Nationwide Mut. Ins. Co. v. Ill. Cheer Extreme Athletics, Inc., 12 C 9448

• Decision Date: 17 March 2014
• Docket Number: 12 C 9448
• Court: U.S. District Court — Northern District of Illinois
• Parties: NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff, v. ILLINOIS CHEER EXTREME ATHLETICS, INC., a corporation, BRADLEY ABRAHAMS, JANE DOE, and JILL DOE, Defendants.

NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff, v. ILLINOIS CHEER EXTREME ATHLETICS, INC.,a corporation, BRADLEY ABRAHAMS, JANE DOE, and JILL DOE, Defendants.

12 C 9448

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

March 17, 2014

Judge Feinerman

MEMORANDUM OPINION AND ORDER

In March 2010, Jane Doe sued Illinois Cheer Extreme Athletics, Inc., and Bradley Abrahams in Illinois state court on behalf of herself and her daughter, Jill Doe; the Does are identified by pseudonyms because their suit alleged that Abrahams sexually abused Jill while she was enrolled in cheerleading classes at Illinois Cheer. Jane Doe, Individually and as Mother and Next Friend of Jill Doe, a minor v. Illinois Cheer Extreme Athletics, Inc., No. 10 L 370 (DuPage Cnty. Cir. Ct.). After Illinois Cheer tendered its defense to Nationwide Mutual Insurance Company, Nationwide filed this suit in federal court against Illinois Cheer, Abrahams, and the Does, seeking a declaratory judgment that its duties under the applicable insurance policy are limited to paying Illinois Cheer $100,000 in defense costs. Doc. 17. Abrahams failed to appear and was defaulted. Doc. 52. Nationwide has moved for judgment on the pleadings, and Illinois Cheer and the Does have cross-moved for summary judgment. Docs. 30, 32, 35. Nationwide's motion is granted, and Illinois Cheer's and the Does' motions are denied.

Background

The following facts, which largely pertain to the terms of the insurance policy and the content of the state court complaint's allegations, are undisputed.

Abrahams was "a shareholder, officer, coach and employee" of Illinois Cheer. Doc. 18 at ¶ 27; Doc. 20 at ¶ 27. The Does' state court complaint alleges these facts:

• Illinois Cheer and Abrahams were "the voluntary custodians of JILL DOE, a Minor who was present upon the premises of [Illinois Cheer] for the purpose of receiving care, instruction and supervision in the sport of cheerleading from [Illinois Cheer] and other agents, servants and/or employees of [Illinois Cheer]." Doc. 17-4 at ¶ 14.

• During and prior to 2006, Illinois Cheer had "actual notice of the dangerous criminal propensities of [Abrahams] to sexually abuse and/or assault young girls in the course of providing cheerleading instruction, care and supervision." Id. at ¶ 15.

• Beginning in December 2005, Abrahams made sexual advances toward Jill Doe, who was thirteen years old at the time. Id. at ¶ 16.

• In March and April 2006, Abrahams engaged in several "act[s] of sexual penetration" with Jill Doe at Illinois Cheer's facilities. Id. at ¶¶ 17-20.

• Abrahams had four sexual encounters with Jill Doe at his residence in Oswego, Illinois, between December 2005 and March 2006. Id. at ¶ 21.

In October 2009, Abrahams pleaded guilty to the Class 2 felony of aggravated criminal sexual abuse of a minor, in reference to Jill Doe. Doc. 17-5.

The Does' state court complaint states negligence, willful and wanton misconduct, and fiduciary duty claims against Illinois Cheer. Doc. 17-4 at 7-12. The negligence claim alleges:

23. "ICE" [Illinois Cheer], by and through its authorized agents, officers, directors, servants and/or employees, after assuming the care, training and/or supervision of JILL DOE, a Minor, in breach of its aforementioned duty, was then and there guilty of one or more or all of the following negligent acts and/or omission to act:

a) carelessly and negligently failed to supervise the defendant, BRADLEY ABRAHAMS, when they knew or should have known of

his dangerous criminal propensities to commit acts of sexual abuse/assault against young girls;

b) carelessly and negligently failed to adequately supervise and control the Minor Plaintiff so as to protect her from acts of sexual abuse/assault committed by the defendant, BRADLEY ABRAHAMS;

c) carelessly and negligently retained the defendant, BRADLEY ABRAHAMS as an employee when they knew or should have known of his dangerous criminal propensities to commit acts of sexual abuse/assault against young girls;

d) carelessly and negligently failed to train and/or instruct its agents, officers, directors, servants and/or employees to recognize and prevent incidents of sexual abuse/assault against young girls under its care;

e) carelessly and negligently failed to prevent the sexual abuse/assault of the Minor Plaintiff when they knew or should have known of the sexual abuse/assault against the Minor Plaintiff;

f) carelessly and negligently failed to warn the Plaintiff or the Minor Plaintiff of the known and suspected criminal propensities of the defendant, BRADLEY ABRAHAMS, to commit acts of sexual abuse/assault against young girls;

g) carelessly and negligently failed to have proper procedures or rules in place including but not limited to rules to prevent unsupervised contact between coaches and cheerleaders;

h) carelessly and negligently failed to train and/or instruct its agents, officers, directors, servants and/or employees to recognize conduct classified as "pre sexual grooming"[;]

i) carelessly and negligently allowed the defendant, BRADLEY ABRAHAMS, to work with young girls at "ICE" when they knew or should have known of his dangerous criminal propensities to commit acts of sexual abuse/assault against young girls;

j) carelessly and negligently failed to report the instances of sexual misconduct to the appropriate agency;

k) was otherwise careless and negligent in providing services to the Minor Plaintiff[.]

Id. at 7-8. The willful and wanton misconduct claim is identical to the negligence claim, except that it alleges that the foregoing acts were committed recklessly rather than negligently. Id. at 9-10; see Jane Doe-3 v. McLean Cnty. Unit Dist. No. 5 Bd. of Dirs., 973 N.E.2d 880, 887 (Ill. 2012) (holding that "willful and wanton conduct is regarded as an aggravated form of negligence," and that "[i]n order to recover damages based on willful and wanton conduct, a plaintiff must plead and prove the basic elements of a negligence claim—that the defendant owed a duty to the plaintiff, that the defendant breached that duty, ... that the breach was a proximate cause of the plaintiff's injury," and that the defendant had "a deliberate intention to harm or a conscious disregard for the plaintiff's welfare") (citation omitted). The breach of fiduciary duty claim alleges:

22. "ICE", by and through its authorized agents, officers, directors, servants and/or employees, including but not limited to the defendant, BRADLEY ABRAHAMS, held themselves out to students and their parents as coaches and instructors on cheerleading matters. Accordingly, the plaintiffs placed great trust in "ICE"'s coaches, staff members, administrators and founders, including the defendant, BRADLEY ABRAHAMS. "ICE" maintained and encouraged such relationships with the Plaintiffs, accepted the Plaintiffs' trust and thus entered into a fiduciary relationship with Plaintiffs.

23. This fiduciary relationship with the Plaintiffs established a duty of good faith, fair dealing and the duty to act with the highest degree of trust and confidence in the best interest of its minor students, including the Plaintiffs. This fiduciary relationship includes the duty to warn, duty to disclose, the duty to prevent and the duty to protect minors and vulnerable young adults from sexual exploitation by "ICE" employees and agents in positions of authority or control over "ICE"'s students.

24. By holding "ICE" out as a safe, secure, educational and athletic environment the defendant, "ICE" entered into a fiduciary relationship with the plaintiffs.

25. The defendant, "ICE", breached its fiduciary duty to the plaintiff by engaging in and allowing the conduct described herein.

Doc. 17-4 at 11-12.

Illinois Cheer (actually, Illinois Cheer's parent, but the parties make nothing of that detail, which consequently will be ignored) at all relevant times had an insurance policy with Nationwide. Docs. 17-6, 17-7. The policy limits are $1 million per occurrence and $2 million in the aggregate. Doc. 17-6 at 14. Pertinent here, the policy defines an "insured" as "[a]n organization other than a partnership, joint venture or limited liability company"—which in this instance is Illinois Cheer—together with its "'executive officers' and directors ... but only with respect to their duties as [the organization's] officers or directors." Id. at 25. The policy obligates Nationwide, subject to applicable exclusions, to "pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' ... to which this insurance applies," and it gives Nationwide the "right and duty to defend the insured against any 'suit' seeking those damages." Id. at 17. The policy defines "bodily injury" as "bodily injury, sickness or disease sustained by a person," which "includes mental anguish, mental injury, shock, fright, humiliation, emotional distress or death resulting from bodily injury, sickness or disease." Id. at 29, 34.

The policy's Abuse or Molestation Exclusion ("Exclusion"), which is technically an endorsement to the policy, states in relevant part:

This endorsement modifies insurance provided under the following:

COMMERCIAL GENERAL LIABILITY COVERAGE PART

The following exclusion is added to Paragraph 2, Exclusions of Section I—Coverage A—Bodily Injury And Property Damage Liability and Paragraph 2, Exclusions of Section I—Coverage B—Personal And Advertising Injury Liability:

This insurance does not apply to "bodily injury" … arising out of:

1. The actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of any insured, or2. The negligent:

a. Employment;

b. Investigation;

c. Supervision;

d. Reporting to the proper authorities, or failure to so report; or

e. Retention;

of a person for whom any insured is or ever was legally responsible and whose conduct would be excluded by Paragraph 1. above.

Doc. 17-7 at 10.

The policy's Abuse or Molestation Endorsement ("Endorsement"), also technically an...