Fed. Ins. Co. v. Healthcare Info. & Mgmt. Sys. Soc'y, Inc.
| Decision Date | 19 October 2021 |
| Docket Number | Case No. 20 C 6797 |
| Citation | 567 F.Supp.3d 893 |
| Parties | FEDERAL INSURANCE COMPANY, Plaintiff, v. HEALTHCARE INFORMATION AND MANAGEMENT SYSTEMS SOCIETY, INC., Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Edward J. Kirk, Pro Hac Vice, Jason Michael Balsamo, Pro Hac Vice, Clyde & Co. US LLP, New York, NY, Matthew James Dostal, Clyde & Co. US LLP, Chicago, IL, for Plaintiff.
Mark Steven Mester, Robert Collins, III, Latham & Watkins LLP, Chicago, IL, Charles Sprague, Pro Hac Vice, Latham & Watkins LLP, San Francisco, CA, Robert J. Gilbert, Pro Hac Vice, Latham & Watkins LLP, Boston, MA, for Defendant.
Plaintiff Federal Insurance Company has brought a three count amended complaint against its insured, defendant Healthcare Information and Management Systems Society, Inc., seeking a declaration that it has no duty to defend or indemnify defendant in two underlying actions brought against defendant as a result of defendant's cancellation of its 2020 tradeshow. Defendant answered the amended complaint, raised nine affirmative defenses and brought a six count counterclaim asserting that each underlying lawsuit is covered by the policy in question, breach of contract by plaintiff for denying coverage as to each underlying lawsuit, and claims for bad faith denial of coverage as to each underlying lawsuit. Plaintiff has moved to dismiss the counterclaim for failure to state a claim. For the reasons described below, that motion is granted in part and denied in part.
Defendant, a non-profit corporation, describes itself as a "global advisor and thought leader" serving the "global health information and technology communities." It claims to be the country's oldest and most respected non-profit in the field of health information systems. Its annual flagship event is the "HIMSS Global Conference," a tradeshow that attracts nearly 50,000 attendees, exhibitors, staff, and others, making it one of the largest annual conferences of any type in the United States. The products and services defendant provides at the conference include the development, sponsorship, and presentation of a weeklong program of seminars, courses, colloquia, lectures, and other professional education opportunities. To accomplish this, it leases a convention center and then sublets concrete floor space to exhibitors, who spend tens of thousands of dollars for stalls, displays and presentations to promote their products and services.
The 2020 Global Conference was scheduled to begin in Orlando in the second week of March, at the start of the COVID-19 pandemic. As a result, on the advice of an independent panel of public health experts, defendant cancelled the conference shortly before it was to start. Not unexpectedly, this decision left a wake of disappointed exhibitors who had paid non-refundable fees to defendant and had also incurred thousands of dollars in non-recoverable expenses for travel, lodging, and unusable booths, displays, and promotional materials.
On June 1, 2020, one of defendant's exhibitors, Novarad Corporation, sued defendant in the Illinois state court, seeking return of its $38,325 exhibitor fee and damages for the "significant resources and amounts to prepare for its exhibit presentation at the convention, including travel, accommodation, signage, and booth development, totaling not less than $120,386.72. One week later, on June 8, 2020, another exhibitor, HatchMed Corporation, brought a putative class action in this district court, No. 1:20-CV-3377, asserting that defendant breached its contracts with the putative class members by refusing, based on a force majeure clause in the contracts, to refund the fess paid to defendant. Defendant removed the Novarad state court action to federal court in this district court as related to the HatchMed action. HatchMed then filed an amended complaint adding Novarad as a plaintiff. The parties then reached a settlement of the HatchMed class action which the court finally approved on June 24, 2021. As part of that settlement, the plaintiffs released any and all claims they had against defendant arising from or relating to the 2020 conference, the cancellation of the conference, or any contract or agreement related to the conference.
Plaintiff issued defendant a wrongful act committed, attempted, or allegedly committed or attempted by [defendant] ...." Loss does not include any amount not insurable under the law applicable to the policy.
The D&O coverage also contains two arguably applicable exclusions. The "Professional Services Exclusion" provides that "[n]o coverage will be available under this coverage section for Loss on account of any Claim based upon, arising from, or in consequence of any actual or alleged error, misstatement, misleading statement, act, omission, neglect, or breach of any duty committed, attempted, or allegedly committed or attempted in connection with the rendering of, or actual or alleged failure to render, any Professional Services (as defined in paragraph 2 of this endorsement) for others by any person or entity otherwise entitled to coverage under this Coverage Section...." The second exclusion, the "Contract Exclusion," provides that plaintiff "shall not be liable under [the insuring clause] for Loss, other than Defense Costs, on account of any Claim based upon, arising from, or in consequence of any actual or alleged liability of [defendant] under any written or oral contract or agreement, provided that this Exclusion 6(a) shall not apply to the extent the [defendant] would have been liable in the absence of such contract or agreement."
Defendant notified plaintiff of the underlying actions and sought coverage and defense. Plaintiff has denied that it owes a duty to defend or indemnify defendant based on the Professional Services Exclusion or the Contract Exclusion, and that any payment by defendant would not constitute a loss under the policy. When the parties could not reach agreement on coverage, plaintiff filed the instant action.
Plaintiff has moved under Fed. R. Civ. P. 12(b)(6) to dismiss the counterclaim for failure to state a claim. To survive such a motion, the counterclaim must contain "enough factual matter (taken as true)" to suggest that a plaintiff is entitled to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The counterclaim must include "enough facts to state a claim to relief that is plausible on its face." Id. at 570, 127 S.Ct. 1955. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id.
"Contracts of insurance are subject to the same rules of construction applicable to other types of contracts." International Minerals & Chemical Corp. v. Liberty Mutual Ins. Co., 168 Ill. App. 3d 361, 370, 119 Ill.Dec. 96, 522 N.E.2d 758 (1st. Dist. 1991).1 When construing an insurance policy, the court's primary function is to ascertain and enforce the intentions of the parties as expressed in the agreement. Mount Vernon Fire Ins. Co. v. Heaven's Little Hands Day Care, 343 Ill. App. 3d 309, 314, 277 Ill.Dec. 366, 795 N.E.2d 1034 (1st. Dist. 2003). To do this, the court construes the policy as a whole, taking into account the type of insurance for which the parties have contracted, the risks undertaken and purchased, the subject matter that is insured, and the purpose of the entire contract. Crum and Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391, 189 Ill.Dec. 756, 620 N.E.2d 1073 (1993). "If the terms of the policy are clear and unambiguous, they must be given their plain and ordinary meaning." American States Ins. Co. v. Koloms, 177 Ill. 2d 473, 478, 227 Ill.Dec. 149, 687 N.E.2d 72 (1997).
An insurer's duty to defend its insured is much broader than its duty to indemnify. Outboard Marine Corp. v. Liberty Mutual Ins. Co., 154 Ill. 2d 90, 125, 180 Ill.Dec. 691, 607 N.E.2d 1204 (1992). To determine whether an insurer has a duty to defend its insured, "the court must look to the allegations in the underlying complaint and compare these allegations to the relevant coverage provisions of the insurance policy." Crum and Forster Managers Corp., 156 Ill. 2d at 394, 189 Ill.Dec. 756, 620 N.E.2d 1073. "This duty to defend extends to cases where the underlying complaints allege several causes of action, one of which is within the coverage of the policy, even if the others are not." Rosalind Franklin University of Medicine & Science v. Lexington Ins. Co., 2014 IL App (1st) 113755, ¶ 80, 380 Ill.Dec. 89, 8 N.E.3d 20 (1st Dist. 2014).
If the facts alleged in the underlying complaint potentially bring the suit within policy coverage, an insurer may still be relieved of its duty to defend if it demonstrates, as a matter of law, that an exclusion applies to the face of the complaint. Novak v. Insurance Administration Unlimited, Inc., 91 Ill. App. 3d 148, 151-52, 46 Ill.Dec. 536, 414 N.E.2d...
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