Virginia M. Kendall, United States District Court Judge, Northern District of Illinois.
This dispute arises from Plaintiff Cincinnati Insurance Company's desire for a declaration that it has no duty to defend or indemnify Defendant Berkshire Refrigerated Warehousing, LLC in another lawsuit in which Berkshire has been sued for the theft of equipment lodged in its storage facility. Cincinnati seeks a declaratory judgment under 28 U.S.C. §§ 2201 and 1332 that the insurance policy that it issued to Berkshire does not cover the stolen equipment. Cincinnati's Complaint submits three claims for a declaratory judgment establishing that it has no duty to defend, reimburse, indemnify, or otherwise pay Berkshire for loss incurred as a result of the Underlying Action. In support of its claims, Cincinnati asserts that it has no duty to defend or indemnify because the location of the stored equipment was not covered by the insurance policy and the policy's "care, custody, or control" exclusion from coverage applies. Berkshire moves to dismiss all of Cincinnati's complaints under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. The Court denies Berkshire's motion to dismiss Cincinnati's Complaint because it states a claim for declaratory judgment and is not premature.
Berkshire is an Illinois corporation "engaged in the business of warehousing and refrigerated storage." (Dkt. No. 21 at 21.) Cincinnati issued an insurance policy to Berkshire effective from December 15, 2011 to December 15, 2012 ("Policy"). Id. at 4. The Policy contained a number of coverage parts including a Property Coverage Part, a Commercial General Liability Part, and an Umbrella Coverage Part. Id. at 5. The Property Coverage Part covers "physical loss or damage to covered property at covered locations caused by a
On July 9, 2014, Charter Oak filed as subrogee of Gold Standard suit against Berkshire in this district. Id. at 2; Charter Oak Fire Ins. Co. a/s/o Gold Standard Baking, Inc. v. Berkshire Refrigerated Warehousing, LLC, No. 1:14-cv-05201 (N.D.Ill. filed July 9, 2010). In its Underlying Complaint, Charter Oak states that it issued an insurance policy to Gold Standard Baking which provided commercial insurance coverage for property damage and/or loss. Id. The Underlying Complaint alleges that Berkshire and Gold Standard reached an agreement by which Berkshire would Gold Standard's equipment ("Equipment") in Berkshire's trailers. Id. at 2-3. The Equipment was initially stored at 4550 S. Packers Avenue in Chicago, a "covered location" under the Policy, and then moved to 1250 W. 42nd Street in Chicago. Id. at 3. In its Complaint, Cincinnati alleges that 1250 W. 42nd Street is neither a "covered location" nor within 1,000 feet of a "covered location," as required for coverage by the Property Coverage Part. Id. at 6. The Underlying Complaint alleges that "Berkshire accepted custody and control of the subject goods in exchange for the required payments." Id. at 8.
On or about January 18, 2012, the trailers with the Equipment were stolen from 1250 W. 42nd St. and have not been recovered. Id. at 3. In its Complaint, Cincinnati alleges that "Berkshire had care, custody and control of Gold Standard's equipment when the equipment went missing or was stolen was stolen." Id. at 8. Cincinnati seeks declaratory judgment on three counts. Count I asks the Court to find that Cincinnati has no obligation to defend, reimburse, or indemnify Berkshire under the Property Coverage Part because the Equipment was not within 1,000 feet of a covered location. Id. at 4-6. Counts II and III seek judgment that Cincinnati has no duty to defend, reimburse, indemnify, or otherwise pay Berkshire under the Commercial General Liability and Umbrella Coverage Parts because the Equipment was under Berkshire's care, custody and control when it was stolen. Id. at 7-10.
On a Rule 12(b)(6) motion to dismiss, the Court construes the Complaint in the light most favorable to the non-moving party, "accepting as true all well-pleaded facts as alleged, and drawing all possible inferences in [the non-movant's] favor." Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir.2008). A motion to dismiss shall be granted if "allegations in a complaint, however true, could not raise a claim of entitlement
Berkshire argues that Counts II and III of Cincinnati's Complaint should be dismissed under Rule 12(b)(6) because the Underlying Complaint does not allege sufficient facts to show that the "care, custody or control" exclusion in the Commercial General Liability and Umbrella Parts applies. (Dkt. No. 30 at 6.) Under Illinois law, Courts apply a two-pronged test to determine whether an insurance policy's "care, custody or control" exclusion applies. See Bolanowski v. McKinney, 220 Ill.App.3d 910, 163 Ill.Dec. 394, 581 N.E.2d 345, 348 (1991). First, the Court considers whether the property at issue was within the possessory control of the insured at the time of the loss. Id. For this prong, "the control exercised by the insured must be exclusive, it need not be continuous, and if the insured has possessory control at the time the property is damaged, the exclusion clause will apply." Country Mut. Ins. Co. v. Waldman Mercantile Co., Inc., 103 Ill.App.3d 39, 58 Ill.Dec. 574, 430 N.E.2d 606, 609 (1981). To satisfy the second prong, the property must be "a necessary element of the work" performed by the insured. Bolanowski, 163 Ill.Dec. 394, 581 N.E.2d at 348. Berkshire asserts that the Underlying Complaint fails to sufficient allege facts to plausibly establish that Berkshire had possessory control over the Equipment as required by the first prong because it did not allege that Berkshire had exclusive or primary control over it at the time it was stolen. (Dkt. No. 30 at 8.) With respect to the second prong, Berkshire argues the Underlying Complaint does not contain factual allegations stating a claim that the Equipment was necessary to Berkshire's work because it provides no description of the Equipment or explanation of Berkshire's possession of the Equipment. Id. at 9-10. Further, Berkshire proposes that Cincinnati has failed to allege facts to support its declaratory judgment action because its request for a declaration that it has no duty to indemnify Berkshire is premature. Id. at 10.
Cincinnati counters by pointing to the procedural posture, suggesting that the "sole question before the Court is whether Cincinnati's allegations, when accepted as true and construed favorably in Cincinnati's favor, plausibly suggest that it has a meritorious declaratory judgment claim." (Dkt. No. 34 at 4.) Cincinnati accordingly argues that its Complaint states a claim for declaratory judgment because the Underlying Complaint alleges sufficient facts to make it plausible that the "care, custody, or control" exclusion applies. Id. Cincinnati objects to Berkshire's attempt to dive into the merits of the case — namely whether the "care, custody, or control" exclusion in fact applies and absolves Cincinnati of a duty to defend — because at the motion to dismiss phase, the issue is the sufficiency of the claim and not its merits. Id. at 5.
In considering a motion to dismiss, the question before the Court is the sufficiency of the allegations when drawing inferences
In support of its motion, Berkshire refers to a series of cases where insurers sought declarations that they owed no duty to defend policyholders in underlying lawsuits. (Dkt. No. 30 at 6-10.) These cases posit that the Underlying Complaint should be read in favor of the insured. The cases, however, do not address a 12(b)(6) motion to dismiss and thus are inapposite. See Bolanowski, 163 Ill.Dec. 394, 581 N.E.2d 345 (motion for summary judgment); United States Fid. & Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 161 Ill.Dec. 280, 578 N.E.2d 926 (1991) (motions for summary judgment).
Berkshire moves to dismiss all three counts in Cincinnati's Complaint under 12(b)(6). (Dkt. No. 30 at 1.) Because the Complaint when viewed in the light most favorable to Cincinnati states a claim for declaratory judgment, the Court denies Berkshire's motion to dismiss. Count I of the Complaint alleges that Cincinnati has no duty to defend Berkshire in the Underlying Action because the lost property does not fall under the Property Coverage Part. (Dkt. No. 21 at 4-6.) The Property Coverage Part establishes that the Policy applies only to property within 1,000 feet of a "covered location." The Complaint alleges that the Equipment was more than 1,000 feet from a "covered location" when it was lost; an allegation that the Court accepts as true because it is plausible on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Count I therefore states a claim for declaratory judgment that Cincinnati has no duty to defend because it contains sufficient factual allegations that the Equipment was not covered pursuant to the Property Coverage Part.
Counts II claims that Cincinnati has no duty to defend Berkshire because the "care, custody, and control" exclusion in the Commercial General Liability Part applies. (Dkt. No. 21 at 7-8.) Similarly, Count III claims that Cincinnati has no duty to defend because the "care, custody, and control" exclusion in the Umbrella Part applies. Id. at 8-10. Berkshire contends that the underlying complaint lacks sufficient facts to support the conclusion that the Policy's "care, custody or control" exclusion applies. The Underlying Complaint states that Berkshire is "engaged in the business of warehousing and refrigerated storage, including commercial property insurance coverage." (Dkt. No. 30 at 21.) It alleges that Gold Standard "entered into an agreement with Berkshire for the storage of equipment owned by Gold in trailers provided by Berkshire at a location provided by Berkshire in exchange for a monthly
The Underlying Complaint's factual allegations plausibly prove that the Equipment was in Berkshire's care, custody, or control according to Illinois law. By alleging that Berkshire was storing the Equipment at one of its locations and that the Equipment was stolen while in storage at Berkshire, it is reasonable to infer that Berkshire had exclusive possessory control over the Equipment at the time it was stolen. There are sufficient facts therefore to satisfy the first prong of the "care, custody, or control" test. Moreover, with respect to the second prong, it is plausible that the Equipment was necessary for Berkshire's work. The fact that Berkshire is engaged in the business of storage and took possession of the goods through a contractual agreement with Gold Standard raises the possibility that the Equipment was necessary to Berkshire's work as a storage business above the level of mere speculation. As a company in the business of storing property, it is plausible that storing the Equipment pursuant to its agreement with Gold was necessary to Berkshire's work. See, e.g., Essex Inc. Co. v. Soy City Sock Co., 503 F.Supp.2d 1068, 1076 (C.D.Ill.2007) (granting summary judgment in favor of insurer because warehousing company stored, packed, and had possessory control over stored property at the time of the loss). As such, the Underlying Complaint states a claim for a declaratory judgment establishing that Cincinnati has no duty to defend Berkshire in the underlying action because both prongs of "care, custody, or control" exclusion are satisfied. The Court therefore dismisses Berkshire's motion to dismiss all counts.
Cincinnati's Complaint seeks a declaration that it has no duty to indemnify Berkshire for any loss incurred as a result of the liability in the underlying action. (Dk. No. 21 at 1.) Berkshire asks the Court to dismiss Cincinnati's Complaint because Cincinnati's request for a declaration on its duty to indemnify is premature. (Dkt. No. 30 at 10.) Berkshire argues that the question of Cincinnati's duty to indemnify cannot stand alone because it has failed to pled sufficient facts to support its duty to defend claims. Id. at 10-11. But because Cincinnati has stated a claim for no duty to defend, as discussed earlier, its request for a declaration that it has no duty to indemnify Berkshire is ripe.
The duty to defend is broader than the duty to indemnify, and where there is no duty to defend, a duty to indemnify cannot arise. See United Nat'l Ins. Co. v. Dunbar & Sullivan Dredging Co., 953 F.2d 334, 338 (7th Cir.1992). In general, a determination of an insurer's duty to indemnify must follow a determination of the insured's underlying liability. See U.S. Fid. & Guar. Co., 161 Ill.Dec. 280, 578 N.E.2d at 930. But where an insurer seeks a declaration that it has no duty to defend and no duty to indemnify, the claim regarding its duty to indemnify is not premature because its issues overlap with whether it has a duty to defend. See, e.g., Atlantic Casualty Ins. Co. v. Sealtite Roofing & Constr. Co., 73 F.Supp.3d 953, 961 (N.D.Ill.2014). Specifically, in order to prove that it has no duty to defend, the insurer must establish that there is no potential that the underlying lawsuit will result in holding it liable for coverage pursuant to the insurance policy. See Pekin
For the reasons stated above, Berkshire's motion to dismiss all counts of Cincinnati's Complaint is denied.