Westfield Insurance v. National Decorating Service, Inc.

Citations: 67 F. Supp. 3d 898; 2014 U.S. Dist. LEXIS 125668; 2014 WL 4436296Docket: No. 14 C 1572

Court: District Court, N.D. Illinois; September 9, 2014; Federal District Court

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Defendant National Decorating Service, Inc. (National) and Defendant James McHugh Construction Company (McHugh) filed motions to dismiss which were denied by the court. The plaintiff, Westfield Insurance Company, issued an insurance policy to National, effective from February 28, 2008, to November 1, 2011. Following the expiration of the policy, the Board of Managers of 200 North Jefferson Tower Condominium Association (Association) initiated a lawsuit in state court on January 3, 2012, alleging construction defects against McHugh and others. McHugh subsequently filed a third-party complaint against National on January 9, 2014. Westfield's amended complaint includes four counts seeking declarations that it has no duty to defend or indemnify National, McHugh, 200 North, and MCZ in the underlying action. The court noted a labeling error in the complaint where the fourth count was incorrectly labeled “Count V.” Westfield voluntarily dismissed its claim against the Association. Meanwhile, 200 North has responded with an answer and crossclaim, and Westfield is still attempting to serve MCZ. In evaluating the motions to dismiss, the court adhered to the standards outlined in Federal Rule of Civil Procedure 12(b)(6), emphasizing the necessity for the complaint to present plausible allegations that suggest a right to relief. The court must draw all reasonable inferences in favor of the plaintiff and accept all well-pleaded facts as true.

Moving Defendants have not adequately addressed the procedural posture of the case in their motions to dismiss, which are filed under Rule 12(b)(6). They seek dismissal of the claims against them and a declaration that Westfield has a duty to defend them in the Underlying Action. Rule 12(b)(6) allows dismissal when a complaint fails to state a claim or the plaintiff pleads itself out of court by presenting facts that negate their legal claim. The court's review focuses on whether Westfield's allegations, when taken as true and favorable to Westfield, suggest a plausible declaratory judgment claim. The court finds it premature for Moving Defendants to argue about Westfield's duty to defend or to seek declaratory relief, as they lack the authority to convert their motions to dismiss into motions for summary judgment. Additionally, they are relying on outdated procedural standards, citing cases that no longer reflect the current federal pleading standard established by Twombly and Iqbal. For instance, a cited case involved a summary judgment review rather than a motion to dismiss, indicating a misapplication of procedural law in their arguments. Consequently, Moving Defendants' reliance on old case law and their procedural missteps undermine their motions.

Moving Defendants seek dismissal of the case, claiming no "real controversy" exists. They reference **Infinity Broadcasting Corp. of Illinois v. Prudential Ins. Co. of America**, which stipulates that a plaintiff must demonstrate a substantial controversy with adverse legal interests for a declaratory judgment. Although Moving Defendants provide a vague rationale for their position, they suggest that if the court accepts their interpretation of the facts, there would be no dispute remaining. However, the court is not required to view all facts in favor of the moving party. Westfield has countered with facts and arguments indicating the presence of adverse legal interests and a substantive controversy. If Moving Defendants implied their argument meant they are entitled to judgment as a matter of law, such a claim is premature at this pleading stage; this can only be pursued at the summary judgment phase.

Regarding the sufficiency of allegations, Moving Defendants argue that Westfield has not stated a valid claim for relief. Westfield cites provisions from the insurance policy that obligate the insurer to pay damages for "bodily injury" or "property damage" and to defend the insured against related suits, but not against those outside of coverage. Westfield asserts that the underlying lawsuit involves alleged construction defects linked to Moving Defendants, with a dispute over policy coverage centered on the definitions of "occurrence" and "accident." Moving Defendants' arguments about who qualifies as an additional insured are also deemed premature and do not address the sufficiency of Westfield's allegations, which remains the focal point before the court.

Moving Defendants argue that inferences should favor them, but as the non-moving party, Westfield is entitled to have inferences drawn in its favor. Westfield's allegations regarding the Underlying Action and the Third-Party complaint are sufficient to suggest plausible claims for relief. Although Moving Defendants reference damage to property in Westfield’s amended complaint to imply potential coverage under the Policy, when those allegations are accepted as true, Westfield has not disqualified itself from pursuing its claims. Furthermore, Westfield is not obligated to provide all specific facts at this stage. The court notes that Westfield has presented enough factual basis to support a claim against National and McHugh. Moving Defendants also contend that it is premature to evaluate Westfield's duty to indemnify; however, the duty to defend is generally broader and often overlaps with the duty to indemnify. The court will address the duty to indemnify after resolving the duty to defend. Consequently, the motions to dismiss by National and McHugh are denied.