Opinion
Case No. 03-C-1440.
September 30, 2004
MEMORANDUM OPINION AND ORDER
Plaintiff Marathon Oil Company has sued defendants KGME, Inc., Krystal Gas Marketing Co., Krystal Gas Marketing Environmental Service (collectively, "Krystal"), and Heidenreich Trucking Co. ("Heidenreich") to recover expenses Marathon incurred in defending a wrongful death suit. Although that underlying case has settled, the fight over Marathon's attorneys' fees marches on. Before the court is Marathon's Motion for Enforcement of Summary Judgment Order Regarding Costs and Attorneys' Fees Pursuant to Duty to Defend. For the reasons stated herein, Marathon's Motion is granted in part and denied in part.
BACKGROUND
Marathon's present motion seeks to enforce this court's grant of summary judgment finding that defendants had a contractual duty to defend Marathon in an action for negligence brought by the estate of Paul J. Howe, a truck driver who was killed while filling a transport truck at Marathon's facility. See Howe v. Marathon Oil Co., 98 C 3707, 2001 WL 290184 (N.D. Ill. Mar. 16, 2001). Familiarity with the facts set out in the underlying summary judgment opinion is assumed.
Although styled a motion to enforce, Marathon's papers more accurately appear to seek clarification as to the scope of defendants' obligations under the March 16, 2001 ruling. The court's determination that defendants owed Marathon a duty to defend in that holding was based on two separate contractual provisions. Specifically, in a Terminal Access Agreement entered into with Marathon, defendant Heidenriech agreed:
To protect, defend, indemnify and hold [Marathon], [Marathon's] officers, employees and agents harmless from and against any and all claims, demands, causes of action, damages, suits, fines, assessments, costs, losses or expenses, including reasonable attorneys fees, expert or consultant fees, court costs, and other expenses incurred by [Marathon] in the defense of the foregoing . . . for injury to or death of [Heidenreich's] drivers or any other person . . . arising out of or in any way connected with the presence of [Heidenreich's] drivers at Marathon's terminals . . . excluding, however, claims . . . arising solely out of [Marathon's] negligence.
Similarly, a contract entitled Reseller Product Sales Terms (the "RPST"), governing transactions at Marathon's terminals brokered by Krystal, provided as follows:
Indemnity. Buyer shall indemnify and defend Marathon . . . against any loss, claim, liability, [etc.] . . . arising out of, or relating to, any personal injury, death or property damage (regardless of whether such personal injury, death or property damage is caused by the joint, concurring or partial negligence of Marathon), caused by or happening in connection with, (a) the operation of [Krystal's] business; (b) the use of facilities or handling of Products at any terminal where delivery occurs; (c) the handling, processing, transportation, sale or use of any Product after its delivery to [Krystal]; or (d) [Krystal's] failure to comply with these Terms. The only exception to this indemnity obligation is where the negligence of the Marathon [sic] is determined to be the sole proximate cause of the injury, death, or damage.
Although this court ruled that both defendants have a duty to defend Marathon, it held that fact issues precluded a grant of summary judgment as to the defendants' contractual duty to indemnify under these provisions. Howe, 2001 WL 103426 at *7.
In order to meet its obligations under the Terminal Access Agreement, Heidenreich also had its insurer, Great West Casualty Company, name Marathon as an "additional insured" on its liability policy. Accordingly, after the accident involving Howe occurred, Marathon tendered the defense of the Howe claims to Great West under the liability policy. Great West then filed a separate action against Marathon, which is now before this court, seeking a declaration that it owed no duty to defend or indemnify Marathon in the tort suit brought by Howe's estate. In response, Marathon filed a counterclaim seeking a declaration that Great West did owe it a duty to defend. Great West filed a motion to dismiss Marathon's counterclaim, which the court denied on January 31, 2001. See Great West Casualty Co. v. Marathon Oil Co., 99 C 3101, 2001 WL 103426 (N.D. Ill. Jan. 31, 2001). The court also denied Great West's subsequent motion to reconsider that ruling. Great West Casualty Co. v. Marathon Oil Co., 99 C 3101, 2001 WL 699957 (N.D. Ill. June 21, 2001).
ANALYSIS
I. The Timeliness of Marathon's Motion.
Before reaching the merits of Marathon's motion for enforcement, the court must address defendants' contention that Marathon's motion is premature. Defendants note that Marathon could prevail in the Great West declaratory judgment action separately pending before this court, in which case Marathon could be entitled to some or all of the monetary relief it is seeking in its present motion. Additionally, defendants claim that issues potentially implicated by this motion, including the reasonableness of Marathon's attorneys' fees in the underlying Howe litigation, are already being litigated in the declaratory judgment action. Defendants therefore urge the court to enter and continue Marathon's motion pending the outcome of the declaratory judgment action.
Defendants' argument fails for two reasons. First, the declaratory judgment action filed by Great West involves, among other things, the scope of Great West's obligation to Marathon as a result of Heidenreich's naming Marathon as an "additional insured" on its liability policy. See, generally, Great West, 2001 WL 103426. In the present action, Marathon is not seeking to enforce rights under an insurance policy, but rather to enforce the contracts it entered into with Heidenreich and Krystal. The scope of the duty to defend under the defendants' private contracts may be different than the scope of obligations under the insurance policy. Second, there is no requirement that Marathon litigate against each party seriatim, proceeding against the next party only after it has been determined that the prior party had not made Marathon whole. The court recognizes that Marathon is not entitled to a double recovery, but that does not preclude it from simultaneously pursuing multiple parties that would each be separately liable. Accordingly, the court will consider Marathon's arguments on the merits.
II. The Scope of Defendants' Duty to Defend Obligations.
A. Attorneys' Fees and Costs Incurred in Litigating the Declaratory Judgment Action.
The parties do not dispute that, to date, Marathon has borne all its fees and costs arising out of the Great West declaratory judgment action, Case No. 99 C 3101. Marathon initially sought to have Great West reimburse Marathon for its fees in the declaratory action under an Illinois statute pertaining to insurer misconduct, 215 ILCS 5/155. See, generally, Great West Casualty Co. v. Marathon Oil Co., 99 C 3101, 2003 WL 553583 (N.D. Ill. Feb. 26, 2003). However, Magistrate Judge Mason found that Great West had not acted in a manner that is "vexatious and unreasonable" under the statute by filing its declaratory judgment action because, among other things, one of the ways in which an insurance company may protect itself from a finding of vexatiousness is by filing an action for a declaration of no coverage. Id. at *3. Accordingly, Marathon now turns to defendants to foot the bill for having to defend against Great West's lawsuit.
Marathon's argument appears to be that its fees and costs in the declaratory judgment action are "losses" that, under the terms of the Terminal Access Agreement and RPST, defendants must pay under the duty to defend. Marathon cites to an Eleventh Circuit case, Natco Ltd. Partnership v. Moran Towing of Fla., Inc., 267 F.3d 1190 (11th Cir. 2001), presumably for the proposition that attorneys' fees may permissibly be awarded on a contract theory even when not explicitly contracted for when indemnity language is worded broadly enough, although this is unclear since Marathon provides no explicit analysis. In any event, the initial inquiry is whether the Great West declaratory judgment action was "incurred by Marathon in the defense of" the Howe litigation in the case of the Terminal Access Agreement, or alternatively "arising out of, or related to" the events giving rise to the Howe litigation in the case of the RPST, in such a manner that would trigger the duty to defend.
With respect to the Terminal Access Agreement, the court finds that the expenses arising out of the declaratory judgment action were not incurred "in the defense of" the actions giving rise to the Howe litigation. Marathon's defense of Howe's wrongful death action was its defense of that tort lawsuit. The issue of whether a surety was obligated to cover Marathon's cost of defense was manifestly a proceeding collateral to the Howe litigation. Marathon may yet have viable theories under which it can seek recovery of its attorneys' fees incurred as a result of its decision to fight Great West's denial of coverage, but this court's finding that Heidenreich has a duty to defend Marathon against the claim made by Howe's estate is not one of them.
Similarly, in the case of the RPST, Great West's declaratory judgment action does not arise out of or relate to Howe's wrongful death claim, at least not in any sufficiently direct way to be reasonably within the intendment of the RPST's language. The section of the RPST specifies that the loss Krystal is required to defend against must be "arising out of, or relating to, any personal injury, death or property damage . . ." Here, the logical or causal connection between Howe's death and Marathon's dispute with Great West in the declaratory action is far too attenuated. Howe's accident led to the wrongful death action, after which Marathon made a claim to Great West, which resulted in Great West seeking a declaration of its rights in a different action under a different contract. Marathon then decided to contest that declaration. The costs arising from that decision did not arise out of Mr. Howe's accident.
Marathon maintains that seeking both defense and indemnity from Great West is a "cost of defense" of the Howe case, and cites this court's finding in the declaratory judgment case that when an insurer is obligated to defend an insured, the insurer is responsible for the costs of the insured's prosecution of certain related actions. See Great West Casualty Co. v. Marathon Oil Co., 315 F. Supp. 2d 879, 882-83 (N.D. Ill. 2003). Specifically, the court there held that "`Defense' is about avoiding liability. Claims and actions seeking third-party contribution and indemnification are a means of avoiding liability just as clearly as is contesting the claims alleged to give rise to liability. A duty to defend would be nothing but a form of words if it did not encompass all litigation by the insured which could defeat its liability, including claims and actions for contribution and indemnification." Id.
However, unlike its third party actions against the present defendants in the underlying Howe litigation, Marathon is not seeking to avoid liability by opposing the Great West declaratory judgment action. Rather, by litigating the issue of insurance coverage, Marathon is seeking to have someone pay the costs of its defense, irrespective of the final determination of liability, as well as to have another party pay the judgment in the event that Marathon was found liable. By contrast, in its third party actions in the underlying Howe litigation, Marathon was trying to enforce an agreement which, by Marathon's theory, has the effect of shifting responsibility and liability for Howe's injury to others. The distinction is fine, but essential: by entering into a contract with an insurance company, Marathon was selling risk to an otherwise disinterested third party. By entering into contracts with the defendants, the parties were agreeing who would bear responsibility in the event they were involved in an accident — in short, who would be liable. The court's prior ruling that the defendants had a contractual duty to defend Marathon in the Howe litigation does not mandate the award of Marathon's attorneys' fees in its coverage dispute with Great West.
B. Attorneys' Fees and Costs Incurred in the Underlying Howe Litigation.
Defendants concede, as they must, that they were obligated to defend Marathon in the underlying Howe litigation. Thus, they are jointly and severally responsible for the reasonable cost of that litigation. However, Marathon also notes that, because Great West's duty to defend began only after Marathon gave Great West notice of the Howe lawsuit, its only recourse for pre-litigation investigative costs and attorneys' fees is against defendants. Defendants do not refute this claim, and the provisions of defendants' contracts do not appear to contain any conditions that would limit the duty to defend in the same manner as the notice requirement in the Great West insurance policy. Accordingly, defendants are responsible for the reasonable cost of pre-litigation expenses that were necessary to defend Marathon in the underlying Howe litigation.
C. Pre-Judgment Interest.
Marathon argues that it is entitled to an award of prejudgment interest "as to all amounts found to be due and owing Marathon" as a result of its present motion because defendants' refusal to defend was unreasonable, unjustified and vexatious. However, Marathon does not develop this argument in its papers. Moreover, Marathon has not provided the court with any evidence that, after the ruling on the duty to defend, Marathon actively made monetary demands based on the March 16, 2001 order that defendants refused in bad faith.
Marathon also argues that it is entitled to pre-judgment interest because its contracts with defendants are governed by the Section 2 of the Illinois Interest Act, 815 ILCS 205/2. Section 2 of the Act provides:
Creditors shall be allowed to receive at the rate of five (5) per centum per annum for all moneys after they become due on any bond, bill, promissory note, or other instrument of writing; on money lent or advanced for the use of another; on money due on the settlement of account from the day of liquidating accounts between the parties and ascertaining the balance; on money received to the use of another and retained without the owner's knowledge; and on money withheld by an unreasonable and vexatious delay of payment. In the absence of an agreement between the creditor and debtor governing interest charges, upon 30 days' written notice to the debtor, an assignee or agent of the creditor may charge and collect interest as provided in this Section on behalf of a creditor.
Neither party directs the court to any cases relying on Section 2 of the Act as a basis for awarding pre-judgment interest where attorneys' fees are awarded pursuant to a duty to defend provision in a private contact.
Because Section 2 of the Act contemplates an instrument in writing that creates monetary indebtedness or a creditor-debtor relationship, see Hamilton v. American Gage Machine Corp., 35 Ill. App. 3d 845, 853, 342 N.E.2d 758 (1978), the issue before the court is whether, based on the parties' contracts, defendants' obligations under their duty to defend contemplated monetary indebtedness to the plaintiff. As this court has noted in the past, the duty to indemnify is narrower than the duty to defend. See Howe, 2001 WL 290184 at *5. Accordingly, a party may be obligated to defend another party even though it might not ultimately be obligated to indemnify that party. See id. Here, defendants were obligated under their duty to defend to provide Marathon with a defense against the claims in the Howe litigation. However, these contract terms themselves do not establish either a monetary obligation or a debtor-creditor relationship. Therefore, Marathon's claim for pre-judgment interest under 815 ILCS 205/2 is denied.
III. Fees for Fees.
Marathon has also claimed that it is entitled to its fees in the instant case based on the duty to defend provisions of the contracts. As far as this court can tell, this request is foreclosed by the reasoning of this opinion. Accordingly, Marathon's request for fees in the present action is likewise denied.
CONCLUSION
For the foregoing reasons, Marathon's motion for enforcement of summary judgment is granted in part and denied in part. Defendants are liable for the reasonable cost of defense of the Howe litigation and pre-litigation expenses necessary to the defense of the Howe litigation. Defendants are not liable for defense of the Great West declaratory judgment action, Marathon's fees incurred to date in bringing the present action, C 03 1440, or pre-judgment interest based on their contractual duty to defend as described above.