April 16, 2019
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division. No.
l:15-cv-2806 - John Z. Lee, Judge.
Easterbrook, Kanne, and Scudder, Circuit Judges.
SCUDDER, CIRCUIT JUDGE.
Illinois state court entered a $1, 356, 435 judgment against
The Structural Shop in 2009, and now TSS wants its insurer,
Essex Insurance Company, to pay for it. The terms of
TSS's insurance policy do not cover this claim, however.
The policy covers only claims first made against TSS between
May 2012 and May 2013, and the lawsuit giving rise to the
Illinois court's judgment was filed against TSS in 2002.
Recognizing this reality, TSS has resorted to the common law
doctrine of estoppel. Illinois law estops Essex from denying
coverage only if the insurer misled TSS into believing it
would cover the judgment, TSS reasonably relied on
Essex's misleading statement or act, and TSS suffered
prejudice. The district court determined that TSS suffered no
prejudice and declined to apply estoppel. The district court
also rejected TSS's alternative theories of recovery.
Seeing no error in the district court's rulings, we
the Blue Moon Lofts Condominium Association filed a complaint
against TSS in an Illinois state court seeking damages
arising out of TSS's allegedly defective design and
construction of a building. The lawsuit began as it should
have-with Blue Moon, through a process server, providing
notice of the action to TSS's registered agent, Thomas
Donohoe, on November 7, 2002. TSS never responded to the
notice or appeared in the state court action to defend
itself, leading in May 2003 to the state court declaring the
company in default. Years later, in 2009, the state court
entered a default judgment and set the damages amount at $1,
356, 435, tacking on costs too.
knew nothing of the state court litigation that transpired
between 2002 and 2009. For good reason: Essex did not insure
TSS during that period and entered the picture many years
later when it sold TSS an insurance policy for claims
"first made" against TSS from May 2012 to May 2013.
The policy defined "first made" to mean the time
when TSS received either a "written demand for money
damages" or "the service of suit or institution of
arbitration proceedings against the Insured."
parties agree that Blue Moon's 2002 claim arose outside
the policy period. But universal agreement on this point is
only a recent development. In the years leading to this
dispute, both TSS and Essex labored under the mistaken belief
that Blue Moon failed back in 2002 to serve TSS with notice
of the lawsuit. Against that mistaken understanding, Blue
Moon and TSS further believed that Blue Moon first made a
claim under the policy in 2012, when it approached TSS to
collect on the default judgment-timing that would have
brought Blue Moon's claim within the terms of the May
2012 to May 2013 policy.
confusion set the stage for this dispute. The upshot of
TSS's position is that, based on Essex's conduct
during 2012 and beyond while helping TSS defend against Blue
Moon's claim, principles of fairness and equity demand
holding Essex liable for satisfying the default judgment
entered against TSS by the Illinois court. So we need to look
closer at Essex's conduct during this period.
first became aware of the default judgment in August 2012,
when Blue Moon contacted Douglas Palandech, an attorney and
TSS's registered agent, seeking to collect. TSS expressed
surprise at the development, believing the company never
received notice of Blue Moon's lawsuit. Proving as much
became important, for Blue Moon's failure to provide
notice back in 2002 would have supplied sufficient grounds to
vacate the default judgment, and-even more critically for
TSS-meant that Blue Moon had first made its claim against TSS
in August 2012 and thus inside the policy's May 2012 to
May 2013 coverage period.
retained Palandech as outside counsel to defend the company
against Blue Moon's claim and attempts to collect the
default judgment. Palandech's first order of business was
asking Blue Moon to supply proof of service. For a time,
these requests went unanswered. ...