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

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

RESPONSE by Houston Casualty Companyin Support of MOTION by Plaintiff Houston Casualty Company for judgment on the pleadings {{36}}

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Case: 1:16-cv-05201 Document #: 60 Filed: 04/28/17 Page 1 of 10 PageID #:298 IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS HOUSTON CASUALTY COMPANY) Plaintiff,)) CASE NO.: 1:16-cv-05201 v.)) JUDGE AMY J. ST. EVE B&H FREIGHT, INC., B&H SYSTEMS,) INC., MIDWEST STAR GROUP, INC., AND) SOMPO JAPAN INSURANCE COMPANY) OF AMERICA, AS SUBROGEE OF CANON) U.S.A., INC.) Defendants.)) REPLY BRIEF IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS OF PLAINTIFF HOUSTON CASUALTY COMPANY1 I. INTRODUCTION2 There is no debate as to what Sompo has alleged in the Sompo Litigation. When Sompo’s allegations are considered in context with the Policy and the applicable rules of construction3, it is clear that coverage for the Sompo Litigation is precluded by Exclusion e) of the Policy. Further, as Freight and Systems have conceded that Systems is not an Insured under the Policy, there is no dispute that HCC has no duty to defend or indemnify Systems for the Sompo Litigation. Accordingly, HCC respectfully submits that it is entitled to judgment as a matter of law.4 1 HCC’s Reply Brief is submitted in response to the separate Oppositions filed by Sompo (Doc. #50) and Freight and Systems (Doc. #55-56). 2 For the convenience of the Court and the parties, HCC will use the same abbreviations as used in its Brief in Support of its Motion for Judgment on the Pleadings. (Doc. #38). 3 HCC agrees that Illinois law governs the interpretation of the Policy. 4 Motion for judgment on the pleadings is an appropriate mechanism where there is no dispute concerning the material facts, such that the "Court is called upon only to determine the scope of coverage of the insurance policy, which is a question of law." Archer Daniels Midland Co. v. Burlington Ins. Co. Group, Inc., 785 F.Supp.2d 722, 727 (N.D. Ill. 2011). 741850-2 1 Case: 1:16-cv-05201 Document #: 60 Filed: 04/28/17 Page 2 of 10 PageID #:299 II. HCC’S MOTION DOES NOT SEEK ADJUDICATION OF FACTS BEARING ON THE UNDERLYING LITIGATION Contrary to Sompo’s assertions, the contested factual issues in the Underlying Litigation are not at issue by way of HCC’s Motion for Judgment on the Pleadings. Whether Freight and Systems failed to maintain separate corporate identities and are subject to piercing the corporate veil, as Sompo alleges in the Sompo Litigation, has no bearing on whether Systems falls within the Policy’s definition of an "Insured". Rather, the determination of who is an "Insured" under the Policy turns on the language of the Policy. Archer Daniels Midland Co. v. Burlington Ins. Co. Group, Inc., 785 F.Supp.2d 722, 727 (N.D. Ill. 2011) ("When the policy is clear and unambiguous, a court must apply it as written unless to do so would violate public policy"); accord Schultz v. Ill. Farmers Ins. Co., 237 Ill.2d 391, 400, 930 N.E.2d 943, 948, 341 Ill.Dec. 429, 434 (2010). Recognizing that Systems is not the Named Insured designated in the Declarations Page, that Freight does not own more than 50% of the issued and outstanding voting stock of Systems, that Systems is not named on the Application, and that Systems has not been added by Endorsement to the Policy, Freight and Systems have conceded that Systems does not fall within the Policy’s definition of "Insured" and is not entitled to defense or indemnity under the Policy. (Doc. #55, Page ID #269; Doc. #56, Page ID #2-3.) None of these admissions are contested factual issues in Sompo’s attempt to pierce the corporate veil in the Sompo Litigation. Accordingly, HCC respectfully submits that it is entitled to judgment as a matter of law that it has no duty to defend or indemnify Systems for the Sompo Litigation. III. EXCLUSION e) DOES NOT REQUIRE "DAMAGE" TO "TANGIBLE PROPERTY" Instead of addressing the language of Exclusion e) as written, Sompo rewrites the Exclusion in an effort to divorce the term "damage" from the phrase "emotional distress, mental 741850-2 2 Case: 1:16-cv-05201 Document #: 60 Filed: 04/28/17 Page 3 of 10 PageID #:300 anguish, or other similar injury" and have it modify "tangible property". That is, Sompo’s interpretation rewrites the Exclusion so that it reads: This Policy does not apply to any Claim, Claim Expense or Loss 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. (Doc. #50, Page ID #218.) Exclusion e), however, is clear and unambiguous and to be enforced as written: 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; [emphasis added] Sompo cannot contort and rewrite Exclusion e) to render it unenforceable and have the Policy provide coverage where none is afforded under the Policy as written. E.g., James McHugh Construction Co. v. Zurich Am. Ins. Co., 401 Ill.App.3d 127, 132, 927 N.E.2d 247, 252, 339 Ill.Dec. 706, 711 (1st Dist. 2010) ("Courts must not distort the language of the policy to create ambiguities in order to rewrite the policy."); Rohe v. CNA Ins. Co., 312 Ill.App.3d 123, 129-130, 726 N.E.2d 38, 42-43, 244 Ill.Dec. 442, 447 (1st Dist. 2000) (it is impermissible to rewrite the insurance policy to suit one of the parties’ interests); Valley Forge Ins. Co. v. Swiderski Electronics, Inc., 223 Ill.2d 352, 362-363, 860 N.E.2d 307, 314, 307 Ill.Dec. 653, 660 (2006). Additionally, Sompo’s insistence that the Sompo Litigation does not involve damage to the cameras is curious as its own Complaint clearly alleges "This action arises from loss or damage to a shipment of EOS Rebel T-5 camera kits transported by interstate motor carriage in November 2014. [Emphasis added.]" (Doc. #1, Page ID #4, ¶¶ 23-24; Doc #1-4, Page ID #39, ¶ 1.) 741850-2 3 Case: 1:16-cv-05201 Document #: 60 Filed: 04/28/17 Page 4 of 10 PageID #:301 IV. THE CASES OFFERED BY SOMPO, FREIGHT, AND SYSTEMS INTERPRETING CGL POLICIES ARE NOT APPLICABLE Despite recognizing that the Policy provides "Professional Liability Errors & Omissions Insurance", the Oppositions filed by Sompo, Freight, and Systems are based almost exclusively on case law interpreting "property damage" as defined in commercial general liability ("CGL") policies and whether such "property damage" was caused by an "occurrence":  M Consulting & Exp., LLC v. Travelers Cas. Ins. Co. of Am., 2 F.Supp.3d 730, 736 (D. Md. 2014) (CGL policy; "property damage" defined as "physical injury to tangible property, including all resulting loss of use of that property * * *; or loss of use of tangible property that is not physically injured").  GATX Leasing Corp. v. Nat'l Union Fire Ins. Co., 1994 WL 383909, *3–4 (N.D. Ill. July 19, 1994), aff'd, 64 F.3d 1112, 1995 WL 529090 (7th Cir. 1995) (Texas law; CGL policy; "property damage" defined as "physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or loss of use of tangible property which has not been physically injured or destroyed, provided such loss of use is caused by an occurrence during the policy period").  Simmons Ref. Co. v. Royal-Globe Ins. Co., 543 F.2d 1195, 1197 (7th Cir. 1976) (CGL policy; no coverage because "alleged conversion cannot be an'occurrence’").  Advanced Network, Inc. v. Peerless Ins. Co., 190 Cal. App.4th 1054, 1064, 119 Cal.Rptr.3d 17, 25–26 (4th Dist. 2010) (CGL policy; "property damage" defined as "Physical injury to tangible property, including all resulting loss of use of that property," and "Loss of use of tangible property that is not physically injured."  Collin v. Am. Empire Ins. Co., 21 Cal.App.4th 787, 816–817, 26 Cal.Rptr.2d 391, 407–408 (2nd Dist. 1994) (CGL policy; "property damage" defined as "physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period."). This language is markedly different than that of Exclusion e), which broadly precludes coverage for "any injury to, or destruction of, any tangible property or loss of use thereof [emphasis added]". Thoele v. Aetna Casualty & Surety, 39 F.3d 724, 727 (7th Cir. 1994) (an 741850-2 4 Case: 1:16-cv-05201 Document #: 60 Filed: 04/28/17 Page 5 of 10 PageID #:302 exclusion’s inclusion of the word "any" broadens its scope); Nat’l Railroad Passenger Corp. v. Bloomfield Hills School Dist., 2007 WL 1289884, *5 (E.D. Mich. May 1, 2007) ("any" means "every"); Kroll Constr. Co. v. Great Am. Ins. Co., 594 F. Supp. 304, 306 (N.D. Ga. 1984) ("any means all"); Zion v. Kurtz, 50 N.Y.2d 92, 103-04, 405 N.E.2d 681, 686, 428 N.Y.S.2d 199, 205 (N.Y. App. 1980) ("the word'any’ means'all’ or'every’ and imports no limitation"). As Sompo noted in its Opposition, M Consulting & Export, LLC distinguished one of the cases relied on by HCC, U.S. Fidelity & Guaranty Co. v. Mayor’s Jewelers of Pompano, Inc., 384 So.2d 256, 258 (Fla. App. 4th Dist. 1980). The reason it did so, however, is the very reason that Mayor’s Jewelers is applicable in interpreting Exclusion e): The only relevant case that Plaintiff cites in support of this proposition is U.S. Fid. & Guar. Co. v. Mayor’s Jewelers of Pompano, Inc., 384 So.2d 256, 258 (Fla.Dist.Ct.App.1980) ("When property is stolen, its market value to the one who lawfully possessed it is totally diminished. We therefore hold that theft of personal property is'property damage’ unless a contrary intent is clearly expressed."). However, the insurance agreement at issue in Mayor’s Jewelers did not define "property damage" in terms of physical damage. See id. ("If, as USF & G maintains, property is damaged only when it suffers actual, physical damage, it would have been relatively simple to include the word'physical’ in its definition."). Accordingly, the case is distinguishable on its facts. [Emphasis added.] Id. at 735 n.4. Moreover, contrary to Freight and Sompo’s assertions, Mayor’s Jewelers was not "a first party case". (Doc. #55, Page ID #275.) Mayor’s Jewelers of Pompano Beach, Inc. ("Mayors") suffered a loss of jewelry when an unknown thief entered its building by breaking a plate glass window. 384 So.2d at 257. Prior to the theft, Mayors had contracted with Albert Glass Company, Inc. ("Albert Glass") for the installation of "riot glass". Id. The investigation following the theft revealed that the "riot glass" had not been installed. Id. Mayors sued Albert Glass for breach of contract, negligence, and breach of implied warranty. Id. Albert Glass, in turn, filed a third-party 741850-2 5 Case: 1:16-cv-05201 Document #: 60 Filed: 04/28/17 Page 6 of 10 PageID #:303 complaint against its insurer, United States Fidelity & Guaranty Company ("USF&G"), who Mayors then joined as a direct defendant. Id. USF&G denied coverage for Mayors’ claim asserting that the damages claimed by Mayors for the theft of the jewelry did not fall within the term "property damage". The policy at issue defined "property damage" as "injury to or destruction of tangible property". Id. Distinguishing those cases that had addressed "physical injury" in considering whether "property damage" was alleged, the District Court of Appeal of Florida for the Fourth District turned to Black’s Law Dictionary’s definition of "injury", i.e., "any wrong or damage done to another, either in his person, rights, reputation, or property" and "an act which damages, harms or hurts". Id. at 258. Relying on the opinion in Pittway Corp v. American Motorists Ins. Co., 56 Ill.App.3d 338, 13 Ill.Dec. 244, 370 N.E.2d 1271 (1971), addressing the same definition of "property damage", the Court held: As here, the property was not physically damaged but was rendered totally useless. When property is stolen, its market value to the one who lawfully possessed it is totally diminished. We therefore hold that theft of personal property is "property damage" unless a contrary intent is clearly expressed. If, as USF&G maintains, property is damaged only when it suffers actual, physical damage, it would have been relatively simple to include the word "physical" in its definition. [Emphasis added.] Id.; see, e.g., Red Ball Leasing, Inc. v. Hartford Accident & Indemnity Co., 915 F.2d 306, 309 (7th Cir. [Ind.] 1990) (conversion of trucks was characterized as a "loss of use"). Here, just as in Mayors Jewelers, Exclusion e) of the Policy does not require "physical damage". As the cases relied upon by Sompo, Freight, and Systems concern different policy language, they cannot control as to the interpretation of Exclusion e). 741850-2 6 Case: 1:16-cv-05201 Document #: 60 Filed: 04/28/17 Page 7 of 10 PageID #:304 V. COTTEN SCHMIDT IS DISTINGUISHABLE While an exclusion in a lawyer’s professional liability policy for "injury to, or destruction of tangible property or loss of use thereof" was at issue in Westport Insurance Corporation v. Cotten Schmidt, LLP, 605 F.Supp.2d 796, 808–809 (N.D. Tex. 2009), the decision of the United States District Court for the Northern District of Texas is distinguishable. Cotten Schmidt, LLP asserted that the exclusion was intended to prevent coverage for damages that would be covered by CGL policies. Id. Westport Insurance Corporation did not contest this explanation. Id. The Court, relying on the "intended" purpose of the exclusion, interpreted "loss of use" in accordance with those cases addressing the definition of "property damage" in CGL policies. Id. at 808. No such assertion or concession has been made in this case, and therefore, the Court should not disregard the language of the Policy in favor of principles applied in interpreting different language in a CGL policy. VI. EXCLUSION e) DOES NOT RENDER THE POLICY ILLUSORY Just because Exclusion e) precludes coverage for Sompo’s claim does not mean that the coverage provided by the Policy is illusory. E.g., James River Ins. Co. v. Keyes2Safety, Inc., 2012 WL 3023334, *2 (N.D. Ill. July 24, 2012) ("So long as the exclusions are not prohibited by statute or public policy, an insurer can include any number of them to limit its liability and obligations to the insured."), citing Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 462 (7th Cir. 1997); Archer Daniels, 785 F.Supp.2d at 734 ("[a]n insurance policy may exclude coverage for particular injuries or damages in certain specified circumstances while providing coverage in other circumstances, and thus, an insurer is not absolutely prohibited from drafting and enforcing policy provisions that provide or leave intact coverage for some, but not all, manifestations of a particular peril"), quoting 2 Couch on Ins. § 22:30; Nicor, Inc. v. Assoc. Elec. & Gas Ins. Services Ltd., 362 Ill.App.3d 745, 741850-2 7 Case: 1:16-cv-05201 Document #: 60 Filed: 04/28/17 Page 8 of 10 PageID #:305 754-755, 841 N.E.2d 78, 86, 298 Ill.Dec. 935, 943 (1st Dist. 2005) ("The policy need not provide coverage against all possible liabilities; if it provides coverage against some, the policy is not illusory"). The Policy is not intended to be a guarantee or bond that covers every potential claim that could be asserted against Freight. Rather, the Policy provides coverage only for those claims that fall within its provisions. See, e.g., Marguilis v. BCS Ins. Co., 2014 IL App (1st) 140286, ¶ 45, 23 N.E.3d 472, 486, 387 Ill.Dec. 780, 794 (2014) ("it is the actual language of a policy that ultimately controls the determination of what risks are covered"); see Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 394-395, 620 N.E.2d 1073, 1079, 189 Ill.Dec. 756, 762 (1993) (declining to interpret policy in a manner that "would expand the coverage beyond what was contracted for by the parties"). Here, Exclusion e) of the Policy precludes coverage for "any injury to, or destruction of, any tangible property or loss of use thereof".5 While it is impossible to list every potential claim scenario that may arise under the Policy, claims that may potentially be covered would be those that seek to recover for a recordkeeping error that resulted in a client’s funds being lost or misappropriated, an error that resulted in a load of cargo being shipped to the wrong location, or a shipping delay caused by the negligence of an employee. So long as coverage is available under the Policy for some claims, it is not illusory and is to be enforced as written. Archer Daniels, 785 F.Supp.2d at 735 (so long as exclusion does not preclude any possibility of coverage under other facts, is plain and clear, and "does not surreptitiously take away the coverage" the policy purports to grant, it is not illusory). 5 The type of loss involved in this case is typically covered by a policy providing contingent cargo liability coverage. See Airborne Freight Corp. v. St. Paul Fire & Marine Ins. Co., 472 F.3d 634, 636 (9th Cir. 2006) (cargo liability policies provide protection to the carrier and/or broker while it remains liable to the shipper for loss or damage to the goods in the course of shipment). 741850-2 8 Case: 1:16-cv-05201 Document #: 60 Filed: 04/28/17 Page 9 of 10 PageID #:306 VI. CONCLUSION Considering the foregoing, HCC respectfully submits that Exclusion e) precludes coverage under the Policy, such that it has no duty to defend or indemnify Freight (or any person or entity) for the Sompo Litigation. Accordingly, HCC respectfully submits that it is entitled to judgment on the pleadings. Respectfully submitted,/s/Crystal L. Maluchnik______________ STEVEN G. JANIK (0021934) CRYSTAL L. MALUCHNIK (0077875) JANIK L.L.P. 9200 South Hills Blvd., Suite 300 Cleveland, Ohio 44147 Tel: 440-838-7600 * Fax: 440-838-7601 Email: Steven.Janik@janiklaw.com Crystal.Maluchnik@janiklaw.com Mail: Janik L.L.P. P.O. Box 470550 Cleveland, Ohio 44147 Attorneys for Plaintiff Houston Casualty Company 741850-2 9 Case: 1:16-cv-05201 Document #: 60 Filed: 04/28/17 Page 10 of 10 PageID #:307 CERTIFICATE OF SERVICE The undersigned hereby certifies that a copy of the foregoing was filed electronically this 28th day of April, 2017. Notice of this filing will be sent to the Parties by operation of the Court’s electronic filing system. Parties may access this filing through the Court’s system./s/Crystal L. Maluchnik One of the Attorneys for Plaintiff Houston Casualty Company 741850-2 10