Insurance Claim – Liability and Interest – Subjuct Matter Jurisdiction

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7^th Circuit Court of Appeals

Case Name: Shannon Hyland v. Liberty Mutual Fire Insurance Company

Case No.: 17-2712

Officials: BAUER, EASTERBROOK, and ROVNER, Circuit Judges.

Focus: Insurance Claim – Liability and Interest – Subjuct Matter Jurisdiction

Monteil Hyland was a passenger in a car owned by Kimberly Perkins and driven by Miquasha Smith—who, at age 16, was not lawfully behind the wheel when she smashed the car at 12:46 a.m. one Saturday into two parked vehicles, seriously injuring Hyland. Smith has been convicted of aggravated reckless driving. Neither Smith nor her parents had auto insurance. But Perkins had a policy of insurance with Liberty Mutual. It covered her family, including her daughter Michiah Risby, plus anyone else driving the car with the family’s permission. Smith told Liberty Mutual that Risby gave her the car’s keys during a party; Risby denied doing that and said that she had given the keys to “Rob,” who was never identified.

The police reported that Smith had told many incompatible stories about the events. Liberty Mutual believed its insured, Risby, and when Shannon Hyland (Monteil’s mother, acting as his next friend) sued Smith it told Shannon’s lawyer that it would not provide a defense or indemnity. (From now on, all references to “Hyland” are to Shannon Hyland, the plaintiff in both the state and federal suits.) Eventually Smith defaulted, and a state court entered a judgment for about $4.6 million. Smith assigned to Hyland whatever claim she had against Liberty Mutual. In this suit under the diversity jurisdiction, the district court concluded that Liberty Mutual’s failure either to defend Smith or to seek a declaratory judgment of non-coverage violated Illinois law, making it liable for the entire tort judgment, even though the policy provided only $25,000 per person in coverage. 2017 U.S. Dist. LEXIS 124374 (C.D. Ill. Aug. 7, 2017). Liberty Mutual now concedes that it should have defended Smith while reserving a right to decline indemnity, but it contends that its liability cannot exceed the policy’s cap.

Having appellate jurisdiction, we now must ask whether the district court had subject-matter jurisdiction, a question that the judge and the parties alike ignored. We are reluctant to get into this dispute about the meaning of Illinois insurance law, for we lack the remit to supply an authoritative answer. It is enough for current purposes to say that, even if proximate cause by itself suffices, Hyland has not shown how the insurer’s conduct could have caused Smith any loss exceeding $25,000—and recall that Hyland is Smith’s assignee, so only Smith’s injury matters.

If Smith had a plausible defense, either to liability or to the amount of Hyland’s claim, then the insurer’s failure to send a lawyer to help Smith make those arguments could be seen as a proximate cause of the state-court judgment. But some judgment against Smith was inevitable and the amount of the judgment must be taken as justified. Hyland has not argued otherwise. The maximum loss caused by the failure to defend thus is $25,000, and the award in this suit cannot exceed that sum.

Liberty Mutual is not satisfied with this conclusion. It also maintains that it does not owe interest on even the $25,000. That’s wrong. Illinois provides for post-judgment interest at 9% per annum. 735 ILCS 5/2-1303. The district judge found that Liberty Mutual should have paid the judgment against Smith in July 2014, and Liberty Mutual does not contest that decision to the extent that the principal obligation is capped at $25,000. Thus Smith’s substantive entitlement, as a matter of Illinois law, is $25,000 plus interest from July 2014. This is what Hyland now holds by assignment. That the insurer later offered to pay $25,000 is irrelevant; §5/2-1303 provides that interest stops only with tender of payment. (Liberty Mutual’s reliance on the policy’s language does not help it, because the policy limits interest only in suits that Liberty Mutual defended.) And Liberty Mutual does not contend that interest after the date of the federal judgment should run at the federal post-judgment rate rather than the state post-judgment rate; we do not decide whether a change from one rate to the other would be appropriate. The judgment is vacated, and the case is remanded for the entry of a judgment for $25,000 plus interest at 9% per annum from July 28, 2014, until the date of payment.

Vacated and Remanded

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.