Third Circuit Rules Against Allstate In Coverage Dispute

ALLSTATE PROPERTY AND CAS. INS. CO. v. Squires, 667 F. 3d 388 - Court of Appeals, 3rd Circuit 2012 - Google Scholar:

Squires was injured in an accident and sought insurance coverage under the uninsured motorist clause of his automobile insurance policy.  The case was governed by Pennsylvania law.  The trial court ruled in favor of Allstate, but the Third Circuit reversed.  Squires was injured by a box dropped from another vehicle which caused him to have a car accident.

The court summarized the issue as follows: "Accordingly, the sole issue that the Court decided was "whether an accident caused by a box which fell from an uninsured motor vehicle can be attributed, as a matter of law, to the `ownership, maintenance or use' of an automobile." App. at 5. The Court answered this question in the negative, concluding that there is UM coverage for policies containing the "arising out of" language only when a vehicle—and not some other object such as the box—was "the instrumentality causing . . . the [a]ccident." App. at 11. Accordingly, on March 2, 2011, the Court granted Allstate's motion for judgment on the pleadings, denied its motion to dismiss the counterclaims as moot, and dismissed Squires's counterclaims as moot."


The third circuit disagreed on the ground that because the box was dropped from another vehicle, the accident was attributed to the "ownership, maintenance or use" of an automobile.  Because Allstate conceded that the accident was caused by a box dropped from another vehicle, the accident was caused by the "ownership, maintenance or use" of an automobile.


Edward X. Clinton, Jr.




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Federal Court Dismisses Coverage Case Because of Pending State Court Case

EVANSTON INSURANCE COMPANY v. RESIDENTIAL PRIVATE CARE, LLC, Dist. Court, ED Michigan 2012 - Google Scholar:

The district court in Michigan has dismissed a declaratory judgment action filed by an insurance company alleging that there was no coverage for an incident.  The underlying state court case alleged that an employee of Residential Private care stole money and jewelry from a patient.

The court explained the requirements as follows:

"In determining whether it is proper for a district court to exercise subject matter jurisdiction over a declaratory judgment request, the Sixth Circuit applies the five factors enumerated in Grand Trunk W. R.R. Co. v. Consol. Rail Co., 746 F.2d 323, 326 (6th Cir. 1984). The five factors are:

(1) whether the declaratory action would settle the controversy;

(2) whether the declaratory action would serve a useful purpose in clarifying the legal relations in issue;

(3) whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race for res judicata;"

(4) whether the use of a declaratory action would increase friction between our federal and state courts and improperly encroach on state jurisdiction; and

(5) whether there is an alternative remedy which is better or more effective.

Id.

With respect to the fourth factor — whether the use of a declaratory action would increase friction between our federal and state courts — courts are to consider three additional sub-factors:

(1) whether the underlying factual issues are important to an informed resolution of the case;

(2) whether the state trial court is in a better position to evaluate those factual issues than is the federal court; and

(3) whether there is a close nexus between the underlying factual and legal issues and state law and/or public policy, or whether federal common law or statutory law dictates a resolution of the declaratory judgment action.

Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000); see alsoTravelers Indem. Co. v. Bowling Green Professional Associates, PLC, 495 F.3d 266, 271 (6th Cir. 2007).^[2]"

^{The court held that the federal court case would cause friction with the state court an impermissibly encroach on that court's jurisdiction.}

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Trade Secrets Claim Rejected Where Company Did Not Protect Trade Secrets

FAIL SAFE LLC v. SMITH CORPORATION, No. 11–1354., March 29, 2012 - US 7th Circuit | FindLaw:

The Seventh Circuit affirmed the district court's rejection by summary judgment of certain trade secret claims.  The district court found that the plaintiff had failed to take reasonable measures to protect its trade secrets and had, in fact, voluntarily disclosed those secrets to the Defendant corporation.  The Seventh Circuit affirmed.

The Seventh Circuit summarized its decision as follows:

"This case is about whether a plaintiff can sustain a trade secret or unjust enrichment claim when that plaintiff fails to take any protective measures to safeguard its proprietary information. Business relationships do not always develop under formulaic circumstances. But where one company fails to take any protective steps to shield its proprietary information, it cannot then expect the law to protect it when the relationship sours. For this reason, we affirm."


Comment: these are words to live by for small businesses trying to protect trade secrets.


Edward X. Clinton, Jr.

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Contract Law - District Court Rejects Contract Claim Based on Duty of Good Faith

Lansing v. Carroll, Dist. Court, ND Illinois 2012 - Google Scholar:

In a dispute between business partners, one partner accepted the other's offer to sell his interest in the partnership.  The district court rejected the claim on the ground that it was an attempt to use the duty of good faith to create a new contract term.

Lansing and Carroll were partners.  They had a buy-sell agreement under which either could make a demand to be bought out by the other.

Lansing offered to sell his interest in the LLC The key fact is that the defendant, Carroll, accepted Lansing's offer to sell his interest in a partnership, but never completed the purchase.  As such, Lansing argued that Carroll had forfeited his shares and that he had the right to purchase Carroll's interest in the LLC.

The district court sets forth the facts as follows:

"On November 1, 2010, Lansing sent a letter to Carroll pursuant to § 6.7(2)(a) of the Operating Agreement in which he offered to either buy Carroll's interests in the Westminster Funds, or to sell to Carroll his own interests, for $14,045,000, less Carroll's unmet or future capital obligations. On November 26, 2010, Carroll responded with a letter in which he accepted Lansing's offer to sell. He also deposited 5% of the sales price into escrow, and set the closing for March 29, 2011. However, Carroll never showed up to the closing and never consummated the purchase. After the sale fell through, Lansing twice demanded that Carroll release the $702,250 in escrowed funds to him, but Carroll has not done so."

Illinois law concerning the duty of good faith is as follows:

Under Illinois law, a duty of good faith and fair dealing is implied in every contract. See Reserve at Woodstock, LLC v. City of Woodstock, 958 N.E.2d 1100, 1112-13 (Ill. App. Ct. 2011). "Its purpose is to ensure that parties do not take advantage of each other in a way that could not have been contemplated at the time the contract was drafted or do anything that will destroy the other party's right to receive the benefit of the contract." Gore v. Indiana Ins. Co., 876 N.E.2d 156, 161 (Ill. App. Ct. 2007). The duty requires "a party vested with contractual discretion to exercise it reasonably, and not arbitrarily, capriciously, or in a manner inconsistent with the reasonable expectations of the parties."Seip v. Rogers Raw Materials Fund, L.P., 948 N.E.2d 628, 637 (Ill. App. Ct. 2011). However, the duty is "not an independent source of duties for the parties to a contract, and is `used as a construction aid in determining the intent of the parties where an instrument is susceptible of two conflicting constructions.'" Id. (quoting Fox v. Heimann, 872 N.E.2d 126, 134 (Ill. App. Ct. 2007)).


...

As discussed above, the duty of good faith and fair dealing is not an independent source of duties for parties. See Fox, 872 N.E.2d at 134. Therefore, it cannot be used to create additional contractual terms. See LaSalle Bank Nat'l Ass'n v. Moran Foods, Inc., 477 F. Supp. 2d 932, 938-39 (N.D. Ill. 2007). Yet Lansing attempts to do just that by interpreting the Operating Agreement to give him the right to purchase Carroll's shares in the event that Carroll accepted an offer to purchase Lansing's shares but failed to do so within the 120-day deadline. The explicit terms of the contract do not give him that right, and he may not use the duty of good faith and fair dealing to create such a right. Rather, as the Operating Agreement contemplates, any failure to complete an agreed-upon transaction within 120 days results in a breach of contract, and that is where Lansing must look to for any remedies he is owed.

Accordingly, based upon the terms of the Operating Agreement and the allegations of the First Amended Complaint, the duty of good faith and fair dealing is inapplicable to Carroll's acceptance of Lansing's offer to sell, and does not nullify Carroll's acceptance.

Comment: this opinion contains a thoughtful discussion of the duty of good faith and limits of that duty.   It is a classic effort to use litigation to complete a business divorce.  The duty of good faith is often mentioned in complaints, but it rarely proves decisive in litigation.

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Coverage Lawsuit Against State Farm for Breach of Contract - Summary Judgment Denied

Pina v. State Farm Fire and Casualty Company, Dist. Court, WD Kentucky 2012 - Google Scholar:

This is an all too common occurrence.  Someone buys an insurance policy that insures their personal property.  They then lose that property in a fire.  The insurance company denies coverage, fights the litigation and moves for summary judgment.  Here State Farm refused coverage to the insureds who were gradually moving their property out of their old house to their new house.

The Court explained:  "The fire occurred only thirteen (13) days after Plaintiffs started moving property to their newly acquired principal residence in Louisville. Therefore, we conclude that the limitation provision was not applicable and Plaintiffs were entitled to full reimbursement for the damage to their personal property resulting from the October 11, 2008 fire. Defendant's motion for summary judgment on Plaintiffs' breach of contract claim will thus be denied."

Here the district court denied the motion for summary judgment.


Edward X. Clinton, Jr.

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Plaintiffs Who Sue Storage Company State A Claim For Fraud Under Illinois Law

Hausen v. PS ILLINOIS TRUST, Dist. Court, ND Illinois 2012 - Google Scholar:

The plaintiffs are citizens of Spain who spend part of each year working in Evanston, Illinois as guest lecturers at Northwestern University.  When they were about to return to Spain, they stored their property with the defendant storage company and informed the defendant to contact them by email.  However, the plaintiffs never signed a storage agreement and, thus, had no breach of contract claim.

After an unsuccessful attempt to charge their credit card, the storage company did not inform plaintiffs of the problem, but, instead, sold their belongings to cover the storage bill.

The district court sets forth the events as alleged in the complaint:

"At the same time that plaintiffs signed the rental agreement for the storage unit, they also authorized PS to automatically charge Blazquez's credit card every month to pay for it. On February 2, 2011, PS unsuccessfully attempted to charge Blazquez's card. Plaintiffs allege that any subsequent attempt to charge the credit card would have been successful, but PS did not try again after its first attempt was unsuccessful. PS did not e-mail plaintiffs to tell them of the payment problem as it had promised. Instead, PS sold all of plaintiffs' property to recover the $572 that PS claimed it was owed because of nonpayment in March.

PS Illinois never gave Hausen and Blazquez any notice of the nonpayment or the sale of their property. In late April, plaintiffs noticed that PS had not charged their credit card recently and called to find out why. A PS employee told them of the sale. Plaintiffs requested documents and records related to the nonpayment and sale, but PS has refused to provide any. In addition, PS has not told plaintiffs the amount it received from the sale of their property and has not delivered to them any amount it received in excess of $572."

The Court denied the motion to dismiss the fraud claims on the ground that the plaintiffs could reasonably rely on the  statements of the strorage company:

"At the same time that plaintiffs signed the rental agreement for the storage unit, they also authorized PS to automatically charge Blazquez's credit card every month to pay for it. On February 2, 2011, PS unsuccessfully attempted to charge Blazquez's card. Plaintiffs allege that any subsequent attempt to charge the credit card would have been successful, but PS did not try again after its first attempt was unsuccessful. PS did not e-mail plaintiffs to tell them of the payment problem as it had promised. Instead, PS sold all of plaintiffs' property to recover the $572 that PS claimed it was owed because of nonpayment in March.

PS Illinois never gave Hausen and Blazquez any notice of the nonpayment or the sale of their property. In late April, plaintiffs noticed that PS had not charged their credit card recently and called to find out why. A PS employee told them of the sale. Plaintiffs requested documents and records related to the nonpayment and sale, but PS has refused to provide any. In addition, PS has not told plaintiffs the amount it received from the sale of their property and has not delivered to them any amount it received in excess of $572."

Edward X. Clinton, Jr.

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