On-Going Litigation Damages not a Separate Claim Within a Claim

The Seventh Circuit Court of Appeals, in an opinion written by the Honorable Judge Kanne, applying Illinois law, affirmed the decision of the trial court finding that Federal Insurance Company (“Chubb”) had no duty to defend or indemnify Peoples National Bank (“Peoples”) under a claims-made professional liability policy because the “claim” for damages stemming from a Pledge Agreement was not a new claim in itself, but rather part of a claim that was made before the policy period.

In 2014, Chubb issued a claims-made policy to Peoples whereby Chubb agreed to defend and indemnify Peoples against claims made against them from 2014 to 2017. At the time the policy was issued, Peoples was already involved in an ongoing decade-long lawsuit. In 2016, at the damages stage of the ongoing litigation, the plaintiff alleged that Peoples owed damages resulting from a Pledge Agreement. As a result, Peoples requested Chubb defend and cover any losses resulting from the new allegation. Chubb denied coverage, asserting that the damages allegation was not a “claim” under the policy. Peoples then filed a declaratory judgment action against Chubb. The trial court granted Chubb’s motion for summary judgment and Peoples appealed.

On appeal, the Seventh Circuit addressed whether the damages argument, that was raised in 2016, fell within the scope of a “claim” under Chubb’s claims-made policy. The relevant portions of policy defined a “claim” as “(a) a written demand for monetary or non-monetary relief, including injunctive relief” or “(b) a civil proceeding commenced by the service of a complaint or similar pleading[.]” Peoples asserted that the 2016 damages argument was a “claim” under subsection (a) and, thus, was covered by falling within the policy period. However, Peoples did not dispute that the 2003 commencement of the underlying suit was a “claim” under subsection (b). Instead, Peoples asserted that the damages argument was a new “claim” in itself because it was different than any assertion made in the operative complaint.

The Seventh Circuit found that “a ‘claim’ taking the form of ‘a civil proceeding commenced by the service of a complaint’ spans the entire civil action, not just the legal theories and factual allegations in the complaint that commenced the action.” Since the plaintiff raised the damages argument during the 2003 civil action, it is a part of the 2003 “claim” and is not a new claim in itself. In order for each section of the “claims” definition to have meaning, the subsections need to be exclusive. The Seventh Circuit found that the definition subsections “indicate that each type of ‘claim’ excludes others.” Under this interpretation, the 2016 damages argument cannot be its own “claim” under subsection (a) because it is already included in the 2003 “claim” under subsection (b). The Seventh Circuit held that “when an assertion is made within a civil-proceeding ‘claim,’ that assertion cannot itself be a ‘claim.’” Since the damages argument was raised within the 2003 “claim,” it fell outside the policy period, and thus, Chubb had no duty to defend or indemnify. Mkt. St. Bancshares, Inc. v. Fed. Ins. Co., 962 F.3d 947 (7th Cir. June 19, 2020).