In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 16‐3280
PQ CORPORATION,
Plaintiff‐Appellant,
v.
LEXINGTON INSURANCE COMPANY,
Defendant‐Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 13 CV 3482 — Manish S. Shah, Judge.
____________________
ARGUED FEBRUARY 14, 2017 — DECIDED JUNE 27, 2017
____________________
Before ROVNER, WILLIAMS, and HAMILTON, Circuit Judges.
HAMILTON, Circuit Judge. This appeal presents a dispute
over warehouse liability insurance. Defendant Lexington In‐
surance Company denied a claim by its insured, Double D
Warehouse, LLC, for coverage of Double D’s liability to cus‐
tomers for contamination of warehoused products. One basis
for denial was that Double D failed to document its warehous‐
ing transactions with warehouse receipts, storage agree‐
2 No. 16‐3280
ments, or rate quotations, as required by the applicable insur‐
ance policies. Litigation ensued. Plaintiff PQ Corporation was
a customer of Double D whose products were damaged while
warehoused there. PQ is now the assignee of Double D’s pol‐
icy rights, having settled its own case against Double D by
stepping into Double D’s shoes to try to collect on Lexington’s
insurance policies. PQ argued in essence that even though
Double D had not documented its warehousing transaction in
one of the ways specified in the insurance policies, there were
pragmatic reasons to excuse strict compliance with those
terms. The district court, however, granted summary judg‐
ment in favor of Lexington, enforcing the documentation re‐
quirement in the policy.
We affirm. PQ has a point when it says that the documen‐
tation Double D actually had (bills of lading and an online
tracking system) should serve much the same purpose as the
documentation required by the policies (especially ware‐
house receipts). Yet commercially sophisticated parties
agreed to unambiguous terms and conditions of insurance.
We hold them to those terms. To do otherwise would disrupt
the risk allocations that are part and parcel of any contract,
but particularly a commercial liability insurance contract. PQ
has offered no persuasive reason to depart from the plain lan‐
guage of the policies.
I. Factual and Procedural Background
Double D is an Illinois limited liability company that op‐
erates a warehouse facility in Peru, Illinois. Double D main‐
tained liability insurance coverage with defendant Lexington,
a Delaware corporation. For approximately ten years, plaintiff
PQ, a Pennsylvania corporation, stored two chemical prod‐
No. 16‐3280 3
ucts at Double D’s warehouse: a magnesium sulfate com‐
pound commonly known as Epsom salts, and a sodium meta‐
silicate sold under the trademark METSO BEADS®. In 2011,
PQ began receiving complaints from its own customers about
product discoloration. PQ investigated and eventually con‐
cluded that the likely culprit was vapors from phenol formal‐
dehyde resin that Double D also stored in its warehouse. The
vapors apparently reacted with PQ’s highly alkaline products.
PQ notified Double D that it intended to hold Double D re‐
sponsible for any claims made by its customers. Double D
then alerted Lexington to the potential claim.
Two annual warehouse legal liability insurance policies
are at issue: one effective from June 29, 2010 to June 29, 2011,
and the other from June 29, 2011, to June 29, 2012. Both poli‐
cies provided that Lexington would pay all sums for which
Double D became legally obligated “for direct physical ‘loss’
or damage to personal property of others because of [its] lia‐
bility as a warehouse operator,” subject to several terms and
conditions.
The most important condition for our purposes appeared
in sections I.1 (“Insuring Agreement”) and II.4 (“Property Not
Covered”). It said that Lexington would pay for damages only
to the extent that Double D produced a warehouse receipt or
storage agreement signed by its customer or a rate quotation
that it had presented to its customer before storing the prop‐
erty. Another relevant condition appeared in section X.1.F
(“Loss Adjustment”), forbidding Double D from assuming
any obligation or admitting any liability without Lexington’s
consent. A third condition, the “Pollution and Contamination
Exclusion,” barred coverage for any loss caused by the release
of pollution, defined broadly as irritants or contaminants
4 No. 16‐3280
“which after … release can cause or threaten damage to hu‐
man health … or cause[] or threaten[] damage … to property
insured hereunder.”
In late 2011, an independent adjuster hired by Lexington
informed Double D that he was investigating PQ’s claim. The
adjuster also contacted counsel for PQ, requesting details and
supporting documents. The following June, PQ sent the ad‐
juster a claim letter with documentation. Seven months later,
Lexington denied coverage for PQ’s claim, citing the Insuring
Agreement and Property Not Covered section, as well as the
Pollution and Contamination Exclusion. Lexington explained
that “neither Double D nor PQ ha[d] provided Lexington with
proof of a signed warehouse receipt, storage agreement or
rate quotation.” Lexington also said that because PQ had re‐
ported damage to its products caused by chemical vapors, the
Pollution and Contamination Exclusion barred any coverage.
Lexington reiterated its denial of coverage in an April 2013
letter. Both denial letters included a vague invitation: “Should
you have any other information you feel may be applicable or
relevant to this matter, please immediately forward it to [Lex‐
ington]. Please be advised that Lexington will review any ad‐
ditional information submitted under a full reservation of
rights under the Policy and at law … .”
Following Lexington’s denial of coverage, Double D sued
Lexington in an Illinois state court alleging breach of contract
and seeking a declaration as to its rights under the policies.
Lexington removed the action to federal court. (Diversity of
citizenship is complete with both Double D and PQ as plain‐
tiffs and Lexington as defendant, and the amount in contro‐
versy exceeds $75,000. See 28 U.S.C. § 1332(a).) Shortly after
the removal, PQ sued Double D in state court. PQ and Double
No. 16‐3280 5
D settled. The key term of the settlement was that Double D
agreed to a consent judgment under which it assumed “one
hundred percent … of the fault for PQ’s damages” and as‐
signed its rights against Lexington to PQ in exchange for PQ’s
promise not to collect on any judgment from Double D. PQ
then replaced Double D as plaintiff in the federal action. PQ
later filed a Second Amended Complaint adding a claim for
attorney fees and costs under Section 155 of the Illinois Insur‐
ance Code, 215 Ill. Comp. Stat. 5/155.
PQ and Lexington eventually filed cross‐motions for sum‐
mary judgment. At summary judgment, PQ did not argue
that Double D complied with the literal terms of the docu‐
mentation condition appearing in the Insuring Agreement
and Property Not Covered section. Nor could it: the parties
agree that Double D did not use warehouse receipts or con‐
tracts in its dealings with PQ, nor did it supply PQ with rate
quotations that would satisfy the policies. PQ argued instead
that Lexington knew Double D used bills of lading and an
online tracking system as a substitute for warehouse receipts.
PQ argued that the term “warehouse receipt” is ambiguous
and that the district court should consider extrinsic evidence
tending to show that Lexington was aware of how Double D
ran its business.
The district court disagreed, explaining that (1) bills of lad‐
ing are not warehouse receipts, (2) PQ never signed any “re‐
ceipt” generated by the online tracking system, and (3) Lex‐
ington’s knowledge of Double D’s business practices was “ir‐
relevant to whether Double D in fact satisfied its contractual
obligations—Double D either met those obligations or it did
not (and in this case it did not).” PQ Corp. v. Lexington Ins. Co.,
No. 13 CV 3482, 2016 WL 4063149, at *5–6 (N.D. Ill. July 29,
6 No. 16‐3280
2016). The district court then considered whether Lexington
waived strict enforcement of the documentation condition.
The court rejected that possibility as well, finding no evidence
that Lexington acted inconsistently with an intent to enforce
the condition. Id. at *7. The court could have ended its analysis
there. However, it went on to hold in the alternative that Dou‐
ble D had violated its duty under the Loss Adjustment section
to obtain consent from Lexington before admitting liability to
PQ. Id. at *9. The court also rejected PQ’s claim under Section
155 of the Illinois Insurance Code. Id. The district court en‐
tered final judgment in Lexington’s favor.1
II. Analysis
A. Standard and Scope of Review
We review de novo the district court’s grant of summary
judgment to Lexington. In doing so, we apply the same stand‐
ard that the district court applied, construing all facts and
drawing all reasonable inferences in favor of PQ. Indianapolis
Airport Authority v. Travelers Property Casualty Co., 849 F.3d
355, 361 (7th Cir. 2017).
The parties agree that Illinois substantive law applies. In
Illinois, “the general rules governing the interpretation of …
contracts also govern the interpretation of insurance policies.
‘If the policy language is unambiguous, the policy will be ap‐
plied as written, unless it contravenes public policy.’” Nation‐
wide Agribusiness Ins. Co. v. Dugan, 810 F.3d 446, 450 (7th Cir.
1 Though the district court ruled generally in Lexington’s favor, it re‐
jected Lexington’s reliance on the Pollution and Contamination Exclusion.
PQ Corp., 2016 WL 4063149, at *5. Because we agree with the district court
that the documentation condition bars PQ’s claim, we do not decide
whether the pollution exclusion might also apply.
No. 16‐3280 7
2015), quoting Hobbs v. Hartford Ins. Co. of the Midwest, 823
N.E.2d 561, 564 (Ill. 2005). “Courts will not strain to find am‐
biguity in an insurance policy where none exists.” McKinney
v. Allstate Ins. Co., 722 N.E.2d 1125, 1127 (Ill. 1999). “Although
policy terms that limit an insurer’s liability will be liberally
construed in favor of coverage, this rule of construction only
comes into play when the policy is ambiguous.” Hobbs, 823
N.E.2d at 564.
B. Duty to Obtain Consent
The central dispute in this appeal concerns the meaning of
the documentation condition to coverage in the Insuring
Agreement and Property Not Covered sections. Before we an‐
alyze that condition, we briefly address Lexington’s argu‐
ment, which the district court also agreed with, that Double
D breached the policy by settling with PQ without obtaining
Lexington’s consent.
Under Loss Adjustment section X.1.F, Double D agreed
that it would “not, except at [its] own cost, voluntarily make
a payment, assume any obligation, admit any liability, or in‐
cur any expense, without [Lexington’s] written consent.”
Double D admitted in the consent judgment that it was liable
for all of the damages to PQ’s products. There is no evidence
that Double D obtained (or even sought) permission from
Lexington before making that admission. That is not enough
to decide the case, though, because Lexington is estopped
from asserting the section X.1.F consent requirement to avoid
PQ’s claim. Lexington denied coverage before PQ sued Dou‐
ble D and before those parties settled with Double D’s admis‐
sion of liability.
8 No. 16‐3280
Illinois law is clear on this point. In Davis v. United Fire &
Casualty Co., 400 N.E.2d 984 (Ill. App. 1980), for example, the
court explained that where an insurance company informs an
insured that it will provide no coverage, the insured is “justi‐
fied in concluding that further communication and notice
would be useless and the company will not be allowed to as‐
sert, as a defense, any failure by the insured to give such fur‐
ther notice.” Id. at 987; see also Owners Ins. Co. v. Seamless Gut‐
ter Corp., 960 N.E.2d 1260, 1271 (Ill. App. 2011) (“[A]n insurer
should not be allowed to assert a blanket denial of coverage
and then assert the insured’s failure to provide proof of loss,
since the law does not require the insured to perform what
appeared to be a useless act.”), citing Jones v. Universal Casu‐
alty Co., 630 N.E.2d 94, 101 (Ill. App. 1994).
Lexington advised Double D that it would provide no cov‐
erage under the policies: its denial letters were clear and une‐
quivocal. In the January 2013 letter, Lexington’s claims exam‐
iner wrote: “Lexington has completed its investigation of PQ’s
claim and regrettably must advise … that there is no coverage
for PQ’s claim.” In the April 2013 follow‐up, the claims exam‐
iner elaborated: “Inasmuch as Double D did not obtain a
warehouse receipt [or] signed storage agreement or present a
rate quotation, the Policies do not cover PQ’s goods.” The ex‐
aminer added that “even if PQ’s property were covered prop‐
erty under the Policies (which it is not) PQ’s claim is barred
by the Pollution and Contamination Exclusion.” The denials
were clear. Most important, Lexington was not offering to de‐
fend Double D under a reservation of rights.
To avoid this logic, Lexington and the district court point
out that the Lexington denial letters did not close the door to
further communication. They invited Double D to submit
No. 16‐3280 9
“any other information” that it felt “may be applicable or rel‐
evant to this matter.” Such a vague and open‐ended invitation
does not neutralize the effect of the explicit denials of cover‐
age. An insurer could always change its mind about coverage,
of course. That mere possibility could not have justified re‐
quiring Double D to clear its settlement with PQ in advance
with the insurer that had (we assume only for purposes of de‐
ciding this issue) breached the contract by denying coverage.
Having received the denial letters and no offer of a defense
under a reservation of rights, Double D had no reason to be‐
lieve that further communication with Lexington would serve
any purpose.
In arguing that Double D breached its duty to obtain con‐
sent, Lexington cites American Country Insurance Co. v. Bruhn,
682 N.E.2d 366 (Ill. App. 1997), and Malaker v. Cincinnati In‐
surance Co., No. 09 C 1140, 2011 WL 1337095 (N.D. Ill. Apr. 7,
2011). Both cases are readily distinguishable from this case,
where coverage had been denied before Double D reached the
settlement. In Bruhn, the insured concealed his involvement
in a fatal automobile accident for fear of criminal liability. 682
N.E.2d at 367. It was only years later, after the insured was
sued by the administrator of the decedent’s estate, that the in‐
sured finally notified his insurer about the accident. Id. at 368.
In a declaratory judgment action brought by the insurer, the
Appellate Court of Illinois signaled that the insured likely
breached his duties under the policy’s notice and cooperation
provisions, adding that “public policy considerations militate
strongly against coverage” where the insured has concealed
his criminal activity. Id. at 372–73. There was no concealment
here. Double D alerted Lexington immediately after receiving
PQ’s notice of potential claim.
10 No. 16‐3280
Malaker is likewise distinguishable. In that case, the in‐
surer denied the insured’s claim in a letter that directed the
insured to notify it of any related lawsuit “so that we may re‐
view the wording of the suit for any possible coverage.” 2011
WL 1337095, at *1. In this case, Lexington’s denial letters
simply disavowed coverage and made no mention of any de‐
fense in the event of litigation. Lexington’s denials are much
closer to the flat denial in Davis than the incomplete denial in
Malaker.
After Lexington rejected the claim, Double D reasonably
concluded that any further communication with Lexington
would be fruitless. We agree with PQ that Lexington, having
denied coverage, is estopped from asserting the Loss Adjust‐
ment section’s consent requirement as a defense to PQ’s claim.
Having left its insured to its own devices to defend itself, Lex‐
ington could not have relied on the consent requirement as an
alternative basis to support its denial decision.
Under Illinois law, a liability insurer that declines to de‐
fend its insured is generally estopped from asserting policy
defenses to coverage (including plausible defenses based on
later‐acquired evidence) if it turns out that the denial was un‐
warranted by then‐existing information. See Title Industry As‐
surance Co. v. First American Title Ins. Co., 853 F.3d 876, 883 (7th
Cir. 2017). The estoppel rule is strong medicine: it generally
leaves the insurer on the hook to satisfy any judgment against
its insured or to pay the cost of any reasonable settlement. See
Guillen ex rel. Guillen v. Potomac Ins. Co. of Illinois, 751 N.E.2d
104, 114 (Ill. App. 2001), aff’d as modified, 785 N.E.2d 1 (Ill.
2003). Fortunately for Lexington, as we explain below, its de‐
nial decision was justified under a separate policy condition.
No. 16‐3280 11
C. The Documentation Condition for Coverage
Although we reject Lexington’s reliance on Loss Adjust‐
ment section X.1.F, the undisputed facts show that Double D
failed to comply with the documentation condition to cover‐
age appearing in the Insuring Agreement and the Property
Not Covered section. For this reason, PQ’s claim as Double D’s
assignee must fail.
1. Policy Language
Under the Insuring Agreement, Lexington agreed to pay
for damage to third‐party property in Double D’s custody.
However, this coverage extended only to property for which
Double D issued a “warehouse receipt or storage agreement.”
Property Not Covered section II.4 clarified that Lexington
would pay for damages to a Double D customer’s property
only if Double D produced one of three documents: (1) a
“signed warehouse receipt” that Double D obtained “from the
‘customer’ at the time the ‘customer’ deposited [its] personal
property;” (2) a “signed storage agreement” that Double D
obtained “from the ‘customer’ covering the personal prop‐
erty;” or (3) a “rate quotation” that Double D presented “prior
to receiving the personal property.” The policies defined “rate
quotation” as a “quotation by [Double D] that includes a ‘loss’
limitation that is acknowledged and accepted by the ‘cus‐
tomer.’” The terms “warehouse receipt” and “storage agree‐
ment” were not specifically defined in the policies.
The parties agree that Double D neither obtained a signed
storage agreement from PQ nor presented PQ with a rate quo‐
tation that included a loss limitation. The disputed issue is
whether Double D memorialized its transactions with a doc‐
ument that would satisfy the warehouse receipt option under
12 No. 16‐3280
the policies. See Sherrod v. Esurance Ins. Services, Inc., 65 N.E.3d
471, 475 (Ill. App. 2016) (“The burden is on the insured to
prove that its claim falls within the coverage of an insurance
policy.”), citing Addison Ins. Co. v. Fay, 905 N.E.2d 747, 752 (Ill.
2009). Steve Olsen, Double D’s owner, testified that his ware‐
house did not use receipts. Instead, the warehouse managed
its inventory by scanning the bills of lading that truckers use
when transporting goods. PQ argues that these bills of lading
are functionally equivalent to warehouse receipts and that
they satisfied the documentation condition.
But the policies did not say that bills of lading could be
used as substitutes for warehouse receipts. Nor did the poli‐
cies say that Double D could satisfy the documentation con‐
dition by producing whatever documents of title it found
most convenient. The policies were specific. They listed three
warehouse documents that would satisfy the condition: a re‐
ceipt, a contract, or a rate quotation. This requirement was not
obscured by jargon or buried in fine print. It appeared in plain
English in the first two sections of the policies. The policies
also defined “customer” with reference to the condition: a
“customer” was a “person or entity” that deposited property
for storage and “obtain[ed] a signed warehouse receipt or
ha[d] a storage agreement in place” or received a rate quota‐
tion. Illinois courts maintain a “strong presumption against
provisions that easily could have been included in [a] contract
but were not. A court will not add another term about which
an agreement is silent.” Klemp v. Hergott Group, Inc., 641
N.E.2d 957, 962 (Ill. App. 1994) (citation omitted); accord West
Bend Mutual Ins. Co. v. DJW‐Ridgeway Building Consultants,
Inc., 40 N.E.3d 194, 205–06 (Ill. App. 2015).
No. 16‐3280 13
PQ argues that the undefined term “warehouse receipt” is
ambiguous and that we should therefore apply a canon of
construction such as contra proferentem (interpretation against
the drafter) or the principle that ambiguous terms in insur‐
ance policies should be read to favor coverage. PQ’s premise
is flawed: the fact that “warehouse receipt” was undefined
does not make the term ambiguous. (If the rule were other‐
wise, already long and complex insurance policies would be‐
come virtually unreadable. Insurers would resort to longer
and longer glossaries to avoid charges of ambiguity and un‐
predictable results in litigation.) “Warehouse receipt” is not
ambiguous. The term has a settled meaning in common use
and in the industry, as does, for that matter, “bill of lading.”
These terms are neither interchangeable nor even roughly
synonymous.2
We begin with common usage. William Blair & Co. v. FI Liq‐
uidation Corp., 830 N.E.2d 760, 770 (Ill. App. 2005). A receipt is
commonly understood as a document supplied by a vendor
of goods or services to record a transaction. The vendor gives
2 PQ argues on appeal that the policies were internally inconsistent in
that the Insuring Agreement required a receipt issued by Double D
whereas the Property Not Covered section required a signed receipt ob‐
tained from the customer. PQ did not raise its intrinsic ambiguity argu‐
ment in the district court and so forfeited it. Omega Healthcare Investors, Inc.
v. Res‐Care, Inc., 475 F.3d 853, 858–59 (7th Cir. 2007); Humphries v. CBOCS
West, Inc., 474 F.3d 387, 391 (7th Cir. 2007), aff’d, 553 U.S. 442 (2008). Even
if the argument were properly before us, it is not persuasive. The two pro‐
visions can and should be read as complementary. As a warehouse oper‐
ator, Double D was required to issue the receipt and then to obtain a sig‐
nature—on the receipt it issued—from its customer. See Herbert Shaffer As‐
sociates, Inc. v. First Bank of Oak Park, 332 N.E.2d 703, 708 (Ill. App. 1975)
(“Where possible, all provisions of [a] contract are to be construed harmo‐
niously.”).
14 No. 16‐3280
the receipt to the customer to acknowledge transfer of goods
or payment. A warehouse receipt protects the customer by
confirming its ownership of the goods it has entrusted to the
warehouse. See Mercantile Trading Co. v. Roth, 113 N.E.2d 194,
196–97 (Ill. App. 1953) (enforcing provision of Warehouse Re‐
ceipts Act requiring a writing to prove that customer had
transferred ownership to warehouseman; evidence of oral
agreement not sufficient). A bill of lading, by contrast, is com‐
monly understood as a document used by a carrier to identify
goods in transit and the conditions of carriage. Both terms
have been in use since the early days of commercial law. E.g.,
Union Trust Co. v. Wilson, 198 U.S. 530, 536 (1905) (“Apart from
statute, a warehouse receipt simply imports that the goods are
in the hands of a certain kind of bailee.”); Pollard v. Vinton, 105
U.S. 7, 8 (1881) (“A bill of lading is an instrument well known
in commercial transactions, and its character and effect have
been defined by judicial decisions. In the hands of the holder
it is evidence of ownership … of the property mentioned in it,
and of the right to receive said property at the place of deliv‐
ery.”); see generally Bluebonnet Warehouse Cooperative v. Bank‐
ers Trust Co., 89 F.3d 292, 294–95 (6th Cir. 1996) (reviewing his‐
tory of warehouse receipts and relevant uniform laws).
The plain meanings of the terms “warehouse receipt” and
“bill of lading” undermine PQ’s argument that the terms are
interchangeable, but if we harbored any doubt, we could
consider contemporary trade usage. See Bristow v. Drake Street
Inc., 41 F.3d 345, 352 (7th Cir. 1994) (evidence of trade usage is
“admissible to interpret a seemingly clear contract;” unlike a
party’s testimony concerning his idiosyncratic understanding
of language, evidence of trade usage is “objectively
verifiable”).
No. 16‐3280 15
The Uniform Commercial Code (UCC), as adopted in Illi‐
nois, defines “bill of lading” as a “document evidencing the
receipt of goods for shipment issued by a person engaged in the
business of transporting or forwarding goods.” 810 Ill. Comp.
Stat. 5/1‐201(b)(6) (emphasis added). The UCC defines “ware‐
house receipt” as a “receipt issued by a person engaged in the
business of storing goods for hire.” 5/1‐201(b)(42) (emphasis
added). The UCC sheds light on the standard contents of a
warehouse receipt, providing that a warehouse will be liable
for damages caused by the omission of such details as the
storage and handling rate and the signature of the warehouse
or its agent. 5/7‐202(b). The receipt may also include a limita‐
tion of the warehouse’s liability. 5/7‐204(b). None of this infor‐
mation is included on the sample bills of lading in the sum‐
mary judgment record.3
PQ tries to find ambiguity where there is none by citing
deposition excerpts showing that Lexington’s underwriters
disagreed about the precise contents of a warehouse receipt.
Even if we took account of this extrinsic evidence—and there
is no reason for us to do so because the policy language is not
ambiguous—we would not accept PQ’s argument. Whatever
the underwriters may have thought about the contents of a
3 It appears that Illinois law requires regulated warehouses that store
personal property of others for compensation to issue either negotiable or
non‐negotiable warehouse receipts in conformity with the Uniform Com‐
mercial Code. See 240 Ill. Comp. Stat. 10/10 (requiring issuance of receipts)
and 10/2 (defining “warehouse” and “receipt”). The parties have not dis‐
cussed these statutes in their briefs, but the statutes provide further sup‐
port for the view that the references in the Lexington policies to warehouse
receipts were not ambiguous but instead described a type of document
well known in the industry.
16 No. 16‐3280
warehouse receipt, neither of them confused warehouse re‐
ceipts with bills of lading. Underwriter Toby Petzel testified
that a “bill of lading is used in the transportation of goods, not
as a warehouse receipt.” Underwriter Chad Zomek described
a bill of lading as a “document that is provided to a trucker
for when they assume responsibility for moving a load,” add‐
ing that if Lexington had agreed that bills of lading were ac‐
ceptable substitutes for warehouse receipts, it would have en‐
dorsed the policy accordingly. Steve Olsen, Double D’s owner,
also recognized the difference between these documents, tes‐
tifying that a “warehouse receipt would come from the ware‐
house” whereas “[y]ou have to have a bill of lading if you are
transporting goods.”
PQ argues that strict enforcement of the policies’ docu‐
mentation condition—which PQ calls a “hyper‐technical in‐
terpretation”—would amount to a commercially unreason‐
able requirement that an agent of PQ physically sign off on
each storage transaction at the time the goods are delivered to
Double D. PQ apparently used a third‐party trucking service
to transport its goods to the Double D warehouse. It would
surely be impractical to expect an agent of PQ to go along for
the ride just to satisfy Lexington.
But in framing its commercial reasonableness argument,
PQ seems to have overlooked that the policies approved the
use of any of three documents: a warehouse receipt, a storage
agreement, or a rate quotation. Under section II.4, neither the
storage agreement provision nor the rate quotation provision
would have required the customer to be physically present at
the time of delivery. Double D’s Steve Olsen testified that he
has used storage agreements with several customers, suggest‐
ing that such contracts are a commercially reasonable means
No. 16‐3280 17
of memorializing warehouse transactions, or at least good
enough for Double D. Even if the warehouse receipt provision
did not comport with Double D’s business practices, the in‐
surance policies provided other options that Double D could
have used.
In sum, then, neither the plain language of the policies,
trade usage, nor evidence of the parties’ subjective knowledge
about warehouse receipts and bills of lading leads us to con‐
clude that these terms are interchangeable for purposes of the
Lexington policies. If Double D wanted coverage beyond the
four corners of the policies, it could have requested an en‐
dorsement or found a different insurer. The district court cor‐
rectly determined that Double D failed to comply with a con‐
dition of coverage.4
2. Estoppel and Waiver
PQ argues that even if it failed to comply with the docu‐
mentation condition in the Insuring Agreement and Property
Not Covered section, we should nevertheless remand for trial
on whether Lexington either waived or should be estopped
from relying on the condition. PQ’s estoppel argument is new
on appeal, and “as we have long held, ‘[i]t is axiomatic that an
issue not first presented to the district court may not be raised
before the appellate court as a ground for reversal.’” Economy
Folding Box Corp. v. Anchor Frozen Foods Corp., 515 F.3d 718, 720
4 PQ argued in the district court that Lexington was on notice that
Double D used bills of lading in lieu of warehouse receipts. On appeal, PQ
reframes this argument by suggesting that the parties amplified or modi‐
fied the express terms of the policies through a course of dealing. This
course‐of‐dealing argument is a variation on PQ’s waiver theory, ad‐
dressed below.
18 No. 16‐3280
(7th Cir. 2008) (alteration in original), quoting Christmas v.
Sanders, 759 F.2d 1284, 1291 (7th Cir. 1985). We do not consider
the estoppel argument.
PQ also raises its waiver argument for the first time on ap‐
peal, but here there is a quirk: the district judge raised the is‐
sue of waiver himself and decided that Lexington had not
waived its right to enforce the condition. Since the district
court decided what PQ now presents as its waiver theory, we
exercise our discretion to consider the argument. We agree
with the district judge and reject it on the merits.
In the context of insurance contracts, waiver “arises from
an affirmative act, is consensual, and consists of an intentional
relinquishment of a known right.” Home Ins. Co. v. Cincinnati
Ins. Co., 821 N.E.2d 269, 282 (Ill. 2004). Waiver can be either
express or implied by conduct that is inconsistent with an in‐
tent to enforce the right. Where, as here, there is no express
waiver, the “party claiming an implied waiver”—PQ—“has
the burden of proving a clear, unequivocal, and decisive act
of its opponent manifesting an intention to waive its rights.”
In re Nitz, 739 N.E.2d 93, 103 (Ill. App. 2000); see also Ryder v.
Bank of Hickory Hills, 585 N.E.2d 46, 49 (Ill. 1991) (“Implied
waiver of a legal right must be proved by a clear, unequivocal,
and decisive act of the party who is alleged to have committed
waiver.”); Pielet v. Hiffman, 948 N.E.2d 87, 96 (Ill. App. 2011)
(same).
PQ’s waiver theory is based on Double D’s 2008 applica‐
tion to Lexington for insurance. Item 27 of the application di‐
rected Double D to attach a “complete copy of the warehouse
receipt used.” Rather than doing so—since Double D did not
use warehouse receipts—either a Double D employee or Dou‐
No. 16‐3280 19
ble D’s insurance broker, Jeff Krzyaniak (the record is un‐
clear), annotated the application with a handwritten phrase:
“CONTRACT DELIVERIES BY BIL LADEN” [sic]. Krzyaniak
testified that nobody from Lexington ever asked him to clarify
what the phrase meant and that he never submitted any other
supporting documentation. Double D owner Steve Olsen con‐
firmed that Lexington never followed up with him on the ap‐
plication.
The application dates from 2008, while PQ’s claim relates
to the 2010 and 2011 policies. Lexington’s underwriters, Toby
Petzel and Chad Zomek, acknowledged that they relied on
the existing file when quoting the subsequent renewals. Nei‐
ther Petzel nor Zomek gave any indication that he was aware
of the handwritten notation. In fact, Zomek testified that he
was unaware Double D used bills of lading in lieu of ware‐
house receipts; that he “would not consider a bill of lading to
be a warehouse receipt;” and that he could not recall whether
he “read anything in the … application that indicated one way
or another what was being used as a warehouse receipt.” But
Zomek did recall reading the 2008 application, and Petzel
likewise said that he received the application from Krzyaniak.
Perhaps the most likely inference is that the underwriters just
overlooked the barely legible notation when reviewing the
file to renew the policies. On appeal from summary judgment,
though, we owe PQ the benefit of conflicts in the evidence and
reasonable inferences in its favor. On this record, a rational
jury could conclude that Lexington’s underwriters were
aware of the handwritten note.5
5 PQ argues that the 2008 insurance policy “incorporated that applica‐
tion in its policy language,” the implication being that the subsequent re‐
newals likewise incorporated the application. That’s not quite right. The
20 No. 16‐3280
That assumption does not provide sufficient support for
the waiver theory. PQ’s best evidence of waiver is an ambigu‐
ous note on an expired insurance application. PQ has not
demonstrated a “clear, unequivocal, and decisive act” by Lex‐
ington manifesting its intention to waive its rights under the
policies. Ryder, 585 N.E.2d at 49. There is no evidence that any‐
one from Lexington ever told Olsen or Krzyaniak that bills of
lading were acceptable substitutes for warehouse receipts. PQ
itself acknowledges that Lexington never followed up on the
obscure note.
PQ’s waiver argument is weaker still because of another
aspect of the 2008 application—the inclusion of “Page 2 of 4”
of a document titled “STANDARD TERMS AND
CONDITIONS FOR MERCHANDISE WAREHOUSEMEN,”
appended to the last page of the application. The provenance
of the Terms and Conditions sheet is not entirely clear. Double
D owner Steve Olsen said that he used the document for some
customers but not for PQ. He did not know whether
Krzyaniak submitted the sheet along with the 2008 applica‐
tion. He could not remember whether he gave the sheet to
2010 and 2011 policies included a preamble stating that Lexington granted
coverage “in reliance upon the Declarations and application for this pol‐
icy.” (We assume the 2008 and 2009 policies had similar language, though
these policies were not included in the summary judgment record.) The
fact that Lexington acted in reliance on an insurance application, as most
insurers presumably do, does not mean that the application became part
of the policy such that it modified the policy’s plain language. Cf. 188 LLC
v. Trinity Industries, Inc., 300 F.3d 730, 736 (7th Cir. 2002) (“‘For a contract
to incorporate all or part of another document by reference, the reference
must show an intention to incorporate the document and make it part of
the contract.’ Illinois requires that incorporation be clear and specific.”)
(citations omitted).
No. 16‐3280 21
Krzyaniak, and he did not recall seeing the sheet when he
signed the application.
On appeal, PQ argues that the district court “incorrectly
assumed, relied upon, and expanded facts not in evidence—
namely that the [Terms and Conditions sheet] was provided
to Lexington by either Double D or [Krzyaniak] as part of the
2008 Application.” The argument is curious: PQ placed the
2008 application (along with the mysterious Terms and Con‐
ditions sheet) in the summary judgment record, and it as‐
serted in its own Statement of Facts under Local Rule 56.1(a)
that this was the application that Krzyaniak had submitted.6
During Chad Zomek’s deposition, PQ’s counsel initially pre‐
sented Zomek with a copy of the application that did not in‐
clude the Terms and Conditions sheet. Zomek noted the miss‐
ing page. He testified that the Terms and Conditions sheet had
been part of the underwriting file, though he did not know
when the sheet was submitted. Later in his deposition, Zomek
reviewed the sheet and testified that it was the document Lex‐
ington used “to identify the presence of a warehousing con‐
tract and/or warehousing receipt.” Toby Petzel also reviewed
the document, described it as a “contract limiting [Double D’s]
6 In its reply brief, PQ writes that it introduced the Terms and Condi‐
tions sheet into the summary judgment record only “because, at Lexing‐
ton’s insistence, the [sheet] had been included with previous application
exhibits used in depositions,” and PQ wanted to “avoid any assertion by
Lexington that PQ was altering the format of documents.” We do not un‐
derstand the argument. If PQ believed the 2008 application did not include
the Terms and Conditions sheet, it should have introduced whatever it
considered to be the genuine document. If Lexington then introduced an
alternative version, there might simply have been a fact question to re‐
solve in a trial.
22 No. 16‐3280
liability,” and noted that he pays “very close attention” to
such documents when writing policies.
Again, this is an appeal from summary judgment, so we
must draw reasonable inferences in PQ’s favor. Even with the
scales tipped that far, this record does not provide evidence
that would let a rational jury conclude that Lexington know‐
ingly and voluntarily waived its right to enforce the docu‐
mentation condition to coverage. PQ cannot avoid the plain
language of the policies by offering an ambiguous notation on
an insurance application, particularly where the inference PQ
urges us to draw from that notation (that Lexington knew
Double D used “BIL LADEN” in lieu of warehouse receipts)
conflicts with the inference Lexington apparently drew from
the Terms and Conditions sheet (that Double D was using re‐
ceipts or contracts, as the policies required). PQ’s scintilla of
evidence in support of its waiver theory is not enough to put
the matter to a jury. See Roger Whitmore’s Automotive Services,
Inc. v. Lake County, 424 F.3d 659, 667 (7th Cir. 2005).
D. Concluding Matters
Because the district court correctly granted summary
judgment to Lexington, we must also reject PQ’s request for
attorney fees under Section 155 of the Illinois Insurance Code.
Section 155 authorizes a fee award only where an insurer’s
conduct is “vexatious and unreasonable.” It is neither vexa‐
tious nor unreasonable to litigate a “bona fide dispute con‐
cerning the scope and application of insurance coverage,” let
alone to deny coverage based on a position that prevails. See
Citizens First Nat’l Bank of Princeton v. Cincinnati Ins. Co., 200
F.3d 1102, 1110 (7th Cir. 2000).
No. 16‐3280 23
At bottom, this case is a reminder that in the law of con‐
tracts, words matter. We understand PQ’s argument that the
available records show reliably how much of its property was
damaged at the Double D warehouse. The purpose of the doc‐
umentation requirement in the Lexington policies may well
have been satisfied here. But Double D agreed to document
its transactions with warehouse receipts, storage agreements,
or rate quotations as a condition of liability insurance cover‐
age. It did not do so. PQ, standing in Double D’s shoes, cannot
recover from Lexington where Double D failed to comply
with an enforceable condition to coverage. The judgment of
the district court is
AFFIRMED.