Philadelphia Indemnity Insuran v. Chicago Trust Company ( 2019 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 18-3181 & 18-3241
PHILADELPHIA INDEMNITY INSURANCE COMPANY,
Plaintiff, Counterdefendant-Appellee,
v.
THE CHICAGO TRUST COMPANY, as Administrator of the Es-
tate of Kianna Rudesill, and THE BABY FOLD,
Defendants, Counterplaintiffs-Appellants.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 16 C 10161 — Joan Humphrey Lefkow, Judge.
____________________
ARGUED APRIL 16, 2019 — DECIDED JULY 19, 2019
____________________
Before EASTERBROOK, KANNE, and SCUDDER, Circuit Judg-
es.
EASTERBROOK, Circuit Judge. 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, main-
2 Nos. 18-3181 & 18-3241
tained 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 se]led their
dispute for $4 million.
The question in this case is what portion of the se]lement
(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 jurisdic-
tion 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 Chica-
go 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 poli-
cies’ 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).
Unfortunately, the district court entered a judgment that
does not declare the parties’ rights. Instead the judgment
reads: “Case is dismissed.” This means that Philadelphia
loses (contradicting the judge’s opinion) and that the wrong
parties have appealed, jeopardizing our appellate jurisdic-
tion. We asked counsel for both sides at oral argument about
this incongruity. They surmised that the opinion and judg-
ment, taken together, fully resolve the case in Philadelphia’s
Nos. 18-3181 & 18-3241 3
favor. That’s wrong. A judgment must provide the relief to
which a prevailing party is entitled. See, e.g., Greenhill v. Var-
tanian, 917 F.3d 984, 987 (7th Cir. 2019) (collecting authority).
This judgment does the opposite, awarding the prevailing
party a loss. And Fed. R. Civ. P. 58(a) prohibits an opinion
from serving as a declaratory judgment. See Foremost Sales
Promotions, Inc. v. Director, Bureau of Alcohol, Tobacco & Fire-
arms, 812 F.2d 1044, 1045–46 (7th Cir. 1987).
Counsel also speculated that this document represents a
take-nothing judgment for the counterclaims. But this would
mean that Philadelphia’s claim remains unresolved, and if so
the suit is not over. Moreover, this judgment suffers from
other problems. It fails to mention one defendant (Chicago
Trust). It does not address the counterclaims. And it trans-
gresses Rule 58(b) because it was entered by a clerk. District
judges must review all judgments other than simple judg-
ments on jury verdicts and judgments entirely in the de-
fendants’ favor. This judgment does not fall under those ex-
ceptions and thus requires the district judge’s approval. Rule
58(b) requires this judicial inspection to ensure the entry of
proper judgments, especially when dispositions are compli-
cated. See Rush University Medical Center v. LeaviJ, 535 F.3d
735, 737 (7th Cir. 2008). And lawyers must alert judges to
problems with judgments. We are disappointed by counsel’s
failure to adhere to our repeated admonitions on this subject.
See, e.g., Azeez v. Fairman, 795 F.2d 1296, 1297 (7th Cir. 1986).
We remanded with instructions to enter a new judgment
that implements the district judge’s opinion, abides by Rule
58, and resolves the whole case. The district judge complied,
and the revised judgment provides Philadelphia with the
declaratory relief described in the opinion. It also dismisses
4 Nos. 18-3181 & 18-3241
the defendants’ counterclaims. With the new judgment in
hand we turn to the merits.
Chicago Trust and Baby Fold contend that the excess pol-
icy 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 Mu-
tual 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 co-
vers 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 ex-
cess policy then provides an additional layer of insurance
with a general limit of $5 million. The excess policy, howev-
er, contains a sublimit for physical abuse claims:
Sexual or Physical Abuse or Molestation Liability Coverage
Form Sublimit
This endorsement modifies insurance provided under the fol-
lowing: COMMERCIAL EXCESS LIABILITY POLICY
This policy is intended to include the Sexual or Physical Abuse
or Molestation Coverageform [sic], but only with the limits set
forth below. These limits are included within, and not excess of,
nor in addition to the Limits of Insurance stated in the Declara-
tions.
SEXUAL OR PHYSICAL ABUSE OR MOLESTATION
LIABILITY COVERAGE SUBLIMITS
Each “Abusive Conduct” Limit 250,000
Aggregate Limit 500,000
All other terms and conditions of this Policy remain unchanged.
Nos. 18-3181 & 18-3241 5
This means that the excess policy covers physical-abuse
claims, but the background limit of $5 million drops to
$250,000 for each instance of “abusive conduct”, a term that
aggregates multiple acts of abuse by multiple persons. (The
parties agree that the $500,000 figure is irrelevant.) This is
straightforward from the word “sublimit,” which must refer
to a limit within a limit. If that’s not enough, the sublimit is
“within, and not excess of, nor in addition to” the excess pol-
icy’s general limit. What else could this mean?
Defendants’ efforts to gin up ambiguity fail. Baby Fold
argues that this sublimit restricts the primary policy’s cover-
age, not the excess policy’s. How? The sublimit is the fourth
page of the excess policy, and its first sentence says that it
modifies the excess policy. Baby Fold also asserts that “in-
cluding” the primary policy’s physical abuse part in the ex-
cess policy does not limit anything, but instead creates a sec-
ond source of excess insurance. Even if we ignore the illogic
of a sublimit adding coverage, Baby Fold misapprehends the
structure of the excess policy. It does not cover a variety of
loss types like the primary policy; instead, it provides a sin-
gle layer of additional insurance—one that is reduced by the
sublimit.
Chicago Trust suggests that, even if “abusive conduct”
occurred, the losses still stem from “bodily injury” caused by
an “occurrence”, which are broader categories and remain
governed by the excess policy’s $5 million limit. But this
proves too much. This reasoning would render the sublimit
(along with every other sublimit and exclusion) ineffective,
which is contrary to Illinois law. See, e.g., Minnesota Mutual
Life Insurance Co. v. Link, 131 Ill. App. 89, 94 (1907); Old Sec-
ond National Bank v. Indiana Insurance Co., 2015 IL App (1st)
6 Nos. 18-3181 & 18-3241
140265 ¶19. Finally, Chicago Trust observes that the insurer
could have used alternative ways to substitute the $250,000
sublimit for the $5 million general limit. But the presence of
other contractual routes does not render the policy’s lan-
guage ineffectual or ambiguous. This language has one
meaning; the ambiguity tiebreaker is irrelevant when the
match is a blowout. Cf. Hall v. Life Insurance Co., 317 F.3d
773, 776 (7th Cir. 2003).
Two more points. Philadelphia insured Baby Fold under
primary and excess policies in both 2010 and 2011. The con-
secutive primary policies are identical, as are the excess poli-
cies. Chicago Trust contends that the 2010 and 2011 excess
policies both supply coverage because Kianna suffered
abuse during both years. But Chicago Trust concedes in its
opening brief that the limiting language in the primary poli-
cy’s abuse part prevents more than one primary policy from
providing coverage. Given that the excess policy “in-
clude[s]” this physical abuse part’s very terms, the same lim-
itation must apply to consecutive excess policies. We do not
understand how Chicago Trust can seek indemnity under
one primary policy and two excess policies when they all
contain the same limiting language.
What’s more, these policies contain anti-stacking provi-
sions. This language prevents an insured from benefi]ing
from consecutive policies’ limits when injuries or losses span
multiple periods. The primary policy accomplishes this
through the definition of “abusive conduct”:
[E]ach, every and all actual, threatened or alleged acts of physi-
cal abuse, sexual abuse, sexual molestation or sexual misconduct
commi]ed by, participated in by, directed by, instigated by or
knowingly allowed to happen by one or more persons shall be
considered to be one “abusive conduct” regardless of:
Nos. 18-3181 & 18-3241 7
a. The number of injured parties;
b. The period of time over which the acts of physical abuse,
sexual abuse, sexual molestation or sexual misconduct took
place; and
c. The number of such acts or encounters.
“Abusive conduct” consisting of or comprising more than one
act of physical abuse, sexual abuse, sexual molestation or sexual
misconduct shall be deemed to take place, for all purposes with-
in the scope of this policy, at the time of the first such act or en-
counter.
This language aggregates multiple acts of abuse into one
unit and applies the policy in effect when the first act of
abuse occurred. So either the 2010 policy or the 2011 policy
applies, but not both. The first act cannot occur in both years.
And there is more:
The limit of insurance shown in the Declarations for each “abu-
sive conduct” is the most we will pay for all “damages” incurred
as the result of any claim of “abusive conduct”. Two or more
claims for “damages” because of the same incident or interrelat-
ed incidents of “abusive conduct” shall be:
a. Considered a single claim. [sic]; and
b. Such claims, whenever made, shall be assigned to only
one policy (whether issued by this or any another [sic] insur-
er) and if that is this policy, only one limit of insurance shall
apply.
In other words, only one policy’s limit applies to a claim
for “abusive conduct”, no ma]er how many instances of
abuse occur or how many consecutive policies apply. This
exhaustive approach creates long insurance policies, but it
also provides an answer in this appeal: insured parties may
not stack policies. And the excess policies’ inclusion of the
primary policies’ physical abuse part extends this prohibi-
8 Nos. 18-3181 & 18-3241
tion to the excess policies. “[T]here are no ‘magic terms’ that
are required to incorporate another document by reference.”
Ward v. Hilliard, 2018 IL App (5th) 180214 ¶47.
Illinois enforces anti-stacking provisions when multiple
policies cover the same loss. See, e.g., Hobbs v. Hartford Insur-
ance Co., 214 Ill. 2d 11, 27 (2005), citing Grinnell Select Insur-
ance Co. v. Baker, 362 F.3d 1005 (7th Cir. 2004). And we’re
confident that the state’s highest court would enforce an
analogous provision that bars an insured from stacking con-
secutive one-year policies. In Great Lakes Dredge & Dock Co. v.
Chicago, 260 F.3d 789, 794 (7th Cir. 2001), we drew an infer-
ence from insurance pricing clues and concluded that the
relevant policies barred stacking consecutive coverage peri-
ods. We also noted that appellate courts in Illinois “make
policies’ language the benchmark for stacking.” Id. at 793–94,
citing Missouri Pacific R.R. v. International Insurance Co., 288
Ill. App. 3d 69 (1997); Outboard Marine Corp. v. Liberty Mutual
Insurance Co., 283 Ill. App. 3d 630 (1996). See also Hartford
Casualty Insurance Co. v. Medical Protective Co., 266 Ill. App.
3d 781 (1994) (concluding that a policy’s language barred
stacking two one-year renewals on the initial year). Here the
policies contain explicit anti-stacking language, making this
case easier than Great Lakes Dredge. Cf. Sybron Transition
Corp. v. Security Insurance, 258 F.3d 595, 600–02 (7th Cir.
2001).
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
a]ached to Philadelphia’s complaint. These provided every-
thing the district judge needed to resolve the dispute under
Fed. R. Civ. P. 12(c), despite her failure to mention that rule.
Nos. 18-3181 & 18-3241 9
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 plead-
ings may be affirmed even though the district judge mistak-
enly cites Rule 12(b)(6)). We reject Chicago Trust’s conten-
tion that additional materials require consideration.
AFFIRMED