard. [Id. , at ¶ 2.] Defendant Great Lakes Repair is a Michigan corporation with its principal place of business in Bridgman, Michigan. [Id. , at ¶ 3.]
The business of ACC was to purchase two America's Cup Class sailboats and provide corporate charters, team building, client entertainment, and America's Cup racing experience to the general public. [37, at ¶ 2.] One of these sailboats was the Stars & Stripes ("the vessel"). Weber of ACC contacted an insurance broker, George Lindley of DKS Marine Insurance, to obtain a quote for marine insurance. [Id. , at ¶ 10.] Lindley requested via email "a description of the exposure, i.e. operation location, navigation limits, etc." [Id. ] Weber responded "we are looking at staying within five miles of shore during normal conditions from the north part of the city at about Irving Park Road all the way south to 31st Street Harbor." [Id. ] ACC then submitted an insurance application to Plaintiff through its insurance broker, Lindley. [34, at ¶ 8.] The insurance application requested the following navigation limits: "10 Miles North & 5 Miles East of 31st Street Harbor, Chicago."1 [Id. , at ¶ 12; see also 32–2, at 48 (ACC Insurance Application).]
Plaintiff's underwriter, David C. Richardson, reviewed the ACC application and evaluated the risk of insuring ACC. [34, at ¶ 13.] During his assessment of the ACC application, Richardson reviewed a nautical chart for Lake Michigan's Chicago shoreline area to identify any potential marine hazards within the navigation limits that ACC requested, as well as in the surrounding area. [Id. , at ¶ 14.] Richardson noticed that there were shoals approximately one mile south of 31st Street Harbor, the home port where the vessel was to be located when not in operation. [Id. , at ¶ 15.] A shoal is a submerged ridge, bank, or bar that rises from the bed of a body of water to near the surface and often contains a danger to navigation. [Id. , at ¶ 16.] The only entrance to 31st Street Harbor allowing ingress and egress from the harbor opens to the south. [37, at ¶ 5.] Richardson determined, however, that the shoals were outside of the requested navigation limits. [Id. , at ¶ 15.] Recognizing the shoals as a risk, Plaintiff requested that ACC provide the sailing resumes of the captains who would be operating the vessel. [34, at ¶ 17.] In fact, Plaintiff's quote of insurance to ACC was made specifically subject to Plaintiff's receipt of the captains' resumes before the vessel was to be placed in operation. [Id. ] Plaintiff requested this information to determine whether the captains were familiar with Lake Michigan and the waters around Chicago, including the area where the shoals were located. [Id. ]
Based on the information contained in the ACC application, Plaintiff quoted and issued the marine policy to ACC, with a policy period of February 6, 2015 to February 6, 2016. [Id. , at ¶ 18.] Subject to all of its terms, conditions, limitations and exclusions, the policy provided Hull & Machinery coverage in the amount of the vessel's insured value of $200,000, subject to a $20,000 deductible. [Id. , at ¶ 19.] The policy also provided Protection & Indemnity coverage, with a limit of liability in the amount of $1,000,000, subject to a deductible in the amount of $5,000 for personal injury and $5,000 for property damage. [Id. , at ¶ 20.]
The policy contains a Navigation Condition, which requires that the vessel be confined to a specific navigational area in order for the policy's coverage to apply. The Navigation Condition states:
[Id. , at ¶ 15.] The policy also contains a Held Covered Clause, which states:
The vessel is held covered in case of any breach of conditions as to * * * locality * * * provided (a) notice is given to the Underwriters immediately following receipt or knowledge thereof by the Assured and (b) any amended terms of cover and any additional premiums required by the Underwriters are agreed to by the Assured.
[34, at ¶ 22.]
In 2015, the vessel was docked during the summer months in its home port of Chicago's 31st Street Harbor. [Id. , at ¶ 27.] On August 1, 2015, the vessel went on a paid excursion in Lake Michigan. The vessel left 31st Street Harbor and sailed north to Chicago's Navy Pier. [Id. , at ¶ 28.] Anthony LaHaie was the captain of the vessel for the trip, and Defendant Schulz, one of ACC's owners, was on board the vessel acting as a crew member. [Id. , at ¶ 29.] The vessel sailed back and forth between Navy Pier and the Shedd Aquarium and then headed south to return to 31st Street Harbor. [Id. , at ¶ 30.] LaHaie, with no objection by Schulz, sailed the boat south of 31st Street Harbor. [Id. , at ¶ 31.] The wind was strong and out of the northwest at 15–18 knots, and the vessel was headed south at a great rate of speed. [37, at ¶ 22; see also 37, Exhibit E (LaHaie Deposition), at 49:15–50:12.] The "sea state was a light chop, 1–2 feet," and traffic was heavy. [37, at ¶ 22.] The vessel sailed approximately one mile south of 31st Street Harbor so that it could be turned into the wind, which served to slow the vessel down. [Id. , at ¶ 23.] The vessel was then heading northwest, in the general direction of 31st Street Harbor, when it became grounded on a shoal known as the Oakland Shoal, located one mile southeast of 31st Street Harbor. [37, at ¶ 32.]
Due to the grounding, Schulz contacted Great Lakes Repair, which provided assistance and a tow to 31st Street Harbor. [Id. , at ¶ 33.] Schulz expected an invoice for towing charges, but in early September 2015, he received a Great Lakes salvage bill in the amount of $200,000. [37, at ¶¶ 28–29.] Schulz denies that he ever agreed to a salvage contract with Great Lakes and was "shocked" at the amount of the bill. [Id. , at ¶ 29.] Schulz tried to negotiate a settlement with Great Lakes that would be in an amount under the policy's deductible but was unsuccessful. [Id. , at ¶¶ 29–30.] After failing to reach an agreement with Great Lakes for an amount within the policy deductible, Schulz submitted the claim to ACC's insurance broker DKS on October 6, 2015 ("the Great Lakes Claim"). [Id. , at ¶ 30.] Plaintiff subsequently received notice of the claim. [34, at ¶ 34.]
On October 12, 2015, Plaintiff agreed to investigate the Great Lakes Claim under a reservation of rights. [Id. , at ¶ 35.] On October 26, 2015, Great Lakes filed a lawsuit captioned Great Lakes Repair, Inc. v. S/Y "Stars & Stripes" , No. 15–CV–9506, in the Northern District of Illinois. [Id. , at ¶ 36.] Great Lakes alleged that it was entitled to payment of $200,000 for its effort in connection with the grounding and salvage of the vessel. On February 22, 2017, Judge Der–Yeghiayan granted Great Lakes' motion for default judgment against Schulz and ACC.
During its investigation of the Great Lakes Claim, Plaintiff learned that the vessel was located one mile southeast of 31st Street Harbor when it grounded. [34, at ¶ 38.] Plaintiff subsequently disclaimed coverage because in its view, ACC was operating the vessel outside of the policy's specified navigation limits at the time of grounding. [Id. , at ¶ 39.] Plaintiff also filed this action seeking a declaration that the policy does not apply. Defendant Schulz and ACC filed a counterclaim seeking a declaration that the policy does apply, alleging breach of contract, and requesting sanctions under § 155 of the Illinois Insurance Code. The parties filed cross-motions for summary judgment [32] and [35], which are fully-briefed and currently before the Court.
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