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Landmark American Insurance Co. v. Deerfield Construction, Inc.

United States Court of Appeals, Seventh Circuit

August 12, 2019

Landmark American Insurance Company, Plaintiff-Appellee,
v.
Deerfield Construction, Inc., and Shawn Graff, Defendants/Third Party Plaintiffs-Appellants,
v.
Arthur J. Gallagher Risk Management Services, Inc. Third Party Defendant-Appellee.

          Argued May 28, 2019

          Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 15 C1785 - Ruben Castillo, Judge.

          Before Wood, Chief Judge, and Bauer and Easterbrook, Circuit Judges.

          Wood, Chief Judge.

         The question in this case is a simple one: who must cover certain costs arising from an automobile accident involving an employee of Deerfield Construction, Inc.: Deerfield, or its excess insurer, Landmark American Insurance Company? Deerfield's primary insurer was on the hook for the first $1 million, and in principle, Landmark would cover any costs above that, up to $10 million. But Landmark's policy unsurprisingly made coverage contingent on proper notice of the accident. Deerfield did not tell Landmark anything about either the accident or the resulting lawsuit until seven years later, on the eve of trial. When the jury returned a $2 million verdict in favor of the accident victim, Landmark refused to cover the excess amount because it received such late notice. Deerfield now asserts that its notice, despite the timing, satisfied the policy. The district court found that the undisputed facts entitled Landmark to summary judgment; it dismissed all other parties. We affirm.

         I

         In reviewing a grant of either summary judgment or a motion to dismiss, we view the facts in the light most favorable to the nonmovant. We accept well pleaded factual allegations as true in the case of a motion to dismiss, and for summary judgment, we resolve factual disputes and draw reasonable inferences in the nonmovant's favor. See United States ex rel. Berkowitz v. Automation Aids, Inc., 896 F.3d 834, 839 (7th Cir. 2018) (stating the standard for a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6)); Palmer v. Franz, 928 F.3d 560, 563 (7th Cir. 2019) (stating the standard for resolving a motion for summary judgment). The following account of the events in this case should be understood with that perspective in mind.

         Deerfield Construction is a company specializing in construction projects for the telecommunications industry. Shawn Graff is one of its employees. On January 16, 2008, Graff got into an automobile accident with Ryan Keeping. That accident has to date spawned 11 years of litigation.

         Deerfield had a primary commercial automobile insurance policy through American States Insurance Company; that policy covered it for up to $1 million in liability. It procured the American States policy through its broker, Arthur J. Gallagher Risk Management Services, Inc. ("Gallagher"). Gallagher also helped Deerfield obtain an excess insurance policy from Landmark. That policy would kick in only after Deer-field's liability exceeded $1 million; it covered loss up to $10 million.

         After Graff's accident, Deerfield promptly informed American States and Gallagher of the occurrence. It did so through the offices of an intermediary company, Laurus Strategies. This was not its only business contact with Laurus. Laurus often answered insurance-related questions that arose for Deerfield. No one, however, said anything about the Graff accident to Landmark-not Deerfield, not American States, not Gallagher, and not Laurus-and the silence continued even after Keeping filed a lawsuit against Graff and Deerfield.

         The Keeping lawsuit proceeded apace. Pursuant to the American States primary policy, American States assumed the defense of the suit and hired David Olmstead, who worked for the Law Offices of Meachum, Starck, Boyle & Traf-man ("the Law Offices"), to represent Deerfield's interests. Even then, neither American States nor Olmstead informed Landmark about the ongoing litigation.

         Perhaps showing a gambler's spirit, American States relied entirely on its own evaluation of Keeping's lawsuit, which it thought lacked any merit. Throughout five years of pre-trial proceedings, it never offered the full $1 million value of the policy to settle the suit. Indeed, it was not until the trial was almost over and jury deliberations began that it even came close. But American States and Olmstead were aware that Keeping valued his lawsuit much more highly than they did. In April 2013, more than a year before trial, Keeping made a $1.25 million demand to settle the lawsuit. This demand was high enough to trigger Deerfield's excess insurance coverage, but still no one notified Landmark about the pending case. Instead, American States counteroffered with $75, 000.

         On December 5, 2014, about six weeks before trial, Landmark finally found out about Keeping's lawsuit-not from American States or Deerfield, but from Gallagher. Landmark was nonplussed. It issued a reservation of rights letter to Gallagher, but it did not send this letter to American States, Deer-field, or Laurus. Its claims adjuster evaluated the case as having a settlement value between $500, 000 and $750, 000. Because this was lower than the American States primary policy's limits, Landmark reserved only $1.00 for its potential liability in its internal case tracking system; this was the minimum amount necessary to keep a case marked as open.

         By the time trial commenced, Landmark was receiving regular updates on the case. But it was largely a passive bystander: at no point did Landmark attempt to alter American States's trial strategy, nor did it provide much substantive input. As the trial neared its end, the two sides came back to the table for further settlement negotiations. Before Keeping's closing argument, the parties drew up a rough outline of a high-low settlement, which called for Keeping to receive at least $100, 000 and at most $1 million, depending on the jury's verdict. But the parties ultimately backed away from a settlement because they could not agree on the "low" end: Keeping wanted a $175, 000 guarantee, and American States was not ready to go above $100, 000. American States apparently intended to counteroffer with a $150, 000 low, but it ran out of time: the jury returned with a verdict. Before the verdict was formally announced, American States assumed that the jury had sided with the defense and there was thus no reason to resume settlement negotiations. Deerfield did not even know that the high-low negotiations were occurring, although Olmstead was involved. Landmark did know. ...


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