In the
United States Court of Appeals
For the Seventh Circuit
No. 15‐3292
MADISON MUTUAL INSURANCE
COMPANY,
Plaintiff‐Appellant,
v.
DIAMOND STATE INSURANCE
COMPANY,
Defendant‐Appellee.
Appeal from the United States District Court for the
Southern District of Illinois.
No. 3:14‐cv‐00565 — J. Phil Gilbert, Judge.
ARGUED JANUARY 10, 2017 — DECIDED MARCH 21, 2017
Before WOOD, Chief Judge, and ROVNER and HAMILTON,
Circuit Judges.
ROVNER, Circuit Judge. Madison Mutual Insurance Com‐
pany (“Madison Mutual”) brought suit seeking a declaratory
judgment obliging Diamond State Insurance Company
2 No. 15‐3292
(“Diamond State”) to defend Geraldine Davidson in a state‐
court action filed by her former neighbors, Dr. William and
Wendy Dribben. Diamond State previously provided profes‐
sional liability errors and omissions coverage to Davidson in
her capacity as a real estate broker and supplied a defense to
Davidson in a previous suit alleging certain wrongdoing by
Davidson as a broker. Because the new suit repeats certain
allegations from the prior suit, Madison Mutual asserts that it
both relates back to the earlier action and may potentially
involve claims within the coverage provided by Diamond
State. The district court rejected these assertions and entered
summary judgment in favor of Diamond State. We affirm.
I.
In 1999, the Dribbens purchased a home from Todd and
Sherry Favre on 42 acres in an exclusive four‐parcel develop‐
ment known as Heartland Oaks, in Southern Illinois not far
from Saint Louis, Missouri. Davidson represented the Favres
in that purchase. Davidson had also conceived of and was one
of the developers of Heartland Oaks, and she and her husband
owned one of the four parcels in the development. At the
center of the development is a 30‐acre artificial lake (sometimes
referred to in the pleadings as the “Large Lake,” as a smaller
lake was added later), and the dam creating that lake is located
on the parcel that the Dribbens purchased. In a 2006 lawsuit
filed by the Dribbens against Davidson and the other original
owners in the development, the Dribbens alleged that
Davidson had failed to disclose that the original
owners/developers had never obtained a permit from the
Illinois Department of Natural Resources (“IDNR”) authoriz‐
ing the dam. The 2006 suit alleged, inter alia, that Davidson’s
No. 15‐3292 3
non‐disclosure amounted to fraudulent concealment and
consumer fraud. Davidson tendered the suit to Diamond State,
which had issued a professional liability errors and omissions
policy to her effective from October 2005 through October 2006
and extended by endorsement to November 22, 2007. The
Diamond State policy applied to claims made and reported
during the policy period and provided coverage for “wrongful
acts arising out of the performance of professional services for
others.” R. 26‐1 at 6. The policy defines a “wrongful act” as
“any actual or alleged negligent act, error or omission, or
‘personal injury’” arising out of the services Davidson pro‐
vided as a real estate broker. R. 26‐1 at 14. Under a reservation
of rights, Diamond State agreed to provide Davidson with a
defense to the 2006 suit. The two counts asserting claims
against Davidson as a real estate broker were eventually
severed from the remainder of the 2006 suit and arbitrated in
favor of Davidson. R. 26‐9, 26‐10.
In 2011, the Dribbens filed a second suit, this one against
both Davidson and her husband, alleging a pattern of harass‐
ment, intimidation, and interference with the Dribbens’
property rights by the Davidsons. The wrongful acts attributed
to the Davidsons in the prolix first and second amended
complaints range from commercially farming their own
property and the Dribbens’ property (without their consent),
in violation of restrictive covenants; polluting the Large Lake
with crop runoff; filing lawsuits with the aim of interfering
with the Dribbens’ easement rights; spreading rumors that Dr.
Dribben was a serial killer; posting offensive signs; and
stalking and intimidating the Dribben family and their attor‐
neys. The first amended complaint asserted claims for enforce‐
4 No. 15‐3292
ment of covenants, trespass, malicious prosecution, interfer‐
ence with the Dribbens’ right to sell their property, intentional
and negligent infliction of emotional distress, unjust enrich‐
ment, a declaration that there had been no adverse possession
of the Dribbens’ property, and for an order of protection. The
second amended complaint, dated May 2014, added two more
claims of trespass (including criminal trespass), three counts
seeking to remove clouds upon and quiet title to the Dribbens’
property, two counts of nuisance, one count of negligence, and
one count seeking to enjoin other neighbors in the develop‐
ment vis‐à‐vis the disputed easements, for a total of 18 counts.
Davidson tendered the 2011 lawsuit to Madison Mutual,
which had provided homeowner’s insurance coverage to
Davidson and her husband (including personal liability
coverage up to $500,000 per occurrence) from July 2004 to July
2011. Madison Mutual had also issued umbrella liability
coverage to the Davidsons (with a limit of $1 million per
occurrence) from December 2005 to December 2011. Madison
Mutual agreed to provide the Davidsons with a defense
pursuant to their homeowner’s coverage.
Davidson also tendered the first and later the second
amended complaints to Diamond State, but on both occasions
Diamond State refused to supply her with a defense in the 2011
litigation. Diamond State did not view either complaint as
seeking relief for acts arising out of any professional services
Mrs. Davidson had provided to others as a real estate broker.
In 2014, Madison Mutual filed this suit in the district court
seeking a declaratory judgment to the effect that Diamond
State has breached its duty to defend Davidson in the 2011 suit
No. 15‐3292 5
and bears a duty to reimburse Madison Mutual for the costs it
has incurred in supplying a defense to her in that litigation.
(Davidson herself is not a party to the suit.) Madison Mutual
posits that the factual allegations made in the 2011 suit support
a potential claim against Davidson in her capacity as a real
estate broker for her failure to disclose to the Dribbens that the
dam lacked a permit; Madison Mutual views that potential
claim as relating back to the 2006 suit against Dribben, which
Diamond State was obligated to (and did) defend.
The district court entered summary judgment in favor of
Diamond State, concluding that it has no duty to defend
Davidson. In relevant part, the court reasoned the allegations
made against the Davidsons in the 2011 suit (which the district
court referred to as the “Underlying Litigation”) did not
support a potential claim against Mrs. Davidson as a broker
that in turn might relate back to the 2006 suit (referred to as the
“Original Litigation”) and trigger a duty to defend on the part
of Diamond State.
Although there are factual statements relating to
the dam and the IDNR in the Underlying Litiga‐
tion, those statements pertain to the allegations
of [the] Davidsons’ harassment of the Dribbens
and not the failure to disclose the requirement
for a dam permit which was the issue in the
Original Litigation.
The question becomes whether any of the allega‐
tions contained in the Underlying Litigation
could be deemed as “rising out of the wrongful
act” contained in the Original Litigation. There
6 No. 15‐3292
was a single wrongful act alleged in the Original
Litigation—that of Geraldine’s failure to disclose
that the lake did not have an IDNR permit for
the dam.
The fact that Geraldine Davidson was the real
estate agent that represented the Favres in the
sale of their home to the Dribbens and that she
[was] one of the developers of Heartland
Oaks—are facts—but the allegations in the
Underlying Litigation must arise from the
previous wrongful act. It could be argued that all
of the allegations—both in the Original and
Underlying Litigations—arise from Ms.
Davidson’s actions as a real estate agent in the
sale of the property from the Favres to the
Dribbens (for if she had not sold them the home,
none of these allegations could have occurred),
but the sale of the home was not the “wrongful
act” alleged in the Original [L]itigation. The
“wrongful act” was the failure to disclose the
lack of the dam permit.
The failure of Geraldine Davidson to disclose
the lack of the dam permit does not extend to
the inclusion [of] all problems, omissions,
harassment, trespassing, and numerous other
allegations contained in the Underlying
Litigation. Those allegations stand apart from
the initial “wrongful act” and as such, Diamond
has no duty to defend.
No. 15‐3292 7
R. 41 at 11 (emphasis in original).
II.
As the district court disposed of this case on summary
judgment, we review its decision de novo. E.g., Panfil v.
Nautilus Ins. Co., 799 F.3d 716, 718–19 (7th Cir. 2015). This is a
diversity action, and the parties agree that we should look to
the law of Illinois, the forum state, for the relevant substantive
legal principles. See, e.g., Am. Alternative Ins. Corp. v. Metro
Paramedic Servs., Inc., 829 F.3d 509, 513 (7th Cir. 2016).1
An insurer’s duty to defend its insured in litigation
depends on both the terms of the insurance policy at issue and
the nature of the underlying action. The duty to defend is
logically broader than the duty to indemnify. See Cincinnati Ins.
Co. v. H.D. Smith, LLC, 829 F.3d 771, 774 (7th Cir. 2016).
Whereas the latter duty requires a claim that actually falls
within the scope of coverage, the former duty is triggered by
allegations in the underlying litigation that plausibly may fall
within the scope of coverage. See Health Care Indus. Liab. Ins.
Program v. Momence Meadows Nursing Ctr., Inc., 566 F.3d 689,
693 (7th Cir. 2009) (discussing Crum & Forster v. Resolution
Trust Corp., 620 N.E.2d 1073, 1081 (Ill. 1993)). An insurer
therefore cannot refuse to defend unless it is clear that the
underlying allegations do not bring the case even potentially
within the scope of coverage. E.g., Panfil, 799 F.3d at 719
(quoting Lyerla v. AMCO Ins. Co., 536 F.3d 684, 688 (7th Cir.
2008)). In determining whether the insurer has a duty to
1
Each of the Seventh Circuit precedents that we cite in this opinon applies
Illinois law.
8 No. 15‐3292
defend, a court applies what is known as the “eight‐corners”
rule: we compare the four corners of the underlying complaint
with the four corners of the policy, according both the
complaint and the policy a liberal construction. Am. Alternative,
829 F.3d at 513–14 (quoting Pekin Ins. Co. v. Precision Dose, Inc.,
968 N.E.2d 664, 674 (Ill. 2012)). In applying this rule, our focus
is on what has actually been alleged in the underlying action
rather than what hypothetically could be alleged. Amerisure
Mut. Ins. Co. v. Microplastics, Inc., 622 F.3d 806, 812 (7th Cir.
2010) (quoting Del Monte Fresh Produce N.A., Inc. v. Transport.
Ins. Co., 500 F.3d 640, 643 (7th Cir. 2007)). If any portion of the
complaint in the underlying litigation potentially falls within
the coverage provided by the policy, the insurer must defend
the entire suit. Philadelphia Indem. Ins. Co. v. Chicago Title Ins.
Co., 771 F.3d 391, 398 (7th Cir. 2014) (collecting cases).
The Diamond State policy is a real estate errors and
omissions policy covering claims arising out of the professional
services Davidson provided as a real estate broker. So the
essential question is whether the allegations in the 2011
litigation potentially implicate Davidson’s conduct as a broker.
But more than that, because the policy is a “claims made and
reported” policy and Diamond State’s coverage ended in 2007
(with a corresponding notice period ending early in 2008), the
claim nominally must be one that was made against Davidson
within the policy period and which was reported to Diamond
State no later than 60 days after the end of that period. The
2011 suit, of course, was filed years after Diamond State’s
coverage terminated, and so at first glance timely reporting of
that suit would appear to be out of the question. But Madison
Mutual’s theory is that the 2011 litigation relates back to the
No. 15‐3292 9
2006 suit. There is no dispute that Diamond State had timely
notice of the 2006 suit (and, in fact, supplied Davidson with a
defense in that action). The policy provides that once Diamond
State has received timely notice of a “wrongful act” within the
policy’s scope, “[a]ny claim that may subsequently be made
against [the insured] arising out of that wrongful act will be
deemed for the purpose of this insurance to have been made
on the date [Diamond State] received such [timely] notice.”
This is referred to by the parties as the “awareness clause” of
the policy. Madison Mutual asserts that the 2011 suit, like the
2006 suit, rests in part on an assertion that Davidson breached
her professional obligations to the Dribbens by failing to
disclose that the dam on the property that the Dribbens
purchased was never properly permitted. In that respect,
Madison Mutual contends, the 2011 suit arises out of the same
wrongful act as the 2006 suit (and potentially asserts a
professional misconduct claim of the sort that is covered by the
Diamond State policy). And because Diamond State had timely
notice of the 2006 suit, under the awareness clause, it may be
deemed to have had timely notice of the 2011 suit as well, in
Madison Mutual’s view.
There are, to be sure, factual allegations in the 2011 suit
regarding the dam and Davidson’s status as a real estate
broker. Thus, the Second Amended Complaint filed in that suit
alleges that:
• Davidson is both a developer (who
spearheaded the creation of Heartland Oaks)
and a real estate broker. R. 21‐9 ¶¶ 18, 25, 48, 51,
521.
10 No. 15‐3292
• As a broker, Davidson had represented the
Favres in the sale of their property to the Dribbens
and received a commission for the sale. R. 21‐9 ¶
18.
• The dam for the Large Lake in the Heartland
Oaks development resides on the property sold by
the Favres to the Dribbens. R. 21‐9 ¶ 67.
• Davidson was advised during the construction
of the Large Lake that a permit would be needed
(although she denies being told this). R. 21‐9 ¶ 72.
• Davidson and the other original owners of the
Heartland Oaks properties nonetheless decided to
forgo obtaining a permit for the dam, in order to
spare expense and to avoid future involvement
with the IDNR. R. 21‐9 ¶ 73.
• After buying into the Heartland Oaks
development, the Dribbens were advised by IDNR
that because they owned the property on which
the dam was located, they were responsible for
obtaining a permit. R. 21‐9 ¶ 163.
• When the Dribbens sued Davidson for failing to
tell them that the dam was not permitted,
Davidson in turned filed suit against Mrs.
Dribben, alleging that she had slandered
Davidson. The slander complaint was based on
the charge in the Dribbens’ suit that Davidson had
committed fraud by not disclosing the lack of a
permit, an allegation that purportedly injured
No. 15‐3292 11
Davidson’s reputation as a broker. R. 21‐9 ¶¶ 247,
248.
• “As the next door neighbors of the Dribbens, as
the owner/real estate broker who sold the Favres’
property to the Dribbens, as two of the developers
of Heartland Oaks, as two of the signatories to the
Restrictions, the Easement Agreement and the
Amendment, and because Geraldine Davidson as
the realtor for at least the Favres had convinced
the Dribbens that Heartland Oaks was a first class
development, the Defendants owed the Dribbens
a duty of care to act reasonably and to hold
themselves to the same standard of care that they
have demanded of their neighbors, and to not
negligently engage in acts that the Dribbens
would perceive as stalking, harassment or
intimidation.” R. 21‐9 ¶ 525.
• “Accordingly, under the above facts, the
Defendants owed the Dribbens a duty of care, and
they breached that duty of care by engaging in the
conduct alleged in this amended complaint. R. 21‐
9 ¶ 528.
Focusing on these last two allegations regarding a duty of care,
Madison Mutual alleges that it is reasonable to infer that said
duty includes Mrs. Davidson’s duty of care as a realtor and
that the alleged breach of that duty includes her failure, in
connection with the sale of the Favres’ property to the
Dribbens, to disclose that no permit had been obtained for the
dam.
12 No. 15‐3292
To make the obvious point first, nowhere in either the first
or second amended complaints filed in the 2011 litigation is the
allegation made that Davidson breached her professional
obligations as a real estate broker by failing to disclose to the
Dribbens that the dam lacked a permit. Her status as a real
estate broker is noted; the lack of a permit for the dam is also
noted; and for that matter, the Dribbens’ 2006 suit against
Davidson over her failure to disclose the lack of a permit is
noted. But there is no allegation, express or implied, that
Davidson wronged the Dribbens in her capacity as a realtor by
not disclosing that the dam was un‐permitted.
The complaint overall is one about Mr. and Mrs.
Davidson’s pattern of alleged acts—as neighboring
landowners—that have interfered with the Dribbens’ ability to
use, enjoy, and sell their own property. The allegations on
which Madison Mutual has focused are but a few of the many
hundreds of allegations set forth in an effort to establish why
and how the Davidsons made living in the Heartland Oaks
development a misery for the Dribbens.2
To be sure, there are references in the final two paragraphs
of the list set out above to a duty of care that the Davidsons
owed to the Dribbens stemming in part from Mrs. Davidson’s
role as the realtor who brokered the sale of the Favre property
to the Dribbens. These are the references that Madison Mutual
2
Even the Dribbens’ 2006 suit for failure to disclose the lack of a dam
permit is referenced only as the triggering event for the slander suit that
Davidson filed against Mrs. Dribben, and the slander suit in turn is noted
as one component of the general pattern of harassment alleged by the
Dribbens.
No. 15‐3292 13
principally relies on to support the notion that the litigation
plausibly might assert a claim against Mrs. Davidson based on
her failure to make full disclosure with respect to the dam. But
the relevant language of the second amended complaint, which
we have quoted verbatim, makes clear that the duty at issue is
not a professional duty that Mrs. Davidson bears as a realtor,
but a duty of care that both Mr. and Mrs. Davidson share “to
act reasonably and to hold themselves to the same standard of
care that they have demanded of their neighbors, and to not
negligently engage in acts that the Dribbens would perceive as
stalking, harassment or intimidation.” R. 21‐9 ¶ 525. Read in
this context, the reference to Mrs. Davidson’s status as a realtor
appears aimed at suggesting that she, better than anyone,
should have understood how her actions as the Dribbens’
neighbor would interfere with the quiet enjoyment of their
rights as property owners. Beyond this, there is no allegation
that Mrs. Davidson was providing professional services to the
Dribbens and breached any duty that she may have owed them
in that regard.
What we are left with, then, is a small subset of factual
allegations that overlap with the factual underpinnings of the
2006 suit regarding the dam permit, but no allegation of injury
resulting from Mrs. Davidson’s failure to disclose the lack of
the permit to the Dribbens and no theory of recovery
predicated on that failure. Madison Mutual nonetheless asserts
that because this subset of alleged facts could support a claim
related to her alleged failure to disclose, we should construe
the 2011 litigation as potentially asserting such a claim against
Davidson in her capacity as a realtor and hold that Diamond
State has a duty to defend Davidson in the later suit.
14 No. 15‐3292
Our decision in Health Care Indus. Liability Ins. Program v.
Momence Meadows Nursing Ctr., Inc., supra, 566 F.3d 689, makes
clear why Madison Mutual’s reasoning is faulty in this respect.
Momence Meadows was a duty‐to‐defend case in which the
underlying suit was one brought by former employees of a
nursing home seeking recompense for exposing fraudulent
charges that the nursing home had submitted to Medicare and
Medicaid—i.e., claims for services that did not meet
professionally recognized standards for health care. Each of the
claims asserted in their complaint was premised either on the
submission of claims falsely certifying that the services
provided by the nursing home complied with the requisite
standard of care (and the employees’ role in exposing the
fraud) or the nursing home’s alleged retaliation against the
employees for blowing the whistle on the fraud. None of the
claims, as framed, fell within the scope of coverage provided
by the nursing home’s liability carrier. But the nursing home
pointed to factual allegations in the underlying complaint
describing the physical harms the home’s residents had
suffered as a result of the substandard care they had received.
Those injuries, the nursing home argued, would support
potential claims for bodily injury and malpractice under the
home’s liability coverage, even though no such claims had
been asserted thus far. In rejecting this argument, we
emphasized first that the factual allegations, although they
“put a human touch on the otherwise administrative act of
false billing,” were not necessary to the types of statutory
claims the plaintiffs in the underlying litigation were actually
pursuing. Id. at 695. And in response to the nursing home’s
contention that the factual allegations of the underlying
No. 15‐3292 15
complaint, rather than particular legal theory alleged, control,
we stated:
Momence is correct that the factual allegations
in the complaint, and not the legal labels a
plaintiff uses, control. But factual allegations are
only important insofar as they point to a theory
of recovery. And it is impossible to construe the
underlying complaint as raising any theory of
recovery based on bodily injury. …
566 F.3d at 696 (citations omitted). Likewise here, the factual
allegations concerning the dam, the lack of a permit, and
Davidson’s role in selling the property to the Dribbens, while
they may provide explanatory background for the Davidsons’
alleged acts of harassment (including the slander suit), do not
point to any theory of recovery against Davidson for breach of
her professional obligations as a realtor.
Still, Madison Mutual contends that a catch‐all request in
the Dribbens’ prayer for relief for “[a]ny other further relief
that the Court feels is necessary, proper or just” (R. 21‐9,
Request for Relief ¶ S) leaves the door open to theories their
complaint does not otherwise assert. But this type of boiler‐
plate request does not operate as an independent request for
relief, let alone an independent theory of recovery not
otherwise factually supported in the body of the complaint. See
Employers Ins. Co. of Wausau v. Bodi‐Wachs Aviation Ins. Agency,
Inc., 846 F. Supp. 677, 686 (N.D. Ill 1994); Penn. Cnty. Risk Pool
v. Northland Ins., No. 1:07‐cv‐00898, 2009 WL 506369, at *9
(M.D. Pa. Feb. 27, 2009); XXL of Ohio, Inc. v. City of Broadview
Hts., 341 F. Supp. 2d 825, 841 (N.D. Oh. 2004).
16 No. 15‐3292
Madison Mutual alternatively suggests that because the
Dribbens, by their own account, would never have purchased
property in the Heartland Oaks development and become the
Davidsons’ neighbors had Davidson disclosed that the dam
lacked a permit, her failure to disclose as alleged in the 2006
suit was a but‐for cause of the claims raised in the 2011 suit.
Granted, had the Dribbens never purchased the property, they
would have no reason to complain about the Davidsons’
actions as neighbors. In the very broadest factual sense, then,
the wrongs alleged in the 2011 litigation might be said to arise
from the wrongs alleged in the 2006 suit. But that does not
transform what is otherwise a suit about the Davidsons’
actions as the Dribbens’ neighbors into a suit about Mrs.
Davidson’s prior actions as the broker who sold them the
property. See James River Ins. Co. v. Kemper Cas. Ins. Co., 585
F.3d 382, 386 (7th Cir. 2009) (noting the logical limits as to what
may be said to arise from a particular event in assessing an
insurer’s duty to defend).
For all of these reasons, the 2011 suit does not assert, or
potentially assert, a claim that is plausibly within the
professional liability coverage that Diamond State provided to
Davidson. Diamond State has no duty to defend her in the 2011
litigation.
In view of this conclusion, we have no need to reach the
policy exclusions set forth in the Diamond State policy and
whether they might independently operate to relieve Diamond
State of any duty to defend Davidson.
No. 15‐3292 17
III.
For the reasons discussed, we AFFIRM the district court’s
judgment.