7th Cir./Stacking and “Occurrence”

Excess Policy Sublimit Applies for Wrongful Death Claim

The Seventh Circuit, in an opinion written by Judge Easterbrook, applying Illinois law, upheld a district court decision that found an excess insurance policy’s $250,000 sublimit for physical abuse claims applied to a wrongful death action.

In the underlying action, Baby Fold, a foster-care service provider, placed three-year-old Kianna Rudesill with foster parents Joshua and Heather Lamie.  Heather killed Kianna and was convicted of murder. Chicago Trust Company (“Chicago Trust”), administrator of Kianna’s estate, brought a wrongful death action against Baby Fold, which ultimately settled for $4 million.  Baby Fold and Chicago Trust then sought indemnity from Baby Fold’s insurer, Philadelphia Indemnity (“Philadelphia”), under Baby Fold’s $1 million primary and $5 million excess policy.  Philadelphia agreed that its maximum indemnity under the primary policy was $1 million but asserted that the wrongful death action triggered the excess policy’s $250,000 sublimit for physical abuse claims and sought a declaratory judgment from the district court regarding the same.  The district court agreed and held the maximum indemnity under the excess policy was $250,000.

On appeal, Chicago Trust and Baby Fold argued that the excess policy’s language was ambiguous and thus, should be construed in their favor.  Specifically, Baby Fold put forth two arguments supporting its conclusion: (1) the excess policy’s sublimit restricted the primary policy’s coverage, not the excess policy’s coverage and (2) inclusion of the primary policy’s physical abuse provision in the excess policy creates a second source of excess insurance – not a limitation on coverage.  Separately, Chicago Trust argued that the “abusive conduct” arose from “bodily injury” caused by an “occurrence,” which is a broad category falling under the excess policy’s $5 million limit and  also argued that both 2010 and 2011 excess policies supply coverage because Kianna was abused during both policy periods.

The Seventh Circuit disagreed with both parties.  Describing Baby Fold’s arguments as an “effort[] to gin up ambiguity,” the court held that the excess policy’s sublimit clearly restricted the excess policy’s coverage because the sublimit was on the fourth page of the excess policy and its first sentence stated that it modified the excess policy.  Further, the court declared Baby Fold’s second argument “illogical” because the excess policy, unlike the primary policy, provided a single layer of additional insurance, which was clearly reduced by the sublimit.  As to Chicago Trust’s arguments, the court held that Chicago Trust’s first argument went too far and must fail because it would “render the sublimit (along with every other sublimit and exclusion) ineffective, which is contrary to Illinois law.”  Finally, the Seventh Circuit held that the 2010 and 2011 excess policies could not both provide coverage, in part, because they contained anti-stacking provisions.  The  Seventh Circuit also found that only one excess policy year could apply because the excess policies include the limiting language from the primary policy’s abuse provision, including the definition of “abusive conduct”  which aggregates multiple acts of abuse into one unit and applies the policy in effect when the first act occurred.  Thus, the Seventh Circuit affirmed the district court’s ruling that the $250,000 sublimit applied.  Phila. Indem. Ins. Co. v. Chi. Trust Co., Nos. 18-3181, 18-3241 (7th Cir. July 19, 2019).