St. Paul Fire and Marine v. Vill. of Franklin Park

• Decision Date: 23 April 2008
• Docket Number: No. 06-2924.,06-2924.
• Citation: 523 F.3d 754
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff-Appellee, v. VILLAGE OF FRANKLIN PARK, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

523 F.3d 754

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff-Appellee, v. VILLAGE OF FRANKLIN PARK, Defendant-Appellant.

No. 06-2924.

United States Court of Appeals, Seventh Circuit.

Argued January 25, 2008.

Decided April 23, 2008.

Roderick T. Dunne (argued), Karbal, Cohen, Economou, Silk & Dunne, Chicago, IL, for Plaintiff-Appellee.

Michael K. Durkin (argued), Storino Ramello & Durkin, Rosemont, IL, for Defendant-Appellant.

Before BAUER, WOOD, and EVANS, Circuit Judges.

EVANS, Circuit Judge.

In this suit for a declaratory judgment, St. Paul Fire and Marine Insurance Company contends that it had no duty to defend its insured, the Village of Franklin Park, Illinois, against a suit by firefighters claiming that the Village had, for decades shortchanged their pension fund. The district court granted summary judgment for St. Paul, holding that the firefighters' suit alleged intentional conduct rather than a "negligent act, error, or omission" that would be covered by the insurance policy.

This case, over which the district court had diversity jurisdiction, is governed by Illinois law. So we begin by noting that under that law, every Illinois municipality must establish and administer a pension fund for its firefighters. 40 ILL. COMP. STAT. 5/4-101. In 1999 two firefighters in Franklin Park began to complain that the Village had violated Illinois law by underfunding their pension fund for the previous (and this is not a misprint) thirty years. According to the firefighters, they attempted several times to put the question of possible legal action on the agenda of the fund's board of directors but were thwarted by Franklin Park. In 2000 the board made a written demand that the Village pay $4 million to the fund out of an alleged $14 million surplus collected from a municipal utility user tax. A few months later, Franklin Park paid about $130,000 into the fund. The firefighters were not satisfied, though, and in January 2002 they sued the Village in the Circuit Court of Cook County on behalf of themselves and other beneficiaries of the fund.

After the firefighters' attempts to get the alleged underfunding on the board's agenda and their written demand for more funding, but before they filed their state court lawsuit, Franklin Park purchased general liability insurance from St. Paul.¹ The policy covered claims arising from administering employee-benefit plans, including the firefighters' pension fund. The policy included a duty to defend against some claims, and when the firefighters sued, Franklin Park demanded that St. Paul defend it in the suit. But St. Paul quickly denied coverage, citing three exclusions in the policy. The Village disputed St. Paul's denial of coverage in October 2002, and in July 2004 St. Paul alleged additional grounds for its denial of coverage. Franklin Park said nothing more, and in December 2004, nearly three years after the underlying litigation began, St. Paul filed this suit in federal court for a declaratory judgment that it had no duty to defend the Village against the claim being asserted by the firefighters. Franklin Park counterclaimed under the insurance contract for breach of the duty to defend and under § 155 of the Illinois Insurance Code for engaging in vexatious and unreasonable conduct. 215 ILL. COMP. STAT. 5/155.

The two lawsuits were resolved nearly contemporaneously. On February 21, 2006, the Circuit Court of Cook County held that Franklin Park had made payments into the fund in violation of Illinois law but had only deprived the fund of about $42,000, which it ordered the Village to pay into the fund. It also ordered the Village to make future payments in a manner consistent with Illinois law. Although that victory, at least from a monetary standpoint, was rather modest, the Village was even less successful in the coverage litigation. On March 31, 2006, the district court granted summary judgment for St. Paul. It held that St. Paul did not have a duty to defend because, as the court understood the underlying lawsuit, the firefighters alleged that the Village intentionally underfunded the pension fund, but St. Paul was only obligated to defend against claims of negligence.

As part of its holding, the district court explained that St. Paul's delay in filing did not estop it from asserting policy defenses because trial in the underlying litigation was "still some time away." Apparently, no one had told the district court that the state case had been resolved. Franklin Park moved for reconsideration under Federal Rule of Civil Procedure 59(e), seeking to excuse its failure to notify the court of the state decision by, among other arguments, labeling the decision as "newly-discovered evidence." The district court described the Village's arguments as "absurd" and denied the motion.

On appeal, Franklin Park challenges the grant of summary judgment as well as the denial of the Rule 59(e) motion. Under Illinois law, the construction of an insurance policy is a question of law, so our review is de novo. Sokol & Co. v. Atlantic Mut. Ins. Co., 430 F.3d 417, 420 (7th Cir.2005). As usual, we may affirm the district court's judgment on any grounds found in the record. Valentine v. City of Chi., 452 F.3d 670, 681 (7th Cir. 2006).

Franklin Park contends, first, that the underlying litigation was within...