May 28, 2019
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 15 C1785 - Ruben
Wood, Chief Judge, and Bauer and Easterbrook, Circuit Judges.
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.
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.
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.
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.
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.
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.
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.
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
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. ...