W. Side Salvage, Inc. v. RSUI Indem. Co.

• Decision Date: 18 December 2017
• Docket Number: No. 16-3928,16-3928
• Citation: 878 F.3d 219
• Parties: WEST SIDE SALVAGE, INC., Plaintiff-Appellant, v. RSUI INDEMNITY COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

878 F.3d 219

WEST SIDE SALVAGE, INC., Plaintiff-Appellant,

v.RSUI INDEMNITY COMPANY, Defendant-Appellee.

No. 16-3928

United States Court of Appeals, Seventh Circuit.

Argued November 1, 2017

Decided December 18, 2017

Brad J. Brady, Attorney, Matthew L. Preston, Attorney, Brady Preston Gronlund PC, Cedar Rapids, IA, for Plaintiff-Appellant.

Robert Patrick Conlon, Attorney, Christopher A. Wadley, Attorney, Ryan J. Rodman, Attorney, Walker Wilcox Matousek LLP, Chicago, IL, for Defendant-Appellee.

Before Manion, Kanne, and Rovner, Circuit Judges.

Kanne, Circuit Judge.

In 2014, we held that West Side Salvage, Inc. was solely liable for the injuries that three workers suffered in a grain-bin explosion. We also held that West Side was liable for $3 million in property damage to the bin, which was owned by ConAgra Foods, Inc.

West Side had an $11 million excess insurance policy with RSUI Indemnity Company. West Side sued RSUI, alleging that RSUI breached its duty to settle ConAgra’s property-damage claim. The district court granted summary judgment to RSUI. West Side appeals. We affirm.

I. BACKGROUND

In 2010, ConAgra discovered a hot grain bin—a bin with rising grain temperatures that poses a risk of fire and explosion—at its Chester, Illinois facility. It hired West Side to fix the problem, but the grain bin exploded while West Side was working on it. The explosion caused severe burns and injuries to three workers and damaged the bin. The injured workers sued West Side and ConAgra, and ConAgra filed a cross-claim against West Side for property damage to the bin.

West Side had a $1 million primary insurance policy with Colony Insurance and an $11 million excess insurance policy with RSUI. At the outset of the explosion litigation, Colony tendered its limits and removed itself from the case. But a Colony-hired attorney continued to represent West Side through trial after West Side received reservation letters from RSUI. The letters reflected RSUI’s position that ConAgra’s property-damage claim against West Side may potentially fall outside of coverage. Relevant to this appeal, West Side’s policy with RSUI includes a damage-to-property clause, which excludes certain property-damage claims from coverage.

The parties tried but never reached a settlement in the explosion litigation. After a jury trial, West Side and ConAgra were found liable for the workers’ injuries, and West Side was found liable for the property damage to ConAgra’s grain bin.

Both West Side and ConAgra appealed, and in Jentz v. ConAgra Foods, Inc. , 767 F.3d 688 (7th Cir. 2014), we reversed the personal-injury judgment as to ConAgra and held that West Side was solely liable for the workers’ injuries. We affirmed the judgment against West Side on ConAgra’s property-damage claim. This left West Side with significantly greater liability than what its insurance policies covered.

Before we decided Jentz , West Side filed a complaint in district court, arguing that RSUI should have settled the explosion-litigation claims within policy limits and breached its duty to settle in not doing so. The district court dismissed that action without prejudice. After we decided Jentz , West Side and RSUI privately settled West Side’s claim that RSUI should have settled the injured workers’ claims within policy limits. But that settlement did not address the property-damage claim. Instead, West Side filed the action from which this appeal was taken, alleging that RSUI breached its duty to settle the property-damage claim within policy limits.

RSUI moved for summary judgment, advancing two arguments. It principally argued that the insurance policy doesn’t cover the property-damage claim, in part because there is a damage-to-property exclusion in the policy that applies. It argued in the alternative, though, that even if the claim is covered by the insurance policy, West Side could not present evidence that RSUI breached its duty to settle. The district court rejected the first argument but accepted the second. The court reasoned that an insurer only has a duty to settle when there is an offer to settle all claims against the insured at the same time that there is a reasonable likelihood the insured will face liability exceeding the policy limits. The court found that West Side did not show there was a time when these conditions were satisfied, and it granted summary judgment to RSUI. West Side appeals.

II. ANALYSIS

We review a district court’s grant of summary judgment de novo , construing the facts and making reasonable inferences in favor of the nonmovant, here, West Side. See Perez v. Thorntons, Inc., 731 F.3d 699, 703 (7th Cir. 2013). We may affirm "on any ground supported in the record, so long as that ground was adequately addressed in the district court and the nonmoving party had an opportunity to contest the issue." Cardoso v. Robert Bosch Corp. , 427 F.3d 429, 432 (7th Cir. 2005).

In this court, RSUI repeats the two arguments it made in its motion for summary judgment as alternative bases for affirmance: that the insurance policy doesn’t cover ConAgra’s property-damage claim and that, even if there is coverage, West Side can’t show RSUI breached its duty to settle.

In support of its first argument, RSUI contends that the damage-to-property clause in the policy excludes ConAgra’s claim against West Side from coverage. We agree.

We interpret the damage-to-property exclusion in accordance with the law of the forum state, Illinois. Under Illinois law, the damage-to-property clause excludes ConAgra’s claim against West Side from coverage. And RSUI had no duty to settle a claim that the insurance policy doesn’t cover. See Am. Family Mut. Ins. Co. v. Westfield Ins. Co. , 357 Ill.Dec. 92, 962 N.E.2d 993, 1000 (Ill. App. Ct. 2011).

A. Illinois law applies to the analysis of the damage -to -property exclusion.

As a federal court sitting in diversity, we turn to state law to determine whether an insurance coverage exclusion applies. See, e.g. , Neth. Ins. Co. v. Phusion Projects, Inc. , 737 F.3d 1174, 1177 (7th Cir. 2013) ; Cincinnati Ins. Co. v. Flanders Elec.Motor Serv., Inc. , 40 F.3d 146, 150 (7th Cir. 1994). But the parties dispute which state law we should apply, so we turn first to a choice-of-law analysis using the rules of the forum state, here, Illinois. Klaxon v. Stentor Elec. Mfg. Co. , 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).

Illinois courts engage in a choice-of-law analysis only if there is a conflict between Illinois law and the law of another state such that "a difference in law will make a difference in the outcome." Townsend v. Sears, Roebuck & Co. , 227 Ill.2d 147, 316 Ill.Dec. 505, 879 N.E.2d 893, 898 (2007). The party who seeks a choice-of-law determination must establish the existence of an outcome-determinative conflict. Bridgeview Health Care Ctr., Ltd. v. State Farm Fire & Cas. Co. , 381 Ill.Dec. 493, 10 N.E.3d 902, 905 (2014). If the party fails to establish the existence of such a conflict, the court applies the law of the forum state. See id. ; Gleim v. Roberts , 395 Ill.App.3d 638, 335 Ill.Dec. 648, 919 N.E.2d 367, 370 (Ill. App. Ct. 2009).

West Side argues that a conflict exists between Illinois and Iowa law that affects whether the damage-to-property exclusion bars coverage for ConAgra’s property-damage claim. In support of this contention, West Side points to National Surety Corp. v. Westlake Investments, LLC , 880 N.W.2d 724 (Iowa 2016). Westlake addressed whether an insurance policy covered a property-damage claim arising after construction work was completed. When a property-damage claim arises after work is completed, whether that claim is covered by the policy depends on the application of the "damage to ‘your work’ " exclusion. Id. at 739–40 (The " ‘your work’ exclusion generally excludes from coverage property damage arising out of completed work performed by or on behalf of the insured.").

But ConAgra brought a claim for property damage caused by ongoing operations , not completed work. When a property-damage claim arises during ongoing operations, whether that claim is covered by the policy depends on the application of the damage-to-property exclusion, instead. See id. at 739 (noting that the damage-to-property exclusion generally excludes from coverage property damage due to work incorrectly performed on it, but it generally does not apply if the property damage arises out of completed work). Thus, Westlake is not outcome-determinative in this case.

In the absence of a demonstrated conflict, we apply the law of the forum state (Illinois) to determine whether the damage-to-property exclusion applies to ConAgra’s property-damage claim against West Side.

B. The damage -to -property provision excludes ConAgra’s claim against West Side from coverage .

Though a court must construe exclusions liberally in favor of the insured and against the insurer, "if an exclusion is clear and unambiguous and does not contravene public policy, it must be applied as written." Pekin Ins. Co. v. Willett , 301 Ill.App.3d 1034, 235 Ill.Dec. 350, 704 N.E.2d 923, 925 (1998). West Side does not argue that the damage-to-property exclusion is ambiguous or contravenes public policy. Thus, we apply the exclusion as it is written.

The damage-to-property exclusion eliminates insurance coverage for property damage to:

"(5) [t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations; or

(6) [t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it."

(R. 1 at 30–31.) The contract defines "property damage" as "[p]hysical injury to tangible property," (R. 1 at 40), and it defines "your work" as "[w]ork or operations performed by you or on your behalf," (R. 1 at 41). This exclusion is "premised on the theory that liability policies are not...