Insurance Claim – Coverage

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7^th Circuit Court of Appeals

Case Name: Philadelphia Indemnity Insurance Company v. The Chicago Trust Company, et al.

Case No.: 18-3181; 18-3241

Officials: EASTERBROOK, KANNE, and SCUDDER, Circuit Judges.

Focus: Insurance Claim – Coverage

The Baby Fold is a nonprofit corporation that provides foster-care services in Illinois. In 2010 Baby Fold placed three-year-old Kianna Rudesill in the care of Joshua and Heather Lamie. Heather killed Kianna in May 2011 and has been convicted of murder. The Chicago Trust Company, as administrator of Kianna’s estate, maintained a wrongful death action in Illinois state court against Baby Fold for its failure to supervise and protect Kianna. In February 2019 Chicago Trust and Baby Fold settled their dispute for $4 million.

The question in this case is what portion of the settlement (and any other losses related to Kianna’s death) must be paid by Baby Fold’s insurer. Philadelphia Indemnity filed this declaratory-judgment suit under the diversity jurisdiction and asked the judge to declare how much it owes under two policies covering Baby Fold at the time of Kianna’s death. We refer to the policies as the primary policy and the excess policy. The insurer asked for a declaration that its maximum indemnity is $1 million under the primary policy and $250,000 under the excess policy. Baby Fold and Chicago Trust filed counterclaims: They agree that the primary policy provides $1 million of coverage but contend that the excess policy’s limit is $5 million, not $250,000. Philadelphia moved to dismiss Chicago Trust’s counterclaim under Fed. R. Civ. P. 12(b)(6). The district judge concluded that the policies’ language favors the insurer and granted the motion to dismiss. The opinion declared that Philadelphia’s potential liability under the excess policy is $250,000. 2018 U.S. Dist. LEXIS 165071 at *25–26 (N.D. Ill. Sept. 26, 2018).

Chicago Trust and Baby Fold contend that the excess policy provides a $5 million limit, or at least that the language is ambiguous and thus must be construed in favor of more coverage under Illinois law. See, e.g., Gillen v. State Farm Mutual Automobile Insurance Co., 215 Ill. 2d 381, 393 (2005). But the policies’ language supports Philadelphia’s interpretation. The primary policy comprises several “coverage parts,” each of which outlines specific types of losses. One part covers losses arising out of Baby Fold’s negligent supervision of foster parents who commit physical abuse; both sides agree that this part provides $1 million of coverage. The excess policy then provides an additional layer of insurance with a general limit of $5 million.

Finally, Chicago Trust contends that the district court prematurely declared Philadelphia the prevailing party on the pleadings. We do not see any error. Both policies were attached to Philadelphia’s complaint. These provided everything the district judge needed to resolve the dispute under Fed. R. Civ. P. 12(c), despite her failure to mention that rule. See United States v. Rogers Cartage Co., 794 F.3d 854, 860–61 (7th Cir. 2015); Smith v. Check-N-Go of Illinois, Inc., 200 F.3d 511, 514 (7th Cir. 1999) (noting that a judgment on the pleadings may be affirmed even though the district judge mistakenly cites Rule 12(b)(6)). We reject Chicago Trust’s contention that additional materials require consideration.

Affirmed

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.