Supreme Laundry Serv v. Hartford Casualty ( 2008 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 07-1781
SUPREME LAUNDRY SERVICE, L.L.C.,
Plaintiff-Appellant,
v.
HARTFORD CASUALTY INSURANCE COMPANY,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 06 CV 4475—James B. Zagel, Judge.
____________
ARGUED OCTOBER 24, 2007—DECIDED APRIL 4, 2008
____________
Before FLAUM, MANION, and WILLIAMS, Circuit Judges.
WILLIAMS, Circuit Judge. Supreme Laundry Service,
L.L.C. (“Supreme”) leases space in condominium and
multi-unit apartment buildings for the purpose of install-
ing and maintaining laundry machines for the residents’
use. A dispute between Supreme and its main competitor,
Coinmach Corporation (“Coinmach”), led to litigation in
which Supreme’s insurance provider, Hartford Casualty
Insurance Company (“Hartford”), refused to provide a
defense. Hartford claims that the relevant provisions of the
2 No. 07-1781
policy require that it provide a defense for Supreme only
against claims made by natural persons and not corpora-
tions. Because the policy is ambiguous as to whether its
provisions are limited to only natural persons, we find that
Hartford had a duty to defend Supreme against
Coinmach’s claims. We therefore reverse the judgment of
the district court.
I. BACKGROUND
In June 2000, the Hinsdale Point Condominium Associa-
tion (the “Association”) entered into a lease with Supreme
to install and maintain laundry equipment, a service
previously provided by its competitor, Coinmach, whose
lease was cancelled for failure to pay rent. In 2001, Su-
preme filed a declaratory judgment action to determine the
validity of its lease with the Association, and Coinmach
filed a three count counterclaim. Coinmach’s first count
sought a declaration that its eviction from the Association’s
laundry rooms was unlawful and that it was entitled to an
order directing Supreme to vacate the laundry rooms. Its
second count accused Supreme of “willful, wanton and
malicious” trespass resulting in lost profits exceeding
$90,000. Coinmach’s third count alleged that Supreme’s
employees had unlawfully moved, removed and/or used
Coinmach’s property in the Association’s laundry rooms.
In April 2002, Supreme forwarded the counterclaim to
Hartford, requesting a defense. A few weeks later, Hartford
denied coverage, finding that the counterclaim allegations
did not fall within the confines of the “personal and
advertising injury” provision of Supreme’s Commercial
General Liability Policy (“CGL policy”). In September 2004,
Coinmach filed an amended counterclaim, which Supreme
also forwarded to Hartford with a renewed request to
No. 07-1781 3
defend. Hartford again rejected the request, this time
because Supreme was not the owner, landlord, or lessor of
the laundry rooms and that the alleged acts of trespass fell
outside of the scope of the policy.
Supreme then filed this suit against Hartford, alleging
that Coinmach’s counterclaim fell within the terms of
Supreme’s CGL policy. Hartford argues that Coinmach is
a “corporation” and not a “natural person”; therefore, the
counterclaim falls outside the purview of the “personal and
advertising injury” provision of the policy. The “personal
and advertising injury” provision includes the following
language:
We will pay those sums that the insured becomes
legally obligated to pay as damages because of
“personal and advertising injury” to which this
insurance applies. We will have the right and duty
to defend the insured against any “suit” seeking
those damages.
The policy defines “personal and advertising injury” as:
[I]njury, including consequential ‘bodily injury’,
arising out of one or more of the following of-
fenses:
c. The wrongful eviction from, wrongful
entry into, or invasion of the right of pri-
vate occupancy of a room, dwelling, or
premises that a person occupies, commit-
ted by or on behalf of its owner, landlord
or lessor . . .
Supreme also has a second policy with Hartford, the
Umbrella Policy, which was issued contemporaneously
with the CGL policy and provides coverage for any sums
that the insured must pay for personal or advertising injury
4 No. 07-1781
that are in excess of the coverage provided by the CGL
policy. The Umbrella policy’s “personal injury” provision
contains similar language to that in the CGL policy. The
district court granted Hartford’s Rule 12(c) motion for
judgment on the pleadings, finding that Hartford had no
duty to defend Supreme because the term “person” as it is
used in the policies applies to natural persons only and not
to corporations.
II. ANALYSIS
A. Hartford had a duty to defend Supreme in the under-
lying lawsuit because the insurance policy is ambigu-
ous.
Under Federal Rule of Civil Procedure 12(c), a party can
move for judgment on the pleadings after the filing of the
complaint and answer. This court reviews de novo the
district court’s ruling on a Rule 12(c) motion, Moss v.
Martin, 473 F.3d 694, 698 (7th Cir. 2007), and will grant the
motion “[o]nly when it appears beyond a doubt that the
plaintiff cannot prove any facts to support a claim for relief
and the moving party demonstrates that there are no
material issues of fact to be resolved.” Id.
Supreme argues on appeal that Hartford breached the
insurance contract by denying coverage. Neither of Su-
preme’s policies contains choice of law provisions, but
Illinois law applies since the policies were delivered in
Illinois to Supreme, an Illinois corporation whose opera-
tions are located within the state. Lapham-Hickey Steel Corp.
v. Protection Mut. Ins. Co., 655 N.E.2d 842, 845 (Ill. 1995)
(outlining the Illinois choice of law factors). Under Illinois
law, to determine if the insurer has a duty to defend its
insured, “the court must look to the allegations in the
No. 07-1781 5
underlying complaint and compare these allegations to the
relevant provisions of the insurance policy.” Outboard
Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1212
(Ill. 1992). “If the facts alleged in the underlying complaint
fall within, or potentially within, the policy’s coverage, the
insurer’s duty to defend arises.” Id. (citing Weiss v. Bitumi-
nous Casualty Corp., 319 N.E.2d 491, 494 (Ill. 1974)). Further-
more, “[r]efusal to defend is unjustifiable unless it is clear
from the face of the underlying complaint that the facts
alleged do not fall potentially within the policy’s cover-
age.” Id.; see also Old Republic Ins. Co. v. Chuhak & Tecson, 84
F.3d 998, 1001 (7th Cir. 1996) (applying Illinois law, which
states that the duty to defend is broad and the insurance
company must defend if the underlying suit is arguably
covered by the policy).
Hartford takes the position that it had no duty to defend
Supreme because the relevant policy provisions speak in
terms of providing a defense against claims made by
“persons”—a term which it argues cannot apply to
Coinmach, which is a corporation. Hartford reasons that
the use of the word “organization” in conjunction with
“person” supports this reading of the CGL policy because,
it maintains, when the word “person” is used in isolation
from the word “organization” in the policy, “person”
consistently refers to natural persons. It contends that to
find otherwise would render use of the word “organiza-
tion” mere surplusage.1
1
Hartford points out, for example, that the “Limits of Insur-
ance” section on page eight of the CGL policy provides that the
limits shown on the declarations page apply irrespective of the
number of “[p]ersons or organizations making claims or
bringing ‘suits.’ ” In subparagraph 2.b. of the “Who Is An
(continued...)
6 No. 07-1781
In support of this position, Hartford relies on Mirapad,
L.L.C. v. California Insurance Guarantee Ass’n., 34 Cal Rptr.
3d 136 (Ct. App. 2005). In Mirapad, the court found that the
term “person” did not apply to organizations in the context
of a wrongful eviction provision of a Commercial General
Liability policy where the term “person,” as used in other
places in the policy, clearly referred to a natural person. Id.
at 138. The district court here agreed, reasoning that since
the terms “person” and “organization” are often coupled
together in the policy, when the policies’ drafters wanted
to refer to both persons and organizations, they would list
both terms and not use the term “person” to encompass
both.
Illinois law requires, however, that insurers defend a
claim if it potentially falls within the policy’s coverage,
Outboard Marine Corp., 607 N.E.2d at 1212, and this rule
demands a result contrary from that found by the district
court. The term “person” is not defined by the policy, and
Illinois courts have held that if a term in a contract is
undefined, a court should afford the term its “plain,
ordinary and popular meaning . . . [as] derived from the
term’s dictionary definition.” Id. at 1215. Webster’s Dictio-
nary defines “person” as “one (as a human being, a part-
nership, or a corporation) that is recognized by law as the
subject of rights and duties.” See also Oxford English
Dictionary 597 (2nd ed. 1989) (defining “person” as “[a]
human being (natural person) or body corporate or corpo-
ration (artificial person), having rights or duties recognized
(...continued)
Insured” provision on page seven of the policy, the policy
provides that “[a]ny person (other than your ’employee’), or
any organization while acting as your real estate manager,” is
included as an insured.
No. 07-1781 7
by the law”); Black’s Law Dictionary 1162 (8th ed. 2004)
(defining “person” as both a human being and an entity).
Thus, the ordinary meaning of the word “person” can refer
to a corporation. In this case, the “personal and advertising
injury” provision can apply to both natural persons and
corporations which, at the very least, means that the use of
“person” in the policy is ambiguous. William Blair & Co.,
LLC v. FI Liquidation Corp., 830 N.E.2d 760, 769 (Ill. App. Ct.
2005) (“A contract term is ambiguous if it can reasonably be
interpreted in more than one way due to the indefiniteness
of the language or due to it having a double or multiple
meaning.”). Ambiguities are resolved against the drafter of
the policy. Travelers Ins. Cos. v. Penda Corp., 974 F.2d 823,
828 (7th Cir. 1992) (“[a]ll doubts and ambiguities must be
resolved in favor of the insured”).
It is true that there are certain provisions in the policy in
which “person” must refer to a natural person. For exam-
ple, the CGL policy’s definition for “bodily injury”2 would
preclude the term “person” from universally applying to
both natural persons and corporations. A corporation
cannot suffer bodily injury, or as another example, become
intoxicated which would prohibit coverage under the
liquor liability exclusion. This limitation is not so evident
in the “personal and advertising injury” provision of the
contract. Similar to a natural person, a corporation can be
wrongfully evicted from premises. Given that neither
“person” nor “organization” is defined by the policies, we
will not read “person” in this CGL policy to refer to simply
natural persons when it can plausibly apply to a corporate
entity, especially where the drafters never expressed any
2
The CGL policy defines “bodily injury” as “bodily injury,
sickness or disease sustained by a person, including death
resulting from any of these at any time.”
8 No. 07-1781
intent that usage of the term was meant only to refer to
natural persons.
The Umbrella policy provides even more support for our
conclusion that the use of the word “person” is
ambiguous.3 The Umbrella policy lists six instances that can
give rise to a “personal injury” covered by the policy; two
are relevant to our analysis. The provision reads, in part:
Personal injury, means injury . . . arising out of one
or more of the following offenses committed
during the ‘policy period’ in the conduct of your
business:
3. The wrongful eviction from, wrongful
entry into, or invasion of the right of
private occupancy of a room, dwelling
or premises that a person occupies by or
on behalf of his or her owner, landlord
or lessor;
...
3
Hartford argues that the meaning of the word “person” cannot
be determined by reference to the Umbrella policy; however,
since the meaning of the word is not clear from the four corners
of the CGL policy, we can look to the Umbrella policy to provide
insight because it was drafted at the same time as the CGL
policy. See Wald v. Chicago Shippers Ass’n, 529 N.E.2d 1138, 1146
(Ill. App. Ct. 1988) (“Where there is an ambiguity arising from
the terms of a contract, the meaning may be derived from
extrinsic facts surrounding formation.”); William Blair & Co.,
830 N.E.2d at 773 (“courts may refer to extrinsic evidence to
determine that words, seemingly unambiguous within the four
corners of a contract, are, nevertheless, blatantly ambiguous
within the broader context of the parties’ dealings”).
No. 07-1781 9
6. Discrimination or humilation not inten-
tionally committed by or at the direc-
tion of the ‘insured’ . . . but only with
repect to injury to the feelings or repu-
tation of a natural person.
(Emphases added).
The use of the term“person” in subpart 3 and the later
use of the distinct term “natural person” in subpart 6
undermines Hartford’s argument that “person” only
applies to natural persons. Hartford utilized the term
“natural person” in subpart 6 of the Umbrella policy. It
chose not to use that term in subpart 3 of the same provi-
sion. However, subpart 3 contains language nearly identi-
cal to that at issue in the CGL policy, which Hartford now
claims is limited to natural persons. The use of the word
“natural person” in the Umbrella policy’s “personal injury”
provision makes it further unclear to us that “person” as it
is used in the CGL policy’s “personal and advertising
injury” provision was intended only to apply to natural
persons.
B. Hartford is estopped from raising a policy defense to
coverage.
Hartford makes one last argument to avoid a finding that
it breached its duty to defend Supreme. Hartford argues
that even if Coinmach’s allegations fall within the CGL
policy, Exclusion 7 of the policy would preclude coverage.
Exclusion 7 provides that:
This insurance does not apply to:
1. “Personal and advertising injury:”
10 No. 07-1781
(7) Arising out of any breach of
contract, except an implied con-
tract to use another’s “advertising
idea” in your “advertisement”.
Hartford argues that this provision precludes coverage
on the basis of the Association’s alleged breach of its lease
with Coinmach, which led to the underlying lawsuit and
counterclaim for which Supreme now seeks defense.
However, the general principle of contractual estoppel is
applicable to the instant case. Under this theory, “an
insurer that believes it has no duty to defend a tendered
claim can avoid liability if it either: 1) defends under a
reservation of rights or 2) seeks a declaratory judgment that
it has no obligation to defend. If an insurer simply declines
to defend and is later found to have denied wrongfully
coverage, the insurer is estopped from raising a policy
defense to coverage.” Ill. Sch. Dist. Agency v. Pac. Ins. Co.,
471 F.3d 714, 720 (7th Cir. 2006). Hartford declined to
defend Supreme in the underlying action, and Supreme,
not Hartford, instituted the current declaratory judgment
action regarding coverage. Thus, Hartford is estopped from
raising a policy defense to coverage.
Even if we were to find that Hartford is not estopped
from raising a policy defense, Hartford would have us read
the “arising out of any breach of contract” language of
Exclusion 7 very broadly, to apply even to contracts to
which the insured is not party but has somehow benefitted
from because of the alleged breach. The cases relied on by
Hartford for a broad reading of this language, West Ameri-
can Insurance Co. v. Bedwell, 715 N.E.2d 759 (Ill. App. Ct.
1999) and Liberty Mutual Insurance Co. v. Westfield, 703
N.E.2d 439 (Ill. App. Ct. 1998), are inapposite. There, the
courts read the “arising out of” language broadly for
No. 07-1781 11
purposes of affording coverage, consistent with the general
rule that “underlying complaints and the insurance policies
must be liberally construed in favor of the insured”,
Travelers Insurance Cos., 974 F.2d at 828, and neither case
involved an “arising out of breach of contract” exclusion.
Notably, Coinmach’s counterclaim, for which Supreme
seeks defense, is not for breach of contract. It therefore
seems somewhat odd to read the contract as restricting the
insured’s coverage where the insured is not a party to the
contract that has allegedly been breached and where the
counterclaim for which the insured seeks coverage is not
for breach of contract. However, because Coinmach’s
counterclaim for trespass against Supreme depends on the
underlying validity of its contract with the Association, and
Supreme’s actions could be read as somehow inducing a
breach of this contract, Exclusion 7 is, at the very least,
ambiguous, which leaves Hartford in the same position of
having a duty to defend its insured. Old Republic, 84 F.3d at
1003 (“All that is necessary to trigger the duty to defend is
that the claim be within the arguable scope of the insurance
policy.”).
For these reasons, we find that Hartford had a duty to
defend Supreme against Coinmach’s counterclaim. This
duty to defend arose “as soon as damages [were] sought.”
General Agents Ins. Co. v. Midwest Sporting Goods Co., 828
N.E.2d 1092, 1097 (Ill. 2005). Therefore, Hartford’s duty to
defend Supreme arose as soon as Supreme tendered
Coinmach’s counterclaim to the company on March 15,
2002, and Hartford has to reimburse Supreme for its
expenses to date. A. Kush & Assocs. v. American States Ins.
Co., 927 F.2d 929, 934 (7th Cir. 1991) (“when an insurer has
a duty to defend it ‘must reimburse [the insured] for the
12 No. 07-1781
reasonable fees and costs incurred in that action to date’ ”)
(citation omitted).
III. CONCLUSION
Accordingly, we REVERSE the judgment of the district
court and REMAND this case for proceedings consistent with
this opinion.
USCA-02-C-0072—4-4-08