Hartford Fire Ins. Co. v. Inetworks Servs., LLC
| Decision Date | 27 March 2020 |
| Docket Number | Case No. 18-cv-07693 |
| Parties | HARTFORD FIRE INSURANCE COMPANY and HARTFORD CASUALTY INSURANCE COMPANY, Plaintiffs, v. INETWORKS SERVICES, LLC, INETWORKS GROUP, INC., DAVID SAMAT, and THE SAN JOSE GROUP CO., Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION & ORDER
This lawsuit arises from an insurance coverage dispute between Plaintiffs Hartford Fire Insurance Company ("Hartford Fire") and Hartford Casualty Insurance Company ("Hartford Casualty") (collectively, "Hartford") on the one side, and Defendants iNetworks Services, LLC, iNetworks Group Inc., (collectively, "iNetwork"), David Smat, and the San Jose Group Company ("San Jose") (collectively, "Defendants") on the other. Before the Court is Hartford's motion for summary judgment. For the reasons stated below, Hartford's unopposed motion for summary judgment is granted as to Count I and Counts IX-XIV. Hartford's motion for summary judgment is granted as to Counts III and V-VII. Counts II, IV, and VIII are dismissed as moot.
Hartford filed a Complaint in this Court seeking a declaratory judgment that it had no duty to defend or indemnify the iNetwork Defendants and David Smat. The Complaint listed fourteen counts. (Dkt. 1). The iNetwork Defendants and David Smat have not responded to the lawsuit despite being served. On February 15, 2019, the Court granted default judgment against the iNetwork Defendants and David Smat. (Dkt. 16). San Jose responded to the Complaint (Dkt. 7). Hartford moved for "default and summary judgment" on Counts I, III, V-VII, IX-XIV. (Dkt. 19). Only San Jose responded to the motion, stating that it does not oppose Hartford's motion for Counts I and IX-XIV. (Dkt. 24, 1-2; Dkt. 37 ¶ 4). After reviewing the relevant policy provisions, the Court grants Hartford's unopposed motion for summary judgment on Counts I and IX-XIV. The Court addresses the parties' arguments regarding Counts III and V-VII below. The remaining Counts II, IV, and VIII are dismissed as moot.
In August 2015, Hartford Casualty issued iNetworks Group a General Liability Policy ("General Policy") and an Umbrella Liability Policy ("Umbrella Policy") for the period of November 6, 2015 to November 6, 2016. (Dkt. 21 ¶¶ 26, 28). Several months later, Hartford Fire issued to iNetwork Services a Technology Liability Policy ("Technology Policy") for the period of January 27, 2016 to January 27, 2017.
iNetworks provides data storage to its clients. (Dkt. 21 ¶ 9). In September 2014, San Jose contracted with iNetworks to store all of San Jose's data on iNetworks' servers. (Id. at ¶¶ 16-17). On April 1, 2016, the iNetworks server containing San Jose's data was infected by a virus that destroyed all of San Jose's data (the "Server Compromise"). (Id. at ¶ 11). iNetworks and Smat were aware of the Server Compromise in April 2016. (Id. at ¶ 12). Between April 2016 and August 2016, San Jose and iNetworks exchanged emails about the Server Compromise, its causes, the impact it had on San Jose's business, and potential settlement offers. (Id. at ¶ 13; Dkt. 25 ¶ 4).
On January 31, 2018, San Jose filed a lawsuit against iNetworks in the Circuit Court of Cook County alleging one count of negligence. (Dkt. 25 ¶ 7). iNetworks did not inform Hartford Fire of the Server Compromise or the lawsuit until six months later, on July 15, 2018. (Dkt. 21 ¶ 31). At that time, iNetworks asked Hartford Fire for coverage under the Technology Policy.1 (Id.). San Jose filed a Second Amended Complaint on December 6, 2018, adding iNetwork Services as a defendant. (Dkt. 25 ¶ 8). The Circuit Court of Cook County entered a default judgment against the iNetwork defendants for $10,518,379 on May 21, 2019. (Id. at ¶ 9). On June 14, 2019, Hartford filed a motion to intervene and vacate, which the Circuit Court of Cook County granted. (Id. at ¶¶ 10, 12). San Jose's lawsuit was dismissed on January 10, 2020 and is currently pending before an Illinois appellate court. (Dkt. 37 ¶¶ 1-2).
Hartford now seeks a declaratory judgment that it has no duty to defend or indemnify iNetworks.
Although Hartford issued three separate insurance policies to iNetwork, only the Technology Policy is relevant to this motion.2 The Technology Policy includes a reporting requirement, which states in relevant part:
(Dkt. 1, Ex. 1, 16). This reporting requirement is described again in the "When We Insure" section, which states that coverage is provided for a claim if "the claim because of the glitch is first made against any of you during the policy period and reported to us in writing by you using your best efforts to notify us as soon as practicable after any specified insured becomes aware of it." (Id. at 18).
In addition to a reporting requirement, the Technology Policy also has a notice condition, which states: "The named insured must notify us in writing as soon as practicable of a glitch or circumstance that may result in a claim under this policy." (Dkt. 1, Ex. 1, 32). If the insured becomes aware of a glitch during the policy period, it must provide written notice to Harford "within the policy period of: a. the specificglitch, the date of the glitch and the name of the potential claimant; b. the damages which have or may result from the glitch; c. the circumstances by which you first became aware of the glitch." (Id.). This condition also states that "[i]f a claim is made against any of you, as soon as any specified insured knows of such a claim, you must... immediately send us copies of all demands, notices, summonses and legal papers..." (Id. at 33).
Finally, the Technology Policy defines "Glitch" as:
Summary judgment should be granted when "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." Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317,322-23 (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 (1986). The party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Summary judgment is a particularly appropriate mechanism for resolving cases involving the interpretation of written contracts. International Union of United Auto., Aerosapce and Agric. Implement Workers of Am. v. Rockford Powertrain, Inc., 350 F.3d 698, 703 (7th Cir. 2003). "Because contracts are interpreted as a matter of law, claims that turn on the interpretation and construction of a contract, rather than on disputed material facts, are suitable for resolution on a motion for summary judgment." W. Bend Mut. Ins. Co. v. Procaccio Painting & Drywall Co., Inc., 928 F. Supp. 2d. 976, 981 (N.D. Ill. 2013), aff'd on other grounds, 794 F.3d 666 (7th Cir. 2015) (citing Kmart Corp. v. Footstar, Inc., No. 09 CV 3607, 2012 WL 1080262, at *12 (N.D. Ill. Mar. 30, 2012)).
The parties agree Illinois law governs their dispute. See Auto-Owners Ins. Co. v. Websolv Computing, Inc., 580 F.3d 543, 547 (7th Cir. 2009). In Illinois, the construction of an insurance policy is a question of law. County Mut. Ins. Co. v. Livorsi Marine, Inc., 222 Ill. 2d 303, 311, 856 N.E.2d 338, 342 (Ill. 2006). An insurance policy is to be construed as a whole, "giving effect to every provision, if possible, because it must be assumed that every provision was intended to serve a purpose." Valley ForgeIns. Co. v. Swiderski Elecs., Inc., 223 Ill. 2d 352, 362, 860 N.E.2d 307, 314 (Ill. 2006). "If the words used in the policy are clear and unambiguous, they must be given their plain, ordinary, and popular meaning." Cent. Ill. Light Co. v. Home Ins. Co., 213 Ill. 2d 141, 153, 821 N.E.2d 206, 213 (Ill. 2004). "Although insurance policies are construed liberally in favor of coverage, this rule of construction comes into play only when the policy language is ambiguous.". Livorsi Marine, 222 Ill. 2d at 311.
As a preliminary matter, both parties agree that the Server Compromise constitutes a "glitch" under the Technology Policy. (Dkt. 19, 2-3; Dkt. 24, 3). For the sake of this motion, both parties agree that the emails between April 2016 and August 2016 constituted a "claim" by San Jose against iNetwork.3 (Dkt. 19, 4; Dkt. 24, 3). The Parties accordingly agree that both the glitch and the claim occurred during the policy period of the Technology Policy. Finally, the Parties agree that Hartford Fire did not receive notice of the lawsuit or the glitch until July 15, 2018. (Dkt. 19, 5; Dkt. 24, 4).
The Parties diverge on whether the Technology Policy is a...
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