CHICAGO – U.S. District Judge Staci Yandle acted prematurely when she relieved Federated Mutual Insurance of a duty to defend Coyle Supply Company of Granite City in a lawsuit, Seventh Circuit appellate judges ruled on Dec. 22.
Yandle broke local and federal rules, according to Circuit Judge Michael Kanne.
“Worse, the court’s errors deprived Coyle of its right to present material factual evidence bearing on the central issue in the case,” Kanne wrote.
In 2014, Coyle sold 64 ball valves to Prairie State Generating for $843,072.
Prairie State took one of its two generating units out of service and installed 32 valves on it.
Prairie State started to put the unit back into service in 2015, and in two days the valves began to leak.
Prairie State sued Coyle in Washington County circuit court in May 2017, claiming it had to remove 32 valves and buy 64 different valves.
It sought to recover the costs to remove the 32 valves, buy 64 different valves, and install all 64.
Coyle asked Federated Mutual for defense, and the insurer denied it.
Coyle persisted in its request, and Federated sued Coyle in district court in September 2017.
Federated counsel Beth Zerman of Chicago wrote, “The Prairie complaint does not allege property damage caused by an occurrence as those terms are defined by the Federated policies.”
Coyle counsel Glenn Davis of St. Louis filed a counter claim for damages including costs and attorney fees.
He wrote that Prairie State alleged a claim against Coyle for property damage caused by an occurrence.
Federated responded by moving for judgment on the pleadings.
At a hearing before Magistrate Judge Stephen Williams in March 2018, Prairie State counsel Ann Barron of Edwardsville said damages included replacement of pipes.
Davis moved to file a transcript of the hearing as a supplemental brief for Coyle, claiming the piping was Prairie State property that sustained physical damage.
“Courts have allowed recovery in situations where the installation of a defective component results in damage to the finished product,” Davis wrote.
He moved to file another supplement in June 2018, reflecting correspondence from valve maker Copeland Industries to Prairie State.
In it, John Simmons of Copeland advised Prairie State engineer Matthew Reddick that the situation was very hazardous and possibly an emergency.
Davis wrote, “This discovery, only recently provided despite repeated requests, provides new and additional factual support for the arguments raised in Coyle’s response in opposition to the motion for judgment on the pleadings.”
Yandle denied both of Coyle’s motions in March 2019, classifying them as reply briefs and finding no extraordinary circumstances that justified their filing.
She granted judgment on the pleadings in January 2020, finding Prairie State clearly alleged that the valves were faulty or defective.
“An allegation of defective or faulty workmanship in the insured’s products does not implicate property damage under a standard commercial general liability policy,” Yandle wrote.
She wrote that this type of policy wasn’t intended to pay for replacing or repairing defective products, “which are purely economic losses.”
She wrote that at the hearing in March 2018, Barron stated that Prairie State did not seek damages for loss of use.
Seventh Circuit judges found that she applied the wrong standard to the motions for supplements and that she considered material in them after denying them.
“Both errors prejudiced Coyle,” Kanne wrote. “Coyle sought to file supplemental briefs, not reply briefs.”
He wrote that the briefs demonstrated material factual disputes bearing on Federated’s duty to defend.
He wrote that Yandle should have converted the motion for judgment on the pleadings to a motion for summary judgment.
“District courts should not allow motions for judgment on the pleadings to deprive the non moving party of the opportunity to make its case,” Kanne wrote.
He found Yandle’s reference to Barron’s argument striking, given that Yandle denied Coyle’s motion to introduce a transcript of the hearing.
He wrote that she glossed over the portion of the transcript that Coyle highlighted and ignored other relevant evidence that Coyle submitted.
He wrote that if evidence shows Coyle’s allegations are true, Prairie State’s damages potentially fall within the scope of the policies.
“Whether they are true and whether Coyle has admissible evidence to prove them should be resolved on remand,” he wrote.
“We do not yet know the nature, extent, or cause of the injury to Prairie’s property.”
Circuit Judges Michael Scudder and Amy St. Eve concurred.