McCalla Corporation v. ARCH Intermediaries Limited et al, No. 6:2013cv01317 - Document 28 (D. Kan. 2014)
Court Description: MEMORANDUM AND ORDER granting 20 Motion for Summary Judgment; denying 22 Motion for Summary Judgment. Signed by U.S. District Senior Judge Sam A. Crow on 5/1/14. (mb)
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McCalla Corporation v. ARCH Intermediaries Limited et al Doc. 28 I N THE UNI TED STATES DI STRI CT COURT FOR THE DI STRI CT OF KANSAS McCALLA CORPORATI ON and McCALLA CORPORATI ON, as a Mem ber of EMPLOYMENT PRACTI CES RI SK MANAGEMENT ASSOCI ATI ON, Plaint iff, v. No. 13- 1317- SAC CERTAI N UNDERWRI TERS AT LLOYD’S, LONDON, Subscribing t o Policy No. KAH100513, Defendant . MEMORANDUM AND ORDER This declarat ory j udgm ent case com es before t he court on crossm ot ions for sum m ary j udgm ent . The prim ary issue is whet her insurance issued by t he Defendant obligat es Defendant t o defend and t o pay cert ain am ount s arising from Plaint iff’s crim inal charges. I . Su m m a r y Ju dgm e n t St a n da r d A court grant s a m ot ion for sum m ary j udgm ent under Rule 56 of t he Federal Rules of Civil Procedure if a genuine issue of m at erial fact does not exist and if t he m ovant is ent it led t o j udgm ent as a m at t er of law. The court is t o det erm ine “ whet her t here is t he need for a t rial- whet her, in ot her words, t here are any genuine fact ual issues t hat properly can be resolved Dockets.Justia.com only by a finder of fact because t hey m ay reasonably be resolved in favor of eit her part y.” Anderson v.. Libert y Lobby, I nc., 477 U.S. 242, 250 ( 1986) . “ Only disput es over fact s t hat m ight affect t he out com e of t he suit under t he governing law will ... preclude sum m ary j udgm ent .” I d. There are no genuine issues for t rial if t he record t aken as a whole would not persuade a rat ional t rier of fact t o find for t he nonm oving part y. Mat sushit a Elec. I ndust . Co. v. Zenit h Radio Corp., 475 U.S. 574, 587 ( 1986) . “ Cross- m ot ions for sum m ary j udgm ent are t o be t reat ed separat ely; t he denial of one does not require t he grant of anot her.” Buell Cabinet Co. v. Suddut h, 608 F.2d 431, 433 ( 10t h Cir. 1979) . To t he ext ent t he crossm ot ions overlap, however, t he court addresses t he legal argum ent s t oget her. Where t he part ies file cross m ot ions for sum m ary j udgm ent , t he court is “ ent it led t o assum e t hat no evidence needs t o be considered ot her t han t hat filed by t he part ies, but sum m ary j udgm ent is nevert heless inappropriat e if disput es rem ain as t o m at erial fact s.” Jam es Barlow Fam ily Lt d. Part nership v. David M. Munson, I nc., 132 F.3d 1316, 1319 ( 10t h Cir. 1997) , cert . denied, 523 U.S. 1048 ( 1998) . I I . Un con t e st e d Fa ct s Plaint iff, McCalla Corporat ion, is organized under t he laws of Kansas. Defendant , Cert ain Underwrit ers at Lloyd’s London Subscribing t o Policy Num ber KAH100513, issued policies of insurance t o Plaint iff. Plaint iff is a defined “ I nsured” under t he Policy as a m em ber of Plaint iff Em ploym ent 2 Pract ices Risk Managem ent Associat ion ( EPRMA) , an I llinois unincorporat ed associat ion. I n August of 2012, Plaint iff received not ice t hat it was a t arget of a U.S. I m m igrat ion and Cust om s Enforcem ent invest igat ion. The next m ont h, a search warrant was execut ed on Plaint iff’s prem ises. Plaint iff ret ained counsel t o defend t he crim inal invest igat ion and agreed t o pay expenses as t hey were incurred. During t he policy period, t he federal governm ent filed a one- count inform at ion charging Plaint iff wit h violat ing 18 U.S.C. § 1546( b) ( 2) - knowingly aiding and abet t ing t he use of an ident ificat ion docum ent , having reason t o know t he docum ent was false, for t he purpose of sat isfying a requirem ent of t he Em ployee Eligibilit y Verificat ion Act program . On Novem ber 1, 2012, pursuant t o t he not ice requirem ent s of t he insurance policy, Plaint iff dem anded t hat Defendant assum e it s dut y of defense and pay defense cost s for Plaint iff, as provided in t he Policy. On Decem ber 3, 2012, Plaint iff ent ered a plea t o t he crim inal charge, adm it t ing t he following fact s: I n about March 2011, McCalla Corporat ion's direct or of operat ions ( supervisor) m et wit h t he m anager of one of t he McDonald's rest aurant s it operat es in Wichit a, Kansas, and t old t he st ore m anager t hat t he supervisor needed t o updat e t he st ore m anager's 1- 9 form using current ident it y docum ent s as required by t he Depart m ent of Hom eland Securit y Em ploym ent Eligibilit y Verificat ion program , as t he docum ent s t he st ore m anager had previously used on her 1- 9 form were expired or not ot herwise valid. Two days lat er, as proof of em ploym ent eligibilit y, t he st ore m anager present ed t o t he supervisor a " resident alien" card t hat t he supervisor knew did not appear t o be 3 genuine, but t he supervisor updat ed t he m anager's 1- 9 form and McCalla Corporat ion t ook no furt her act ion concerning t he m anager's em ploym ent as a McCalla McDonald's rest aurant st ore m anager, a posit ion which she held from May 2009 t o Sept em ber 2012. The supervisor also was aware t hat it t ook weeks, not t wo days, for a foreign nat ional t o obt ain a " resident alien" card, giving him furt her reason t o know t hat t he resident alien card present ed t o him by t he st ore m anager was not genuine. As a result of t he defendant 's conduct , it derived or had proceeds t raceable t o, indirect ly or direct ly, t he am ount of $100,000. The Judgm ent against Defendant ordered a $300,000 fine and a $100,000.00 forfeit ure t o t he Unit ed St at es pursuant t o 18 U.S.C. § 982( a) ( 6) ( A) . Dk. 23, Exh. 6. The day aft er Plaint iff ent ered it s plea, Plaint iff was inform ed t hat Defendant declined t o provide coverage or a defense. Aft er Defendant waived any m ediat ion requirem ent delineat ed in t he policy, Plaint iff filed t his suit . Plaint iff seeks t he following: a declarat ion t hat Defendant owed it a dut y t o defend Plaint iff in t he above- referenced crim inal proceeding; a finding t hat Defendant act ed in bad fait h in not doing so; recovery of it s cost s of defense ( $104,302.58) ; and reim bursem ent for or paym ent of t he $100,000 forfeit ure ordered by t he court in t he crim inal case. I I I . Gove r n in g La w Plaint iffs assert t hat t he “ part ies agreed in t he pre- t rial order t hat Kansas law applies.” Dk. 23, p. 10. But t he pret rial order is not so uncondit ional, st at ing in relevant part : “ [ s] ubj ect t o t he court ’s det erm inat ion of t he law t hat applies t o t he case, t he part ies believe and agree t hat t he subst ant ive issues in t his case are governed by t he following 4 law: The St at e of Kansas.” Dk. 19, p. 2. The insurance cont ract at issue cont ains a choice of law clause st at ing t hat “ any disput e concerning t he int erpret at ion of t his Policy shall be governed by t he laws of I llinois, U.S.A.” Dk. 7, Exh. A, p. 28. Yet neit her part y acknowledges t his language or raises t he issue of choice of law, and t he Court need not raise it sua spont e. See Flying J I nc. v. Com dat a Net work, I nc., 405 F.3d 821, 831 n. 4 ( 10t h Cir. 2005) . But t he court ’s st andard approach in diversit y cases is t o apply t he subst ant ive law, including choice of law rules, of t he forum st at e. See BancOklahom a Mort gage Corp. v. Capit al Tit le Co., 194 F.3d 1089, 1103 ( 10t h Cir. 1999) . Where, as here, t he part ies t o a cont ract have ent ered an agreem ent t hat incorporat es a choice of law provision, Kansas court s generally effect uat e t he law chosen by t he part ies t o cont rol t he agreem ent . Brenner v. Oppenheim er & Co. I nc., 273 Kan. 525, 539- 540 ( 2002) . Kansas court s will not , however, enforce a choice of law provision shown t o be cont rary t o t he public policy of t he forum st at e. I d, at 540- 41. But t hat narrow except ion applies only when enforcing t he foreign law would cont ravene a prom inent public policy— an inconsist ency bet ween t he chosen law and t he forum st at e's law is not enough. Alexander v. Beech Aircraft Corp., 952 F.2d 1215, 1223 ( 10t h Cir. 1991) ( cit ing Rest at em ent ( Second) of Conflict of Laws § 90 [ 1969] ) . See Ent erprise Bank & Trust v. Barney 5 Ashner Hom es, I nc., 2013 WL 1876293, 9 ( Kan.App. 2013) . No such showing has been m ade here. A second except ion m ay also exist . “ The Brenner court suggest ed t hat a choice- of- law provision m ight be const it ut ionally suspect if it called for using subst ant ive legal principles from a j urisdict ion having no connect ion t o t he underlying t ransact ion or t he ext ant disput e. Brenner, 273 Kan. at 534– 35, 44 P.3d 364.” Ent erprise Bank & Trust , 2013 WL 1876293 at 9. But Plaint iff is a m em ber of an I llinois associat ion t hrough which it is insured, and Defendant is an insurance com pany whose address for purposes of service of process is in Chicago, I llinois. Dk. 7, pp. 1- 2 and Exh. A, pp. 1, 3. The pleadings t hus indicat e t hat t he St at e of I llinois has sufficient connect ion t o t he underlying t ransact ion t o sat isfy due process. Accordingly, t he Court shall apply t he subst ant ive law of t he St at e of I llinois t o t his disput e, in accordance wit h t he part ies’ choice of law in t he insurance cont ract . I V. I n su r a n ce Con t r a ct s, ge n e r a lly The const ruct ion, int erpret at ion, or legal effect of a cont ract is a m at t er t o be det erm ined by t he court as a quest ion of law. Avery v. St at e Farm Mut ual Aut om obile I nsurance Co., 216 I ll.2d 100, 129 ( 2005) . The general rules in I llinois for const ruing t he language of an insurance policy are well- est ablished. When const ruing t he language of an insurance policy, a court 's prim ary obj ect ive is t o ascert ain and give effect t o t he int ent ions of t he part ies as expressed by t he words of t he policy. Hobbs v. Hart ford I nsurance Co. of t he Midwest , 214 I ll.2d 11, 17, 291 I ll.Dec. 269, 823 6 N.E.2d 561 ( 2005) . Because t he court m ust assum e t hat every provision was int ended t o serve a purpose, an insurance policy is t o be const rued as a whole, giving effect t o every provision ( Cent ral I llinois Light Co., 213 I ll.2d at 153, 290 I ll.Dec. 155, 821 N.E.2d 206) , and t aking int o account t he t ype of insurance provided, t he nat ure of t he risks involved, and t he overall purpose of t he cont ract ( Am erican St at es I nsurance Co. v. Kolom s, 177 I ll.2d 473, 479, 227 I ll.Dec. 149, 687 N.E.2d 72 ( 1997) ) . I f t he words used in t he policy are clear and unam biguous, t hey m ust be given t heir plain, ordinary, and popular m eaning, and t he policy will be applied as writ t en, unless it cont ravenes public policy. Hobbs, 214 I ll.2d at 17, 291 I ll.Dec. 269, 823 N.E.2d 561. “ Alt hough policy t erm s t hat lim it an insurer's liabilit y will be liberally const rued in favor of coverage, t his rule of const ruct ion only com es int o play when t he policy is am biguous.” I d. Knezovich v. Hallm ark I ns. Co., 975 N.E.2d 1165, 1171, 363 I ll.Dec. 856, 862 ( I ll.App. 1 Dist . 2012) . The ent ire docum ent is t o be exam ined t o det erm ine t he part ies' int ent ions wit h considerat ion given t o t he cont ract 's subj ect m at t er and purpose as well as t he policy's language. Hannigan v. Count ry Mut ual I nsurance Co., 264 I ll.App.3d 336, 339, 201 I ll.Dec. 465, 636 N.E.2d 897 ( 1994) . I f an insurance policy's language is capable of m ore t han one reasonable int erpret at ion, t hen t he int erpret at ion t hat favors coverage prevails. Out board Marine Corp. v. Libert y Mut ual I ns. Co, 154 I ll.2d 90 at 119, 180 I ll.Dec. 691, 607 N.E.2d 1204 ( 1992) . All doubt s and uncert aint ies in an insurance policy's language m ust be const rued st rict ly against t he draft er and in favor of coverage. I d, 154 I ll.2d at 121. 7 Plaint iff assert s t hat Defendant ’s dut ies in t his case arise under t wo policy provisions: t he Em ploym ent Pract ices Liabilit y ( EPL) sect ion, and t he Direct ors’ and Officers’ ( D & O) sect ion. V. Em ploym e n t Pr a ct ice s Lia bilit y Cove r a ge The EPL sect ion generally provides t hat Defendant will pay all “ loss t hat an I nsured becom es legally obligat ed t o pay as a result of Claim s first m ade against such I nsured during t he Policy Period … for a Wrongful Em ploym ent Pract ice.” Dk., 7, Exh. A, p. 17. The policy defines “ Claim ” t o include “ t he filing of a crim inal lawsuit … provided, however t hat t he discret ion t o consider such lawsuit … a Claim shall be in t he sole discret ion of Underwrit ers and m ust be agreed t o by t he I nsured Com pany.” I d. I t defines “ loss” t o include j udgm ent s and defense cost s. I d. And it defines “ Wrongful Em ploym ent Pract ices” t o include “ wrongful failure or refusal t o adopt or enforce adequat e workplace or em ploym ent pract ices, policies or procedures.” Plaint iff cont ends t hat t he filing of t he crim inal inform at ion was a “ claim ,” t hat it s crim inal act was a “ wrongful em ploym ent pract ice,” and t hat t he forfeit ure am ount and defense cost s are “ losses.” A. W r on gfu l Em ploym e n t Pr a ct ice s But Plaint iff ignores ot her definit ional language which squarely defeat s it s cont ent ions. An addit ional proviso applies t o all defined “ Wrongful Em ploym ent Pract ices,” st at ing t hey are covered “ … but only if em ploym ent - relat ed and claim ed by or on behalf of an Em ployee, Form er 8 Em ployee, or applicant for em ploym ent …” Dk. 7, Exh. A, p. 18 ( em phasis added) . The crim inal lawsuit brought against t he Plaint iff was not “ claim ed by or on behalf of” any enum erat ed person, having been brought inst ead by t he Unit ed St at es At t orney on behalf of t he Unit ed St at es of Am erica. Plaint iff has shown no arguably reasonable int erpret at ion of t his sect ion of t he policy which would j ust ify reading t his plain language out of t he cont ract , as is necessary t o t rigger Defendant ’s dut y t o defend. And doing so would defeat t he purpose of EPL coverage, which is necessarily lim it ed t o enum erat ed act s claim ed by em ployees, form er em ployees and prospect ive em ployees. B. Loss Sim ilarly, Plaint iff ignores t he definit ion of “ loss” for purposes of t his sect ion, which st at es t hat “ Loss does not include: ( 1) fines, penalt ies, or t axes … [ or] ( 10) any relief, whet her pecuniary or inj unct ive, im posed or agreed t o in connect ion wit h crim inal lawsuit s or proceedings.” Dk. 7, Exh. A, p. 16. The forfeit ure is excluded as a fine or penalt y, see discussion below at VI B 1, 2, and defense cost s are excluded because t hey const it ut e relief im posed in connect ion wit h a crim inal lawsuit , see I llinois Union I ns. Co. v. Cliff Berry I nc., 2006 WL 3667230, 5 - 6 ( S.D.Fla. 2006) ( “ Because it excludes any paym ent s in connect ion t o a crim inal act as det erm ined by a final j udgm ent , I llinois Union would be owed repaym ent of t hose legal fees and expenses t hat it expended in defense of t he I nsureds.” ) . 9 Accordingly, t he court finds as a m at t er of law t hat Defendant did not breach any dut y under t he EPL sect ion of t he policy. The court finds it unnecessary t o address Plaint iff’s cont ent ion t hat t he sole discret ion clause in t he policy’s definit ion of “ Claim ” violat ed public policy so is void. Sim ilarly, t he Court finds it unnecessary t o reach Defendant ’s alt ernat ive argum ent t hat various exclusions, such as t he crim inal adj udicat ion exclusions, apply. VI . D ir e ct or s’ a n d Office r s’ Lia bilit y Cove r a ge Plaint iff next cont ends t hat Defendant breached it s dut ies under t he policy’s D & O sect ion, which generally obligat es Defendant t o “ pay all Loss result ing from Claim s first m ade against t he I nsured Com pany during t he Policy Period … for Wrongful Act s.” A. Cla im Plaint iff cont ends t hat t he crim inal inform at ion is a claim because “ Claim ” is defined t o include “ a civil, crim inal, adm inist rat ive or regulat ory proceeding com m enced against any I nsureds in which t hey m ay be subj ect ed t o binding adj udicat ion of liabilit y for dam ages or ot her relief …” Dk. 7, Exh. A, p. 20. Plaint iff cont ends t hat a crim inal proceeding was com m enced against it “ which subj ect ed it t o a binding adj udicat ion of liabilit y when t he inform at ion was filed.” Dk. 23, p. 15. But Plaint iff does not at t em pt t o show how t he filing of an inform at ion subj ect ed it t o an adj udicat ion of liabilit y “ for dam ages or ot her relief …” as t he policy requires. 10 “ A crim inal com plaint does not seek dam ages. I t is penal in nat ure.” Spiegel v. St at e Farm Fire and Casualt y Co., 277 I ll.App.3d 340, 341 ( 1995) ( quot ing Shelt er Mut ual I nsurance Co. v. Bailey, 160 I ll.App.3d 146, 156 ( 1987) ) . And cases exam ining ident ical policy language, not ed below, do not support t he const ruct ion t hat a crim inal case could be “ ot her relief” wit hin t he m eaning of t his phrase. I n Fost er v. Sum m it Medical Syst em s, I nc., 610 N.W.2d 350 ( Minn.Ct .App. 2000) , t he policy defined “ claim ” t o include an adm inist rat ive proceeding relat ing t o t he sale of securit ies “ in which [ t he insureds] m ay be subj ect ed t o a binding adj udicat ion of liabilit y for dam ages or ot her relief” ) . I d. at 354. The Court narrowly const rued “ relief” t o require a binding adj udicat ion of liabilit y for ot her relief. I n a legal cont ext , t he t erm “ relief” refers t o redress or benefit , especially equit able redress such as an inj unct ion or specific perform ance. See Black's Law Dict ionary 1293 ( 7t h ed.1999) . I ssuing a subpoena does not fit wit hin eit her m eaning of t he t erm “ relief.” See Cit y of Thief River Falls v. Unit ed Fire & Cas. Co., 336 N.W.2d 274, 276 ( Minn. 1983) ( holding t hat pet it ion for m andam us t o com pel cit y t o init iat e condem nat ion proceedings was not a “ suit * * * seeking dam ages” wit hin t he plain m eaning of t he insurance policy because it s essence was t o secure perform ance of a legally required act rat her t han provide dam ages) . Fost er, 610 N.W.2d at 354. Fost er held t hat an SEC invest igat ion was not a proceeding in which respondent s “ m ay be subj ect ed t o a binding adj udicat ion for * * * relief.” Accordingly, t he insurance coverage claim was barred. 11 The Nort hern Dist rict of I llinois subsequent ly found Fost er’s narrow view of “ relief” appropriat e, given t he policy language. The Fost er decision focused on t he use of “ relief” in defining claim , but considered it as part of a phrase t hat included “ binding adj udicat ion.” See Fost er, 610 N.W.2d at 354 ( “ The part ies agree t hat t he SEC invest igat ion is an adm inist rat ive proceeding but disput e whet her it is a proceeding in which respondent s ‘m ay be subj ect ed t o a binding adj udicat ion for * * * relief.” ’) . The Fost er court t ook a narrow view of “ relief,” const ruing it in t he cont ext of an adj udicat ion, which was appropriat e given t he language of t he policy t here under considerat ion. Minut em an I nt ern., I nc. v. Great Am erican I ns. Co., 2004 WL 603482, 5 ( N.D.I ll. 2004) ( finding a subpoena was a dem and for relief, under policy language different from t he policy here) . Sim ilarly, in Cent er for Blood Research, I nc. v. Coregis I nsurance Co., 305 F.3d 38 ( 1st Cir. 2002) , t he definit ion of “ claim ” in t he policy included “ any j udicial or adm inist rat ive proceeding in which any I NSURED( S) m ay be subj ect ed t o a binding adj udicat ion of liabilit y for dam ages or ot her relief.” The Circuit held t his language required t he pot ent ial relief t o be t he product of a binding adj udicat ion in a proceeding. I d, at 43. There, t he U.S. At t orney had served an invest igat ive subpoena on t he insured, who was not a t arget of t he invest igat ion and was not charged civilly or crim inally. See id. at 4041. I n holding t hat t here was no claim , t he First Circuit focused on t he lack of an adj udicat ion for liabilit y, see id. at 42- 43. The Court not ed “ [ w] e do not im ply t hat our result would be different … if t he invest igat ion led t o t he 12 governm ent bringing civil or crim inal proceedings against it .” 305 F.3d 38, 42 n. 5. I n I llinois Union I ns. Co. v. Cliff Berry I nc., 2006 WL 3667230, 4 ( S.D.Fla. 2006) , t he court exam ined an ident ical definit ion of “ claim .” I t found t he crim inal inform at ion was a “ claim ” only because t he inform at ion sought rest it ut ion, which it considered t o be “ ot her relief” under t he t erm s of t he policy. I n cont rast , t he inform at ion in t his case sought no rest it ut ion, and none was ordered. Plaint iff cont ends t hat cases exam ining “ sim ilar[ ly] worded policies” have found t hat t he issuance of a search warrant const it ut es a claim , cit ing Prot ect ion St rat egies, I nc. v. St arr I ndem nit y and Liabilit y Co., 2013 CV 00763 ( E.D. Va. Sept . 10, 2013) . Dk. 23, p. 14. But t hat policy’s definit ion of “ claim ” defined “ claim ” t o include any “ j udicial adm inist rat ive, or regulat ory proceeding, whet her civil or crim inal, for m onet ary, non- m onet ary or inj unct ive relief com m enced against an I nsured … by … ret urn of an indict m ent , inform at ion, or sim ilar docum ent ( in t he case of a crim inal proceeding) .” Dk. 29, At t . 1, p. 3. Because t hat broader definit ion does not require a binding adj udicat ion of liabilit y for dam ages or ot her relief, it is significant ly different t han t he relevant definit ion in t his case. The only ot her case cit ed by Plaint iff, Syracuse Univ. v. Nat ’l Union Fire I ns. Co., 2013 N.Y. Slip Op. 51041( U) , 2013 WL 3357812 ( N.Y. Sup. Ct . Mar. 7, 2013) , is also dissim ilar t o t he present policy in it s definit ion of 13 “ claim .” These and ot her cases are inapposit e because t hey involve insurance policies t hat do not define “ claim ,” or define “ claim ” different ly t han t he insurance policy at issue here. Plaint iff has shown no reasonable const ruct ion of t he definit ion of “ claim ” in t he D & O policy which would perm it t he Court t o find t hat t he search warrant process or t he filing of t he inform at ion in t his case, which did not seek rest it ut ion, could subj ect t he Plaint iff t o an adj udicat ion of liabilit y for dam ages or t o an adj udicat ion of liabilit y for ot her relief, as t he policy requires. No language in t he inform at ion, in t he superseding inform at ion, or used in connect ion wit h issuing or execut ing t he search warrant t hus gives rise t o t he possibilit y of coverage for t he Plaint iff under t he D & O policy. B. Loss Defendant addit ionally cont ends t hat t he $100,000 forfeit ure is not a “ loss” because “ loss” is defined t o exclude “ t axes, fines or penalt ies im posed by law,” and t o exclude “ m at t ers uninsurable under t he law pursuant t o which t his Policy is const rued.” Dk. 7, Exh. 1, p. 21. 1 . Ta x , Fin e , or Pe n a lt y Plaint iff cont ends t he forfeit ure is not a “ t ax, fine or penalt y” im posed by law, but concedes t he $300,000 fine it was required t o pay as a result of it s crim inal convict ion is excluded by t his language. 14 The crim inal forfeit ure ordered in Plaint iff’s crim inal case was not im posed pursuant t o a civil proceeding in rem , but was part of t he punishm ent for Plaint iff’s crim inal offense. See Dk. 23, Judgm ent , p. 3. An in personam crim inal forfeit ure is a form of punishm ent t hat does not differ from a fine. See Alexander v. Unit ed St at es ( 1993) , 509 U.S. 544, 558- 559, 113 S.Ct . 2766, 2775- 2776, 125 L.Ed.2d 441, 455- 456; Unit ed St at es v. Wild, 47 F.3d 669, 674 ( 4t h Cir. 1995) . I n personam forfeit ures involve “ assessm ent s, whet her m onet ary or in kind, t o punish t he propert y owner's crim inal conduct .” Aust in v. Unit ed St at es, 509 U.S. 602, 624, 113 S.Ct . 2801, 2813, 125 L.Ed.2d 488, 507 ( 1993) ( Scalia, J., concurring) . See Black's Law Dict ionary 722 ( 9t h ed. 2009) ( defining “ forfeit ure” as “ 3. Som et hing lost or confiscat ed by t his process; a penalt y.” ) . Crim inal forfeit ure is m andat ory in all cases where it applies, Unit ed St at es v. Monsant o, 491 U.S. 600, 607, 109 S.Ct . 2657, 105 L.Ed.2d 512 ( 1989) , and operat es in personam against a defendant t o divest him of his t it le t o proceeds of crim e or propert y involved in his crim e or t hat facilit at ed his unlawful conduct , Unit ed St at es v. Vam pire Nat ion, 451 F.3d 189, 202 ( 3d Cir. 2006) . “ Forfeit ures flow from t he not ion t hat propert y is som ehow irreparably t aint ed- whet her m alum in se or m alum prohibit um - so t hat no privat e ownership can be claim ed and t he propert y revert s t o t he sovereign.” St . Paul Fire & Marine I ns. Co. v. Genova, 172 F.Supp.2d 1001, 1005 ( N.D.I ll. 2001) . 15 I n t he Plaint iff’s underlying crim inal case, t he court ordered Plaint iff t o forfeit t o t he Unit ed St at es $100,000.00 pursuant t o Tit le 18, U.S.C § 982( a) ( 6) ( A) , as is m andat ed by st at ut e for all defendant s convict ed of such offenses. See 18 U.S.C § 1546( b) ( 2) . The court , in im posing sent ence on a person convict ed of a violat ion of [ various st at ut es] shall order t hat t he person forfeit t o t he Unit ed St at es, regardless of any provision of St at e law- ( ii) any propert y real or personal- ( I ) t hat const it ut es, or is derived from or is t raceable t o t he proceeds obt ained direct ly or indirect ly from t he com m ission of t he offense of which t he person is convict ed. 18 U.S.C. § 982( a) ( 6) ( A) . Thus Congress has det erm ined t hat t he crim inal act ivit y in which t he Plaint iff adm it t edly engaged st rips t he lawbreaker of his ownership int erest as a punishm ent , vest ing ownership of t he forfeit able propert y in t he governm ent . See Unit ed St at es v. Ginsburg, 773 F.2d 798, 800–03 ( 7t h Cir. 1985) . Accordingly, t his court does not hesit at e t o find t hat t he forfeit ure ordered in t his case was a “ fine or penalt y” as t hose t erm s are used in t his policy and t hus is excluded from t he policy’s definit ion of “ loss.” Cf, Mort enson v. Nat ional Union Fire I ns. Co. of Pit t sburgh, Pa., 249 F.3d 667, 668- 669 ( 7t h Cir. 2001) ( applying I llinois law in finding a st at ut ory penalt y im posed for willful nonpaym ent of payroll t axes excluded as a “ fine or penalt y” in t he D & O policy) . 16 2 . M a t t e r s Un insu r a ble Un de r I llin ois La w Defendant also cont ends t hat t he forfeit ure is not “ loss” because loss is defined t o exclude “ m at t ers uninsurable under t he law pursuant t o which t his Policy is const rued.” Dk. 7, Exh. 1, p. 21. The Court agrees. I llinois has held t hat t here is no insurable int erest in a civil forfeit ure. I ndiana I ns. Co. v. Brown Packing Co., I nc., 2013 WL 1944469, 5 6 ( I ll.App. 1 Dist . 2013) . There, t he I llinois court found a $2 m illion civil forfeit ure represent ed t he am ount of funds gained t hrough illegal act ivit y so was not “ dam ages” wit hin t he m eaning of t he insurance policy. The Court furt her found t hat forfeit ure was not insurable as a m at t er of I llinois law and public policy, since t he underlying com plaint was a crim inal prosecut ion. I d, at 5- 6. Sim ilarly, under I llinois law, t here is no insurable int erest in t he proceeds of fraud. Ryerson, I nc., v. Federal I nsurance Co., 676 F.3d 610, 613 ( 7t h Cir. 2012) ( applying I ll. law) . The rat ionale for t hat holding - t hat one cannot sust ain a loss of som et hing he doesn’t or shouldn’t have – applies equally in t his case: I f disgorging such proceeds is included wit hin t he policy's definit ion of “ loss,” t hieves could buy insurance against having t o ret urn m oney t hey st ole. No one writ es such insurance. See Scot t sdale I ndem nit y Co. v. Village of Crest wood, 673 F.3d 715, 717–18, 719–20 ( 7t h Cir. 2012) ( I llinois law) ; Federal I ns. Co. v. Art hur Andersen LLP, 522 F.3d 740, 743–44 ( 7t h Cir. 2008) ( dit t o) ; Mort enson v. Nat ional Union Fire I ns. Co., 249 F.3d 667, 671–72 ( 7t h Cir. 2001) ( dit t o) , and no st at e would enforce such an insurance policy if it were writ t en. I d. at 672; Level 3 Com m unicat ions, I nc. v. Federal I ns. Co., 272 F.3d 908, 910 ( 7t h Cir. 2001) . You can't , at least for insurance purposes, sust ain a 17 “ loss” of som et hing you don't ( or shouldn't ) have. I d.; I n re TransTexas Gas Corp., 597 F.3d 298, 308–11 ( 5t h Cir. 2010) ; Safeway St ores, I nc. v. Nat ional Union Fire I ns. Co., 64 F.3d 1282, 1286 ( 9t h Cir. 1995) . And so t here is no insurable int erest in t he proceeds of a fraud. Cf. Grigsby v. Russell, 222 U.S. 149, 154–55, 32 S.Ct . 58, 56 L.Ed. 133 ( 1911) ( Holm es, J.) ; 3 Couch on I nsurance §§ 41: 3, 42: 57, pp. 41–12, 42–96 ( 3d ed.2011) . Ryerson, 676 F.3d at 612- 13. The rat ionale underlying t hese policy decisions was clarified in Beaver v. Count ry Mut ual I nsurance Co., 420 N.E.2d 1058, 1061 ( I ll.App.Ct . 1981) , where t he Court held t hat “ public policy prohibit s insurance against liabilit y for punit ive dam ages t hat arise out of one's own m isconduct .” I d, at 1061. I n reaching it s decision, t he court explained t hat t he purpose of punit ive dam ages is t o punish and det er - a purpose t hat would not be served if t he wrongdoer were allowed t o shift t he burden of t he sanct ion t o an insurance com pany. I d. at 1060. Cf, Chicago Bd. of Opt ions Exchange, I nc. v. Harbor I ns. Co., 738 F.Supp. 1184, 1187 ( N.D.I ll. 1990) ( finding no public policy in I llinois against a corporat ion's insuring for vicarious liabilit ies st em m ing from t he int ent ional t ort s of it s officers and direct ors, such as ret aliat ory discharge) . The Beaver court furt her reasoned: “ I t is not disput ed t hat insurance against crim inal fines or penalt ies would be void as violat ive of public policy. The sam e public policy should invalidat e any cont ract of insurance against t he civil punishm ent t hat punit ive dam ages represent .” I d. ( cit at ion and int ernal quot at ion m arks om it t ed) . See Local 705 I nt ern. Brot h. of Team st ers Healt h & Welfare Fund v. Five St ar Managers, L.L.C., 316 18 I ll.App.3d 391, 395, 735 N.E.2d 679, 683, 249 I ll.Dec. 75, 79 ( I ll.App. 1 Dist . 2000) ( finding set t lem ent was paid wit h m oney t o which t he payor was not legally ent it led and t hat such a paym ent is not a “ loss” but was a “ m at t er uninsurable under t he law” of I llinois) . See generally St at e Farm Life I ns. Co. v. Sm it h, 66 I ll.2d 591, 595, 363 N.E.2d 785, 786, 6 I ll.Dec. 838, 839 ( I ll. 1977) ( st at ing “ t he long- est ablished policy t hat one m ay not profit by his int ent ionally- com m it t ed wrongful act .” ) The sam e rat ionale applies here. The Plaint iff, and not it s officers or direct ors, adm it t edly com m it t ed t he crim e. The purpose of crim inal forfeit ure is t o punish t he crim inal by depriving him of proceeds of his crim e. That purpose would not be served if t he wrongdoer were perm it t ed t o shift t he burden of forfeit ure t o an insurance com pany. Accordingly, t he policy excludes t he possibilit y t hat Defendant is obligat ed t o pay t he $100,000 forfeit ure ordered against t he Plaint iff in t he underlying crim inal case. This result is consist ent wit h I llinois public policy which excludes from coverage int ent ional t ort s such as claim s for “ bodily inj ury, assault , bat t ery, invasion of privacy, m ent al anguish, em ot ional dist ress, sickness, disease or deat h of any person, false arrest , false im prisonm ent , defam at ion, libel, slander or dam age t o or dest ruct ion of any t angible propert y, including loss of use t hereof.” I d, pp. 21- 22. See Davis v. Com m onwealt h Edison Co., 61 I ll.2d 494, 500–01, 336 N.E.2d 881, 885 ( 1975) ( st at ing general rule t hat one m ay not insure him self for his own int ent ional t ort s under I llinois law) . 19 Addit ionally, it would be unreasonable t o read t his policy, which excludes int ent ional t ort s, as covering forfeit ure result ing from crim inal act s. See generally Fox v. Com m ercial Coin Laundry Syst em s, 325 I ll.App.3d 473, 476, 258 I ll.Dec. 840, 757 N.E.2d 529 ( 2001) . Accordingly, no possibilit y of coverage for t he am ount of forfeit ure exist ed under t he D & O sect ion. I n det erm ining lack of coverage, t he Court finds it unnecessary t o reach t he part ies’ ot her argum ent s, including Defendant ’s reliance on t he crim inal adj udicat ion exclusions and it s assert ion t hat insuring losses from crim inal cases would shock t he Geiko gecko and it s cohort insurance m ascot s. Dk. 27, p. 5. VI I . D u t y t o D e fe n d An insurer's dut y t o defend it s insured is det erm ined by com paring t he allegat ions of t he underlying com plaint wit h t he relevant provisions of t he insurance policy. Dixon Dist ribut ing Co. v. Hanover I nsurance Co., 161 I ll.2d 433, 438, 204 I ll.Dec. 171, 641 N.E.2d 395 ( 1994) . An insurer m ay refuse t o defend only when t he allegat ions of t he lawsuit “ cannot possibly cover t he liabilit y arising from t he fact s alleged.” I llinois Em casco I nsurance Co. v. Nort hwest ern Nat ional Casualt y Co., 337 I ll.App.3d 356, 360, 271 I ll.Dec. 711, 785 N.E.2d 905 ( 2003) . I f t he underlying com plaint alleges fact s wit hin or pot ent ially wit hin coverage, t he insurer is obligat ed t o defend it s insured even if t he allegat ions are groundless, false, or fraudulent . Unit ed St at es Fidelit y & Guarant y Co. v. Wilkin I nsulat ion Co., 144 I ll.2d 64, 73, 161 20 I ll.Dec. 280, 578 N.E.2d 926 ( 1991) . Any doubt about whet her allegat ions in a com plaint st at e a pot ent ially covered cause of act ion is ordinarily resolved in favor of t he insured. Pekin I ns. Co. v. Unit ed Parcel Service, I nc., 381 I ll.App.3d 98, 885 N.E.2d 386 ( 2008) . The Court has reviewed t he copy of t he crim inal inform at ion at t ached t o Plaint iff’s brief, Dk. 23, Exh. C, and t akes j udicial not ice of t he superseding inform at ion, see St . Louis Bapt ist Tem ple, I nc. v. Fed. Deposit I ns. Corp., 605 F.2d 1169, 1172 ( 10t h Cir. 1979) ( court m ay t ake j udicial not ice of filings in relat ed cases) . Yet it finds no allegat ions of fact s wit hin or pot ent ially wit hin eit her t he D & O sect ion or t he EPL sect ion of t he policy. The fact s assert ed in t hese crim inal docum ent s are not arguably included wit hin t he EPL sect ion’s definit ions of “ Wrongful Em ploym ent Pract ices” or “ Loss,” or wit hin t he D & O sect ion’s definit ion of “ Claim .” Nor has Plaint iff shown t hat anyt hing connect ed wit h t he search warrant process which preceded t he filing of t he crim inal inform at ion possibly t riggered coverage under eit her sect ion of t he policy. Accordingly, Defendant had no dut y t o defend. But even had t he Court found a dut y t o defend, Plaint iff has shown no dam ages from any breach of t hat dut y. The part ies agree t hat Plaint iff’s plea and sent encing const it ut e a final adj udicat ion of a crim inal act . Plaint iff’s crim inal act s t herefore current ly fall wit hin t he “ final adj udicat ion” exclusions in bot h t he EPL and D & O sect ions. Accordingly, had Defendant paid t he 21 cost s of Plaint iff’s defense of t he crim inal case and invest igat ion, Plaint iff would need t o repay t hose am ount s now. See Am erican Fam ily Mut . I ns. Co. v. Enright , 334 I ll.App.3d 1026, 1038 ( I ll.App. 2 Dist . 2002) ( finding t he t rial court erred in finding a dut y t o defend in t he underlying crim inal lawsuit because t he dut y only arises if t he allegat ion is proved t o be false) . Under dishonest act s exclusions, which t he court finds t o be sim ilar t o t his exclusion, t he insurer is bound t o cover defense cost s in cases in which an insured is found not guilt y. See e.g., I n re Enron Corp. Securit ies, Derivat ive & “ ERI SA” Lit igat ion, 391 F.Supp.2d 541, 570- 571 ( S.D.Tex. 2005) ( finding a policy exclusion which barred coverage for t he ult im at e net loss arising from any claim against an insured for “ any fines or penalt ies im posed in a crim inal suit , act ion, or proceeding,” excluded cost s incurred in t he defense of crim inal prosecut ions against t he insured t hat result ed in a convict ion but t hat t he exclusion did not apply where t he insured was found not guilt y) ; Polychron v. Crum & Forst er I ns. Com panies,916 F.2d 461, 463– 64 ( 8t h Cir. 1990) ( finding t he exclusion for “ fines or penalt ies im posed by law,” “ does not exclude at t orney's fees incurred in defense of a crim inal m at t er, at least where t he insured is acquit t ed” ) . But Plaint iff cit es no case in which a breach of a dut y t o defend or t o pay defense cost s was found where t he insured was found guilt y of t he crim inal offense and t he policy cont ained a crim inal adj udicat ion exclusion, as here. Accordingly, Plaint iff has shown no dam ages. 22 VI I I . Ba d Fa it h Plaint iff furt her cont ends t hat Defendant act ed in bad fait h in denying coverage. Plaint iff alleges Defendant unreasonably delayed it s denial of coverage unt il aft er Plaint iff’s plea, t hen explained it s denial by const ruing it s policy in a duplicit ous m anner. Bad fait h is “ t he sem ant ic equivalent of ‘vexat ious and unreasonable’ conduct .” Em erson v. Am erican Bankers I nsurance Co. of Florida, 223 I ll.App.3d 929, 936, 166 I ll.Dec. 293, 585 N.E.2d 1315 ( 1992) . Given t he Court ’s finding above t hat Defendant had no dut y t o defend and properly denied coverage, no bad fait h has been shown. See First I ns. Funding Corp. v. Fed. I ns. Co., 284 F.3d 799, 807 ( 7t h Cir. 2002) ( “ I llinois court s allow a cause of act ion t o proceed under Sect ion 155 only if t he insurer owed t he insured benefit s under t he t erm s of t he policy.” ) ; Cent ral Mut . I ns. Co. v. Useong I nt ern., Lt d., 394 F.Supp.2d 1043 ( N.D.I ll. 2005) ( finding “ [ b] ecause t his Court has held t hat Cent ral has no dut y t o defend or indem nify UI , UI I not ent it led t o any relief under Sect ion 155.” ) ; Herm it age I ns. Co. v. Act ion Marine, I nc., 816 F.Supp. 1280 ( N.D.I ll. 1993) ( finding an insured cannot recover on a bad fait h denial of coverage claim under t he I nsurance Code where t he insurer right fully denies coverage) ; McDaniel v. Glens Falls I ndem . Co., 333 I ll.App. 596, 602 78 N.E.2d 111 ( 1948) ( rej ect ing bad fait h claim of vexat ious delay where insured was not covered under t he policy) . See also Sec. 155 of t he I ll. I ns. Code, 215 I LCS 5/ 155 ( 2005) ( “ I n any 23 act ion by or against a com pany wherein t here is in issue t he liabilit y of a com pany on a policy or policies of insurance or t he am ount of t he loss payable t hereunder, or for an unreasonable delay in set t ling a claim , and it appears t o t he court t hat such act ion or delay is vexat ious and unreasonable, t he court m ay allow as part of t he t axable cost s in t he act ion reasonable at t orney fees, ot her cost s, plus [ cert ain penalt ies] ...) . I T I S THEREFORE ORDERED t hat Plaint iff’s m ot ion for sum m ary j udgm ent ( Dk. 22) is denied and t hat Defendant ’s m ot ion for sum m ary j udgm ent ( Dk. 20) is grant ed. Dat ed t his 1st day of May, 2014, at Topeka, Kansas. s/ Sam A. Crow____________________ Sam A. Crow, U.S. Dist rict Senior Judge 24
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