Sentinel Ins. Co. v. Serra Int'l

• Decision Date: 10 August 2015
• Docket Number: No. 14 C 08087,14 C 08087
• Citation: 119 F.Supp.3d 886
• Parties: Sentinel Insurance Company, Ltd., and Hartford Casualty Insurance Company, Plaintiffs, v. Serra International, The Serra International Foundation, and Teledec Limited, Defendants.
• Court: U.S. District Court — Northern District of Illinois

119 F.Supp.3d 886

Sentinel Insurance Company, Ltd., and Hartford Casualty Insurance Company, Plaintiffs,

v.Serra International, The Serra International Foundation, and Teledec Limited, Defendants.

No. 14 C 08087

United States District Court, N.D. Illinois, Eastern Division.

Signed August 10, 2015

Michael John Duffy, Ashley L. Conaghan, Tressler LLP, Chicago, IL, for Plaintiffs.

Ethan G. Zelizer, HR Law Counsel, LLC, Naperville, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

Honorable Edmond E. Chang, United States District Judge

Serra International and the Serra International Foundation (for convenience's sake, referred to as Serra in this opinion) hired Teledec Limited to do some information-technology work. Teledec worked with Serra until Serra stopped paying. Teledec then sued. Once sued, Serra turned to its insurers, Sentinel Insurance Company and Hartford Casualty, seeking coverage and a defense against Teledec's claims. The insurers refused coverage and sued Serra and Teledec in this Court, seeking a declaration supporting their refusal.¹ Now pending are the parties' cross motions for summary judgment, one by the insurers and one by Serra. (Teledec has been dismissed. R. 13.) The insurers argue that the relevant policies provide Serra with no coverage for Teledec's claims; Serra contends the opposite.

The insurers are right. None of the three types of coverage available under the policies—"bodily injury," "property damage," and "personal and advertising injury"—are triggered by Teledec's lawsuit against Serra. Serra implicitly concedes that bodily injury coverage is not applicable. Property damage coverage is precluded by an exclusion. And the absence of a triggering "offense" blocks out personal and advertising injury coverage.

I. Background

There are five relevant parties. Sentinel is an insurance company. R. 25, Serra's Rule 56.1 Statement ¶ 1.² So is Hartford. Id. ¶ 2. These two insurers issued insurance policies to Serra International and the Serra International Foundation. R. 22–2, 22–3, 22–4, 22–5, Insurance Policies. The two Serra entities are not-for-profit organizations in the business of "raising money for the ostensible purpose of funding programs that foster and promote vocations to the ministerial priesthood." R. 22–1, State–Court Complaint ¶ 8; R. 25–2, State–Court Answer ¶ 8. The two Serra entities "occup[y] the same business premises ... and [ ] there is some overlap between [their] officers." State–Court Answer ¶ 9. The fifth party, Teledec, provides "services, products, office equipment, software and computing/communications hardware related to website development and operations, data processing, office operations, office management, electronic mail and communications." State–Court Complaint ¶ 1.

From 2008 to 2014, Teledec provided Serra with certain of its "goods and services." State–Court Answer ¶ 10. Then Teledec sued both Serra entities alleging, among other things, nonpayment for those goods and services. State–Court Complaint at 1. Because insurance coverage—the ultimate issue in this case—turns on Teledec's claims and allegations against Serra, they are worth describing in detail:

Count 1 is a breach of contract claim against just Serra International (not the Foundation). Id. at 2. It alleges that Serra and Teledec entered into a "Basic Ordering Agreement." Id. ¶ 12. Per that agreement, Teledec would "provide, sell[,] and/or lease such services and goods as may be required by Serra ... pursuant to written work orders." Id. Serra put in three work orders under the agreement. Id. ¶¶ 13–18. Teledec alleges that it fulfilled all of its obligations under those orders but that, eventually, Serra stopped paying. Id. ¶¶ 20–21. This claim seeks $427,500 in damages, comprised of the unpaid amounts due under the contract and work orders, plus attorneys' fees, costs and interest. Id. ¶¶ 27–28.

Count 2 is a breach of contract claim against the Foundation (but not Serra International). Id. at 8. This claim alleges that the Foundation entered into an oral agreement with Teledec, essentially agreeing to be bound along with Serra International to the Basic Ordering Agreement and the work orders. Id. ¶ 34. It seeks the same relief as Count 1. Id. ¶ 46.

Count 3 is a quantum meruit claim against the Foundation. Id. at 12. This count is pled in the alternative to Count 2. Id. ¶ 51. The gist of Count 3 is that even if the Foundation had no contract with Teledec, the Foundation should still pay Teledec because it got the benefit of Teledec's work under the contract with Serra International. Id. ¶¶ 53–58. It seeks the same relief as Counts 1 and 2. Id. ¶ 58.

Count 4 is a conversion claim against both Serra entities. Id. at 14. Under the Basic Ordering Agreement, Teledec provided Serra with hardware, software, office equipment, and furniture. Id. ¶¶ 60–61. When Serra stopped paying, Teledec asked for its property back, but Serra kept it. Id. ¶¶ 61–70. Serra also copied the website, source code, and other forms of intellectual property Teledec had developed for Serra, which "seriously damaged" Teledec by exposing all of the intellectual property to "computer viruses." Id. ¶¶ 63–65. According to Teledec, all this retaining and copying of property worked a conversion worth $2,457,500, comprised of the "reasonable value" of the contract goods and $2,000,000 in "direct and consequential" damages. Id. ¶ 70. The claim also seeks an injunction to force Serra to return the property and, in the meantime, to prevent Serra from destroying or altering it. Id. at 16.

Count 5 is a trespass to chattels claim against both Serra entities. State–Court Complaint at 16. This claim resembles the conversion claim but appears to be focused on tangible property like furniture, computer equipment, and office supplies (and not software). Id. ¶ 72. It seeks the same relief as the conversion claim. Id. at 17.

Count 6 is a replevin claim against both Serra entities. Id. at 17. This claim appears to target the return of the property identified in the Counts 4 and 5. The claim also seeks an injunction against destroying or altering the property. Id. ¶¶ 76–81.

Count 7 is an Illinois Trade Secrets Act claim against both Serra entities. Id. at 18. This claim alleges that Teledec's software and source code are trade secrets and that Serra misappropriated those trade secrets by failing to pay for or return the software and source code. Id. ¶¶ 83–89. Teledec seeks over $2,500,000 in damages on this claim.

Count 8 is a willful and wanton misconduct claim against both Serra entities. Id. at 20. This claim alleges that Serra and the foundation "(a) convert[ed] and misappropriate[ed] [Teledec's] Property and refus[ed] to return same; (b) ... cop[ied] and us[ed] Plaintiff's website, source codes and software on two separate Plaintiff's website and other Property; and (c) ... wrongfully den[ied] that any contracts existed" between the parties. Id. ¶ 92. According to Teledec these actions were "outrageous, intentional, and conscious and done with full knowledge that such actions and conduct would result in serious injury." Id. ¶ 94. Teledec seeks $2,427,500 and an injunction. Id.

Facing these allegations, Serra turned to its insurance carriers for defense and coverage. Serra's Rule 56.1 Statement ¶ 21. (Hartford is Serra's insurer. Id. ¶ 18. Sentinel is the Foundation's insurer. Id. ) There are four relevant policies; each provides coverage under a "Business Liability Coverage Form" and an "Umbrella Liability Coverage Form." R. 22–2, 22–3, 22–4, 22–5. Each Serra entity is the named insured in two of the four policies. Id. Conveniently, the parties have briefed the case as though all the policies are identical—as if there was really only one insured and one policy. R. 22, Insurers' Rule 56.1 Statement ¶¶ 19–20 (quoting one policy as representative of all policies); Serra's Rule 56.1 Statement ¶¶ 19–20 (same). The Court will accept the parties' implicit representation that all the relevant language is the same across the policies (which does appear to be the case). Also, where specified by the parties, the Court has relied on applicable endorsements and amendments, rather than the original policy forms. See Insurers' Rule 56.1 Statement at nn.1–4.

Multiple policies notwithstanding, both insurers denied coverage. Serra's Rule 56.1 Statement ¶ 21. To back up their denials, the insurers filed this lawsuit. R. 1, Compl. They seek declarations that they owe no duty to defend or indemnify Serra in connection with Teledec's lawsuit. Id. ¶ 1. Hartford and Sentinel, on the one hand, and Serra and the Foundation, on the other, have filed cross motions for summary judgment. R. 20, Insurers' Mot. for Summ. J.; R. 23, Serra's Mot. for Summ. J. The insurers want the declaration they sued for. Insurers' Mot. for Summ. J. ¶ 3. Serra wants to establish that the insurers are not entitled to that declaration. Serra's Mot. for Summ. J. ¶ 2.

II. Standard

Summary judgment is proper "if 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). A genuine dispute 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, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In evaluating summary judgment motions, courts must view the facts and draw reasonable inferences in the light most favorable to the non-moving party. Scott v. Harris, 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007). The Court may not weigh conflicting evidence or make credibility determinations, Omnicare, Inc. v. UnitedHealth Grp., Inc., 629 F.3d 697, 704 (7th Cir.2011), and must consider only evidence that can "be presented in a form that would be admissible in evidence" at trial, Fed. R. Civ. P. 56(c)(2). The party seeking summary judgment has the initial burden of showing that there is no genuine dispute and that they are...