Axiom Ins. Managers, LLC v. Capitol Specialty Ins. Corp.

• Citation: 876 F.Supp.2d 1005
• Decision Date: 21 June 2012
• Docket Number: No. 11 C 4736.,11 C 4736.
• Parties: AXIOM INSURANCE MANAGERS, LLC, et al., Plaintiffs, v. CAPITOL SPECIALTY INSURANCE CORPORATION, Defendant.
• Court: U.S. District Court — Northern District of Illinois

876 F.Supp.2d 1005

AXIOM INSURANCE MANAGERS, LLC, et al., Plaintiffs,

v.CAPITOL SPECIALTY INSURANCE CORPORATION, Defendant.

No. 11 C 4736.

United States District Court,

N.D. Illinois,

Eastern Division.

June 21, 2012.

Richard R. Winter, Holland & Knight LLC, Maureen Elizabeth Browne, Chicago, IL, for Plaintiffs.

David John Cahill, Amy Renee Miller, Swanson, Martin & Bell, Lisle, IL, for Defendant.

OPINION AND ORDER

WILLIAM T. HART, District Judge.

Plaintiffs-counterdefendants Axiom Insurance Managers, LLC and Dan Djordjevic ¹ (“plaintiffs” or “Axiom”) are insureds under a general liability policy (the “Policy”) issued by defendant-counterplaintiff Capitol Speciality Insurance Corporation (“defendant” or “Capitol”). The two sides' dispute concerns defendant's duty to defend (and potentially indemnify) under the Policy regarding three underlying lawsuits between Axiom and Indemnity Insurance Corporation Risk Retention Group (“Indemnity”).² Axiom is an insurance program administrator; it works with retail insurance brokers and insurers to place liability insurance coverage. Axiom and Indemnity are competitors. In each of the underlying lawsuits, Indemnity alleged that Axiom made false and disparaging remarks regarding Indemnity. Plaintiffs' and defendants' central dispute is whether there was a duty to defend these allegations under the “personal and advertising injury” coverage of the Policy. Presently pending are cross motions for summary judgment, plaintiffs' motion being one for partial summary judgment since it does not seek to establish the amount of any defense costs nor does it seek summary judgment as to indemnity of any liability.³

The parties generally do not disagree as to the facts, which primarily consist of the terms of the Policy and the pleadings in the underlying lawsuits. The only significant factual disagreement regards whether certain facts not expressly alleged in one of the underlying complaints can be considered in amplifying the allegationsof that underlying complaint. The parties agree that Illinois law controls regarding the construction and application of the terms of the Policy.

In Illinois, insurance policies are contracts; the general rules governing the interpretation and construction of contracts govern the interpretation and construction 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). Illinois courts aim to ascertain and give effect to the intention of the parties, as expressed in the policy language, so long as doing so does not contravene public policy. Id. In doing so, they read the policy as a whole and consider the type of insurance purchased, the risks involved, and the overall purpose of the contract. State Farm Mut. Auto. Ins. Co. v. Villicana, 181 Ill.2d 436, 230 Ill.Dec. 30, 692 N.E.2d 1196, 1199 (1998). If the policy language is unambiguous, courts apply it as written. Hobbs, 291 Ill.Dec. 269, 823 N.E.2d at 564. Policy terms that limit an insurer's liability are liberally construed in favor of coverage, but only when they are ambiguous, or susceptible to more than one reasonable interpretation. Id.;see alsoRich v. Principal Life Ins. Co., 226 Ill.2d 359, 314 Ill.Dec. 795, 875 N.E.2d 1082, 1090 (2007).

Clarendon Nat'l Ins. Co. v. Medina, 645 F.3d 928, 933 (7th Cir.2011).

In determining whether an insurer has a duty to defend, the court must compare the allegations in the underlying complaint with the relevant coverage provisions of the insurance contract. When making this comparison, the court does not look to particular legal theories or claimed evidence, but must focus on the allegedly tortious conduct stated in the underlying complaint. Medmarc Cas. Ins. Co. v. Avent Am., Inc., 612 F.3d 607, 613 (7th Cir.2010); Hurst–Rosche Eng'rs v. Commercial Union Ins. Co., 51 F.3d 1336, 1342 (7th Cir.1995); Allstate Ins. Co. v. Amato, 372 Ill.App.3d 139, 310 Ill.Dec. 192, 865 N.E.2d 516, 523 (1st Dist.2007). A duty to defend exists as long as the allegations of the underlying complaint are potentially within the scope of coverage, even if the allegations are groundless, false, or fraudulent. Medmarc, 612 F.3d at 613 (quoting Northbrook Prop. & Cas. Co. v. Transp. Joint Agreement, 194 Ill.2d 96, 251 Ill.Dec. 659, 741 N.E.2d 253, 254 (2000)); Pekin Ins. Co. v. XData Solutions, Inc., 2011 IL App (1st) 102769, 354 Ill.Dec. 654, 958 N.E.2d 397, 400 (1st Dist.2011). This is true even if only one of several alleged theories of recovery falls within potential coverage. XData, 354 Ill.Dec. 654, 958 N.E.2d at 400. The burden is on the insured to prove that a claim falls within the coverage of the insurance policy. Addison Ins. Co. v. Fay, 232 Ill.2d 446, 328 Ill.Dec. 858, 905 N.E.2d 747, 752 (2009); Ill. Sch. Dist. Agency v. St. Charles Cmty. Unit Sch. Dist. 303, 2012 IL App (1st) 100088, 361 Ill.Dec. 577, 971 N.E.2d 1099, 1112–13 (1st Dist.2012); Native Am. Arts, Inc. v. Hartford Cas. Ins. Co., 2004 WL 2065065 *4 (N.D.Ill. Sept. 10, 2004), aff'd,435 F.3d 729 (7th Cir.2006). The insurer has the burden of proving that an exclusion applies, while the insured has the burden of proving that an exception to an exclusion restores coverage. Santa's Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 347 (7th Cir.2010); Citizens Ins. Co. of Am. v. Uncommon, LLC, 812 F.Supp.2d 905, 909 (N.D.Ill.2011).

Renewals of the Policy occurred during the pertinent time period, but all relevant Policy language remained the same. Both plaintiffs are named insureds under the Policy. The Policy covers “sums that the insured becomes legally obligated to pay as damages because of ‘personal and advertisinginjury’ to which this insurance applies” and also includes a “duty to defend the insured against any ‘suit’ seeking those damages.”

The Policy defines “suit” as:

[A] civil proceeding in which damages because of “bodily injury,” “property damage” or “personal and advertising injury” to which this insurance applies are alleged.

“Suit” includes:

(a) an arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or

(b) any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.

The Policy's definition of “personal and advertising injury” is:

[I]njury, including consequential “bodily injury,” arising out of one or more of the following offenses:

* * *

d. Oral or written publication, in any matter, or material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services;

e. Oral or written publication, in any manner, of material that violates a person's right of privacy;

f. The use of another's advertising idea in your “advertisement”; or

g. Infringing upon another's copyright, trade dress or slogan in your “advertisement.”

The Policy's “breach of contract” exclusion applies to “ ‘[p]ersonal and advertising injury’ arising out of a breach of contract, except an implied contract to use another's advertising idea in your ‘advertisement.’ ” The Policy's separate “contractual liability” exclusion excludes coverage for “ ‘[p]ersonal and advertising injury’ for which the insured has assumed liability in a contract or agreement. This exclusion does not apply to liability for damages that the insured would have in the absence of the contract or agreement.”

There is an “insurance and related operations” exclusion which excludes coverage for “personal and advertising injury” liability “[r]esulting from the rendering of, or failure to render, the following professional services: a. Advising, inspecting, reporting or making recommendations in the insured's capacity as an insurance company, consultant, broker, agent or representative thereof; [or] b. Effecting insurance, reinsurance or suretyship coverages ....”

The “knowing violation of rights of another” exclusion excludes “ ‘personal and advertising injury’ caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury.’ ” The “material published with knowledge of falsity” exclusion excludes “ ‘personal and advertising injury’ arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity.”

The “distribution of material in violation of statutes” exclusion excludes “ ‘personal and advertising injury’ arising directly or indirectly out of any action or omission that violates or is alleged to violate: ... (3) Any statute, ordinance or regulation, other than the TCPA or CANSPAM Act of 2003, that prohibits or limits the sending, transmitting, communicating or distribution of material information.”

The Policy generally excludes coverage for “punitive or exemplary damages, fines, penalties or multiplied damages.”

In March 2011, Indemnity sued Axiom in state court in Texas (the “Texas Suit”). Indemnity brought claims of defamation and tortious interference with existing contracts and business relationships, and tortious interference with prospective business relationships. Additionally, it brought claims labeled as business disparagement, civil conspiracy, and violations of various provisions of the Texas Insurance Code. In addition to compensatory damages, Indemnity's complaint requests disgorgement of profits, “statutory additional damages,” and attorney fees. The Texas Insurance Code provides for attorney fees. Tex. Ins. Code § 541.152(a)(1). It also provides for treble damages if “the defendant knowingly committed the act complained of.” Id. § 541.152(b). Indemnity alleged that Axiom participated (with other insurance agency defendants) in disseminating false information about Indemnity's financial condition and business. Such information allegedly was disseminated to Indemnity's insureds, prospective...