Houston Casualty Company v. B&H Freight, Inc. et al

Northern District of Illinois, ilnd-1:2016-cv-05201

ORDER Signed by the Honorable Amy J. St. Eve on 6/15/2017: The Court denies Plaintiff's motion for judgment on the pleadings brought pursuant to Federal Rule of Civil Procedure 12(c). [36]. [For further details, see Order.] Mailed notice

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Case: 1:16-cv-05201 Document #: 64 Filed: 06/15/17 Page 1 of 6 PageID #:313 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION HOUSTON CASUALTY COMPANY,)) Plaintiff,)) Case No. 16 C 5201 v.)) Judge Amy St. Eve) B&H FREIGHT INC., et al.,)) Defendants.) ORDER The Court denies Plaintiff’s motion for judgment on the pleadings brought pursuant to Federal Rule of Civil Procedure 12(c). [36]. STATEMENT On May 13, 2016, Plaintiff filed a six-count Complaint for Declaratory Judgment against Defendants B&H Freight, Inc. ("B&H Freight"), B&H Systems, Inc. ("B&H Systems"), Midwest Star Group, Inc. ("Midwest"), and Sompo Japan Insurance Company of America, as subrogee of Canon U.S.A., Inc. ("Sompo"), in relation to the parties’ insurance coverage disputes pursuant to the Court’s diversity jurisdiction. See 28 U.S.C. § 1332(a). Before the Court is Plaintiff’s Rule 12(c) motion for judgment on the pleadings seeking a determination on its duty to defend and indemnify under the insurance policy at issue. For the following reasons, the Court denies Plaintiff’s motion. LEGAL STANDARD1 Rule 12(c) motions for judgment on the pleadings differ from Rule 12(b)(6) motions to dismiss because they are brought after the pleadings are closed. See Fed.R.Civ.P. 12(c); Buchanan–Moore v. County of Milwaukee, 570 F.3d 824, 827 (7th Cir. 2009). Despite the difference in timing, the Court reviews Rule 12(c) motions under the same standards that apply to motions to dismiss under Rule 12(b)(6). See Gill v. City of Milwaukee, 850 F.3d 335, 339 (7th Cir. 2017); Buchanan–Moore, 570 F.3d at 827. As such, a complaint must state "a claim to 1 In support of its Rule 12(c) motion for judgment on the pleadings, Plaintiff filed a "Statement of Material Facts," which is not the practice in this district under the United States District Court for the Northern District of Illinois’ Local Rules. As such, the Court disregards Plaintiff’s "Statement of Material Facts" and construes Plaintiff’s allegations under the federal pleading standards as directed by the Seventh Circuit. See Gill v. City of Milwaukee, 850 F.3d 335, 339 (7th Cir. 2017). Case: 1:16-cv-05201 Document #: 64 Filed: 06/15/17 Page 2 of 6 PageID #:314 relief that is plausible on its face." Gill, 850 F.3d 339 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Under Rule 12(c), the Court accepts all well-pleaded allegations in the complaint as true and draws all reasonable inferences in favor of the plaintiff. See Katz-Crank v. Haskett, 843 F.3d 641, 646 (7th Cir. 2016). BACKGROUND On September 22, 2014, B&H Freight submitted to Plaintiff its "Professional Liability Errors and Omissions Insurance Renewal Application" ("Application"), after which Plaintiff issued policy number H714-104470 (the "Policy"). (R. 1, Compl. ¶¶ 10, 12.) According to Plaintiff, on November 13, 2014, Canon U.S.A., Inc. ("Canon") hired B&H Freight as its broker/carrier with respect to a shipment of four loads of cameras to be delivered on November 17, 2014 to QVC Network, Inc. ("QVC") in Suffolk, Virginia. (Id. ¶ 14.) B&H Freight retained Midwest as the freight carrier for one of the camera loads with the pick up to occur on November 14, 2014 at B&H Freight’s facility. (Id. ¶ 15.) Plaintiff further alleges that on November 14, 2014, B&H Systems tendered the load to Midwest for delivery to QVC, and, on the following day, November 15, 2014, Midwest discovered that the load of cameras had been stolen from its trailer. (Id. ¶¶ 16, 17.) On November 17, 2014, Canon presented its "Loss and Damage Claim" to B&H Freight claiming it sustained a loss in the amount of $1,424,417.40 as a result of the camera theft. (Id. ¶ 18.) Thereafter, on February 24, 2015, B&H Freight reported Canon’s claim to Plaintiff under the Policy. (Id. ¶ 19.) Plaintiff further asserts that by email of February 25, 2015, Plaintiff acknowledged receipt of B&H Freight’s notice of loss. (Id. ¶ 20.) By letter dated April 16, 2015, Plaintiff reserved all rights under the Policy. (Id. ¶ 21.) On September 17, 2015, Sompo, as subrogee of Canon, filed a lawsuit in the United States District Court for the Eastern District of New York alleging that B&H Freight, B&H Systems, and Midwest violated the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 14706 ("Sompo Litigation"). (Id. ¶ 23.) In the alternative, Sompo brings a separate claim alleging that if B&H Freight is strictly a freight broker – and not a carrier/freight forwarder – it failed in its duty to place the cameras with a reliable carrier instead of Midwest. (Id.) In a letter dated November 3, 2015, Plaintiff supplemented its April 16, 2015 Reservation of Rights. (Id. ¶ 25.) In that letter, Plaintiff pointed the Policy’s relevant language and the Insuring Agreement, including: 1. INSURING AGREEMENT (as amended by the Insuring Agreement Endorsement) The Company shall pay on behalf of the Insured any Loss and Claim Expenses, in excess of the Deductible and subject always to the Policy’s Limit of Liability, as the Insured shall become legally obligated to pay as a result of a Claim(s) made against the Insured for a Wrongful Act(s) arising from Professional Services as set forth by Endorsement to this Policy. 2 Case: 1:16-cv-05201 Document #: 64 Filed: 06/15/17 Page 3 of 6 PageID #:315 III. DEFINITIONS... i) Wrongful Act "Wrongful Act" shall mean any actual or alleged negligent act, error or omission or breach of duty committed or alleged to have been committed, or for failure to render, such Professional Services as are customarily rendered in the profession of the Insured as set forth by Endorsement to this Policy. (R. 1-5, 11/3/15 Reservation of Rights letter; see also R. 1-2, Prof. Liability E&O Ins., at 2, 4.) In January 2016, the Eastern District of New York transferred the Sompo Litigation to the Northern District of Illinois. Judge Shadur presides over the underlying lawsuit, Sompo v. B&H Freight (16 C 0355). On April 8, 2016, Judge Shadur denied B&H Freight’s Rule 12(b)(6) motion to dismiss Count II of the Complaint in which B&H Freight argued that the Carmack Act preempted the state law cause of action. See Sompo Japan Ins. Co. of Am. v. B&H Freight, Inc., 177 F. Supp. 3d 1084 (N.D. Ill. 2016). The Court presumes familiarity with Judge Shadur’s April 8, 2016 ruling. Also, after referral, Magistrate Judge Schenkier has set a settlement conference date for July 18, 2017 for both the Sompo Litigation and the present lawsuit. ANALYSIS The parties agree that Illinois law governs this insurance dispute. Under Illinois law, "[a]n insurance policy is a contract, and the general rules governing the interpretation of other types of contracts also govern the interpretation of insurance policies." Westfield Ins. Co. v. Vandenberg, 796 F.3d 773, 777 (7th Cir. 2015) (citation omitted). "The primary goal in interpreting an insurance policy'is to give effect to the intent of the parties as expressed in the agreement.’" American Alternative Ins. Corp. v. Metro Paramedic Servs., Inc., 829 F.3d 509, 514 (7th Cir. 2016) (citation omitted). Also, when "the terms of an insurance policy are clear and unambiguous, they must be given their plain and ordinary meaning and enforced as written, unless to do so would violate public policy." Berg v. N.Y. Life Ins. Co., 831 F.3d 426, 429 (7th Cir. 2016) (citation omitted). "To determine whether an insurer has a duty to defend, we compare the factual allegations of the underlying complaint to the language of the insurance policy." Selective Ins. Co. of S.C. v. Target Corp., 845 F.3d 263, 269 (7th Cir. 2016); see also Pekin Ins. Co. v. AAA-1 Masonry & Tuckpointing, Inc., ___ N.E.3d ___, 2017 WL 2226698, at *4 (1st Dist. May 19, 2017) ("where the issue is whether the insurer has a contractual duty to defend pursuant to an insurance policy, a court ordinarily looks first to the allegations in the underlying complaint and compares those allegations to the relevant provisions of the insurance policy."). In doing so, courts liberally construe the allegations in the underlying complaint and must decide whether these allegations fall within, or potentially within, the policy’s coverage. See Santa’s Best Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 346 (7th Cir. 2010); Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90, 125 (Ill. 1992). 3 Case: 1:16-cv-05201 Document #: 64 Filed: 06/15/17 Page 4 of 6 PageID #:316 In its Rule 12(c) motion, Plaintiff first argues that B&H Systems is not an insured under the Policy. In response, B&H Systems concedes that it is not an insured under the Policy and that Plaintiff does not have a duty to defend or indemnify B&H Systems in the Sompo Litigation. The Court thus turns to Plaintiff’s second argument, namely, that the Sompo Litigation falls within Exclusion e) of the Policy, and thus Plaintiff has no duty to defend or indemnify B&H Freight. The Policy at issue provides as follows: V. EXCLUSIONS This Policy does not apply to any Claim, Claim Expense or Loss:... e) for bodily injury, sickness, disease or death of any person, or for emotional distress, mental anguish, or other similar injury or damage, or any injury to, or destruction of, any tangible property or loss of use thereof[]... (R. 1-2, Prof. Liability E&O Ins., at 4-5.) Plaintiff specifically argues that in the Sompo Litigation, Sompo is solely seeking to recover for "loss or damage to a shipment of EOS Rebel T-5 camera kits transported by interstate motor carriage in November 2014." (16 C 0355, R. 1, Compl. ¶ 1.) Plaintiff thus argues that "[s]uch loss or injury falls within Exclusion e) of the Policy, which is clear and unambiguous in precluding coverage for "any injury to, or destruction of, any tangible property or loss of use thereof." (R. 38, Opening Brief, at 4.) This is the full extent of Plaintiff’s argument in its opening brief – although Plaintiff includes a string cite of non-controlling cases failing to explain why these cases are persuasive. In any event, from the cases Plaintiff cites, it appears that it is arguing that the theft of the cameras is excluded from coverage because it amounts to the "loss of use of tangible property" under the Policy. See Nationwide Ins. Co. v. Hentz, No. 11 C 618, 2012 WL 734193, at *3 (S.D. Ill. Mar. 6, 2012) (theft of CD-ROM constituted "loss of use"). Construing Sompo’s allegations liberally, see Outboard Marine, 154 Ill. 2d at 125, Sompo’s underlying claims seek to recover for the theft/conversion of the Midwest camera shipment. Under the circumstances, the Court examines whether this conversion or theft constitutes "loss of use" of property under the Policy. In analyzing "loss of use" language in the context of the conversion of petroleum products, a judge in this district noted that "the great weight of case authority" concerning "whether conversion constitutes a'loss of use’" concludes that it is not. GATX Leasing Corp. v. Nat’l Union Fire Ins. Co., No. 94 C 431, 1994 WL 383909, at *3 (N.D. Ill. July 19, 1994) (listing cases); (citing Collin v. Am. Empire Ins. Co., 21 Cal. App. 4th 787, 817 (2d Dist. 1994) (collecting cases)). The Court finds these cases persuasive. In GATX, the district court explained that the "[l]oss of use is intended to compensate for a temporary loss and thereby is determined by rental value," whereas, "loss of property is intended to compensate for a permanent loss and is determined by replacement cost." GATX Leasing Corp., 1994 WL 383909, at *4. Put differently, the reason for a "loss of use" provision "is to provide compensation when an 4 Case: 1:16-cv-05201 Document #: 64 Filed: 06/15/17 Page 5 of 6 PageID #:317 occurrence prevents the use of undamaged property." Lemko Corp. v. Fed. Ins. Co., 70 F. Supp. 3d 905, 915 (N.D. Ill. 2014). Based on this distinction, courts have concluded that the theft or conversion of property does not amount to "loss of use" because the loss by theft is permanent – not temporary. See Westport Ins. Corp. v. Cotten Schmidt, LLP, 605 F. Supp. 2d 796, 808 (N.D. Tex. 2009) ("courts distinguish between the outright loss or conversion of property and a temporary loss or a'loss of use.’"); see also M Consulting & Exp., LLC v. Travelers Cas. Ins. Co. of Am., 2 F. Supp. 3d 730, 737 (D. Md. 2014). Plaintiff’s reliance on Nationwide Ins. Co. v. Hentz, No. 11 C 618, 2012 WL 734193 (S.D. Ill. Mar. 6, 2012), is misplaced. In that matter, the district court did not address the difference between "loss of use," "loss of property," or "damage to property." Travelers Ins. Companies v. P.C. Quote, Inc., 211 Ill. App. 3d 719, 725 (1st Dist. 1991) ("There is a difference between damage to property and loss of property."). Similarly, Plaintiff’s reliance on cases where the courts did not consider the distinction between "loss of use" and "loss of property" is equally unpersuasive. See Guaranty Nat’l Ins. Co. v. Int’l Ins. Co., 994 F.2d 1280, 1283 (7th Cir. 1993) (applying Michigan law to Fourth Amendment seizure of property by police); Javitch Block Eisen & Rathbone, P.L.L. v. Target Cap. Partners, Inc., No. 86926, 2006 WL 1781095, at *1 (Ohio Ct. App. June 29, 2006) (applying Ohio law to underlying spoliation claim involving legal documents). Nevertheless, in its reply brief, Plaintiff attempts to flesh out its argument based on one of the cases it cites in its opening brief, namely, United States Fid. & Guar. Co. v. Mayor’s Jewelers of Pompano, Inc., 384 So. 2d 256, 258 (4th Dist. Ct. App. 1980). In Mayor’s Jewelers, the Florida Appellate Court concluded that theft of property fell under an exclusion for "injury to or destruction of tangible property." See id. Plaintiff’s attempt to substantiate this argument is perfunctory because it fails to explain why Mayor’s Jewelers is persuasive in light of numerous cases holding otherwise. See M.G. Skinner & Assocs. Ins. Agency, Inc. v. Norman-Spencer Agency, Inc., 845 F.3d 313, 321 (7th Cir. 2017) ("Perfunctory and undeveloped arguments are waived"). In particular, the Court notes that numerous courts have rejected the argument that theft or conversion qualifies as injury to property by highlighting the difference between damage to property and loss of property. See, e.g., Artisan & Truckers Cas. Co. v. Hanover Ins. Co., 126 F. Supp. 3d 998, 1002 (N.D. Ill. 2015) (theft of backhoes did not constitute "property damage"); Twin City Fire Ins. Co. v. CR Techs., Inc., 90 F. Supp. 3d 1320, 1328 (S.D. Fla. 2015) ("civil theft involves neither'physical injury to tangible property and resulting loss of use,’ nor'loss of use of tangible property that is not physically injured’"); see also M Consulting, 2 F. Supp. 3d at 735 (collecting cases). Moreover, Plaintiff does not acknowledge that Illinois courts have concluded "[t]here is a difference between damage to property and loss of property," see Travelers Ins., 211 Ill. App. 3d at 725, nor has Plaintiff addressed the issue that "[b]oth the Illinois courts and this circuit have adopted the view that, at least where property damage is defined as'tangible’ property damage, some actual injury to'tangible’ property must be alleged." Dreis & Krump Mfg. Co. v. Phoenix Ins. Co., 548 F.2d 681, 687 (7th Cir. 1977). 5 Case: 1:16-cv-05201 Document #: 64 Filed: 06/15/17 Page 6 of 6 PageID #:318 Without W moree, and constrruing the Pollicy’s exclussion narrowlly as required by Illinoiss law, Plaintiff has failed in n its burden of o establishinng that Somppo’s claims fall within E Exclusion e) at this junctture. See Beerg, 831 F.3dd at 429; Pan nfil v. Nautillus Ins. Co., 799 F.3d 7116, 721 (7th Cir. 2015); seee also Sentrry Ins. v. Connt’l Cas. Co.., ___ N.E.3 d ___2017 W WL 11484766, at *8 (1st Dist. Mar. 24, 2017) ("[W]here an excclusionary cllause is relie d upon to deeny coveragee, its applicabiility must bee clear and frree from douubt because aany doubts aas to coveragge will be resolved in favor of thet insured."") (citation omitted). o Insstead, Sompoo’s allegatioons fall "potentiaally within" the t Policy’s coverage. SeeS Outboarrd Marine Coorp., 154 Ill.. 2d at 125. The Court den nies Plaintifff’s Rule 12(c) motion. Dated: June 15, 2017 7 _________________________________ AMY J. STT. EVE United Stattes District Court Judgge 6