Kmart Corp. v. Footstar, Inc.
| Decision Date | 30 March 2012 |
| Docket Number | No. 09 CV 3607,09 CV 3607 |
| Parties | KMART CORPORATION, a Michigan corporation, Plaintiff, v. FOOTSTAR, INC., a Delaware corporation, LIBERTY MUTUAL FIRE INSURANCE COMPANY, a Wisconsin corporation, Defendants. |
| Court | U.S. District Court — Northern District of Illinois |
MEMORANDUM OPINION AND ORDER1
In this breach of contract, insurance coverage, and declaratory judgment action, plaintiff, Kmart Corporation ("Kmart"), seeks reimbursement of $141,755.92 in defense costs plus indemnification for $300,000.00 and a $10,000.00 Kmart gift card paid by Kmart to settle an underlying lawsuit, Judy Patrick and Michael Patrick v. Kmart Corporation (the "Patrick Lawsuit"). That suit involved a Kmart shopper who, while being assisted by an employee of defendant Footstar, Inc. ("Footstar"), was struck by a stroller that fell off a shelf.2 On August 3, 2011, Kmart, as well as defendants Footstar and its insurer, Liberty Mutual Fire Insurance Company ("Liberty"), filed cross-motions for summary judgment.3 For the reasons set forth below, Kmart's motion is granted in part, and denied in part [dkt. 208], Footstar's motion is denied [dkt. 211] and Liberty's motionis denied [dkt. 205].
Kmart is a Michigan corporation based in Hoffman Estates, Illinois, whose stores sell and distribute various retail and consumer goods.4 Footstar was a company incorporated in Delaware that engaged in the business of operating footwear departments in certain Kmart stores.5 Liberty is a Wisconsin company based in Boston, Massachusetts, that underwrites commercial general liability insurance for businesses such as Footstar.6 The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332 because the amount in controversy exceeds $75,000.00, and the parties are citizens of different states. Venue is proper under 28 U.S.C. § 1391(a) and pursuant to Section 21.7 of the Amended and Restated Master Agreement between Kmart and Footstar, which provides that the parties shall submit to the jurisdiction of "the United States District Court at Chicago, Illinois" with respect to "any right or remedy in connection with [the agreement]."7
On July 27, 2005, Judy Patrick and her daughter, Tina Patrick, visited Kmart store # 4296 in Hollywood, Florida. The Patricks were shopping in the infant department when they requested that an employee assist them with viewing a combination stroller, which had been chained to other strollers atop a four foot tall display. While Mrs. Patrick was receiving assistance, she was struck and injured by a falling infant carrier that dislodged from one of the combination strollers. Mrs. Patrick suffered a broken nose and required two surgeries on her neck vertebrae, including a disk fusion and the insertion of a metal plate.9 She and her husband sued Kmart for negligence and loss of consortium on May 7, 2006, believing that only Kmart employees had been involved in her accident. On October 28, 2008, Kmart settled the case by paying the Patricks $300,000.00, plus a $10,000.00 Kmart gift card.10 Kmart now seeks reimbursement for that sum, plus legal expenses, from Footstar and Footstar's insurer, Liberty, because a Footstar employee had been assisting Mrs. Patrick at the time of her injury.
On July 1, 1995, Kmart and Melville Shoe Corporation ("Melville") entered into a master agreement regarding the operation of footwear departments in certain Kmart stores by certain subsidiaries of Melville.11 By this time, Kmart and Melville had already executed three prior agreements, which would have been available for review during negotiations.12 On March 25, 1996, Melville assigned its rights and obligations under the Master Agreement to Footstar.13
On August 24, 2005, Kmart and Footstar entered into the Amended and Restated Master Agreement (the "Master Agreement"), which remained in effect until December 31, 2008.14 Pursuant to the Master Agreement, Footstar operated footwear departments in approximately 2,500 Kmart stores, including store #4296 located in Hollywood, Florida.15 It is undisputed that the majority of Footstar's revenue came from its contract with Kmart.16
The Master Agreement required Footstar to, among other things: (1) obtain a liability insurance policy for personal injury "arising out of or relating to the goods and services provided by [the Master Agreement]," (2) name Kmart as an additional insured, and (3) provide a copy of that insurance policy upon Kmart's request.17
Liberty issued a commercial general liability insurance policy (the "Policy")18 to Footstar,19 which listed Kmart as an additional insured under a Blanket Additional Insured Amendment.20 Before Liberty issued the Policy, Footstar provided a copy of the Master Agreement to Liberty for underwriting purposes.21 In 2000, Liberty also issued an Alternate Employer Endorsement that insured Kmart when Footstar employees were injured in the course of "special and temporary employment" by Kmart.22
Footstar was permitted to notify Liberty of incidents under the Policy through Liberty's claims reporting telephone line.23 Liberty's claims handlers would complete a standard form based on the information received from Footstar's telephone call.24 Once Liberty determined that Footstar was covered, Liberty investigated the claim or lawsuit, assigned counsel, and participated in the claim's resolution.25 Liberty admits that it determined whether additional insured coverage was triggered by the Policy,26 and Footstar admits that, in this case, it delegated to Liberty the responsibility for determining whether Footstar was required to defend and indemnify Kmart in the Patrick Lawsuit.27
On July 27, 2005, Judy Patrick was injured while shopping in Kmart Store #4296.28 An incident report completed by Kmart on that date identifies the location of the incident as "infant dept. / strollers" and states under the heading "Customer's Description of Incident" that "[Judy Patrick] was trying to turn a stroller around and a car seat fell and hit her on the head."29 The report contains the names, "clock" numbers, and signed statements of Kmart employee, Maribel Hohney, and Alex Sehat.30 These statements indicate that, while Mr. Sehat was attempting to "bring down a stroller" for Mrs. Patrick at her request, she was injured while trying to take down another stroller by herself.31 Though Mr. Sehat was a Footstar employee at the time, the report did not expressly identify him as such.32
On July 27, 2005, the incident was reported to Kmart's third party claims administrator, Sedgwick Claims Management Systems ("Sedgwick").33 A claim intake form was prepared, which stated that "[t]he carrier which is attached to the stroller, fell off, and struck the claimant on the forehead."34 In August of 2005, Dee Shelton of Sedgwick began investigating the Patrick incident and recorded her findings in a computer system called Juris.35 On November 4, 2005, Ms. Shelton documented in Juris that Mr. Sehat was from the "shoe department."36 On January 26, 2006, Mrs. Patrick, through her attorney, made a pre-suit settlement demand on Kmart for $210,000.00.37 In response, Kmart offered $2,000 to settle the claim, which Mrs. Patrick rejected.38 Juris notes from that date reflect Kmart's belief that Mrs. Patrick's medical bills totaled approximately $5,600, and that she had discontinued her treatment around that time.39 Mrs. Patrick's demand was not communicated to Footstar.40
On May 17, 2006, Judy and Michael Patrick filed a two-count complaint against Kmart and Sears in Broward County, Florida, alleging negligence and loss of consortium in connection with the July 27, 2005 incident.41 The complaint did not name Footstar because the Patricks were unaware that a Footstar employee had been involved.42 In fact, the complaint identified no specific employee, and merely alleged that "[d]efendants, through its [sic] agents, employees, staff and/or representatives who were acting in the course and scope of their employment" were negligent "in one or more of the following ways," including failing to properly secure merchandise on shelves, limit the height of merchandise on shelves, adequately warn of risks, and train employees.43
Kmart states that, at this point, it was also unaware that a Footsar employee had been involved in the incident.44 Footstar disputes this on the basis that Mr. Sehat's name, clock number,and a phone number attributed to Mr. Sehat would have appeared on the July 27, 2005 incident report.45 On June 30, 2006, the Patricks filed an amended complaint which dropped Sears, but was identical in all other material respects.46
On August 14, 2006, Kmart's defense counsel noted an interview with Mr. Sehat, during which Mr. Sehat stated that he was a Footstar employee.47 The interview was documented in the TLEX system, which Kmart used to communicate with Sedgewick's claims handlers and outside counsel.48 Footstar states, and Kmart does not dispute, that "Kmart had all the information it needed to tender the Patrick Lawsuit to Footstar in August of 2006."49
Kmart states that, in May 2007, Marcia Kaiser, Managing Litigation Counsel for Sears Holdings Management Corporation, sent a letter to Maureen Richards, General Counsel for Footstar, requesting defense and indemnification for the Patrick Lawsuit, as well as a copy of the Policy.50 The letter, dated May 23, 2007, states that it was sent via certified mail.51 However, no Footstar employee has confirmed receipt of the letter.52 And, for reasons unknown, Kmart has produced no return receipt for the letter in discovery.53 Further, the letter's author, Marcia Kaiser, does not recallhaving received a...
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