Gen. Ins. Co. of America v. Clark Mali. Corp.

• Decision Date: 13 December 2011
• Docket Number: No. 08 C 2787,08 C 2787
• Parties: GENERAL INSURANCE COMPANY OF AMERICA, Plaintiff, v. CLARK MALI. CORP. d/b/a DISCOUNT MEGA MALL CORP., MARCOS I. TAPIA, JUAN E. BELLO, JOSE L. GARCIA, LETICIA HURTADO, YOUNG S. KO, MARIANO KON, CHOONG I. KUAN, ROSA G. MADRIGAL, HILDA MENDOZA, MAN OK NO, HEE T. PARK, SUNG W. PARK, MARIA L. ROMAN, VICTOR H. VISOSO. KYUN HEE PARK, and JENNIFER PARK, Defendants.
• Court: U.S. District Court — Northern District of Illinois

GENERAL INSURANCE COMPANY OF AMERICA, Plaintiff,

v.CLARK MALI. CORP. d/b/a DISCOUNT MEGA MALL CORP., MARCOS I. TAPIA, JUAN E. BELLO, JOSE L. GARCIA,LETICIA HURTADO, YOUNG S. KO, MARIANO KON, CHOONG I. KUAN, ROSA G. MADRIGAL, HILDA MENDOZA,

MAN OK NO, HEE T. PARK, SUNG W. PARK, MARIA L. ROMAN,

VICTOR H. VISOSO. KYUN HEE PARK, and JENNIFER PARK, Defendants.

No. 08 C 2787

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

Dated: December 13, 2011

Magistrate Judge Jeffrey Cole

MEMORANDUM OPINION AND ORDER ON MOTION FOR RECONSIDERATION

INTRODUCTION

General Insurance Corporation of America ("GICA") has moved, for a second time, for reconsideration of the April 16, 2009 memorandum opinion granting the defendant insureds' motion for judgment on the pleadings on the issue of GICA's duty to defend the defendants in the underlying state court action.¹ Contrary to all of the decided cases, GICA had argued that its obligation to defend the insureds in the underlying state court case was not to be determined byresort to the complaint in the underlying case, but by resort to its declaratory judgment complaint in the instant case, the allegations of which had to be taken as true. The argument was based on a series of cases from the Illinois appellate Court then held that an insurer could offer "extrinsic evidence" in order to negate a claimed obligation to defend. Although it was not quite argued this way, inherent in the argument was the contention that the allegations in the declaratory judgment complaint somehow satisfied the Illinois state cases that had allowed extrinsic evidence to be used to negate a duty to defend. It was never explained how acceptance of the allegations as true was the same as extrinsic evidence within the meaning of the Illinois Appellate Court cases. Nor was it ever explained how those cases had anything to do with the operation of Rule 12(c) in the federal court.

The April 2009 memorandum opinion concluded that the pleadings in the underlying case did not show that it was clear and free from doubt that Exclusion 2(j) of the insurance policy the defendants have with GICA precluded coverage and that the allegations in the complaint in this court effectively did not count. General Insurance Co. of America v. Clark Mall, 631 F.Supp.2d 968 (N.D.Ill. 2011). GICA filed an interlocutory appeal pursuant to Rule 54 (b). The Seventh Circuit dismissed the appeal for lack of jurisdiction. General Insurance Co. of America v. Clark Mall, 644 F.3d 375 (7th Cir. 2011).

Relying on a snippet of the Seventh Circuit's opinion, removed from the informing context of the balance of the opinion, GICA now argues that the Seventh Circuit held that the allegations in its declaratory judgment complaint must be taken as true and effectively trump the allegations in the underlying complaint in the state court. So, along with a reversal of the April 2009 order, GICA asks - also for a second time - for leave to file an amended declaratory judgment complaint, the allegations of which purportedly negate an obligation to defend under the care, custody or controlexclusion of the GICA insurance policy. As we shall see, the argument for reconsideration is not supported by the Seventh Circuit's opinion in Clark Mall, is violative of the basic rules governing motions for reconsideration, and ultimately rests on a non sequitur.

ANALYSIS

A.

The Seventh Circuit read the memorandum opinion as "oddly requir[ing]" GICA to come forward with evidence at the pleading stage in response to the insureds' motion for judgment on the pleadings under Fed.R.Civ.P. 12(c). It was apparently the court's view that the memorandum opinion's "requirement" that GICA produce evidence was based on a series of Illinois Appellate Court cases that allowed (but did not require) an insurance carrier, in response to a motion for judgment on the pleadings, to offer extrinsic "evidence" showing that it had no obligation to defend. But, Illinois insurance law, the court held, could not trump the operation of the Federal Rules of Civil Procedure. Here are the relevant portions of the Seventh Circuit's decision:

On the merits this appeal presents the following question of Illinois insurance law: Is an insurer's duty to defend determined solely by reference to the allegations in the underlying complaint, or may the insurer present evidence to establish that the loss alleged in the complaint is not covered under its policy? Decisions from the Illinois Appellate Court hold that although the duty to defend is ordinarily determined by examining the allegations of the underlying complaint, when an insurer seeks a declaratory judgment on the issue of coverage, it may present evidence to demonstrate that its policy does not cover the loss in question. See, e.g., Am. Econ. Insurance Co. v. Holabird & Root, 382 Ill.App.3d 1017, 320 Ill.Dec. 97, 886 N.E.2d 1166, 1175-78 (Ill.App.Ct.2008); Fid. & Cas. Co. v. Envirodyne Eng'rs, Inc., 122 Ill.App.3d 301, 77 Ill.Dec. 848, 461 N.E.2d 471, 473-74 (Ill.App.Ct.1983). In its recent decision in Pekin Insurance Co. v. Wilson, 237 Ill.2d 446, 341 Ill.Dec. 497, 930 N.E.2d 1011, 1019-21 (Ill.2010), the Illinois Supreme Court cited this line of cases with approval.

The magistrate judge noted these cases but oddly required General Insurance to present evidence on the duty-to-defend question at the pleadings stage in response to the defendants' Rule 12(c) motion for judgment on the pleadings. It is notsurprising, then, that General Insurance asked the court to enter its order as a final judgment to set up an immediate appeal. Under Rule 12(d) of the Federal Rules of Civil Procedure, a motion for judgment on the pleadings must be treated as a motion for summary judgment if matters outside the pleadings are submitted. Fed.R.Civ.P. 12(d) ("If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56."). But this does not mean that a party opposing a Rule 12(c) motion for judgment on the pleadings must submit evidence in order to avoid entry of judgment against it. And that is precisely what the court required General Insurance to do.

It is true that duty-to-defend questions in insurance-coverage disputes can sometimes be resolved at the pleadings stage on a Rule 12(c) motion for judgment on the pleadings. See, e.g., Nautilus Insurance. Co. v. 1452-4N.Milwaukee Ave., LLC, 562 F.3d 818, 822-24 (7th Cir.2009). But not always. Illinois insurance law does not alter the normal operation of the Federal Rules of Civil Procedure, although the magistrate judge seemed to think that it does.

644 F.3d at 378 (emphasis in original).

That it appeared to the Court of Appeals that the memorandum opinion ignored Rule 12(c) (and the cases construing it, which were cited in the opinion, 631 F.Supp.2d at 972), and "require[d]" that GICA produce evidence in opposition to the insureds' motion may have been the result of GICA's brief, which unfortunately ignored all but the last two pages of the memorandum opinion, citing only to pages 16 and 17 of the 17-page opinion. (Brief of Plaintiff-Appellant, at 15, 23)). This sort of presentation can have pernicious results, as Judge Easterbrook has noted. Cf., Durgins v. City of East St. Louis, Illinois, 272 F.3d 841, 844-45 (7th Cir. 2001)(parties' briefs misled the Court of Appeals into finding it had no jurisdiction). Perhaps it was inexactness in the phrasing of the memorandum opinion or in its organizational structure. Cf., Rodriguez v. Chandler, 492 F.3d 863 (7th Cir. 2007)("Our original opinions' failure to keep these subjects distinct may have influenced the parties' briefing choices on appeal."); Pruitt v. Mote, 503 F.3d 647, 654 (7th Cir. 2007)(en banc)("Nor have we always been consistent in articulating and applying the inquiries eachquestion represents.").

In any event, it cannot be too strongly stressed that nothing in the memorandum opinion granting the defendants' Rule 12(c) motion or in this opinion was or is intended to require GICA to submit "evidence" in order to defeat a Rule 12(c) motion or to subordinate the operation of Rule 12(c) to Illinois insurance law. We turn to GICA's arguments, mindful of and guided by the opinion of the Court of Appeals.

B.

In response to the insureds' Rule 12(c) motion, GICA did not argue that the allegations of the underlying complaint demonstrated it had no duty to defend. Instead, it relied on the allegations in its declaratory judgment complaint to support its position. (Dkt. # 18, at 4-6).² GICA argued that those allegations had to be taken as true and were enough to defeat the Rule 12(c) motion. The memorandum opinion concluded that, given the allegations in the underlying complaint in the state court and the fact that GICA paid them no mind in its brief, GICA had failed to demonstrate that it was clear and free from doubt that exclusion 2(j) of the insurance policy precluded coverage. 631 F.Supp.2d at 972-977.

There was no mention of evidence in the discussion, nor any demand for its production, contrary to GICA's position here and in the Court of Appeals (Brief of Plaintiff-Appellant, at 15-16, 19-22), until well into the memorandum opinion. And that reference was solely in response to GICA's brief, and not because of uncertainty about Rule 12(c). See 631 F.Supp.2d at 977.

In its brief in response to the insureds' Rule 12(c) motion in this court, GICA argued, much as it continues to do in the current motion, that "where the insurer files a declaratory judgment action seeking to determine its duty to defend, it may rely on facts extrinsic to the underlying complaint as the basis for denying coverage." (Dkt. # 18, at 5). GICA cited the following portion from Fidelity & Cas. Co. of New York v. Envirodyne Engineers, Inc., 122 Ill.App.3d 301, 305, 461 N.E.2d 471, 474 (1st Dist.1983) to support its proposition:

the duty to defend

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