Liberty Mutual Fire Insurance v. Kaci Clayton

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 21-1665
LIBERTY MUTUAL FIRE INSURANCE COMPANY,
Plaintiff-Appellee,
v.
KACI CLAYTON, Special Administrator of the Estate of Kenzi
Alyse Schuler,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Central District of Illinois.
No. 19-cv-03138 — Sue E. Myerscough, Judge.
____________________
ARGUED FEBRUARY 9, 2022 — DECIDED MAY 6, 2022
____________________
Before FLAUM, BRENNAN, and ST. EVE, Circuit Judges.
FLAUM, Circuit Judge. This appeal presents questions of Il-
linois contract interpretation. Defendant-appellant Kaci Clay-
ton, on behalf of the estate of her deceased infant daughter
Kenzi Alyse Schuler, appeals from the district court’s grant of
summary judgment for plaintiff-appellee Liberty Mutual Fire
Insurance Company (“Liberty Mutual”) on its request for a
declaratory judgment that the company does not have a duty
2 No. 21-1665
to defend or indemnify Kellie Glick—the individual in charge
of Schuler at the time of her death—in the underlying wrong-
ful death lawsuit. For the following reasons, we affirm the dis-
trict court’s grant of summary judgment.
I. Background
A. Factual Background
A tragic incident gave rise to this suit. Glick, without a
written or formal agreement, provided childcare for Clayton’s
infant daughter, Kenzi Alyse Schuler. Glick received $25 per
day when she provided home daycare services and was paid
in cash at the end of the week for the days that she cared for
the child. On January 29, 2018, infant Schuler died while in
Glick’s care. The Sangamon County Coroner’s Office Report
indicated that the infant’s death resulted from bedding as-
phyxia after being placed prone on a couch cushion covered
with a blanket to nap.
On the date of the incident, Lance and Kellie Glick held an
active insurance policy issued by Liberty Mutual. The rele-
vant insurance policy, identified as policy number H32-248-
910969-00, was effective from December 25, 2017, through De-
cember 25, 2018. With respect to liability coverage outlined in
Section II, the policy stated:
COVERAGE E – Personal Liability
If a claim is made or a suit is brought against an
“insured” for damages because of “bodily
No. 21-1665 3
injury” 1 … caused by an “occurrence” 2 to which
this coverage applies, we will:
1. Pay up to our limit of liability for the damages
for which the “insured” is legally liable. Dam-
ages include prejudgment interest awarded
against the “insured”; and
2. Provide a defense at our expense by counsel
of our choice, even if the suit is groundless, false
or fraudulent. We may investigate and settle
any claim or suit that we decide is appropriate.
Our duty to settle or defend ends when the
amount we pay for damages resulting from the
“occurrence” equals our limit of liability.
Relevant here, the policy excludes
“bodily injury” … [a]rising out of or in connec-
tion with a “business” 3 engaged in by an “in-
sured.” This exclusion applies but is not limited
to an act or omission, regardless of its nature or
circumstance, involving a service or duty ren-
dered, promised, owed, or implied to be pro-
vided because of the nature of the “business.”
1 The policy defines “bodily injury” as “bodily harm, sickness or dis-
ease, including required care, loss of services and death that results.”
2 The policy defines “occurrence” as “an accident, including continu-
ous or repeated exposure to substantially the same general harmful con-
ditions, which results, during the policy period, in … ‘[b]odily injury’ …
or ‘[p]roperty damage.’”
3The policy defines “business” as “includ[ing] trade, profession or
occupation.”
4 No. 21-1665
A separate endorsement states, “NO SECTION II –
LIABILITY COVERAGES FOR HOME DAY CARE
BUSINESS” and “LIMITED SECTION I – PROPERTY
COVERAGES FOR HOME DAY CARE BUSINESS.” More
specifically,
If an “insured” regularly provides home day
care services to a person or persons other than
“insureds” and receives monetary or other com-
pensation for such services, that enterprise is a
“business.” Mutual exchange of home day care
services, however, is not considered compensa-
tion. The rendering of home day care services
by an “insured” to a relative of an “insured” is
not considered a “business.”
Therefore, with respect to a home day care en-
terprise which is considered to be a “business,”
this policy … [d]oes not provide Section II – Li-
ability Coverages because a “business” of an
“insured” is excluded under exclusion 1.b. of
Section II – Exclusions[.]
Notably, this day care endorsement states “THIS
ENDORSEMENT DOES NOT CONSTITUTE A
REDUCTION OF COVERAGE.”
B. Procedural Background
On February 14, 2018, with respect to the insurance claim
asserted by the Estate of Kenzi Schuler against Glick, a Liberty
Mutual claim resolution specialist wrote:
In this particular case, I secured a recorded
statement from you [Glick] on February 7, 2018.
During our discussion, you confirmed that you
No. 21-1665 5
were operating a home daycare out of your
home. You have indicated that you have been
operating this daycare out of your home for ap-
proximately 13 years. Over the years, you have
watched many children. On the date of the inci-
dent, you advised that you were caring for
[three other children] and Kenzi Schuler. None
of the aforementioned children are your rela-
tives. Furthermore, you’ve indicated that in ex-
change for your services you receive compensa-
tion in the form of cash and/or checks. Many of
these children are watched daily and the ap-
proximate rate of your services is $25/day per
child. Lastly, you’ve indicated that you did not
inform Liberty Mutual of your daycare busi-
ness. In light of this, the exclusions may pre-
clude coverage.
The letter concluded by directing Glick to immediately pro-
vide Liberty Mutual with a copy of any lawsuit pertaining to
this claim, should she receive one, and noted the company
“certainly sympathize[s] with this unfortunate situation.”
A follow-up letter from Liberty Mutual dated October 23,
2018, stated that Glick should “be advised that, on the basis of
the information provided to us to date and our investigation,
it appears that [Liberty Mutual] ha[s] no duty to indemnify
[Glick] and therefore, [Liberty Mutual] do[es] not anticipate
paying or reimbursing [Glick] for any payment or settlement
in connection with any claim.”
On March 8, 2019, Clayton—as special administrator of
the estate of her deceased daughter—filed a wrongful death
lawsuit in the Circuit Court of Montgomery County, Illinois,
6 No. 21-1665
Case No. 2019L4, seeking damages from Glick for her alleged
negligence in caring for Schuler on the date of her death.
On May 28, 2019, Liberty Mutual filed this action for judg-
ment declaring that an insurance policy they issued to Glick
provides no coverage for the wrongful death lawsuit filed by
Clayton on behalf of her deceased daughter. On August 27,
2020, Liberty Mutual filed a motion for summary judgment.
Clayton opposed the motion, and Glick did not respond. The
district court granted Liberty Mutual’s motion for summary
judgment and expressly declared Liberty Mutual has no duty
to defend or indemnify Glick in the underlying lawsuit. Clay-
ton now appeals.
II. Discussion
“We review de novo a district court’s interpretation of an
insurance policy and its decision to grant summary judg-
ment.” Atlantic Cas. Ins. Co. v. Garcia, 878 F.3d 566, 569 (7th
Cir. 2017) (emphasis omitted). Summary judgment is appro-
priate “if the movant shows that there is no genuine dispute
as to any material fact.” Fed. R. Civ. P. 56(a). “A genuine dis-
pute of material fact exists if ‘the evidence is such that a rea-
sonable jury could return a verdict for the nonmoving party.’”
Dunn v. Menard, Inc., 880 F.3d 899, 905 (7th Cir. 2018) (quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). Alt-
hough we construe the facts in the light most favorable to the
non-moving party, Berg v. New York Life Ins. Co., 831 F.3d 426,
428 (7th Cir. 2016)—here, Clayton—we need only draw “rea-
sonable” inferences from the record, see Spring v. Sheboygan
Area Sch. Dist., 865 F.2d 883, 886 (7th Cir. 1989).
Both parties agree Illinois law controls. “Illinois law rec-
ognizes that the insurer’s duty to defend arises when ‘the facts
No. 21-1665 7
alleged in the underlying complaint fall within, or potentially
within, the policy’s coverage provisions.’” Mkt. St. Bancshares,
Inc. v. Fed. Ins. Co., 962 F.3d 947, 951–52 (7th Cir. 2020) (quot-
ing Crum & Forster Managers Corp. v. Resol. Tr. Corp., 620
N.E.2d 1073, 1079 (Ill. 1993)). “The duty to defend is generally
broader because it arises in cases of arguable or potential cov-
erage,” while the duty to indemnify “arises only in circum-
stances of actual coverage; if the insurance policy does not
cover what is alleged in the claim, the insurer will not have a
duty to indemnify based on that claim.” Keystone Consol. In-
dus., Inc. v. Emps. Ins. Co. of Wausau, 456 F.3d 758, 762 (7th Cir.
2006) (citing Crum & Forster, 620 N.E.2d at 1081).
Our inquiry thus centers on whether a genuine issue of
material fact exists as to whether the facts alleged in the un-
derlying suit potentially fell within the policy’s coverage.
“Our primary goal in interpreting an insurance policy ‘is to
give effect to the intent of the parties as expressed in the agree-
ment.’” Berg, 831 F.3d at 428 (quoting DeSaga v. W. Bend Mut.
Ins. Co., 910 N.E.2d 159, 163 (Ill. App. Ct. 2009)). “Where the
terms of an insurance policy are clear and unambiguous, they
must be given their plain and ordinary meaning and enforced
as written, unless to do so would violate public policy.” Id. at
429 (citation and internal quotation marks omitted). The cov-
erage document is reviewed holistically; “[t]he policy and en-
dorsements of an insurance policy must be construed to-
gether to determine the meaning and effect of the insurance
contract.” Strowmatt v. Sentry Ins., 175 N.E.3d 204, 212 (Ill.
App. Ct. 2020). “Where the policy and the endorsements con-
flict, the endorsement prevails, at least where it is clear that
the policyholder understood and accepted the language of the
endorsement.” Id.8 No. 21-1665
On appeal, we look to the applicability of the home day-
care business exclusion. In reaching a conclusion about ap-
plicability, we first review the scope of coverage as defined by
the text of the insurance policy itself and next consider the rel-
evance of the two-part test laid out in Allstate Insurance Co. v.
Mathis, 706 N.E.2d 893 (Ill. App. Ct. 1999).
A. Scope of Coverage
The first issue is whether the business exclusion, as further
explained in the daycare endorsement, precludes coverage in
this case. We begin by looking to “what is required to trigger
an insurer’s dut[ies]” under the relevant insurance policy.
Keystone, 456 F.3d at 762.
Looking first to the terms of the insurance policy in ques-
tion, “[i]f a claim is made or a suit is brought against an ‘in-
sured’ for damages because of ‘bodily injury,’” Liberty Mu-
tual will “[p]ay up to [the] limit of liability for the damages”
and “[p]rovide a defense at [their] expense by counsel of
[their] choice.” As an explicit exclusion, bodily injury “arising
out of or in connection with a ‘business’ engaged in” by the
insured is not covered. More specifically, the “regular[]” pro-
vision of home day care services and the receipt of “monetary
or other compensation for such services” qualifies as a busi-
ness.
Returning to the general rule of thumb in contracts, the
“primary goal” when interpreting any insurance policy is to
give effect to the parties’ intent, as expressed in their agree-
ment. Berg, 831 F.3d at 428. When “the terms of an insurance
policy are clear and unambiguous, they must be given their
plain and ordinary meaning and enforced as written, unless
to do so would violate public policy.” Id. at 429.
No. 21-1665 9
Clayton asserts genuine issues of material fact preclude
summary judgment due to ambiguity in the policy terms. We,
however, agree with the district court’s position that the rele-
vant policy terms are unambiguous in their meaning and pre-
sent application—a conclusion supported by the language of
the insurance policy itself.
In reaching our conclusion about ambiguity in the busi-
ness pursuits exception, defining “regular” and “compensa-
tion” proves critical. First, “regular” is defined as “consti-
tuted, conducted, scheduled, or done in conformity with es-
tablished or prescribed usages, rules or discipline” or “recur-
ring, attending, or functioning at fixed, uniform, or normal
intervals.” Regular, Merriam-Webster Dictionary Online,
https://www.merriam-webster.com (last visited May 2, 2022).
The record supports the conclusion that the care services pro-
vided by Glick to infant Schuler were “regular”; there appears
to be no genuine issue of material fact on that point. Clayton,
in her answers to Liberty Mutual’s first set of interrogatories,
stated that Glick provided care to infant Schuler on the days
the parents worked. In a handwritten response to Liberty Mu-
tual’s first set of interrogatories, Glick stated that “I believe I
watched Kenzie [sic] from about 7:30 a.m. – 5:30 p.m. M-F un-
less other arrangements were made with other family mem-
bers. I do not remember what I charged Kaci [and] Kris.”
Clayton argues that while forty hours of care per week pro-
vided over the course of ten months amounts to “regular”
provision of care, see Mathis, 706 N.E.2d at 1028, the seven
weeks Schuler was cared for falls short of that standard. We
disagree.
The January 2018 Illinois State Police Investigative Report
touched on regularity of care. The report stated:
10 No. 21-1665
Kellie Glick had been [infant’s] only babysitter.
Glick babysat [infant] about four days a week
from 7:25 a.m. to 5:30 p.m. at a rate of $25 per
day. In the last couple of weeks Glick only
babysat [infant] a few times because of [infant’s]
doctor visits and a death in the family.
Although during the final two weeks of Schuler’s life she was
watched with less frequency, this still does not amount to a
wholesale disruption of the established pattern of care—Glick
watched Schuler on the days her parents worked, unless ar-
rangements were made with other family members. We hold
“regularly” is an unambiguous term. As applied to these
facts, the district court did not err in finding no genuine issue
of material fact existed on the “regularity” issue.
To fall within the confines of the home day care services
endorsement, the provision of services must be both “regu-
lar” and involve the receipt of “compensation,” whether that
be monetary or otherwise. Thus, we turn next to the definition
of “compensation”—a definition hotly contested by the par-
ties. Black’s Law Dictionary defines “compensation” as
“[r]emuneration and other benefits received in return for ser-
vices rendered; esp., salary or wages.” Compensation, Black’s
Law Dictionary (11th ed. 2019).
The primary point of contention here is whether “compen-
sation” encompasses “reimbursement.” Clayton argues it
does not. In her view, the district court erred in its reliance on
a Florida case holding that “even payment as reimbursement
for expenses in a home day care constitutes compensation for
purposes of the home day care endorsement.” See First Protec-
tive Ins. Co. v. Featherston, 906 So. 2d 1242 (Fla. Dist. Ct. App.
2005). We decline to adopt Clayton’s proposed framing. In the
No. 21-1665 11
absence of controlling precedent, the district court may look
to out of circuit precedent as persuasive authority. See Est. of
Escobedo v. Bender, 600 F.3d 770, 781 (7th Cir. 2010) (noting that
“[i]n the absence of controlling precedent” courts “broaden
[their] survey to include all relevant case law”). What’s more,
the district court simply used the logic of the Florida state
court to bolster its commonsense approach. As the district
court pointed out, ambiguity requires reasonable susceptibil-
ity to multiple interpretations; it does not necessarily arise
from the parties’ “suggest[ion] [of] creative possibilities for
their meaning.” BASF AG v. Great Am. Assurance Co., 522 F.3d
813, 819 (7th Cir. 2008). Arguing that the exchange of cash for
babysitting services amounted to a transaction distinct from
remuneration in return for services rendered is simply a cre-
ative possibility conjured by Clayton that we need not credit
as establishing ambiguity. Glick’s handwritten interrogatory
responses indicated she charged “fees” calculated according
to parental “financial circumstances” in exchange for watch-
ing the children under her care. As applied to these facts, we
hold the district court did not err in finding that no genuine
issue of material fact existed on the “compensation” issue. 4
4 In its motion for summary judgment before the district court, and
again on appeal, Liberty Mutual relies on Glick’s deemed admission that
“she provided home day care services for Kenzi Schuler in exchange for
‘cash compensation’ of $25.00 per day.” Clayton—apparently for the first
time in her appellate reply brief—challenges Liberty Mutual’s reliance on
the Rule 36(b) admissions of Glick, a pro se litigant. Clayton argues that
“Glick’s admissions cannot and should not be used as ammunition against
Clayton to avoid coverage for an incident that resulted in the death of
Clayton’s infant child.” Looking to Clayton’s opening appellate brief, she
acknowledges the potential role of judicial admissions when she states
that “[w]hile Clayton admits she would have provided $25.00 a day to
Defendant Glick, and because of Glick’s failure to respond to the Request
12 No. 21-1665
Based on this analysis, we hold these regular and compen-
sated home day care services qualify as a business under the
relevant policy endorsement. By the language of the business
exclusion, coverage is precluded for bodily injury “arising out
of or in connection with a ‘business’ engaged in” by the in-
sured. Thus, the only remaining question is whether the in-
jury in question “ar[ose] out of” or was “in connection” with
the defined home day care business. This question needs little
analysis. As the Illinois intermediate court previously ex-
plained:
Although the term “arising out of” should be
given a limited interpretation in favor of the in-
sured, it is clear the unfortunate circumstances
that caused [the deceased child’s] death arose
out of [the babysitter’s] duty to provide day care
services to the [deceased child’s family]. By of-
fering to baby-sit the children, [the babysitter]
undertook a duty to protect and supervise them
as well. In their complaint, the [deceased child’s
family] alleged that she failed to complete these
duties—obligations directly correlated to
providing day care services. Accordingly, we
find that [the deceased child’s] injuries arose out
to Admit there is an ‘admission’ of receipt of ‘compensation’, ‘compensa-
tion’ is undefined by the policy.” Even setting aside the fact that Clayton
may have waived her challenge to the Rule 36(b) deemed admissions, see
United States v. Desotell, 929 F.3d 821, 826 (7th Cir. 2019) (“In most in-
stances, litigants waive any arguments they make for the first time in a
reply brief.”), we need not wade into this issue. We see no genuine issue
as to material fact, even considering only the handwritten responses pro-
vided by Glick rather than any deemed admission stemming from a fail-
ure to respond.
No. 21-1665 13
of [the babysitter’s] business activity and thus,
regrettably, are not covered by the policy.
Mathis, 706 N.E.2d at 1030 (citation omitted) (ruling that
where the insured babysat an infant for compensation and the
child accidentally suffocated while under their care, the
child’s death arose out of a duty “directly correlated to
providing day care services”). Adopting this reasoning, Glick
offered to babysit Schuler, and in so doing, undertook a duty
to protect and supervise the child. The underlying lawsuit al-
leges Glick failed to complete these duties, duties which di-
rectly correlate to the provision of day care services (e.g., safe
nap practices). Just as the court found in Mathis, we, too, hold
this business activity is not covered by Glick’s policy. In our
view, the district court, after careful consideration of the rec-
ord, came to the only reasonable conclusion: Glick’s home-
owner’s insurance policy did not cover her childcare business
endeavor. In short, the district court did not err in finding no
genuine issue of material fact existed.
B. Relevance of the Mathis Test
The last issue to resolve on appeal is whether the district
court erred in relying on the unambiguous meaning of the rel-
evant terms, rather than applying the two-part test outlined
in Mathis. “In determining whether a business pursuit exclu-
sion applies to a particular set of facts, courts in Illinois have
typically applied a two part test: (1) is the activity regular and
continuous? and (2) does the activity provide at least some
portion of the insured's livelihood?” Mathis, 706 N.E.2d at 894.
In arguing that Liberty Mutual fell short of establishing
what is required to trigger a business pursuit exclusion under
Illinois law, Clayton fails to acknowledge that the written
14 No. 21-1665
policy controls. The written policy requires a showing of reg-
ular provision of daycare services (rather than regular and
continuous) and a showing of monetary or other compensa-
tion (rather than proof of some portion of the insured’s liveli-
hood).
Under Illinois law, “[i]n construing an insurance policy,
the primary function of the court is to ascertain and enforce
the intentions of the parties as expressed in the agreement.”
Crum & Forster, 620 N.E.2d at 1078. The parties’ intentions, as
unambiguously expressed in writing, control here. We need
not, and should not, override the express written intent of the
parties by looking to a judicially created test. Thus, we agree
with the district court’s position that the Mathis two-part test
for determining whether a business pursuits exclusion elimi-
nates coverage does not apply to the different policy language
at issue here.
III. Conclusion
Glick’s Liberty Mutual insurance policy did not cover the
daycare operation in question. Since Clayton’s claim “did not
even potentially fall within the scope of coverage for purposes
of the duty to defend, it logically follow[s] that the claim
would not actually fall within the scope of coverage for pur-
poses of the duty to indemnify.” Sokol & Co., 430 F.3d at 421.
Therefore, the terms of the insurance policy, as a matter of
law, did not obligate Liberty Mutual to defend or indemnify
Glick. For these reasons, we AFFIRM the district court’s entry
of summary judgment.