02-3275 Insurance Company of the West v. County of McHenry

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“The County argues that sanctions are warranted in this case because ICW’s appeal lacks any good faith basis in fact or law. The County claims that ICW’s duty to indemnify was so obviously dependent on resolution of Count III at trial that ICW’s request for a declaration of rights from the district court and its subsequent appeal were frivolous. We disagree. ICW was well within its legal rights to seek a declaration that it had no duty to indemnify against a claim that it reasonably believed to be outside the scope of its policy. The policy exclusion at issue bars claims based on ‘the principles of eminent domain, condemnation proceedings or inverse condemnation, by whatever name called,’ while Count III of Indeck’s complaint alleges that the County’s actions denying Indeck a permit to build the peaker plant resulted in a ‘loss of the lawful use’ of the property. The district court could not discern from this language on what basis Indeck sought to impose liability on the County, nor could it determine for certain whether Count III alleged a claim that came within the policy exclusion. Given this ambiguity, it was not a foregone conclusion that we would interpret Count III’s language in the same way as the district judge, nor that we would automatically decline to find jurisdiction and deny declaratory relief to ICW. Thus, we cannot say that ICW’s appeal from the district court’s decision was without a good faith basis in law or fact.”

Dismissed.

Appeal from the United States District Court for the Northern District of Illinois, Kennelly, J., Flaum, J.