American Bankers Insurance Co v. Robert Shockley, Jr.

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 20‐1938
AMERICAN BANKERS INSURANCE COMPANY OF FLORIDA,
Plaintiff‐Appellee,
v.
ROBERT SHOCKLEY, JR.,
Defendant‐Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 18 C 4495 — Robert W. Gettleman, Judge.
____________________
ARGUED FEBRUARY 10, 2021 — DECIDED JUNE 28, 2021
____________________
Before MANION, KANNE, and ROVNER, Circuit Judges.
MANION, Circuit Judge. This insurance dispute stems from
Robert Shockley, Jr., filing a civil complaint in Illinois state
court. The complaint alleged Shockley was severely injured
after being thrown from (and run over by) a golf cart driven
2 No. 20‐1938
by a St. Charles Farms (“SFC”)1 employee. Shockley sued SFC
and its employee for negligence. In response, SFC’s insurer
American Bankers Insurance Company of Florida filed suit in
federal court seeking a declaratory judgment that it has no
duty to defend or indemnify SFC or its employee in the un‐
derlying lawsuit. The district court granted American’s mo‐
tion for summary judgment. Because the district court erred
in interpreting the insurance policy, we reverse and remand.
I. Background
A. The Business
SFC operated a horse farm and equestrian center in St.
Charles, Illinois. SFC’s business activities included maintain‐
ing, training, and boarding horses. It also provided riding les‐
sons for a fee. SFC hosted shows and events both on and off
its property. One type of off‐site event was trail riding, which
had previously occurred at different forest preserves. SFC
held off‐site events about once a month or less, with trail‐rid‐
ing events approximately three times a year. Sometime dur‐
ing the operation of the business, SFC attended a festival at
the Kane County Fairgrounds.
B. Insurance Policy
SFC and American entered into an insurance contract, la‐
beled as a farmowner policy, with coverage running from
June 2016 through June 2017. The policy declarations describe
the insured premises as “42W 690 North Ave, St. Charles, Illi‐
nois.” The second page of declarations provides the coverage
1SFC is an Illinois limited liability company that operates St. Charles
Farms. It appears from the record St. Charles Farms is no longer in busi‐
ness.
No. 20‐1938 3
limits for “Commercial Liability Coverage.” The final page of
declarations, reproduced in relevant part below,2 includes a
provision identifying “All known exposures” related to
“Commercial Liability.”
The policy includes an additional insured endorsement
that states it “changes the Commercial Liability Coverages
provided by this policy.” The endorsement was issued to the
Kane County Fairgrounds.3 It amends the definition of “in‐
sured” to include the Kane County Fairgrounds.
The policy has a number of coverage provisions following
a table of contents labeled “Farm Coverage.” Those coverage
provisions relate to property such as barns, other buildings,
and machinery. The provisions include incidental property
coverages and perils coverages.
The coverage provision at issue in this case is coverage L.
Coverage L follows a subsequent table of contents labeled
2 The formatting of the reproduction is slightly different than the orig‐
inal contract for easier readability.
3 The insurance policy states “Kane Coutny Farigrounds,” which is
clearly an accidental misspelling. On brief, both parties refer to the addi‐
tional insured endorsement as relating to the Kane County Fairgrounds.
4 No. 20‐1938
“Commercial Liability Coverage (Farm Premises and Opera‐
tions).” Coverage L provides coverage for bodily injury and
property damage. The coverage states in relevant part:
“We” pay all sums which an “insured” becomes legally
obligated to pay as “damages” due to “bodily injury”
or “property damage” to which this insurance applies.
The “bodily injury” or “property damage” must be
caused by an “occurrence” and arise out of the owner‐
ship, maintenance, or use of the “insured premises” or
operations that are necessary or incidental to the “in‐
sured premises”.
Within the same table of contents as coverage L, the con‐
tract contains a section setting forth supplemental coverages.
One supplemental coverage is for motorized vehicles and wa‐
tercraft. It provides coverage for bodily injury or property
damage
arising out of: … a “motorized vehicle” which is de‐
signed only for use off public roads and which is used
to service the “insured premises.”
(However, this coverage does not apply to “bodily in‐
jury” or “property damage” which results from a “mo‐
torized vehicle” while used for recreational purposes
away from the “insured premises”.)
Exclusion six of the policy clarifies that there is no coverage
for bodily injury or property damage arising from use of a
motorized vehicle except as provided by the supplemental
coverage referenced above.
No. 20‐1938 5
C. Underlying Lawsuit4
Shockley filed a negligence lawsuit in the Circuit Court of
Cook County. According to the complaint, on November 11,
2016, Ashley Ratay, an employee of SFC, transported horses,
equipment, and an SFC golf cart from the farm to Barrington
Hills Riding Center. The riding center is located at 361 Bate‐
man Road in the Village of Barrington Hills, approximately
fifteen miles from SFC’s property.
While at the riding center, Ratay was responsible for su‐
pervising those riding SFC horses. She did so while driving
the SFC golf cart. At some point, Shockley was a passenger in
the golf cart. With Shockley in the passenger seat, Ratay used
the golf cart to chase a horse. She quickly drove the cart off
the mowed path and onto a grassy field. The cart hit uneven
ground, causing Shockley to fly out of the vehicle and land on
the ground. Ratay ran over his leg with the golf cart.
Shockley sought to hold Ratay liable for his injuries. He
also sued SFC under a respondeat superior theory.
D. Federal Proceedings
After Shockley filed the underlying lawsuit, American
filed a declaratory judgment in federal court against SFC,
4We do not opine on the merits of the facts alleged. Rather, we set
forth the facts as stated in the complaint for the purpose of determining
whether there is a duty to defend. See Federated Mut. Ins. Co. v. Coyle Mech.
Supply Inc., 983 F.3d 307, 314 (7th Cir. 2020) (“To determine whether an
insurer has a duty to defend, a court compares the underlying complaint’s
allegations (liberally construed in the insured’s favor) to the policy’s lan‐
guage.”(quoting Scottsdale Ins. Co. v. Columbia Ins. Group, Inc., 972 F.3d 915,
919 (7th Cir. 2020))).
6 No. 20‐1938
Ratay, and Shockley.5 American alleged it had no duty to de‐
fend or indemnify SFC in the underlying lawsuit since the in‐
jury occurred at the Barrington Hills Riding Center and, alter‐
natively, based on exclusion six of the insurance policy.
American filed a motion for summary judgment. Shockley
responded and filed a cross‐motion for summary judgment.
The district court found the insurance policy was a far‐
mowner policy rather than a commercial general liability
(“CGL”) policy. It granted American’s motion for summary
judgment and denied Shockley’s cross‐motion for summary
judgment. After an initial appeal, this Court remanded the
case for the district court to enter a judgment declaring the
rights and duties of the parties. The district court declared
American has no duty to defend or indemnify SFC in the un‐
derlying lawsuit and entered judgment accordingly.
II. Discussion
A. Jurisdiction and Standard of Review
We have jurisdiction over this appeal under 28 U.S.C.
§ 1291. The district court had subject matter jurisdiction based
on diversity of citizenship. See 28 U.S.C. § 1332(a)(1). The par‐
ties agree that Illinois substantive law applies.6
We review the district court’s grant of summary judgment
de novo and view the facts in the light most favorable to Shock‐
ley, the non‐moving party. Sterling Nat’l Bank v. Block, 984 F.3d
1210, 1217 (7th Cir. 2021) (quoting Henry v. Hulett, 969 F.3d
769, 776 (7th Cir. 2020) (en banc)). The interpretation of an
5
Neither SFC nor Ratay appeared or answered the complaint. Shock‐
ley was the only participating defendant.
6 The Seventh Circuit decisions cited in this opinion apply Illinois law.
No. 20‐1938 7
insurance contract is a legal issue that may be decided on a
motion for summary judgment. Twenhafel v. State Auto Prop. &
Cas. Ins. Co., 581 F.3d 625, 628 (7th Cir. 2009). Summary judg‐
ment is proper when no genuine issue of material fact exists,
and the moving party is entitled to judgment as a matter of
law. Sterling, 984 F.3d at 1217.
B. Duty to Defend
In Illinois, the duty to defend is broader than the duty to
indemnify. Coyle, 983 F.3d at 314. We compare the allegations
of the underlying complaint to the language of the policy to
determine whether there is a duty to defend. Id. If the facts
alleged in the complaint fall within, or potentially fall within,
the policy coverage, the insurer must defend the insured. Id.
“Any doubts about the duty to defend are resolved in favor of
the insured.” Id. (quoting Scottsdale, 972 F.3d at 919–20).
Here, in comparing the underlying complaint to the insur‐
ance policy, the parties do not dispute what facts were al‐
leged. Instead, at issue is the scope of coverage of the insur‐
ance policy, a pure question of law. To determine the scope of
the policy, traditional principles of contract interpretation ap‐
ply. See Murbach v. Noel, 343 Ill. App. 3d 644, 798 N.E.2d 810,
812 (Ill. App. 2003). “Under Illinois law, the goal of contract
interpretation is to ascertain the parties’ intent and, in doing
so, we first look to ‘the plain and ordinary meaning’ of the
contract language.” Selective Ins. Co. of South Carolina v. Target
Corp., 845 F.3d 263, 267 (7th Cir. 2016) (quoting Aeroground,
Inc. v. CenterPoint Props. Tr., 738 F.3d 810, 813 (7th Cir. 2013)).
We interpret the contract “as a whole, viewing each part in
light of the others.” Id. (quoting Aeroground, 738 F.3d at 813).
Each clause and word must be given effect to the extent pos‐
sible so that no term is rendered meaningless. Id.
8 No. 20‐1938
And if the contract is not clear on its face? Whether a con‐
tract is ambiguous is a legal question for the courts. See Dash
Messenger Serv., Inc. v. Hartford Ins. Co. of Illinois, 221 Ill. App.
3d 1007, 582 N.E.2d 1257, 1260 (Ill. App. 1991). If ambiguous,
courts strictly construe the policy against the insurer and in
favor of the insured. Trotter v. Harleysville Ins. Co., 821 F.3d
916, 918 (7th Cir. 2016). A provision is ambiguous “only when
it is susceptible to more than one reasonable interpretation.”
Id.When interpreting an insurance contract, we account for
“the type of insurance for which the parties have contracted,
the risks undertaken and purchased, the subject matter that is
insured and the purposes of the entire contract.” Crum & For‐
ster Managers Corp. v. Resol. Tr. Corp., 156 Ill. 2d 384, 620
N.E.2d 1073, 1078 (Ill. 1993).
1. Type of Insurance at Issue
Consistent with Illinois precedent, the initial inquiry guid‐
ing our analysis is which type of insurance contract the parties
reached. An examination of the declarations and insuring
agreements reveals several ambiguities in the policy. It is un‐
clear whether the policy was intended as a farmowner or CGL
policy. We resolve these ambiguities against American and in‐
terpret the policy as a CGL policy.
As for the specific ambiguities: the policy is labeled as a
farmowner policy. Farmowner policies function like home‐
owner policies, linking coverage to an insured premises. See
STEVEN PLITT ET AL., 9A COUCH ON INSURANCE § 128:33 (3d ed.
2021); Jane M. Draper, Annotation, Farmownersʹ Liability In‐
surance Risks and Coverage, 93 A.L.R.3d 472 (1979). Consistent
with the policy’s label, the declarations set forth the insured
No. 20‐1938 9
premises as “42W 690 North Ave, St. Charles, Illinois,” the lo‐
cation of SFC’s horse farm. Coverage L, the relevant coverage
provision, reflects a link between coverage and the insured
premises, as well. It states that in order to be covered, bodily
injury and property damage “must be caused by an ‘occur‐
rence’ and arise out of the ownership, maintenance, or use of
the ‘insured premises’ or operations that are necessary or in‐
cidental to the ‘insured premises.’” But we do not read these
provisions in isolation.
The contract also contains language suggesting it is a CGL
policy. “[A] CGL policy typically protects against claims for
injuries or losses arising from the insured’s business opera‐
tions.” Indiana Ins. Co. v. Royce Realty & Mgmt., Inc., 2013 IL
App (2d) 121184, 990 N.E.2d 1244, 1251 (Ill. App. 2013). First,
the declarations specify business risks for which there is com‐
mercial liability coverage. The relevant commercial liability
provision states, “All known exposures at the beginning of the
Policy period have been identified below.” It then identifies
coverage for stables and boarding; riding clubs and acade‐
mies; commercial saddle animals; and instructors liability.
There is no mention of the insured premises in this portion of
the declarations.
Next, the additional insured endorsement to the Kane
County Fairgrounds renders the contract ambiguous because
it also suggests the parties contemplated coverage beyond
SFC’s premises. The endorsement amends the definition of
“insured” to include the Kane County Fairgrounds. The Fair‐
grounds entity is covered with respect to designated activi‐
ties7 relating to SFC’s operations, or premises rented or
7We do not state the specific activities covered because puzzlingly,
the relevant contractual schedule does not set forth any designated
10 No. 20‐1938
owned by SFC. The contract also specifies that the endorse‐
ment “changes the Commercial Liability Coverages provided
by this policy.” Considering the Fairgrounds would be cov‐
ered for SFC’s operations, not merely on its property, it follows
that the endorsement contemplated application to CGL cov‐
erage provisions. This, in combination with evidence SFC op‐
erated its business both on and off its property further ampli‐
fies the tension between the premises and CGL language in
viewing the entire contract.
Finally, the insurance coverage provisions are separated
into two sections—one for farm coverage and one for com‐
mercial liability coverage. The coverage provision at issue,
Coverage L, is within the commercial liability section, rather
than the farm coverage section. The commercial liability sec‐
tion is preceded by a table of contents labeled, “Commercial
Liability Coverage (Farm Premises and Operations).” This ti‐
tle is in tension with the premises‐linked language in Cover‐
age L. Not only does the title mention commercial liability,
but it explicitly mentions farm operations, not merely farm
premises.
In response, American argues commercial liability with an
insured premises is not the same as a commercial general lia‐
bility policy. It cites no authority for this proposition. The
main issue with this argument is many of the provisions
which suggest commercial general liability or are ambiguous
as to the type of policy make no mention of the insured prem‐
ises. The contract must clearly link the concepts of commercial
activity. The record does little to illuminate what activities were contem‐
plated. It does reflect SFC attended a festival at the Kane County Fair‐
grounds.
No. 20‐1938 11
liability and any insured premises requirement, but at best,
the contract is ambiguous on the matter.8
The parties each cite cases compelling an outcome in their
favor. The disparity in outcomes results from the type of in‐
surance at issue in the specific case cited. Shockley cites CGL
cases in which coverage is broadly construed in the insured’s
favor. E.g., Royce, 990 N.E.2d at 1251–52; Pekin Ins. Co. v. Wil‐
son, 237 Ill. 2d 446, 930 N.E.2d 1011, 1023 (Ill. 2010). American
cites cases interpreting homeowner policies that link coverage
to the insured premises. E.g., U.S. Fire Ins. Co. v. Schnackenberg,
88 Ill. 2d 1, 429 N.E.2d 1203, 1204–06 (Ill. 1981); see also Cobbins
v. Gen. Fire & Life Assurance Corp., 53 Ill. 2d 285, 290 N.E.2d
873, 875, 878 (Ill. 1972) (narrowly interpreting a premises‐
linked insurance contract after finding it unambiguous). Hav‐
ing already established the contract is ambiguous, we con‐
strue it against American.
8 Further, the terms “commercial liability” and “commercial general
liability” have been used interchangeably in Illinois caselaw. See, e.g.,
Greenwich Ins. Co. v. RPS Prods., Inc., 379 Ill. App. 3d 78, 882 N.E.2d 1202,
1205–06 (Ill. App. 2008) (explaining RPS sought commercial liability insur‐
ance coverage and was issued three commercial general liability policies);
Northbrook Prop. & Cas. Ins. Co. v. Applied Sys., Inc., 313 Ill. App. 3d 457, 729
N.E.2d 915, 917–18, 923 (Ill. App. 2000) (referring to one of the insurance
policies between the parties first as a “commercial liability insurance
polic[y],” then as “a commercial general liability insurance policy (“CGL
Policy”),” and noting the insured was a sophisticated entity, “having ob‐
tained more than one commercial liability policy”); Oakley Transp., Inc. v.
Zurich Ins. Co., 271 Ill. App. 3d 716, 648 N.E.2d 1099, 1106–07 (Ill. App.
1995) (describing the parties’ insurance policy as a commercial general li‐
ability policy and explaining that “[s]tandard commercial liability policies
are issued to cover all hazards incident to the operation of a business with
the exception of certain excluded risks”).
12 No. 20‐1938
2. Allegations of Underlying Complaint v. Contract Language
The underlying complaint alleges SFC employee Ratay
was negligent while operating an SFC golf cart. She operated
the cart at the Barrington Hills Riding Center as a part of her
obligation to supervise riders there. The complaint specifi‐
cally alleges she was operating the golf cart “in furtherance of
the business” of SFC. The approximate fifteen‐mile distance
between SFC’s property and the Riding Center does not pose
a bar to coverage given the contract can be reasonably inter‐
preted as extending coverage to the ordinary risks inherent in
SFC’s business. SFC is not a typical farm. It is a horse farm
and equestrian center, conducting activities on and off its
premises. American knew, or should have known, that fact,
considering it extended an additional insured endorsement
relating to SFC’s operations to the Kane County Fairgrounds;
assessed business risks including activities that could occur
off‐premises without linking coverage for those activities to
the insured premises; and included commercial liability cov‐
erage for SFC’s operations in the contract.
When viewing the contract as a CGL policy, the underly‐
ing complaint sufficiently invokes the language of the policy.
Coverage L provides coverage for applicable bodily injury.
The provision states that the bodily injury must “arise out of
the ownership, maintenance, or use of the ‘insured premises’
or operations that are necessary or incidental to the ‘insured
premises’.” Illinois courts have consistently found that the
language “arising out of” is a broad and vague phrase which
“must be liberally construed in favor of the insured.” Dash,
582 N.E.2d at 1262. It is satisfied by a “but for” causal connec‐
tion. Id. Shockley’s bodily injury fits this provision because it
arises out of SFC’s business operations. But for SFC’s use of
No. 20‐1938 13
the premises as an equestrian center, Shockley would not
have been injured at an SFC event. Consequently, the allega‐
tions in the underlying complaint sufficiently invoke Cover‐
age L.
The other factors Illinois courts consider also support this
conclusion. The risks undertaken and purchased were “[a]ll
known exposures” of the business: stables, boarding, riding
clubs and academies, commercial saddle animals, and cover‐
age for instructors liability. Without a link to the insured
premises at that juncture, it would have been reasonable for
SFC to anticipate coverage at an off‐site riding event where an
SFC instructor was in charge of observing riders; an accident
in this context was an ordinary business risk. Last, the pur‐
pose of the entire contract was to insure SFC’s horse farm—
both the property and the business. SFC did not operate a typ‐
ical grain or crop farm. The nature of its equestrian business
took place on and off premises. Shockley’s complaint alleges
enough to invoke the insuring agreement in the contract be‐
tween American and SFC.
3. Exclusion Six
American argues even if the policy is construed as a CGL
policy, exclusion six applies and there is no coverage. “It is
the insurer’s burden to affirmatively demonstrate the applica‐
bility of an exclusion.” Pekin Ins. Co. v. Miller, 367 Ill. App. 3d
263, 854 N.E.2d 693, 697 (Ill. App. 2006). Exclusions are con‐
strued against the insurer and “liberally in favor of the in‐
sured.” Id. Exclusion six provides there is no coverage for
bodily injury arising out of the ownership, operation, or use
of a motorized vehicle “except as provided under Supple‐
mental Motorized Vehicles and Watercraft Coverage.”
14 No. 20‐1938
American argues since a golf cart is a motorized vehicle, there
is no coverage.
However, the supplemental motorized vehicle coverage
does arguably provide coverage. American will pay for bod‐
ily injury arising out of “a ‘motorized vehicle’ which is de‐
signed only for use off public roads and which is used to ser‐
vice the ‘insured premises.’” Immediately following the in‐
sured premises requirement in this provision is a parenthe‐
tical stating, “(However, this coverage does not apply to ‘bod‐
ily injury’ or ‘property damage’ which results from a ‘motor‐
ized vehicle’ while used for recreational purposes away from
the ‘insured premises’.).” The parenthetical is important be‐
cause it creates ambiguity, once again compelling construc‐
tion against American.
The complaint alleges bodily injury resulting from use of
a motorized vehicle (golf cart) which was used away from
SFC’s property. However, the parenthetical states there is no
coverage when the vehicle is used for recreational purposes,
implying there is coverage when used for business purposes.
See West Bend Mut. Ins. Co. v. DJW‐Ridgeway Bldg. Consultants,
Inc., 2015 IL App (2d) 140441, 40 N.E.3d 194, 205 (Ill. App.
2015) (expressio unius est exclusio alterius). Thus, American’s ar‐
gument the complaint does not allege the golf cart was used
to service the insured premises is ineffectual. The complaint
does allege the golf cart was being used for business purposes.
This allegation is sufficient to trigger the supplemental motor‐
ized vehicle coverage.
For these reasons, American has a duty to defend.
No. 20‐1938 15
C. Duty to Indemnify
The duty to indemnify is narrower than the duty to de‐
fend. Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d
90, 607 N.E.2d 1204, 1221 (Ill. 1992). The duty to indemnify is
an insurer’s duty “to reimburse the insured for losses it incurs
directly or to pay sums that the insured becomes legally obli‐
gated to pay others.” Keystone Consol. Indus., Inc. v. Emps. Ins.
Co. of Wausau, 456 F.3d 758, 762 (7th Cir. 2006). “[A] lawsuit
may be sufficient to trigger an insurer’s duty to indemnify,
[but] it is not a necessary condition under Illinois law.” Id. The
duty applies when the insured’s claim “actually falls within
the scope of coverage.” Madison Mut. Ins. Co. v. Diamond State
Ins. Co., 851 F.3d 749, 753 (7th Cir. 2017).
However, under the Peppers doctrine, a court considering
a declaratory judgment generally cannot “decide issues of ul‐
timate fact that could bind the parties to the underlying liti‐
gation.” State Farm Fire & Cas. Co. v. John, 2017 IL App (2d)
170193, 80 N.E.3d 679, 686 (Ill. App. 2017) (quoting Allstate Ins.
Co. v. Kovar, 363 Ill. App. 3d 493, 842 N.E.2d 1268, 1275 (Ill.
App. 2006)); see generally Maryland Cas. Co. v. Peppers, 64 Ill. 2d
187, 355 N.E.2d 24, 30 (Ill. 1976) (setting forth the doctrine).
“In other words, the question of whether the insurer has a
duty to indemnify the insured for a particular liability is only
ripe for consideration if the insured has already incurred lia‐
bility in the underlying claim against it.” Outboard Marine, 607
N.E.2d at 1221.
We refuse to reach the merits of the duty to indemnify be‐
cause such a determination would require us to adjudicate
facts in Shockley’s underlying lawsuit. That portion of Amer‐
ican’s claim is to be dismissed, without prejudice, as prema‐
ture at this stage. Travelers Ins. Cos. v. Penda Corp., 974 F.2d
16 No. 20‐1938
823, 833–34 (7th Cir. 1992); Tews Funeral Home, Inc. v. Ohio Cas.
Ins. Co., 832 F.2d 1037, 1047 (7th Cir. 1987).
III. Conclusion
The insurance contract between SFC and American is am‐
biguous. In Illinois, ambiguities are resolved against the in‐
surer and in favor of the insured. Further, the issue of duty to
indemnify is premature until the underlying facts of Shock‐
ley’s claim have been properly adjudicated. Thus, we
REVERSE the court’s determination on the duty to defend
and REMAND with directions for the district court to enter
summary judgment in favor of Shockley. We VACATE the
court’s determination on the duty to indemnify and
REMAND for dismissal without prejudice on that claim.