In the
United States Court of Appeals
For the Seventh Circuit
No. 10-3164
G ENERAL INSURANCE C OMPANY OF A MERICA,
Plaintiff-Appellant,
v.
C LARK M ALL C ORPORATION, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 08 C 2787—Jeffrey N. Cole, Magistrate Judge.
A RGUED A PRIL 14, 2011—D ECIDED M AY 4, 2011
Before E ASTERBROOK, Chief Judge, and R OVNER and
S YKES, Circuit Judges.
S YKES, Circuit Judge. General Insurance Company of
America filed this declaratory-judgment action to de-
termine whether it must defend and indemnify its
insured, Discount Mega Mall Corporation (“Discount
Mall”), and its principals in an Illinois state-court law-
suit. On Discount Mall’s motion for judgment on the
2 No. 10-3164
pleadings, the district court determined that General
Insurance owed a duty to defend under Illinois law.
At General Insurance’s request, the court entered its duty-
to-defend order as a final judgment to facilitate an im-
mediate appeal. See F ED. R. C IV. P. 54(b); 28 U.S.C. § 1291.
But much of the case remains pending, including sev-
eral counterclaims implicating the insurer’s duty to
defend. We dismiss for lack of appellate jurisdiction.
I. Background
On September 8, 2007, a major fire occurred at the
Discount Mega Mall in Chicago. Discount Mall was
insured under a commercial general liability (“CGL”)
policy issued by General Insurance, and the mall filed a
first-party claim under the policy for the fire damage. A
number of tenants sued Discount Mall in Illinois state
court alleging that the mall’s negligence caused the fire.
Discount Mall tendered the defense to General Insurance,
which denied the tender and filed this declaratory-judg-
ment action seeking a judicial determination that it has
no duty to defend or indemnify under the policy. General
Insurance named the following defendants: Clark Mall
Corporation d/b/a Discount Mega Mall Corporation;
Kyun Hee Park and Jennifer Park, Discount Mall’s princi-
pals; and the mall’s tenants, who were the plaintiffs in
the underlying state-court suit.
As relevant here, General Insurance claimed that the
losses at issue in the underlying suit fell within an exclu-
sion in the CGL policy for “ ‘property damage’ to . . .
property in the care, custody, or control of the insured.”
No. 10-3164 3
The insurer alleged that the fire occurred after the mall
had closed for the night and that Discount Mall’s em-
ployees had locked the building and restricted the ten-
ants’ access. Based on these allegations, General Insur-
ance claimed that the underlying suit sought recovery
for damage to “property in the care, custody, or control
of the insured” and was therefore excluded from cov-
erage under the policy.
Discount Mall and the other defendants answered
the declaratory-judgment complaint and asserted five
counterclaims. The counterclaims sought the following
relief: (1) a declaratory judgment that a defense and
indemnity were owed; (2) damages for breach of contract
for failure to indemnify; (3) damages for “vexatious and
unreasonable” refusal to defend and indemnify under
section 155 of the Illinois Insurance Code, 215 ILL. C OMP.
S TAT. 5/155; (4) damages for violation of the Illinois Con-
sumer Fraud and Deceptive Business Practices Act, 815
I LL . C OMP. S TAT. 505/2; and (5) damages for common-
law fraud. The parties consented to proceed before a
magistrate judge, and the defendants (Discount Mall, the
Parks, and their tenants) moved for judgment on the
pleadings on the competing claims for declaratory judg-
ment relating to General Insurance’s duty to defend. See
F ED. R. C IV. P. 12(c).
The magistrate judge entered a split decision on the
motion. To the extent the defendants sought a declara-
tion that General Insurance had a duty to defend Clark
Mall Corporation, the court denied the motion because
no entity named “Clark Mall” was an insured. But the
4 No. 10-3164
court held that General Insurance had a duty to defend
Discount Mall. The judge faulted General Insurance
for failing to introduce evidence establishing the applica-
bility of the policy’s exclusion for damage to “property
in the care, custody, or control” of the insured. This
failure, the judge held, was fatal to the insurer’s claim
that it had no duty to defend. Finally, the court held
that General Insurance’s refusal to defend the under-
lying suit had not been “vexatious and unreasonable”
because there was a bona fide dispute about coverage.
Accordingly, the judge declined to enter an award under
section 155 of the Illinois Insurance Code, 215 ILL.
C OMP. S TAT. 5/155.
General Insurance objected to the judge’s novel require-
ment that it produce evidence at the pleadings stage and
asked the court to reconsider. This request was denied.
The court shifted course, however, on the section 155
claim. In a separate order denying General Insurance’s
motion to dismiss the counterclaims, the court explained
that its earlier ruling had not conclusively rejected the
counterclaim for vexatious and unreasonable refusal to
defend. The section 155 claim, in other words, remained
pending in its entirety.
General Insurance asked the court to enter its duty-to-
defend ruling as a final judgment under Rule 54(b) so
that it could take an immediate appeal. The court obliged
and entered a judgment purporting to permit this appeal.
The judgment, however, is stated more broadly than the
court’s original order. It states that “[j]udgment on the
pleadings is entered against [General Insurance] and in
No. 10-3164 5
favor of the Defendants on [General Insurance’s] claim . . .
that it is not obligated . . . to defend any of
the defendants named in” the state-court lawsuit. This
sweeping language conflicts with the judge’s holding
that General Insurance has no duty to defend “Clark
Mall” because no such entity is named as an insured.
General Insurance appealed. Until oral argument, no one
noticed the anomaly in the judgment or questioned
its propriety under Rule 54(b).
II. Analysis
On the merits this appeal presents the following
question of Illinois insurance law: Is an insurer’s duty
to defend determined solely by reference to the allega-
tions in the underlying complaint, or may the insurer
present evidence to establish that the loss alleged in the
complaint is not covered under its policy? Decisions
from the Illinois Appellate Court hold that although
the duty to defend is ordinarily determined by ex-
amining the allegations of the underlying complaint,
when an insurer seeks a declaratory judgment on the
issue of coverage, it may present evidence to demon-
strate that its policy does not cover the loss in question.
See, e.g., Am. Econ. Ins. Co. v. Holabird & Root, 886 N.E.2d
1166, 1175-78 (Ill. App. Ct. 2008); Fid. & Cas. Co. v.
Envirodyne Eng’rs, Inc., 461 N.E.2d 471, 473-74 (Ill. App.
Ct. 1983). In its recent decision in Pekin Insurance Co. v.
Wilson, 930 N.E.2d 1011, 1019-21 (Ill. 2010), the Illinois
Supreme Court cited this line of cases with approval.
6 No. 10-3164
The magistrate judge noted these cases but oddly
required General Insurance to present evidence on the
duty-to-defend question at the pleadings stage in response
to the defendants’ Rule 12(c) motion for judgment on
the pleadings. It is not surprising, then, that General
Insurance asked the court to enter its order as a final
judgment to set up an immediate appeal. Under
Rule 12(d) of the Federal Rules of Civil Procedure, a
motion for judgment on the pleadings must be treated as
a motion for summary judgment if matters outside the
pleadings are submitted. F ED. R. C IV. P. 12(d) (“If, on a
motion under Rule 12(b)(6) or 12(c), matters outside the
pleadings are presented to and not excluded by the
court, the motion must be treated as one for summary
judgment under Rule 56.”). But this does not mean that
a party opposing a Rule 12(c) motion for judgment on
the pleadings must submit evidence in order to avoid
entry of judgment against it. And that is precisely what
the court required General Insurance to do.
It is true that duty-to-defend questions in insurance-
coverage disputes can sometimes be resolved at the
pleadings stage on a Rule 12(c) motion for judgment on the
pleadings. See, e.g., Nautilus Ins. Co. v. 1452-4 N. Milwaukee
Ave., LLC, 562 F.3d 818, 822-24 (7th Cir. 2009). But not
always. Illinois insurance law does not alter the normal
operation of the Federal Rules of Civil Procedure,
although the magistrate judge seemed to think that it does.
Notwithstanding General Insurance’s obvious interest
in an immediate appeal, however, the predicates for a
proper Rule 54(b) final judgment are not present here.
No. 10-3164 7
The parties agreed in their jurisdictional statements that
appellate jurisdiction is premised on the judge’s entry of
a Rule 54(b) judgment. Yet the parties cannot consent to
this court’s jurisdiction; we must satisfy ourselves that
appellate jurisdiction is secure. Deering v. Nat’l Maint. &
Repair, Inc., 627 F.3d 1039, 1042 (7th Cir. 2010); ITOFCA,
Inc. v. MegaTrans Logistics, Inc., 235 F.3d 360, 363 (7th
Cir. 2000) (“[S]imply because the litigants agree that a
judicial determination is a final decision (and thus
appealable under Section 1291), does not make it so.”).
Under 28 U.S.C. § 1291, we have jurisdiction over “all
final decisions of the district courts of the United States,”
and orders resolving fewer than all the claims in a
case are not “final” for purposes of appeal. Helcher v.
Dearborn Cnty., 595 F.3d 710, 717 (7th Cir. 2010). Rule 54(b)
provides an exception. It states in relevant part:
When an action presents more than one claim for
relief—whether as a claim, counterclaim, crossclaim,
or third-party claim— . . . the court may direct entry
of a final judgment as to one or more, but fewer
than all, claims . . . only if the court expressly deter-
mines that there is no just reason for delay. Other-
wise, any order or other decision, however
designated, that adjudicates fewer than all the
claims . . . does not end the action as to any of the
claims . . . and may be revised at any time before the
entry of a judgment adjudicating all the claims . . . .
F ED R. C IV. P. 54(b).
A proper Rule 54(b) order requires the district court to
make two determinations: (1) that the order in question
8 No. 10-3164
was truly a “final judgment,” and (2) that there is no
just reason to delay the appeal of the claim that was
“finally” decided. Sears, Roebuck & Co. v. Mackey, 351 U.S.
427, 435-37 (1956). We review the first determination
de novo and the second for abuse of discretion. Curtiss-
Wright Corp. v. Gen. Elec. Co., 446 U.S. 1, 8, 10 (1980); Stearns
v. Consol. Mgmt., Inc., 747 F.2d 1105, 1108 (7th Cir. 1984).
“The court of appeals must . . . scrutinize the district
court’s evaluation of such factors as the interrelationship
of the claims so as to prevent piecemeal appeals in cases
which should be reviewed only as single units.” Curtiss-
Wright, 446 U.S. at 10.
Here, the dispositive inquiry for jurisdictional pur-
poses is whether the duty-to-defend order—later reduced
to a judgment in an effort to pave the way for this ap-
peal—was truly “final.” To be final and appealable
under Rule 54(b), a judgment “must be ‘final’ in the
sense that it is ‘an ultimate disposition of an individual
claim entered in the course of a multiple claims action.’ ”
Id. at 7 (quoting Sears, 351 U.S. at 436). Determining
whether a judgment is properly appealable under Rule
54(b) “involves comparing the issues at stake in the
appealed claims and those remaining in the district
court.” Marseilles Hydro Power, LLC, v. Marseilles Land &
Water Co., 518 F.3d 459, 464 (7th Cir. 2008). Rule 54(b)
appeals are generally limited “to ‘situations where one
of multiple claims is fully adjudicated—to spare the
court of appeals from having to keep relearning the facts
of a case on successive appeals.’ ” Id. (quoting Ind. Harbor
Belt R.R. Co. v. Am. Cyanamid Co., 860 F.2d 1441, 1444
(7th Cir. 1988)).
No. 10-3164 9
With these principles in mind, we raised some jurisdic-
tional concerns sua sponte at oral argument. Specifically,
we asked the parties whether the magistrate judge
needed to address the issue of General Insurance’s duty
to defend in connection with any of the counterclaims
still pending in the district court. If the duty-to-
defend issue is implicated in any of the remaining
claims, the court’s order that General Insurance has a
duty to defend Discount Mall is subject to revision and
is not truly “final” for purposes of appeal under 28 U.S.C.
§ 1291 and Rule 54(b). See Horn v. Transcon Lines, Inc., 898
F.2d 589, 593-95 (7th Cir. 1990). The insurer’s lawyer
told us that the counterclaims still pending in the district
court were premised solely on the duty to indemnify,
not the duty to defend.
That is not true. The counterclaims are replete with
references to General Insurance’s refusal to defend the
underlying lawsuit as well as its refusal to indemnify. For
example, the counterclaim for “vexatious and unreason-
able” conduct under section 155 of the Illinois Insurance
Code alleges that General Insurance “has vexatiously and
unreasonably refused to defend [Discount Mall] in the
Underlying Complaint.” Further, the counterclaim for
common-law fraud alleges (among other things) that
General Insurance promised to provide a defense to
property-damage claims but lacked a present intent to
do so; this claim seeks recovery of “attorney fees and
expenses incurred in defending [Discount Mall] in the
Underlying Complaint.”
Each of these counterclaims remains pending before
the magistrate judge. Their resolution necessarily encom-
10 No. 10-3164
passes the merits of the duty-to-defend issue. See, e.g.,
Citizens First Nat’l Bank of Princeton v. Cincinnati Ins. Co.,
200 F.3d 1102, 1110 (7th Cir. 2000) (explaining the re-
quirements of a section 155 claim for “vexatious and
unreasonable” denial of insurance coverage); Cramer v.
Ins. Exch. Agency, 675 N.E.2d 897, 900-03 (Ill. 1996) (same).
This, in turn, precludes appellate jurisdiction under
Rule 54(b) and 28 U.S.C. § 1291.1 Horn, 898 F.2d at
593-94 (counterclaim seeking damages for bad-faith
denial of insurance coverage precludes Rule 54(b) appeal
of duty-to-defend ruling). In short, the counterclaims
remaining in the district court are substantively inter-
twined with the duty-to-defend issue on appeal here. Id.
at 592 (“[W]hen the questions remaining in the district
court factually overlap those on appeal, presenting a
specter of sequential appellate resolution, the appeal
is impermissible.”). The district court’s decision on that
issue may be revisited and revised at any time before
entry of judgment on the counterclaims. F ED. R. C IV.
P. 54(b).
It is true that insurance-coverage disputes are often
distinct enough to satisfy the final-judgment rule and
permit immediate review under Rule 54(b) and § 1291—as,
for example, when coverage and liability issues in the
1
This case is not appealable under 28 U.S.C. § 1292(a)(1). See
Original Great Am. Chocolate Chip Cookie Co., Inc. v. River Valley
Cookies, Ltd., 970 F.2d 273, 276 (7th Cir. 1992) (“[N]o counterpart
to 28 U.S.C. § 1292(a)(1) authorizes an appeal from a nonfinal
declaratory judgment.”).
No. 10-3164 11
same suit are bifurcated. See Eberts v. Goderstad, 569 F.3d
757, 760 (7th Cir. 2009). But this coverage dispute is
different. General Insurance’s request for a declaratory
judgment regarding its defense and indemnity obliga-
tions spawned multiple counterclaims that are linked
to the merits of its duty to defend. The final judgment
entered pursuant to Rule 54(b) of the Federal Rules of
Civil Procedure was entered in error. We D ISMISS this
appeal for want of appellate jurisdiction.
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