Insurance

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7^th Circuit Court of Appeals

Case Name: Continental Indemnity Company v. BII, Inc.

Case No.: 23-1648

Officials: Hamilton, Brennan, and Kirsch, Circuit Judges.

Focus: Insurance

Continental Indemnity Company (Continental) has attempted to collect a default judgment against BII, Inc. (BII) from Starr Indemnity & Liability Company (Starr), BII’s insurer. Continental had covered a workers’ compensation claim for an employee injured at a construction site where BII was a subcontractor. Seeking reimbursement, Continental pursued BII, which had neglected to maintain its own workers’ compensation insurance. After BII failed to pay, Continental obtained a default judgment against BII and attempted to collect from Starr using Illinois garnishment procedures.

The district court in the Northern District of Illinois dismissed the garnishment proceeding against Starr, citing a lack of subject matter jurisdiction. The court argued that the dispute over the scope of coverage under the Starr-BII insurance policy was too separate from the original suit between Continental and BII. Continental appealed this decision to the United States Court of Appeals for the Seventh Circuit.

The Seventh Circuit upheld the district court’s decision. The court determined that the garnishment proceeding introduced new factual and legal issues, effectively constituting a new lawsuit. The court clarified that while federal courts possess ancillary enforcement jurisdiction for proceedings related to an underlying suit, these proceedings must be closely related to the original action’s facts and legal issues. In this instance, the court found that the garnishment proceeding did not fall within the scope of ancillary enforcement jurisdiction. The court suggested that Continental could initiate a new civil action against Starr to resolve the dispute over the insurance policy’s coverage.

Affirmed.

Decided 06/12/24

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