United States District Court for the Middle District of Florida, Fort Myers Division

August 24, 2023, Decided; August 24, 2023, Filed

Case No: 2:21-cv-719-JES-KCD

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Petitioner, v. H.E. SUTTON FORWARDING CO., LLC, D/B/A TEX SUTTON EQUINE AIR TRANSPORTATION, Respondent.

Prior History: Travelers Prop. Cas. Co. of Am. v. H.E. Sutton Forwarding Co., 620 F. Supp. 3d 1165, 2022 U.S. Dist. LEXIS 140768, 2022 WL 3155402 (M.D. Fla., Aug. 8, 2022)

Counsel:  [*1] For Travelers Property Casualty Company of America, Plaintiff: Matthew J. Lavisky, LEAD ATTORNEY, Butler Weihmuller Katz Craig LLP, Tampa, FL; Latasha Lordes Chanell Scott, Butler Weihmuller Katz Craig, Tampa, FL.

For H.E. Sutton Forwarding Co., LLC, doing business as Tex Sutton Equine Air Transportation, Defendant: Robert W. Boos, LEAD ATTORNEY, Adams and Reese LLP, Tampa, FL; Donald A. Mihokovich, Adams and Reese, Tampa, FL.

Judges: JOHN E. STEELE, SENIOR UNITED STATES DISTRICT JUDGE.

Opinion by: JOHN E. STEELE

Opinion

OPINION AND ORDER

This case comes before the Court on petitioner’s Second Motion for Final Summary Judgment (Doc. #44) filed on June 16, 2023. Respondent filed a Response in Opposition (Doc. #47) on July 17, 2023, to which Petitioner Replied (Doc. #51) on July 31, 2023. With permission of the Court, Respondent filed a Sur-Reply in Opposition (Doc. #54) on August 14, 2023. For the reasons set forth below, the motion is granted.

This action arises in the context of an insurance coverage dispute. Petitioner Travelers Property Casualty Company of America (Petitioner or Travelers) seeks a declaration that it does not owe a duty to defend or a duty to indemnify respondent H.E. Sutton Forwarding Co., LLC, [*2]  D/B/A Tex Sutton Equine Air Transportation (Respondent or Tex Sutton) in a particular aircraft versus tractor trailer accident case filed in state court. (Doc. #1; Doc. #1-2.) Travelers moves for summary judgment for a second time, arguing that there is no coverage for damages sought in the state lawsuit due to an Aircraft Liability Exclusion, and that the Exclusion is not “illusory.” (Doc. #44.)

I.

Motions for summary judgment should only be granted when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show “there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). “An issue of fact is ‘genuine’ if the record taken as a whole could lead a rational trier of fact to find for the nonmoving party.” Baby Buddies, Inc. v. Toys “R” Us, Inc., 611 F.3d 1308, 1314 (11th Cir. 2010). A fact is “material” if it may affect the outcome of the suit under governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). The moving party bears the initial burden of showing the court, by reference to materials on file, that there are no genuine issues of material fact that should be decided at trial. Hickson Corp. v. N. Crossarm Co., Inc., 357 F.3d 1256, 1260 (11th Cir. 2004) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986)). “When a moving party has discharged its burden, the non-moving party must then ‘go beyond [*3]  the pleadings,’ and by its own affidavits, or by ‘depositions, answers to interrogatories, and admissions on file,’ designate specific facts showing that there is a genuine issue for trial.” Jeffery v. Sarasota White Sox, Inc., 64 F.3d 590, 593-94 (11th Cir. 1995) (citing Celotex, 477 U.S. at 324). “A court must decide ‘whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.'” Hickson, 357 F.3d at 1260 (quoting Anderson, 477 U.S. at 251).

In ruling on a motion for summary judgment, the Court views all evidence and draws all reasonable inferences in favor of the non-moving party. Scott v. Harris, 550 U.S. 372, 380, 127 S. Ct. 1769, 167 L. Ed. 2d 686 (2007); Tana v. Dantanna’s, 611 F.3d 767, 772 (11th Cir. 2010). However, “if reasonable minds might differ on the inferences arising from undisputed facts, then the court should deny summary judgment.” St. Charles Foods, Inc. v. America’s Favorite Chicken Co., 198 F.3d 815, 819 (11th Cir. 1999) (quoting Warrior Tombigbee Transp. Co. v. M/V Nan Fung, 695 F.2d 1294, 1296-97 (11th Cir. 1983)) (finding summary judgment “may be inappropriate even where the parties agree on the basic facts, but disagree about the factual inferences that should be drawn from these facts.”)).

Under Florida law¹ , the interpretation of an insurance policy is a pure question of law to be decided at the summary judgment stage. AIX Specialty Ins. Co. v. Members Only Mgmt., LLC, 793 F. App’x 1001, 1002 (11th Cir. 2019); Coleman v. Fla. Ins. Guar. Ass’n, Inc., 517 So. 2d 686, 690 (Fla. 1988). The Florida Supreme Court has consistently held that “in construing insurance policies, courts should read each policy as a whole, endeavoring to give every provision its full meaning [*4]  and operative effect.” Auto-Owners Ins. Co. v. Anderson, 756 So. 2d 29, 34 (Fla. 2000). See also Wash. Nat’l Ins. Corp. v. Ruderman, 117 So. 3d 943, 948 (Fla. 2013). Where “a policy provision is clear and unambiguous, it should be enforced according to its terms.” Taurus Holdings, Inc. v. U.S. Fid. & Guar. Co., 913 So. 2d 528, 532 (Fla. 2005).

II.

A. Factual Background

The Court’s Opinion and Order on Travelers’ first motion for summary judgment (Doc. #31) sets forth the basic background facts² :

On March 12, 2020, Antonio de Jesus Zepeda (Mr. Zepeda) was injured when operating a tractor trailer in the course of his employment with Brook Ledge Horse Transportation. (Doc. #24, ¶ 1; Doc. #1-2.) Mr. Zepeda was picking up horses and equipment for his employer from an aircraft at Blue Grass Airport in Lexington, Kentucky. (Doc. #1-2, ¶¶ 12-14.) The aircraft — a Boeing 727-200 known as “Air Horse One” – was owned by Kalitta Charters, II, LLC (Kalitta) and chartered by Tex Sutton. (Doc. #24, ¶ 2; Doc. #24-1.) After picking up his load, Mr. Zepeda began exiting the premises and, due to an obscured view, collided with the aircraft’s wing and sustained injuries. (Doc. #1-2, ¶¶ 17-19.)

On August 31, 2020, Mr. Zepeda and Victoria Zepeda (the Underlying Plaintiffs) filed a personal injury action, Antonio DeJesus Zepeda v. H.E. Sutton Forwarding Co., LLC, et al., Case No. 20-CI-02602, Fayette Circuit [*5]  Court Division, Commonwealth of Kentucky (the Underlying Action). (Doc. #24, ¶ 3; Doc. #1-2.) In the Underlying Action, the Underlying Plaintiffs seek damages from Tex Sutton for negligence; negligent hiring, retention, entrustment, supervision and training; negligent infliction of emotional distress; and gross negligence, willful or wanton misconduct, malice and recovery of punitive or exemplary damages.

Relevant to this lawsuit is an Excess Follow-Form and Umbrella Policy (Excess Policy) issued by Travelers to Clark Aviation Corporation (“Clark”) for a period of May 21, 2019 through May 21, 2020. (Doc. #24, ¶ 4; Doc. #24-2.) The Excess Policy includes two separate coverage parts, Coverage A — Excess Follow-Form Liability and Coverage B — Umbrella Liability. (Doc. #24-2, pp. 11-13.)

. . .

The underlying insurance to the Excess Policy is Policy No. 3589-79-35 ECE (Underlying Policy), which was issued by Federal Insurance Company (Chubb) to Clark. (Id. p. 64.) On February 25, 2021, Tex Sutton requested coverage under the Underlying Policy and the Excess Policy for the damages sought in the Underlying Action. (Doc. #1, ¶ 17; Doc. #8, ¶ 17.) Chubb agreed to defend Tex Sutton under a reservation [*6]  of rights. (Doc. #24, ¶ 14, Doc. #28, ¶ 8.) Travelers, also reserving its rights, recognized that Tex Sutton was a covered insured for purposes of Coverage A because Tex Sutton was a covered insured under the Underlying Policy, but advised Tex Sutton that coverage was barred based on the aircraft exclusions. (Doc. #1, ¶ 11; Doc. #8, ¶ 11; Doc. #1-4, p. 9.)

(Id., pp. 3-7.)

B. Procedural Background

On September 28, 2021, Travelers filed a Petition For Declaratory Relief with the Court pursuant to 28 U.S.C. § 2201. (Doc. #1.) Respondent filed their Answer (Doc. #8) on January 25, 2022. Travelers moved for summary judgment on April 28, 2022, arguing that no coverage for damages sought in the Underlying Action is available to Tex Sutton under the Excess Policy and that Travelers is entitled to judgment as a matter of law. (Doc. #24.) Upon consideration of Travelers’ motion for summary judgment, this Court found that denial of the motion was appropriate. (Doc. #31.) The Court agreed with Travelers that Tex Sutton qualified as a covered insured under Coverage A of the Excess Policy and that the “Aircraft Liability Exclusion” applied to the Underlying Action. (Id., pp. 9-12.) The Court, however, found there [*7]  was merit to Tex Sutton’s argument — that Travelers’ interpretation of the Aircraft Liability Exclusion “would render the coverage illusory” since it would eliminate virtually all coverage as Tex Sutton’s business involves the use of an aircraft. (Id., p. 12.) The Court noted that

The intent of Coverage A is to provide excess liability coverage to the insured provided that the “underlying insurance” would apply to such damages. (Doc. #24-2, p. 11.) The Underlying Policy is not part of the record, so the Court cannot determine, as a matter of law, whether the policy is or is not illusory. For example, if the intent of the Underlying Policy is to cover Tex Sutton’s liabilities arising out of the use of an aircraft, the Aircraft Liability Exclusion would completely negate any claim for excess coverage, rendering the policy “complete nonsense.” Purrelli v. State Farm Fire & Cas. Co., 698 So. 2d 618, 620 (Fla. 2d DCA 1997) (citation omitted) (policy which purported to cover certain intentional torts, but excluded intended acts, illusory).

(Id., p. 14.) In sum, the Court found that while the Policy may ultimately not be illusory, Travelers failed to carry its summary judgment burden of showing there are no genuine issues which may be resolved as a matter of law. (Id. [*8] )

On September 21, 2022, Travelers filed a Motion for Reconsideration, or Alternatively, Leave to File Second Motion For Summary Judgment. (Doc. #32.) Travelers sought reconsideration of the Court’s Opinion and Order denying summary judgment asserting that the “intent” of the Underlying Policy was irrelevant to the resolution of Tex Sutton’s illusory coverage argument, and that the Aircraft Liability Exclusion does not “completely contradict” the insuring provision of the Excess Policy such that it would render the policy illusory. (Id., pp. 5-7.) In the alternative, Travelers requested leave to file a second motion for summary judgment to address the illusory coverage argument raised by Tex Sutton. (Id., p. 10.) The Court denied Travelers’ motion for reconsideration (Doc. #43, p. 11), but in the interest of judicial economy, granted its request for leave to file a second motion for summary judgment.

Petitioner moves a second time for summary judgment arguing that it is entitled to a declaration that it owes no duty to defend or indemnify Tex Sutton under Coverage A of the Excess Policy because the “Aircraft Liability Exclusion” does not render coverage “illusory.” (Doc. #44, pp. 2-3.) [*9]  Respondent Tex Sutton argues that Travelers has failed to carry its summary judgment burden of showing there are no genuine issues of fact which may be resolved as a matter of law regarding whether the coverage at issue is illusory. (Doc. #47, p. 1.)

III.

As noted above, Travelers’ Excess Policy includes two separate coverage parts, Coverage A — Excess Follow-Form Liability and Coverage B³ – Umbrella Liability.

Coverage A of the Travelers Excess Policy provides:

SECTION I – COVERAGES

A. COVERAGE A – EXCESS FOLLOW-FORM LIABILITY

1. We will pay on behalf of the insured those sums, in excess of the “applicable underlying limit”, that the insured becomes legally obligated to pay as damages to which Coverage A of this insurance applies, provided that the “underlying insurance” would apply to such damages but for the exhaustion of its applicable limits of insurance. If a sublimit is specified in any “underlying insurance”, Coverage A of this insurance applies to damages that are in excess of that sublimit only if such sublimit is shown for that “underlying insurance” in the Schedule Of Underlying Insurance.

2. Coverage A of this insurance is subject to the same terms, conditions, agreements, exclusions [*10]  and definitions as the “underlying insurance”, except with respect to any provisions to the contrary contained in this insurance [emphasis added].

(Doc. #24-2, p. 11.)

Coverage A is subject to the Aircraft Liability Exclusion:

With respect to COVERAGE A — EXCESS FOLLOW-FORM LIABILITY, the following exclusion is added to SECTION IV-EXCLUSIONS:

Aircraft

Damages arising out of the ownership, maintenance, use or entrustment to others of any aircraft owned or operated by or rented or loaned to any insured. Use includes operation and “loading or unloading”.

This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the “occurrence” which caused the “bodily injury” or “property damage” involved the ownership, maintenance, use or entrustment to others of any aircraft that is owned or operated by or rented or loaned to any insured.

(Id., p. 42.)

The Underlying (Chubb) Policy that was issued by Federal Insurance Company to Clark and endorses Tex Sutton, as a named insured, provides general liability coverage as follows:

COVERAGES

Bodily Injury and Property Damage Liability [*11]  Coverage

Subject to all of the terms and conditions of this insurance, we will pay damages that the insured becomes legally obligated to pay by reason of liability:

• imposed by law; or

• assumed in an insured contract;

for bodily injury ⁴ or property damage ⁵ caused by an occurrence ⁶ to which this coverage applies.

This coverage applies only to such bodily injury or property damage that occurs during the policy period.

. . .

Advertising Injury and Personal Injury Liability Coverage

Subject to all terms and conditions of this insurance, we will pay damages that the insured becomes legally obligated to pay by reason of liability:

• imposed by law; or

• assumed in an insured contract;

for advertising injury ⁷ or personal injury to which this coverage applies.

This coverage applies only to such advertising injury or personal injury ⁸ caused by an offense that is first committed during the policy period.

. . .

(Doc. #44-2, p. 34)(emphasis in original)(footnotes added.)

The Underlying Policy also contains the following exclusions:

BODILY INJURY/PROPERTY DAMAGE EXCLUSIONS ⁹

Aircraft, Autos Or Watercraft

This insurance does not apply to bodily injury or property damage arising out of the ownership, maintenance, use (use includes operation and loading and unloading) or entrustment to other of any:

• aircraft;

. . .

owned or operated by or loaned or rented to any insured.

(Id., pp. 91-92)(emphasis in original.)

IV.

A. Duty to Defend Principles

Since Travelers’ “duty to defend [under Florida law] is separate and distinct from its duty to indemnify, and it is more extensive” the Court begins its analysis [*13]  here. Advanced Sys., Inc. v. Gotham Ins. Co., 272 So. 3d 523, 526-27 (Fla. 3d DCA 2019) (citation omitted). As the Eleventh Circuit has recently summarized:

Under Florida law, “an insurer’s duty to defend its insured against a legal action arises when the complaint alleges facts that fairly and potentially bring the suit within policy coverage.” Jones v. Fla. Ins. Guar. Ass’n, 908 So. 2d 435, 442-43 (Fla. 2005). The duty to defend is a broad one, broader than the duty to indemnify, and “[t]he merits of the underlying suit are irrelevant.” Mid-Continent Cas. Co. v. Royal Crane, LLC, 169 So. 3d 174, 181 (Fla. 4th DCA 2015). We determine whether an insurer has a duty to defend its insured based only on “the eight corners of the complaint and the policy,” id. at 182, and only as the complaint’s alleged facts are “fairly read,” Fun Spree Vacations, Inc., 659 So. 2d at 421. The “facts” we consider in evaluating the duty to defend come solely from the complaint, regardless of the actual facts of the case and regardless of any later developed and contradictory factual record. Jones, 908 So. 2d at 442-43. “Any doubts regarding the duty to defend must be resolved in favor of the insured,” id. at 443, and “where a complaint alleges facts that are partially within and partially outside the coverage of an insured’s policy, the insurer is not only obligated to defend, but must defend that entire suit,” Sunshine Birds & Supplies, Inc. v. U.S. Fid. & Guar. Co., 696 So. 2d 907, 910 (Fla. 3d DCA 1997). But of course, because the lawsuit must be for something covered by the insurance policy, “the insurer has no [*14]  duty to defend” when “the pleadings show the applicability of a policy exclusion.” State Farm Fire & Cas. Co. v. Tippett, 864 So. 2d 31, 35 (Fla. 4th DCA 2003).

Travelers Indem. Co. of Conn. v. Richard Mckenzie & Sons, Inc., 10 F.4th 1255, 1261 (11th Cir. 2021). See also Westchester Gen. Hosp., Inc., 48 F.4th at 1302 (citing Keen v. Fla. Sheriffs’ Self-Ins. Fund, 962 So. 2d 1021, 1024 (4th Fla. DCA 2007)(“However, an insurer does not need to defend an insured if a policy exclusion applies.”)).

B. Illusory Coverage Principles

An insurance policy can, without creating a conflict or ambiguity, both provide coverage and exclude some things that might otherwise fall within that coverage. Cynergy, LLC v. First Am. Title Ins. Co., 706 F.3d 1321, 1327 (11th Cir. 2013). On the other hand, an insurance policy’s coverage becomes illusory if it “grants coverage with one hand and then with the other completely takes away the entirety of that same coverage. Completeness is key. When limitations or exclusions completely contradict the insuring provisions, insurance coverage becomes illusory.” Richard Mckenzie & Sons, Inc., 10 F.4th at 1265-66 (citing Warwick Corp. v. Turetsky, 227 So. 3d 621, 625 (Fla. 4th DCA 2017)(internal quotations omitted)(emphasis in original)). Put another way, a policy is illusory: (1) “only if a policy exclusion ‘swallow[s] up’ an insuring provision”, or (2) when an exclusion “eliminates all——or at least virtually all——coverage in a policy.” Zucker v. U.S. Specialty Ins. Co., 856 F.3d 1343, 1352 (11th Cir. 2017); Posada v. Aspen Specialty Ins. Co., No. 8:22-cv-1578-CEH-AAS, 2023 WL 2711538, 2023 U.S. Dist. LEXIS 55419, at *49 (M.D. Fla. Mar. 30, 2023).

If the policy is found to be illusory or ambiguous, it is resolved “by ignoring the exclusion.” Zucker, 856 F.3d at 1352 (citing Tire Kingdom, Inc. v. First S. Ins. Co., 573 So. 2d 885, 887 (Fla. 3d DCA 1990)). “But if the policy’s coverage and exclusion provisions do not negate one another, the coverage is not illusory, [*15]  and there is no ambiguity, so the plain language of the exclusion controls.” See Richard Mckenzie & Sons, Inc., 10 F.4th at 1265 (citing Warwick Corp., 227 So. 3d at 625-26).

In its Opinion and Order on Petitioner’s first motion for summary judgment, the Court found that Tex Sutton qualified as a covered insured under Coverage A of the Excess Policy, and that the Aircraft Liability Exclusion applies to the Underlying Action (Doc. #31, pp. 9-11). Tex Sutton does not dispute that the Aircraft Liability Exclusion applies. Instead, it claims that this Exclusion is so broad that it renders coverage illusory because Tex Sutton’s entire business involves one thing — the use of an aircraft for the transportation of horses. Therefore, the sole remaining issue before the Court is whether the coverage provided by the Underlying Policy and Coverage A of the Excess Policy is rendered “illusory” by the Aircraft Liability Exclusion, thus invoking Travelers’ duty to defend or duty to indemnify.

V.

Travelers argues that while the Aircraft Liability Exclusion applies in this case, the Exclusion does not render the Excess Policy’s coverage illusory because it does not “swallow up” an insuring provision nor does it “eliminate[] all——or at least virtually all——coverage in a policy”; rather, [*16]  the Excess Policy (Coverage A) and the Underlying Policy provide potential coverage for a variety of damages outside the scope of the Exclusion. (Doc. #44, p. 2; Doc. #51, p. 3.) Plaintiff argues that under either type of illusory coverage, Travelers’ motion for summary judgment fails. The Court will address the parties’ arguments in turn below.

A. Whether The Aircraft Liability Exclusion “Swallows Up” An Insuring Provision

Travelers argues that application of the Excess Policy’s Aircraft Liability Exclusion to the Underlying Policy does not completely “swallow up” coverage because there is a myriad of other claims within the broad insuring grant “for bodily injury or property damage” that do not arise out of the “ownership, maintenance or use” of an aircraft. (Doc. #51, p. 2.) Tex Sutton, on the other hand, argues that the Aircraft Liability Exclusion’s language – “damages arising out of the ownership, maintenance, use or entrustment to others of any aircraft” – is so broad that it “swallows up” the entire bodily injury coverage provision and renders coverage illusory. (Doc. #47, pp. 12-13.) Tex Sutton’s argument is based on its theory that since it is in the business of transporting [*17]  horses via aircraft, any claim for bodily injury would necessarily “aris[e] out of” the use of aircraft, and thus be barred under the Exclusion.

Tex Sutton’s argument fails, though, because the Aircraft Liability Exclusion does not “swallow up” coverage. To render coverage illusory, the exclusion must “completely contradict the insuring provisions.” Interline Brands, Inc. v. Chartis Specialty Ins. Co., 749 F.3d 962, 966 (11th Cir. 2014). If an exclusion does not “completely swallow” the insuring provision, the policy is not illusory, even if it is a significant exclusion. Warwick Corp.,227 So. 3d at 625.

While the Aircraft Liability Exclusion may exclude “damages arising out of the ownership, maintenance, use or entrustment to others of any aircraft . . . rented . . . to any insured” (including “loading and unloading”) for coverage provided by the Underlying Policy for damages because of “bodily injury” and “property damage” caused by an “occurrence” (i.e., an accident), it does not swallow every claim under the insuring provision. For example, as Travelers notes, the Policy covers — and the Aircraft Liability Exclusion does not negate coverage — for bodily injuries such as slips and falls at Tex Sutton’s leased premises¹⁰ , or property damage due to Tex Sutton’s negligent maintenance of its leased premises. [*18]  (Doc. #44, pp. 12-13; Doc. #51, p. 4.) See, e.g., AIX Specialty Ins. Co., 793 F. App’x at 1004 (a liquor liability exclusion in a general liability policy issued to a night club was a “significant exclusion” given the night club’s business, but did not swallow up coverage); Goldberg v. Nat’l Union Fire Ins. Co., 143 F. Supp. 3d 1283, 1301-02 (S.D. Fla. 2015)(a professional services exclusion in a policy issued to a company offering banking services was not illusory because it provided coverage for claims not involving professional services); Md. Cas. Co. v. Smartcop, Inc., No. 4:11-cv-10100-KMM, 2012 U.S. Dist. LEXIS 141757, at *20 (S.D. Fla. September 21, 2012)(a computer software exclusion in a policy issued to a company whose primary responsibilities relate to providing computer software to its customers was not illusory). “[A]n insurance policy can both provide coverage and also exclude some things that might otherwise fall within that coverage. That’s not a conflict. It’s just an exclusion, and those are par for the insurance course.” Richard McKenzie & Sons, Inc., 10 F.4th at 1265. Thus, even though the Aircraft Liability Exclusion may take “a nibble, or even a big bite, out of [coverage],” it does not swallow Tex Sutton’s coverage whole. Id. at 1266.

B. Whether The Aircraft Liability Exclusion “Eliminates All— —Or At Least Virtually All——Coverage In A Policy”

The parties also disagree as to whether this case falls under the common law “illusory coverage” doctrine that the Eleventh [*19]  Circuit has indicated is part of Florida’s insurance law. Interline Brands, Inc. v. Chartis Specialty Ins. Co., 749 F.3d 962, 966-67 (11th Cir. 2014) (applying Florida law). “In order for an exclusion to render a policy’s coverage illusory it must eliminate all—or at least virtually all—coverage in a policy.” Zucker, 856 F.3d at 1352, citing Inerline Brands, Inc., 749 F.3d at 966-67) (“According to Interline, the Exclusion’s broad scope reduces the coverage Chartis sold to Interline to a ‘façade’ . . . . Interline overstates the extent to which the Exclusion limits coverage. Even with the broad Exclusion, the policy still contains extensive coverage.”); Great Am. E & S Ins. Co. v. End Zone Pub & Grill of Narragansett, Inc., 45 A.3d 571, 576 (R.I. 2012) (“We will deem an exclusion to an insurance policy illusory only when it would preclude coverage in almost any circumstance.”) (quotation marks omitted); McGregor v. Allamerica Ins. Co., 449 Mass. 400, 868 N.E.2d 1225, 1228 (Mass. 2007) (“As long as an insurance policy provides coverage for some acts, it is not illusory simply because it contains a broad exclusion.”); Point of Rocks Ranch, LLC v. Sun Valley Title Ins. Co., 143 Idaho 411, 146 P.3d 677, 680 (Idaho 2006) (“An insurance policy’s coverage is illusory if it appears that if any actual coverage does exist it is extremely minimal and affords no realistic protection to any group or class of injured persons.”) (quotation marks omitted)).

The Aircraft Liability Exclusion negates a lot of coverage, but not “all—or at least virtually all—coverage.” As set forth above, the Underlying Policy provides for damages resulting [*20]  from bodily injury, property damage, advertising injury, and personal injury. Tex Sutton not only operates a business, but also occupies leased premises at the Blue Grass Airport. The Aircraft Liability Exclusion would not necessarily exclude claims based on premises liability, bodily injury or property damage sustained at Tex Sutton’s offices, or injury resulting from trademark or tradename infringement, or defamation. Accordingly, the Travelers Policy is not illusory under Florida law. See Interline Brands, 749 F.3d at 967 (exclusion was not void for being against public policy where “[e]ven with the broad [e]xclusion, the policy still contains extensive coverage”).

Accordingly, the Aircraft Liability Exclusion does not render the coverage under the Excess Policy illusory, and Travelers is entitled to summary judgment as to the same.

VI.

In its Complaint for Declaratory Judgment, Travelers sought judgment declaring its obligations to Tex Sutton under the Excess Policy, specifically its obligation to defend Tex Sutton in the Underlying Action and its obligation to indemnify Tex Sutton against loss for the damages sustained by Mr. Zepeda on March 12, 2020. For the reasons discussed below, the Court finds Travelers does [*21]  not have a duty to defend or to indemnify Tex Sutton in the Underlying Action.

A. Travelers’ Duty to Defend Tex Sutton In the Underlying Action

Since the Aircraft Liability Exclusion does not render the coverage provided by the Excess Policy illusory as a matter of Florida law, “the plain language of the [E]xclusion controls”, Richard Mckenzie & Sons, Inc., 10 F.4th at 1265 (citing Warwick Corp., 227 So. 3d at 625-26), and is applicable to the Underlying Action. Travelers thus has no duty to defend Tex Sutton in the Underlying Action. See Richard Mckenzie & Sons, Inc., 10 F.4th at 1261 (citing Tippett, 864 So. 2d at 35) (The lawsuit must be for something covered by the insurance policy, “the insurer has no duty to defend” when “the pleadings show the applicability of a policy exclusion.”)).

B. Travelers’ Duty To Indemnify Tex Sutton Against Loss For The Damages Sustained By Mr. Zepeda

“[T]he duty to defend is broad and based on the allegations in the complaint, the duty to indemnify is determined by the facts adduced at trial or during discovery.” Pa. Lumbermens Mut. Ins. Co. v. Ind. Lumbermens Mut. Ins. Co., 43 So. 3d 182, 188 (Fla. 4th DCA 2010). See also Pub. Risk Mgmt. of Fla. v. Munich Reinsurance Am., Inc., 38 F.4th 1298, 1306 (11th Cir. 2022). Therefore, unlike the duty to defend, the trial court must look beyond the allegations in the underlying complaint to decide whether an insurer has a duty to indemnify. The duty to indemnify arguably may not become fully ripened until the merits of the underlying litigation are resolved. [*22]  Aetna Ins. Co. v. Borrell-Bigby Elec. Co., 541 So.2d 139, 141 (Fla. 2d DCA 1989).

Courts in this circuit have overwhelmingly held that the question of an insurer’s duty to indemnify is not ripe until the underlying lawsuit is resolved, or the insured’s liability is established, because unless and until that occurs there is no judgment to indemnify. See, e.g., Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Shaw Dev., LLC, 2:21-cv-658-SPC-NPM, 2021 U.S. Dist. LEXIS 202973, 2021 WL 4913357, *1 (M.D. Fla. Oct. 21, 2021) (duty to indemnify claim is unripe until state court case ends); Cont’l Ins. Co. v. Nationwide Ins. Co. of Am., 6:20-cv-1439-WWB-DCI, 2021 U.S. Dist. LEXIS 259064, 2021 WL 8894460, *5 (M.D. Fla. Sept. 28, 2021) (entering a summary judgment finding that there is a duty to defend, and dismissing duty to indemnify claim without prejudice as premature until underlying litigation is resolved); AIX Specialty Ins. Co. v. Everett, 543 F. Supp. 3d 1321, 1333 (M.D. Fla. 2021) (declaratory judgment proceeding on duty to indemnify is premature until resolution of underlying litigation).

However, an exception to the prematurity of the indemnity issue arises when “the court can determine that the allegations in the complaint could under no circumstances lead to a result which would trigger the duty to indemnify.” Northland Cas. Co. v. HBE Corp., 160 F. Supp. 2d 1348, 1360 (M.D. Fla. 2001) (emphasis added). See Amerisure Ins. Co. v. Walker, 11-61480-CV, 2011 U.S. Dist. LEXIS 132959, 2011 WL 5597325, *3 (S.D. Fla. Nov. 17, 2011) (no duty to defend or indemnify where the injured party stated in underlying complaint that he was an employee, triggering employer’s liability exclusion); see also Scottsdale Ins. Co. v. GFM Operations, Inc., 789 F. Supp. 2d 1278, 1288-89 (S.D. Fla. 2011) (finding no duty to indemnify because employer’s liability exclusion applied where there was no evidence in the record that injured party, who [*23]  was operating a forklift, was on the premises as a patron rather than as an employee).

Here, the parties do not dispute the facts giving rise to the Underlying Action, namely, that Mr. Zepeda was injured while operating a tractor trailer to pick up horses and equipment unloaded from an aircraft chartered by Tex Sutton, when his truck collided with the aircraft’s wing. As this Court has found, the Aircraft Liability Exclusion applies to the Underlying Action and based upon the undisputed allegations in the underlying complaint there are “no circumstances” that “trigger [Travelers’] duty to indemnify.” Northland Cas. Co., 160 F. Supp. 2d at 1360.

Accordingly, it is now

ORDERED:

1. Petitioner Travelers Property Casualty Company of America’s Second Motion for Final Summary Judgment (Doc. #44) is GRANTED.

2. Petitioner has no duty to defend Respondent H.E. Sutton Forwarding Co., LLC, D/B/A Tex Sutton Equine Air Transportation in the underlying action, Antonio DeJesus Zepeda v. H.E. Sutton Forwarding Co., LLC, et al., Case No. 20-CI-02602, Fayette Circuit Court Division, Commonwealth of Kentucky.

3. Petitioner has not duty to indemnify Respondent for the damages sustained by Mr. Zepeda on March 12, 2020.

4. The Clerk of the Court shall [*24]  enter judgment in favor of Petitioner, terminate any pending deadlines, and close the file.

DONE and ORDERED at Fort Myers, Florida, this 24th day of August, 2023.

/s/ John E. Steele

JOHN E. STEELE

SENIOR UNITED STATES DISTRICT JUDGE

End of Document

---

¹ This is a diversity action and the parties do not dispute that the challenged contract was issued and delivered in Florida, so Florida law controls. Westchester Gen. Hosp., Inc. v. Evanston Ins. Co., 48 F.4th 1298, 1302 (11th Cir. 2022); Tech. Coating Applicators, Inc. v. U.S. Fid. & Guar. Co., 157 F.3d 843, 844 (11th Cir. 1998). See also State Farm Mut. Auto. Ins. Co. v. Roach, 945 So. 2d 1160, 1163 (Fla. 2006).

² The background facts which were set forth in the Opinion and Order on Petitioner’s first motion for summary judgment are either undisputed or read in the light most favorable to Respondent as the nonmoving party.

³ In its previous Opinion and Order on Travelers’ first motion for summary judgment, the Court found Tex Sutton failed to address Travelers’ argument that Coverage B did not apply to Tex Sutton because Tex Sutton was not listed as a “Named Insured” for purposes of Coverage B, and in doing so, waived any argument to the contrary. (Doc. #31, p. 5 n. 2.) While Travelers reiterates the same argument as to Coverage B in its second motion for summary judgment, Tex Sutton again offers no countervailing argument. Thus, the Court omits any discussion of Coverage B.

⁴ “Bodily Injury” is defined as physical “injury; sickness; or disease; sustained by a person, including death, humiliation, mental anguish, mental injury, sickness or disease that caused it.” (Doc. #44-2, p. 56.)

⁵ “Property Damage” means “physical injury to tangible property, including the resulting loss of use of that property . . . or “loss of use of tangible property that is not physically injured.” (Doc. #44-2, pp. 61-62.)

⁶ “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Doc. #44-2, p. 60.)

⁷ “Advertising Injury” means “injury, other than bodily injury, property damage, or personal injury, sustained by a person or organization and caused by an offense of infringing, in that particular part of your advertisement about your goods, products or services, upon their: copyrighted advertisement; or registered collective mark, registered service mark or other registered trademarked name, slogan, symbol or title.” (Doc. #44-2, p. 56)(emphasis in original.)

⁸ “Personal Injury” means injury, other than bodily injury, property, damage, or advertising injury, caused by an offense of:

A. false arrest, false detention or other false imprisonment;

B. malicious prosecution;

C. wrongful entry into, [*12]  wrongful eviction of a person from or other violation of a person’s right of private occupancy of a dwelling, premises or room that such person occupies, if committed by or on behalf of its landlord, lessor or owner;

D. electronic, oral, written or other publication of material that:

1. libels or slanders a person or organization (which does not include disparagement of goods, products, property or services); or

2. violates a person’s right of privacy; or

E. discrimination, harassment or segregation based on a person’s age, color, national origin, race, religion or sex.

(Doc. #44-2, pp. 60-61)(emphasis in original.)

⁹ As amended by the “Exclusion — Non-Owned Aircraft” endorsement. (Doc. #44-2, pp. 91-92.)

¹⁰ The complaint in the Underlying Action alleges that Tex Sutton maintains a facility at Blue Grass Airport, which it leases from the Lexington-Fayette Urban County Airport Board. (Doc. #1-2, ¶ 10.)

United States District Court for the Northern District of Illinois, Eastern Division

August 14, 2023, Decided; August 14, 2023, Filed

Case No. 19 C 01660

AMERICAN HIGHWAY, INC., Plaintiff, v. THE TRAVELERS COMPANIES, INC., Defendant.

Counsel:  [*1] For American Highway, Inc., Plaintiff: Bradley Albert Bertkau, Canty Novy Bertkau Gordon, LLC, Chicago, IL; Devin Michael Lindsay, Orlean Canty Novy LLC, Chicago, IL; Dylan Shiver, Orleans Canty Novy Llc, Chicago, IL; Jason Orleans, Orleans Canty Novy, LLC, Chicago, IL.

For The Travelers Companies, Inc., Defendant: Matthew S. Ponzi, LEAD ATTORNEY, Foran Glennon Palandech Ponzi & Rudloff PC, Chicago, IL; Collin M Kent, Foran Glennon Palandech Ponzi & Rudloff P.C., Chicago, IL; John Eggum, Foran Glennon Palandech Ponzi & Rudloff, Chicago, IL.

Judges: Martha M. Pacold, United States District Judge.

Opinion by: Martha M. Pacold

Opinion

MEMORANDUM OPINION AND ORDER

This is an insurance dispute between Travelers Property Casualty Company of America (“Travelers”) and American Highway, Inc (“American Highway”). Travelers denied American Highway coverage, and American Highway initiated this suit in the Circuit Court of Cook County. [1] at 1.¹ Travelers removed the action to this court. Id. The court has subject-matter jurisdiction under 28 U.S.C. § 1441.² Before the court are Travelers’s and American Highway’s cross motions for summary judgment. [53], [56]. Travelers’s motion, [53], is granted and American Highway’s motion, [56], is denied.

BACKGROUND

In November of 2017, a company called Kerry Foods contacted freight broker C.H. Robinson to ship 19 pallets of a potato-based, food-grade product called ProtaStar from Illinois to California. [62] ¶ 10. C.H. Robinson selected American Highway, the plaintiff, to carry the load. Id. ¶ 11.

American Highway picked up the load at Kerry’s distribution center in Illinois on November 29, 2017. Id. ¶ 13; see [62-2] at 1 (giving the date). Kerry sealed the trailer that contained the ProtaStar with a metal identification tag. [62] ¶ 14. Kerry seals the trailers to ensure that the load is not contaminated or otherwise adulterated during transit. [61] ¶ 14.

On the way to California, the trailer experienced a mechanical issue, so American Highway broke the trailer’s seal and moved the ProtaStar to a new trailer with a new seal. Id. ¶ 15. Upon delivery, the recipient rejected the load because the original seal had been broken. Id. ¶ 17.

On January 5, 2018, American Highway issued a “Guaranty” to Kerry that stated, “[American Highway] represents and guarantees to Kerry that during the time the Goods have been in the possession of [American Highway] that such goods have not been tampered, [*3]  contaminated, adulterated, or otherwise altered.” [62] ¶ 23; [66] ¶¶ 46-47. The record is unclear on what a Guaranty is or why American Highway issued this one; the parties do not discuss its background. From the deposition of Kristina Sheahan, a Kerry employee, it appears that the Guaranty was a letter that American Highway wrote, and that C.H. Robinson passed along to Kerry, to explain what happened to the load. [54-2] at 45:1-46:1 (Sheahan Dep.). Regardless, American Highway does not dispute that it issued the Guaranty, and it does not dispute the Guaranty’s contents. [62] ¶ 23; [66] ¶¶ 46-47.

Kerry made a claim to C.H. Robinson for a breach of their carriage contract due to the broken seal, and C.H. Robinson paid the full amount of the claim ($48,296.17) on September 17, 2018, without a suit or any adversarial proceeding. [62] ¶¶ 21, 26-27.

C.H. Robinson’s contract with American Highway allowed C.H. Robinson to exercise a setoff right where American Highway’s actions created liability for C.H. Robinson to its customers. [62] ¶ 29; [66] ¶ 52. To recoup its loss, C.H. Robinson exercised its setoff right by withholding $48,296.17 that it owed to American Highway for unrelated jobs. [*4]  [62] ¶ 29; [66] ¶ 52, [61] ¶ 19.³

With this background, the court turns to the dispute between American Highway and Travelers.

Travelers was American Highway’s insurer; Travelers issued American Highway a Commercial Inland Marine insurance policy (the “Policy”). [62] ¶¶ 30, 36; [54-10] at 19 (verified copy of the Policy). In the Policy, Travelers committed to paying American Highway “those sums you become legally obligated to pay as damages as a Motor Carrier, Warehouseman, Freight Forwarder, Logistics Service Provider or Other Bailee for direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss.” [61] ¶ 30.

American Highway made a claim under the Policy in February 2018 for the money it lost when C.H. Robinson exercised its contractual setoff right. See [61] ¶ 20; see [62] ¶ 36 (stating that American Highway pursued a claim).

On May 25, 2018, Travelers denied coverage because “a missing seal does not constitute physical damages” under the Policy and there was no physical damage noted on the delivery date. [61] ¶ 22.

On October 30, 2018, American Highway asked Travelers to reconsider, and Travelers reconfirmed its denial on December 13, 2018. [*5]  Id. ¶¶ 24-25.

This suit followed, and both parties moved for summary judgment.

LEGAL STANDARD

Summary judgment is proper where “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Rule 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). A genuine dispute as to any material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). The substantive law controls which facts are material. Id. The party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex, 477 U.S. at 323.

For cross motions aimed at the same claim or defense, the court adopts “a dual, ‘Janus-like’ perspective.” Hotel 71 Mezz Lender LLC v. Nat’l Ret. Fund, 778 F.3d 593, 603 (7th Cir. 2015) (quoting Shiner v. Turnoy, 29 F. Supp. 3d 1156, 1160 (N.D. Ill. 2014)). For the first motion, the court views the facts and inferences in the light most favorable to the nonmovant. If the court denies the first motion, it turns to the cross-motion and gives the unsuccessful movant all the favorable factual inferences that it has just given to the movant’s opponent. Id. (citing R.J. Corman Derailment Servs., LLC v. Int’l Union of Operating Eng’rs., Loc. Union 150, AFLCIO, 335 F.3d 643, 647-48 (7th Cir. 2003)).

DISCUSSION

American Highway seeks summary judgment on four issues: (1) its claim falls within the Policy’s relevant coverage provision; (2) Travelers’s pre-suit conduct [*6]  estops Travelers from raising certain policy defenses; (3) the Carmack Amendment, 49 U.S.C. § 14706, preempts the state contract law governing this dispute and requires entering judgment in American Highway’s favor; and (4) Travelers’s conduct was “vexatious and unreasonable” under Section 155 of the Illinois Insurance Code, 215 ILCS 5/155.

In the cross-motion, Travelers argues that the Policy does not cover American Highway’s claim, or in the alternative, other provisions in the Policy bar the claim.

I. Coverage

Beginning with coverage: Travelers committed to paying American Highway “those sums you become legally obligated to pay as damages as a Motor Carrier, Warehouseman, Freight Forwarder, Logistics Service Provider or Other Bailee for direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss.” [61] ¶ 30.

The parties do not dispute that the ProtaStar is the Covered Property. Compare [65] at 5 (American Highway: “It is undisputed that the Covered Property here is the cargo that American Highway was transporting, i.e., the food product (‘ProtaStar’).”) with [60] at 9 (Travelers: “The ‘Covered Property’ is the goods inside the truck . . . .”). The crux of the parties’ dispute is what “direct physical loss of or damage to Covered [*7]  Property” means.

Further discussion follows, but in short, because there is no genuine issue of material fact that the ProtaStar did not suffer “direct physical loss” or “direct physical damage,” American Highway’s claim falls outside the Policy language and is not covered.

Sitting in diversity, the court applies the substantive law of the forum state—here, Illinois. R3 Composites Corp. v. G&S Sales Corp., 960 F.3d 935, 941 (7th Cir. 2020).

In Illinois, “[a]n insurance policy is a contract, and the general rules governing the interpretation of other types of contracts also govern the interpretation of insurance policies.” Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill. 2d 11, 823 N.E.2d 561, 564, 291 Ill. Dec. 269 (Ill. 2005). American Highway bears the burden to show that its claim falls within the policy’s coverage. Addison Ins. Co. v. Fay, 232 Ill. 2d 446, 905 N.E.2d 747, 752, 328 Ill. Dec. 858 (Ill. 2009).

The court’s task is to “predict how the Supreme Court of Illinois would resolve the issue.” Sandy Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327, 331 (7th Cir. 2021). The Supreme Court of Illinois has not yet interpreted the Policy’s operative phrase, “direct physical loss of or damage to Covered Property.”

In Sandy Point, the Seventh Circuit interpreted a similar phrase, “direct physical loss or damage.” The court noted that the phrase “direct physical” is most logically read as modifying both the words “loss and damage.” Id. at 332; see also Bradley Hotel Corp. v. Aspen Specialty Ins. Co., 19 F.4th 1002, 1006 (7th Cir. 2021) (same and interpreting same phrase here). Illinois appellate courts interpreting the same phrase [*8]  in this case have also read the word “physical” as modifying both loss and damage. See ABW Dev., LLC v. Cont’l Cas. Co., 2022 IL App (1st) 210930, 461 Ill. Dec. 320, 203 N.E.3d 922, 929 (Ill. App. Ct. 2022); Bottleneck Mgmt., Inc. v. Zurich Am. Ins. Co., 2022 IL App (1st) 211462-U, ¶ 31 (unpublished); Ark Rests. Corp. v. Zurich Am. Ins. Co., 2022 IL App (1st) 211147-U, ¶ 16 (unpublished). Accordingly, under the Policy, damage to Covered Property must be physical for the insured’s claim to be covered.

The Policy does not define the word “physical,” so it must be given its “plain, ordinary, and popular meaning.” ABW Dev., LLC, 203 N.E.3d at 929 (citation and internal quotation marks omitted). In Traveler’s Insurance Company v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 757 N.E.2d 481, 258 Ill. Dec. 792 (Ill. 2001), the Supreme Court of Illinois held that a “physical” injury to property “occurs when property is altered in appearance, shape, color or in other material dimension, and does not take place upon the occurrence of an economic injury, such as diminution in value,” id. at 500. Illinois courts have applied Eljer‘s definition of the word “physical” to the coverage provision at issue here. See, e.g., ABW Dev., 203 N.E.3d at 929. Applying that definition here, for the coverage provision to encompass American Highway’s claim, the ProtaStar must have been “altered in appearance, shape, color or in another material dimension.” Eljer, 757 N.E.2d at 500. Again, economic injuries, such as diminution in value, do not trigger coverage. Id.; see also 10A Steven Plitt et al., Couch on Insurance § 148:46 (3d ed. 2022) (“The requirement that the loss be ‘physical,’ given the [*9]  ordinary definition of that term, is widely held to exclude alleged losses that are intangible or incorporeal and, thereby, to preclude any claim against the property insurer when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property.”).

There is no dispute that the ProtaStar was not altered in appearance, shape, color, or in any other material dimension, so American Highway’s claim is not covered. American Highway issued a Guaranty stating that while the ProtaStar was in its possession, it was not “tampered, contaminated, adulterated, or otherwise altered.” [62] ¶ 23. Instead, American Highway argues that the purpose of the seal that broke was to guarantee the ProtaStar remained unadulterated. According to American Highway, breaking the seal created the possibility of physical damage, making the ProtaStar worthless.

But the diminution of value of the ProtaStar by virtue of the risk of adulteration—not actual adulteration of the ProtaStar itself—is an economic injury. Thus, no reasonable jury could conclude that there was direct physical loss of or damage to the ProtaStar. See Lakeshore Sail Charters, LLC v. Acadia Ins. Co., 168 F. Supp. 3d 1048, 1057 (N.D. Ill. 2016) (because Illinois law places [*10]  the burden on the insured to provide that its claim falls within the coverage of an insurance policy, and insured’s evidence would not allow it to meet its burden at trial, court granted insurance company’s motion for summary judgment); see also Varlen Corp. v. Liberty Mut. Ins. Co., No. 13 C 05463, 2017 U.S. Dist. LEXIS 162110, 2017 WL 4278787, at *3 (N.D. Ill. Sept. 25, 2017), aff’d, 924 F.3d 456 (7th Cir. 2019).

American Highway raises two arguments for a broader reading of the Policy’s coverage provision, but they are unpersuasive. First, American Highway urges that “damage” is a broad term that includes an injury or harm that reduces value. Applied here, American Highway argues that breaking the seal created a risk of adulteration, which rendered the Protostar worthless, making it “damaged” under the Policy. [58] at 9; [63] at 9, 13.

By itself, the word “damage” could cover non-physical injuries, such as an injury or harm that reduces value or usefulness. See Am.’s Kids, LLC v. Zurich Am. Ins. Co., No. 20 C 3520, 2021 U.S. Dist. LEXIS 188971, 2021 WL 4477872, at *4 (N.D. Ill. Sept. 30, 2021). But that is not what the Policy says. American Highway’s reading does not account for the fact that the phrase “direct physical” modifies both “loss” and “damage” in the coverage provision.

Second, American Highway argues that the disjunctive “or” in the phrase “direct physical loss of or damage” shows that “damage” and “loss” mean different things. As the Seventh Circuit explained, [*11]  there is “no quarrel” with the argument that “damage and “loss” mean different things. Sandy Point, 20 F.4th at 332. One possible reading discussed in Sandy Point is that “loss” means complete destruction, while “damage” means some lesser harm that may be repaired. Id. But regardless of precisely what the words “loss” and “damage” mean, to trigger coverage, the relevant “loss” or “damage” must have been physical; as discussed previously, the adjectives “direct physical” modify both nouns. See id. The ProtaStar was not altered in appearance, shape, color, or in any other material dimension, so it could not have been physically lost or damaged.

II. Estoppel

Next, American Highway contends that Travelers is estopped from raising any policy defense to coverage here because Travelers did not file a declaratory judgment action or issue a reservation of rights letter to American Highway. [58] at 5-7.

“Under Illinois law, if an insurer neither defends nor seeks a declaratory judgment defining its coverage obligation, ‘it will be estopped from raising the defense of noncoverage in a subsequent action.'” Altom Transp., Inc. v. Westchester Fire Ins. Co., 823 F.3d 416, 422 (7th Cir. 2016) (quoting Country Mut. Ins. Co. v. Olsak, 391 Ill. App. 3d 295, 908 N.E.2d 1091, 1098, 330 Ill. Dec. 433 (Ill. App. Ct. 2009). But estoppel only applies when an insurance company breaches its duty to defend; if there is no duty to defend, insurers [*12]  are not estopped from asserting a defense of noncoverage in a subsequent action. Altom, 823 F.3d at 422 (citing Emps. Ins. of Wausau v. Ehlco Liquidating Tr., 186 Ill. 2d 127, 708 N.E.2d 1122, 1135, 237 Ill. Dec. 82 (Ill. 1999)).

The Policy language controls whether Travelers had a duty to defend. “If the policy language is unambiguous, the policy will be applied as written, unless it contravenes public policy.” Windridge of Naperville Condo. Ass’n v. Phila. Indem. Ins. Co., 932 F.3d 1035, 1039 (7th Cir. 2019) (quoting Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill. 2d 11, 823 N.E.2d 561, 564, 291 Ill. Dec. 269 (Ill. 2005)). A policy’s words are ambiguous if they are “susceptible to more than one reasonable interpretation.” Wells v. State Farm Fire & Cas. Ins. Co., 2021 IL App (5th) 190460, 447 Ill. Dec. 259, 173 N.E.3d 613, 621 (Ill. App. Ct. 2021) (quoting Bituminous Cas. Corp. v. Iles, 2013 IL App (5th) 120485, 992 N.E.2d 1257, 1263, 372 Ill. Dec. 856 (Ill. App. Ct. 2013)).

The Policy states, in relevant part:

We have the right and duty to defend you against any “suit.” However, we will have no duty to defend you against any ‘suit’ seeking damages to which this insurance does not apply. We may, at our discretion, investigate any occurrence and settle any claim or ‘suit’ that may result. . . . No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under the Supplementary Payments Additional Coverage.

[62] ¶ 35. The Policy also defines the word “Suit”:

“Suit” means a civil proceeding in which damages because of loss or damage to Covered Property to which this insurance applie[s] are alleged. “Suit” includes:

a. An arbitration proceeding in which such damages are claimed and to which you must submit, or [*13]  submit with our consent; and

b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which you submit with our consent.

Id. According to American Highway, this language is ambiguous because “there is no language in the Policy limiting said duty [to defend] to cases only where [a] ‘suit’ is filed.” [65] at 2.

This argument is not persuasive. The Policy triggers Travelers’s duty only when there is a “suit,” and Travelers has no other defense obligations unless provided under the Supplementary Payments section.⁴

The Policy language on Travelers’s duty to defend is unambiguous, so the court must apply it as written. Windridge, 932 F.3d at 1039. No claimant filed a civil proceeding against American Highway at any time relating to the events here. [62] ¶ 37. Moreover, no party has pointed to evidence of an arbitration or alternative-dispute-resolution proceeding. Accordingly, Travelers’s duty to defend was not triggered under the Policy, so Travelers may raise policy defenses here. See Altom, 823 F.3d at 422.

As a final matter on estoppel, American Highway contends that Travelers did not assert coverage defenses in its initial denials, so Travelers has waived its defenses here. [63] at 2. This argument [*14]  is unpersuasive. “The mere omission of a defense in a letter . . . does not constitute a waiver of the defense.” Loyola Univ. of Chi. v. Humana Ins. Co., 996 F.2d 895, 901 (7th Cir. 1993).

III. Carmack Amendment

American Highway argues the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 14706(a)(1), governs this dispute rather than state law.

Congress enacted the Carmack Amendment to address the problem of patchwork regulation governing a carrier’s liability to shippers concerning damaged goods transported in interstate commerce. REI Transp., Inc. v. C.H. Robinson Worldwide, Inc., 519 F.3d 693, 697 (7th Cir. 2008). The Carmack Amendment aimed to solve this problem by codifying the “common law liability of carriers for damages to shippers’ goods.” Pizzo v. Bekin Van Lines Co., 258 F.3d 629, 633 (7th Cir. 2001). To that end, the Carmack Amendment “generally preempts separate state-law causes of action” that fall within its reach. REI Transp., 519 F.3d at 697.

The reach of the Carmack Amendment is extensive, but it is not limitless. 49 U.S.C. § 14706(a)(1) states (with emphases added as relevant):

A carrier providing transportation or service subject to jurisdiction under subchapter I or III of chapter 135 shall issue a receipt or bill of lading for property it receives for transportation under this part. That carrier and any other carrier that delivers the property and is providing transportation or service subject to jurisdiction under subchapter I or III of chapter 135 or chapter 105 are liable to the person entitled to recover under the receipt or bill of lading. The liability imposed under this [*15]  paragraph is for the actual loss or injury to the property caused by (A) the receiving carrier, (B) the delivering carrier, or (C) another carrier over whose line or route the property is transported in the United States or from a place in the United States to a place in an adjacent foreign country when transported under a through bill of lading and, except in the case of a freight forwarder, applies to property reconsigned or diverted under a tariff under section 13702. Failure to issue a receipt or bill of lading does not affect the liability of a carrier. . . .

The Carmack Amendment applies to a carrier’s liability to “the person entitled to recover under the receipt or bill of lading.” Id.; see Hairston Motor Co. v. Newsome, 253 Va. 129, 480 S.E.2d 741, 744 (Va. 1997) (“By its express terms, the Carmack Amendment applies only to the liability of a ‘common carrier’ under a ‘receipt or bill of lading.'”). The Amendment does not preempt “claims that do not affect a carrier’s liability for lost or damaged goods—such as a suit by a carrier against a ‘person entitled to recover’ for non-payment.” REI Transp., 519 F.3d at 698.

This case does not concern a carrier’s liability. This is a suit brought by a carrier against its insurer under an insurance policy, not a suit brought by a person entitled to recover against a carrier under a [*16]  receipt or bill of lading. Thus, Illinois state law governs this case, not the Carmack Amendment.

IV. Section 155 of the Illinois Insurance Code

Finally, American Highway argues that Travelers violated Section 155 of the Illinois Insurance Code, 215 ILCS 5/155, by denying coverage. [58] at 13.

“Section 155 of the Illinois Insurance Code allows an insured to recover attorney fees when the insurer’s denial of coverage or delay in payment is vexatious and unreasonable, or when the insurer behaves vexatiously and unreasonably during the course of coverage litigation.” TKK USA, Inc. v. Safety Nat’l Cas. Corp., 727 F.3d 782, 793 (7th Cir. 2013) (internal citations and quotations omitted). The court “must consider the totality of the circumstances when determining whether an insurer’s conduct violates section 155.” Joseph T. Ryerson & Son, Inc. v. Travelers Indem. Co. of Am., 2020 IL App (1st) 182491, 444 Ill. Dec. 793, 165 N.E.3d 439, 463 (Ill. App. Ct. 2020).

“It is neither vexatious nor unreasonable to litigate a ‘bona fide dispute concerning the scope and application of insurance coverage,’ let alone to deny coverage based on a position that prevails.” PQ Corp. v. Lexington Ins. Co., 860 F.3d 1026, 1038 (7th Cir. 2017) (quoting Citizens First Nat’l Bank of Princeton v. Cincinnati Ins. Co., 200 F.3d 1102, 1110 (7th Cir. 2000)). When “no coverage is owed under the policy, there can be no finding that the insurer acted vexatiously or unreasonably with respect to the claim.” Joseph T. Ryerson & Son, Inc, 165 N.E.3d at 457 (Ill. App. Ct. 2020); Towne Place Condo. Ass’n v. Phila. Indem. Ins. Co., No. 17 C 1561, 2019 U.S. Dist. LEXIS 121393, 2019 WL 3287837, at *8 (N.D. Ill. July 22, 2019) (“In any event, because Philadelphia Indemnity did not violate its obligations under the policy, it cannot be held liable for engaging in bad faith or improper practices under Section 155.”); J&L Pack, Inc. v. Nova Cas. Co., No. 20 C 3389, 2021 U.S. Dist. LEXIS 151286, 2021 WL 3550299, at *6 (N.D. Ill. Aug. 11, 2021) (no damages under Section 155 if no benefits are owed). American Highway is not entitled to coverage, [*17]  so Travelers could not have acted vexatiously or unreasonably by denying coverage.

American Highway also contends that Travelers acted vexatiously and unreasonably in other ways, such as responding to American Highway’s request for reconsideration in an unreasonable amount of time. [58] at 13. Based on the totality of the circumstances in this case, Travelers’s conduct was not vexatious or unreasonable. Accordingly, American Highway is not entitled to Section 155 damages.

CONCLUSION

The Policy does not cover American Highway’s claim because there is no genuine dispute of material fact that there was no direct physical loss of or damage to Covered Property—the ProtaStar. Travelers may raise policy defenses here because there was no “suit” as defined under the Policy. The Carmack Amendment and the cases interpreting it do not apply to this case. Finally, American Highway is not entitled to damages under Section 155. Travelers’s motion for summary judgment [53] is granted, and American Highway’s motion for summary judgment [56] is denied. Final judgment will enter. Civil case terminated.

Date: August 14, 2023

/s/ Martha M. Pacold

End of Document

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¹ Bracketed numbers refer to docket entries and are followed by page and / or paragraph numbers. Page numbers refer to the CM/ECF page number.

² Section 1441(a) allows a federal district court to hear a case removed from state court if the district court would have had original jurisdiction over the case had it been brought there originally. Travelers invokes this court’s diversity jurisdiction. 28 U.S.C. § 1332. For the court to have subject-matter jurisdiction under the diversity statute, (1) there must be complete diversity between the parties and (2) the amount in controversy must exceed $75,000.  [*2] See Page v. Democratic Nat’l Comm., 2 F.4th 630, 636 (7th Cir. 2021).

First, as to the amount in controversy: American Highway claims only $48,296.17 for its loss. [1] ¶ 7(a). However, it also seeks damages under Section 155 of the Illinois Insurance Code, 215 ILCS 5/155. Id. ¶7(b). These additional damages—$28,977.70—bring the complete amount in controversy to $77,273.87, which is above the statutory threshold. See Domingo v. Prudential Ins. Co. of Am., No. 19 C 02566, 2020 U.S. Dist. LEXIS 208213, 2020 WL 6545059, at *11 (N.D. Ill. Nov. 6, 2020).

Second, there is complete diversity between the parties. American Highway is an Illinois corporation with its principal place of business in Illinois. [62] ¶ 1. Defendant Travelers is incorporated in Connecticut, and its principal place of business is also in Connecticut. [62] ¶ 2. Thus, American Highway is a citizen of Illinois, and Travelers is a citizen of Connecticut, making the parties completely diverse.

³ The parties agree that this setoff occurred “at some point,” but there is no specific date in the record stating when the setoff occurred. [62] ¶ 29.

⁴ American Highway does not address the applicability of the Supplementary Payments section, so has waived any argument that this section of the policy triggered a duty to defend. See Henry v. Hulett, 969 F.3d 769, 786 (7th Cir. 2020). Even absent the waiver, that section still does not address Travelers’s duty to defend, but instead, lists expenses Travelers will pay to policyholders when certain conditions are met. See [54-10] at 19; [62] ¶ 30.