Nat'l Cas. Co. v. Mcfatridge

• Decision Date: 28 April 2010
• Docket Number: No. 09-1497.,09-1497.
• Citation: 604 F.3d 335
• Parties: NATIONAL CASUALTY COMPANY, et al., Plaintiffs-Appellees,v.Michael M. McFATRIDGE, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

604 F.3d 335

NATIONAL CASUALTY COMPANY, et al., Plaintiffs-Appellees,v.Michael M. McFATRIDGE, et al., Defendants-Appellants.

No. 09-1497.

United States Court of Appeals Seventh Circuit.

Argued Sept. 22, 2009.

Decided April 28, 2010.

COPYRIGHT MATERIAL OMITTED

James L. Craney (argued), Brown & James, St. Louis, MO, for Plaintiffs-Appellees.

Michael E. Raub (argued), Heyl, Royster, Voelker & Allen, Urbana, IL, for Defendants-Appellants.

Before EASTERBROOK, Chief Judge, and BAUER and ROVNER, Circuit Judges.

BAUER, Circuit Judge.

Plaintiffs National Casualty Company and Scottsdale Indemnity Company provided commercial general liability (“CGL”) and law enforcement insurance to Edgar County, Illinois, via a series of policies. In 2005, Gordon “Randy” Steidl sued Edgar County and its former state's attorney, Michael McFatridge for damages stemming from Steidl's 1986 conviction for murder, which a federal court overturned in 2003. The district court held that National Casualty Company and Scottsdale Indemnity Company have no obligation to defend or indemnify McFatridge or the county under four insurance policies issued in 1989, 1997, 1998 and 1999. The county and McFatridge appeal and we affirm.

I. BACKGROUND

In 1987, Steidl was convicted in Edgar County of murder. Eventually, Steidl's appeals entered the federal system under 28 U.S.C. § 2254. In June 2003, the district court granted a writ of habeas corpus based on ineffectual counsel at the trial and sentencing in the state court.

Steidl sued, under 42 U.S.C. § 1983 and Illinois law, a number of officials involved in the prosecution, including Illinois State Police and Paris police officers who had investigated the murders, and former Edgar County State's Attorney Michael McFatridge, who was involved in the investigation and prosecution. Steidl also named the County of Edgar as a defendant and necessary party.

According to the complaint, McFatridge, in cooperation with Paris police, framed and falsely prosecuted Steidl. The complaint says that McFatridge coerced and threatened two key witnesses, induced them to testify falsely, and concealed numerous pieces of exculpatory evidence during the trial. Steidl also claims that throughout the post-conviction proceedings, even after McFatridge left office in 1991, he continued to coerce witnesses, lied about the evidence, and engaged in a publicity campaign defending the trial and Steidl's conviction.

Steidl's suit seeks damages for false arrest, false imprisonment, malicious prosecution, conspiracy and intentional infliction of emotional distress. The county tendered the suit to National and Scottsdale, believing itself entitled to a legal defense and indemnification under each of four insurance policies the companies issued. The insurers responded by filing a declaratory judgment action, asking the court to determine that they had no duty to defend or indemnify the county under any of the policies.

There are four separate insurance policies at issue, each in effect at a different time: A law enforcement liability policy issued by Scottsdale Insurance Company was in effect from May 25, 1989, until May 25, 1990. It named “County of Edgar S.D.” as the insured. In addition, three CGL policies-two issued by Scottsdale Indemnity Company, and one issued by National Casualty Company-insured Edgar County from July 1, 1997, until July 1, 2000. Each of the three policies covered a one-year period.

Edgar County argued that the policies are at least ambiguous about whether they provide it or McFatridge coverage for liability to Steidl, and should be read against the drafters, in favor of a duty to defend. The district court granted summary judgment for the insurers.

First, the court found no coverage for McFatridge under the law enforcement policy in effect from May 1989 through May 1990 because the state's attorney was not a “Class C” employee under that policy. In addition, while indicating that McFatridge's conduct during the post-conviction proceedings “suggests the possibility of coverage” under the two CGL policies in effect in 1998 and early 1999, the court pointed out that McFatridge left office in 1991. It held that the CGL policies did not cover acts by former officials or employees committed during the policy periods; therefore, McFatridge was not an insured under any of the three CGL policies.

Edgar County appealed the district court's decision and filed this appeal.

II. DISCUSSION

In determining whether the insurance companies must provide former Edgar County State's Attorney Michael McFatridge with coverage-a legal defense and/or indemnity-for liability arising from Steidl's prosecution and conviction, we look to Illinois law, which the parties agree governs this dispute. Conn. Indem. Co. v. DER Travel Serv., Inc., 328 F.3d 347, 349 (7th Cir.2003). We review the district court's grant of summary judgment de novo. Del Monte Fresh Produce N.A., Inc. v. Transp. Ins. Co., 500 F.3d 640, 643 (7th Cir.2007).

A. Duty to Defend

An insurer's duty to defend its insured is broader than its duty to indemnify. If an insurer has no duty to defend, it has no duty to indemnify. We determine whether an insurer has a duty to defend by examining the underlying complaint and the language of the insurance policy. Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 215 Ill.2d 146, 293 Ill.Dec. 594, 828 N.E.2d 1092, 1098 (2005). Any doubts as to whether particular claims fall within the policy are resolved in favor of coverage. Del Monte Fresh Produce, 500 F.3d at 643. So if the “complaint asserts facts within or potentially within policy coverage, an insurer is obligated to defend its insured.” Gen. Agents, 293 Ill.Dec. 594, 828 N.E.2d at 1098. On the other hand, an insurer may refuse to defend an action in which, from the face of the complaint, the allegations are clearly outside the bounds of the policy coverage. U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 161 Ill.Dec. 280, 578 N.E.2d 926, 930 (1991).

Each of the four policies in question provided “occurrence” coverage and name “County of Edgar” or “County of Edgar S.D.” as named insureds. Coverage depends on whether the particular policy contemplated coverage for McFatridge or the state's attorney's office, if it does, we ask whether any of the allegations in Steidl's complaint “occurred” during the coverage periods.

The county argues that as state's attorney, McFatridge was an insured under the law enforcement policy in effect from May 1989 until May 1990. During that policy period, the complaint says that McFatridge made false public statements about Steidl's guilt, coerced witnesses to prevent them from recanting false testimony and provided fabricated evidence to the post- conviction court. According to the county, Scottsdale has a duty to defend because McFatridge was an insured under the law enforcement policy and is potentially liable for conduct within the policy period. And, in addition, even though he left office in 1991, the county contends that CGL policies in effect from mid-1997 until mid-2000 require Scottsdale and National to defend it and McFatridge. It claims that McFatridge is an insured under the third CGL policy because it contains an endorsement that lists “persons who ... were ... your lawfully elected ... officials” as covered under that policy.¹ Alternatively, the county argues that McFatridge participated in a long-running conspiracy to deprive Steidl of a fair trial, that began when he was a public official with Edgar County and continued into the CGL policy periods. Any conduct that occurred after McFatridge left office was therefore part of a single continuing offense committed under McFatridge's authority as state's attorney. This at least raises an ambiguity, according to the county, about whether a former official is an insured under the CGL policies for wrongful acts that continued into the policy period, because the course of conduct began when he was state's attorney.

Finally, the county suggests that, regardless of the state's attorney's status as an insured, the Illinois Local Governmental and Governmental Employees Tort Immunity Act, 745 Ill. Comp. Stat. 10/9-102 (2006), requires it to reimburse the state's attorney for its liability. If it is liable for acts McFatridge took during the policy periods, the county argues that the insurers must provide a defense and indemnity. We address coverage under each argument in turn.

1. The Law Enforcement Policy-Duty to Defend

Because the law enforcement policy was in effect during McFatridge's tenure as state's attorney and provides slightly different coverage, we discuss it separately from the three CGL policies.

Scottsdale issued the law enforcement policy, which was in effect from May 25, 1989, until May 25, 1990. The law enforcement policy required Scottsdale to pay all sums “which the insured shall become legally obligated to pay ... because of wrongful acts ... caused by an occurrence and arising out of the performance of the insured's duties to provide law enforcement.” App. at A-163 (emphasis added). Under that policy, “insured-means the named insured and all full or part-time and all auxiliary or volunteer law enforcement officers of the named insured.” App. at A-164. It defines “occurrence” as “an event, including continuous or repeated exposure to conditions, which results in personal injury ... sustained during the policy period.”

We first address whether the law enforcement policy contemplated coverage for liability for the acts of McFatridge in his role as state's attorney. “County of Edgar S.D.” is the named insured in the policy. The county defendants argue that whether or not County of Edgar S.D. refers to the sheriff's department is ambiguous and so should be read in favor of coverage for the County of Edgar as a whole. However, an endorsement to the policy names “County of Edgar, IL” as an additional insured. The endorsement specifies that County of Edgar is...