Landmark Am. Ins. Co. v. Deerfield Constr., Inc.

• Decision Date: 12 August 2019
• Docket Number: No. 18-2205,18-2205
• Citation: 933 F.3d 806
• Parties: LANDMARK AMERICAN INSURANCE COMPANY, Plaintiff-Appellee, v. DEERFIELD CONSTRUCTION, INC., and Shawn Graff, Defendants/Third Party Plaintiffs-Appellants, v. Arthur J. Gallagher Risk Management Services, Inc., Third Party Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

933 F.3d 806

LANDMARK AMERICAN INSURANCE COMPANY, Plaintiff-Appellee,

v.DEERFIELD CONSTRUCTION, INC., and Shawn Graff, Defendants/Third Party Plaintiffs-Appellants,

v.Arthur J. Gallagher Risk Management Services, Inc., Third Party Defendant-Appellee.

No. 18-2205

United States Court of Appeals, Seventh Circuit.

Argued May 28, 2019

Decided August 12, 2019

Jeremy S. Macklin, Attorney, Mark F. Wolfe, Attorney, Traub Lieberman Straus & Shrewsberry, Chicago, IL, for Plaintiff-Appellee.

Patrick Reed Boland, Attorney, Jennifer Linda Friedland, Attorney, Momkus LLC, Lisle, IL, for Defendants-Appellants Deerfield Construction, Inc., Shawn Graff.

Joyce F. Noyes, Attorney, Scott Taylor Stirling, Attorney, Walker Wilcox Matousek LLP, Chicago, IL, for Defendant-Appellee Arthur J. Gallagher Risk Management Services, Inc.

Before Wood, Chief Judge, and Bauer and Easterbrook, Circuit Judges.

Wood, Chief Judge.

The question in this case is a simple one: who must cover certain costs arising from an automobile accident involving an employee of Deerfield Construction, Inc.: Deerfield, or its excess insurer, Landmark American Insurance Company? Deerfield’s primary insurer was on the hook for the first $1 million, and in principle, Landmark would cover any costs above that, up to $10 million. But Landmark’s policy unsurprisingly made coverage contingent on proper notice of the accident. Deerfield did not tell Landmark anything about either the accident or the resulting lawsuit until seven years later, on the eve of trial. When the jury returned a $2 million verdict in favor of the accident victim, Landmark refused to cover the excess amount because it received such late notice. Deerfield now asserts that its notice, despite the timing, satisfied the policy. The district court found that the undisputed facts entitled Landmark to summary judgment; it dismissed all other parties. We affirm.

I

In reviewing a grant of either summary judgment or a motion to dismiss, we view the facts in the light most favorable to the nonmovant. We accept well pleaded factual allegations as true in the case of a motion to dismiss, and for summary judgment, we resolve factual disputes and draw reasonable inferences in the nonmovant’s favor. See United States ex rel. Berkowitz v. Automation Aids, Inc. , 896 F.3d 834, 839 (7th Cir. 2018) (stating the standard for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) ); Palmer v. Franz , 928 F.3d 560, 563 (7th Cir. 2019) (stating the standard for resolving a motion for summary judgment). The following account of the events in this case should be understood with that perspective in mind.

Deerfield Construction is a company specializing in construction projects for the telecommunications industry. Shawn Graff is one of its employees. On January 16, 2008, Graff got into an automobile accident with Ryan Keeping. That accident has to date spawned 11 years of litigation.

Deerfield had a primary commercial automobile insurance policy through American States Insurance Company; that policy covered it for up to $1 million in liability. It procured the American States policy through its broker, Arthur J. Gallagher Risk Management Services, Inc. ("Gallagher"). Gallagher also helped Deerfield obtain an excess insurance policy from Landmark. That policy would kick in only after Deerfield’s liability exceeded $1 million; it covered loss up to $10 million.

After Graff’s accident, Deerfield promptly informed American States and Gallagher of the occurrence. It did so through the offices of an intermediary company, Laurus Strategies. This was not its only business contact with Laurus. Laurus often answered insurance-related questions that arose for Deerfield. No one, however, said anything about the Graff accident to Landmark—not Deerfield, not American States, not Gallagher, and not Laurus—and the silence continued even after Keeping filed a lawsuit against Graff and Deerfield.

The Keeping lawsuit proceeded apace. Pursuant to the American States primary policy, American States assumed the defense of the suit and hired David Olmstead, who worked for the Law Offices of Meachum, Starck, Boyle & Trafman ("the Law Offices"), to represent Deerfield’s interests. Even then, neither American States nor Olmstead informed Landmark about the ongoing litigation.

Perhaps showing a gambler’s spirit, American States relied entirely on its own evaluation of Keeping’s lawsuit, which it thought lacked any merit. Throughout five years of pre-trial proceedings, it never offered the full $1 million value of the policy to settle the suit. Indeed, it was not until the trial was almost over and jury deliberations began that it even came close. But American States and Olmstead were aware that Keeping valued his lawsuit much more highly than they did. In April 2013, more than a year before trial, Keeping made a $1.25 million demand to settle the lawsuit. This demand was high enough to trigger Deerfield’s excess insurance coverage, but still no one notified Landmark about the pending case. Instead, American States counteroffered with $75,000.

On December 5, 2014, about six weeks before trial, Landmark finally found out about Keeping’s lawsuit—not from American States or Deerfield, but from Gallagher. Landmark was nonplussed. It issued a reservation of rights letter to Gallagher, but it did not send this letter to American States, Deerfield, or Laurus. Its claims adjuster evaluated the case as having a settlement value between $500,000 and $750,000. Because this was lower than the American States primary policy’s limits, Landmark reserved only $1.00 for its potential liability in its internal case tracking system; this was the minimum amount necessary to keep a case marked as open.

By the time trial commenced, Landmark was receiving regular updates on the case. But it was largely a passive bystander: at no point did Landmark attempt to alter American States’s trial strategy, nor did it provide much substantive input. As the trial neared its end, the two sides came back to the table for further settlement negotiations. Before Keeping’s closing argument, the parties drew up a rough outline of a high-low settlement, which called for Keeping to receive at least $100,000 and at most $1 million, depending on the jury’s verdict. But the parties ultimately backed away from a settlement because they could not agree on the "low" end: Keeping wanted a $175,000 guarantee, and American States was not ready to go above $100,000. American States apparently intended to counteroffer with a $150,000 low, but it ran out of time: the jury returned with a verdict. Before the verdict was formally announced, American States assumed that the jury had sided with the defense and there was thus no reason to resume settlement negotiations. Deerfield did not even know that the high-low negotiations were occurring, although Olmstead was involved. Landmark did know. While the jury was deliberating, American States’s attorney asked Landmark whether it would be willing to contribute to the settlement. It declined to do so. Landmark offered only the advice that American States should settle the case for somewhere within the primary policy limit of $1 million.

On January 16, 2015, the jury announced that it had reached a verdict of $2.368 million in Keeping’s favor. This was ultimately remitted to approximately $2.3 million. On January 29, 2015, Landmark notified Deerfield and Graff that it was reserving its rights to deny coverage because of late notice.

Landmark followed up with this lawsuit, in which it sought a declaratory judgment that it did not have to cover Deerfield and Graff’s loss because notice to it about the accident and lawsuit was untimely. Deerfield and Graff responded with a third-party complaint against American States, Olmstead and the Law Offices, and Gallagher. Relatively early in the case, the district court granted Gallagher’s motion to dismiss for failure to state a claim, because it found that Illinois law imposed no duty on an insurance broker to provide notice of an insured’s claims. The case then proceeded through discovery without Gallagher. Eighteen months after Gallagher was dismissed, Deerfield sought to amend its complaint to assert new claims against Gallagher, as well as to name several related defendants in American States’s corporate family. The district court denied that request as untimely. After the close of discovery, the district court granted summary judgment for Landmark, holding that Deerfield’s notice was unreasonably late as a matter of law. With that portion of the suit finished, the district court declined to continue to exercise supplemental jurisdiction over the remainder of Deerfield’s third-party complaint, as the parties were not completely diverse and there was little to no risk of prejudice to the parties from having to litigate the claims in state court.

Deerfield appealed all of these rulings. American States, Olmstead, and the Law Offices cross-appealed, but the cross-appeal was voluntarily dismissed before oral argument. See FED. R. APP. P. 42(b).

II

A

Under Illinois law, which all parties agree applies to this case, whether an insured’s notice to its insurer was timely is determined by the totality of the circumstances. See Country Mut. Ins. Co. v. Livorsi Marine, Inc. , 222 Ill. 2d 303, 312, 305 Ill.Dec. 533, 856 N.E.2d 338 (2006). The Supreme Court of Illinois has identified five non-dispositive factors to aid in this inquiry: "(1) the specific language of the policy’s notice provision; (2) the insured’s sophistication in commerce and insurance matters; (3) the insured’s awareness of an event that may trigger insurance coverage; (4) the insured’s diligence in ascertaining whether policy coverage is available; and (5) prejudice to the insurer." W. Am. Ins. Co. v. Yorkville Nat. Bank , 238 Ill. 2d 177, 185–86, 345 Ill.Dec. 445, 939 N.E.2d 288 (2010).

Few, if any, of these factors favor Deerfield. The language of Landmark’s policy...