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Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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In the 

United States Court of Appeals 

For the Seventh Circuit ____________________

Nos. 15‐2279 & 15‐2363

ALTOM TRANSPORT, INC.,

Plaintiff‐Appellant,

v.

WESTCHESTER FIRE INSURANCE CO.,  

Defendant‐Appellee,

and

MICHAEL STAMPLEY,

Defendant‐Appellant.

____________________

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 14 C 9547 — Sharon Johnson Coleman, Judge.

____________________

ARGUED FEBRUARY 17, 2016 — DECIDED MAY 20, 2016

____________________

Before WOOD, Chief Judge, and BAUER and WILLIAMS, Cir‐

cuit Judges.

WOOD, Chief Judge. This is an insurance coverage dispute.

Michael Stampley, a truck driver, sued Altom Transport, Inc.,

alleging that Altom had failed to pay him enough for driving

Case: 15-2279 Document: 53 Filed: 05/20/2016 Pages: 10
2 Nos. 15‐2279 & 15‐2363

his truck for it. Altom turned to its insurer, Westchester Fire

Insurance Co., for coverage in the suit. Westchester denied

coverage; Altom handled its own defense; and the parties

tried to settle the case. At that point, counsel for both

Stampley and Altom tried to pull Westchester back into the

case, by making settlement offers within the limits of the

Westchester policy and seeking Westchester’s approval.

Westchester was having none of it, however, so Altom sued in

state court for a declaratory judgment establishing that

Westchester had a duty to defend, that it wrongfully had

failed to do so, and that its handling of the matter had been

unreasonable and vexatious.

Westchester removed the insurance coverage dispute to

federal court. Once there, it filed a motion to dismiss the cov‐

erage dispute for failure to state a claim. The district court

granted that motion, and we affirm. Stampley’s suit arises

from his contract with Altom, and so it falls within a policy

exclusion that Westchester is entitled to invoke.

I

Altom is an interstate motor carrier that focuses on the

hauling of liquid products throughout North America. It typ‐

ically hires independent‐contractor drivers to handle its busi‐

ness. Stampley was one of those drivers. He owned and oper‐

ated his own truck and leased his services to Altom.  

In the wake of various disputes, Altom terminated its con‐

tract with Stampley on March 24, 2014. On May 21, Stampley

sued Altom, alleging that Altom had wrongfully withheld

payment from him and other similarly situated owner‐opera‐

tor drivers who leased their services to Altom. Stampley of‐

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Nos. 15‐2279 & 15‐2363 3

fered three theories in support of this claim: (1) that the con‐

tract violated the Department of Transportation’s regulations,

49 C.F.R. § 376.12, because it failed to include aspects of how

Stampley’s compensation would be calculated; (2) that Altom

breached the contract by failing to pay the required compen‐

sation; and (3) that Altom unjustly enriched itself by failing to

pay Stampley and other drivers 70% of the gross revenue per

shipment, as contractually required.

Altom had purchased an ACE Express Private Company

Management Insurance Policy from Westchester, effective

August 3, 2013 through August 3, 2014. When the Stampley

litigation came along, Altom promptly asked Westchester to

defend against the suit and indemnify it pursuant to the pol‐

icy. Westchester denied coverage, and so Altom defended it‐

self. On October 14, 2014, Stampley submitted a settlement

demand to Altom for $1.9 million, an amount within the

Westchester policy limits. Altom delivered the demand to

Westchester and asked Westchester to reconsider its denial of

coverage. Westchester was silent. Stampley then withdrew

his settlement demand and replaced it with a higher one, for

$2.3 million. Altom again delivered the demand to Westches‐

ter, and Westchester again did not respond.

At that point, Altom sued Westchester in state court for a

declaratory judgment. Altom alleged that Westchester had

wrongfully refused to defend it, in violation of § 155 of the

Illinois Insurance Code, 215 ILCS 5/155, and that Westchester

was estopped from asserting noncoverage. Altom also named

Stampley as a defendant, because it believed it was required

to name as a defendant any party with a stake in the insurance

policy proceeds, based on M.F.A. Mut. Ins. Co. v. Cheek, 363

N.E.2d 809, 811 (Ill. 1977).  

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4 Nos. 15‐2279 & 15‐2363

Westchester removed the suit to federal court and moved

to dismiss Altom’s complaint for failure to state a claim. FED.

R. CIV. P. 12(b)(6). Westchester argued that the policy’s plain

language excluded coverage for Stampley’s suit because the

suit was covered by two policy exceptions: one for claims

about unpaid wages, and the other for claims based on a con‐

tract. The unpaid wages exception states:

Insurer shall not be liable for Loss under this

Coverage Section on account of any Claim:  

(m) alleging, based upon, arising out of, at‐

tributable to, directly or indirectly resulting

from, in consequence of, or in any way in‐

volving:

(i) improper payroll deductions, unpaid

wages or other compensation, misclassi‐

fication of employee status, or any viola‐

tion of any law, rule or regulation, or

amendments thereto, that governs the

same topic or subject; or

(ii) any other employment or employ‐

ment‐related matters brought by or on

behalf of or in the right of an applicant

for employment with the Company, or

any of the Directors and Officers, includ‐

ing any voluntary, seasonal, temporary

leased or independently‐contracted em‐

ployee of the Company ... .

The contract claim exception states:  

Insurer shall not be liable for Loss on account of

any Claim:

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Nos. 15‐2279 & 15‐2363 5

(a) alleging, based upon, arising out of, attribut‐

able to, directly or indirectly resulting from,

in consequence of, or in any way involving

the actual or alleged breach of any contract

or agreement; except and to the extent the

Company would have been liable in the ab‐

sence of such contract or agreement ... .

The district court granted Westchester’s motion to dis‐

miss, and Altom now appeals.

II

We first address subject‐matter jurisdiction. Altom, the re‐

moving party, asserted that this case falls within the district

court’s diversity jurisdiction. See 28 U.S.C. § 1332. Section

1332 requires complete diversity: no plaintiff may be a citizen

of the same state as any defendant. Newman‐Green, Inc. v. Al‐

fonzo‐Larrain, 490 U.S. 826, 829 (1989). A corporation is a citi‐

zen of any state in which it is incorporated, and the state

where it has its principal place of business. 28 U.S.C.

§ 1332(c)(1); Hertz Corp. v. Friend, 559 U.S. 77, 80 (2010). A nat‐

ural person is a citizen of the state in which she is domiciled.

Gilbert v. David, 235 U.S. 561, 568–69 (1915). For cases that

originate in federal court, diversity is assessed at the com‐

mencement of the action, as defined by Federal Rule of Civil

Procedure 3 as the time of pleading; it not destroyed by a

party’s subsequent change in domicile. Smith v. Sperling, 354

U.S. 91, 93 n.1 (1957). Cases that reach the federal court by re‐

moval are not so straightforward, but this court has held that

diversity must exist both at the time of the original filing in

state court and at the time of removal. See Thomas v. Guards‐

mark, Inc., 381 F.3d 701, 704 (7th Cir. 2004) (quoting Kanzel‐

berger v. Kanzelberger, 782 F.2d 774, 776 (7th Cir. 1986)).

Case: 15-2279 Document: 53 Filed: 05/20/2016 Pages: 10
6 Nos. 15‐2279 & 15‐2363

Both at the time Altom filed its coverage suit in state court

and at the time Westchester removed it to federal court, Al‐

tom was an Illinois corporation with its principal place of

business in Illinois. (Altom has since moved to Indiana).

Westchester is a Pennsylvania corporation with its principal

place of business in Pennsylvania. Stampley, however, who

was a party to the action on Westchester’s side at the time of

removal, is also an Illinois citizen. That poses a problem under

the old “complete diversity” rule of Strawbridge v. Curtiss,

7 U.S. (3 Cranch) 267 (1806), which governs suits brought un‐

der the general diversity statute, 28 U.S.C. § 1332(a). One

might think that this case must be dismissed for want of juris‐

diction.

The Supreme Court, however, has endorsed a more flexi‐

ble rule, under which even a court of appeals may dismiss

dispensable, nondiverse parties to preserve subject‐matter ju‐

risdiction. Newman‐Green, Inc., 490 U.S. at 834–35; see also

FED. R. CIV. P. 21. Stampley is just such a party. Under Illinois

law, an injured third party is indispensable when an insurer

sues an insured for a declaratory judgment defining coverage.

See M.F.A. Mut. Ins. Co., 363 N.E.2d at 864. This makes sense:

in such suits, the insurer’s interests are adverse to the injured

third party. See id. But when an insured sues an insurer, the

insured can represent both its own interests and the interests

of the third party and thereby obviate the need to join the in‐

jured third party. See id.; see also Winklevoss Consultants, Inc.

v. Fed. Ins. Co., 174 F.R.D. 416, 418 (N.D. Ill. 1997) (explaining

this rationale).

Stampley can also be dropped from the suit without rais‐

ing problems underthe Federal Rules of Civil Procedure. Rule  

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Nos. 15‐2279 & 15‐2363 7

19 describes those persons who are “required to be joined if

feasible,” and it addresses what the court should do if such a

person cannot be joined. Stampley does not meet the criteria

of Rule 19(a)—it is entirely possible to accord complete relief

among the existing parties in his absence, and there are no

practical problems that would be created by his dismissal. In

fact, Stampley has no legal interest in this suit: he has no

claims against Altom or Westchester; nor do they have any

claims against him. Stampley may therefore stay or go, as far

as the joinder rules are concerned. Since his continued pres‐

ence destroys the district court’s subject‐matter jurisdiction,

he is someone who should be dismissed under Newman‐

Green. We therefore order Stampley dismissed from this ac‐

tion and proceed to the merits.  

III

Because we sit in diversity, we apply the substantive law

that Illinois’s courts would choose—in this instance, the law

of Illinois. Nat’l Am. Ins. Co. v. Artisan and Truckers Cas. Co.,

796 F.3d 717, 723 (7th Cir. 2015); see Klaxon Co. v. Stentor Elec.

Mfg. Co., 313 U.S. 487 (1941). Illinois interprets insurance pol‐

icies to “give effect to the intention of the parties, as expressed

in the policy language.” Gillen v. State Farm Mut. Auto. Ins. Co.,

830 N.E.2d 575, 582 (Ill. 2005). We give undefined terms “their

plain, ordinary and popular meaning.” Id. We construe am‐

biguous language against the insurer and interpret exceptions

to coverage narrowly. Id. (citing Nat’l Union Fire Ins. Co. of

Pittsburgh, Pa. v. Glenview Park Dist., 632 N.E.2d 1039 (Ill.

1994)).  

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8 Nos. 15‐2279 & 15‐2363

An insurer’s duty to defend arises when “facts alleged in

the underlying complaint fall even potentially within the pol‐

icy’s coverage.” Country Mut. Ins. Co. v. Olsak, 908 N.E.2d

1091, 1098 (Ill. App. Ct. 2009). The duty to defend is broader

than the duty to indemnify. Id. (citing Ill. Masonic Med. Ctr. v.

Turegum Ins. Co., 522 N.E.2d 611 (Ill. App. Ct. 1988)).

Nevertheless, the language of the policy is King, and the

policy here unambiguously excludes coverage for lawsuits

stemming from the insured’s contracts with third parties.

Stampley’s claim against Altom, no matter what the legal the‐

ory may be, rests fundamentally on the lease agreement un‐

der which he was performing his carriage services. We can

think of no reason why that lease agreement is not a “con‐

tract” as the policy uses the term, and if it is, then Westchester

has no duty to defend orindemnify Altom from claims arising

out of it. The policy states that “[Westchester] shall not be lia‐

ble for Loss on account of any Claim ... arising out of ... or in

any way involving the actual or alleged breach of any con‐

tract[.]” That seems to cover this case.

Altom argues that Stampley’s claims falls under an excep‐

tion to the exception. It looks to the last clause, which states

that claims arising from a contract are excluded “except and

to the extent the Company would have been liable in the ab‐

sence of such contract or agreement[.]” Stampley’s allegations

need not depend on the contract, Altom argues, but instead

could stand alone. But that is not the suit that Stampley

brought. His first claim asserts that the lease agreement failed

to comply with relevant federal regulations. It depends en‐

tirely on the content of the agreement. Whether the regula‐

tion, 49 C.F.R. § 376.12, could impose liability without the

presence of a contract is irrelevant where, as here, the party

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Nos. 15‐2279 & 15‐2363 9

had an actual contract and the question is whether it is incon‐

sistent with § 376.12.  

Stampley’s breach of contract and unjust enrichment

claims are likewise excluded under the policy. Altom’s en‐

richment is “unjust” only if it failed to pay Stampley every‐

thing to which the contract entitled him (and hence retained

too much of the profit from Stampley’s hauls). But that is just

another way of describing a possible breach of contract.

Stampley’s requested damages underscore this point: he

seeks the difference between the amount he says he was owed

under the contract and the amount Altom actually paid him.

This describes expectation damages, the classic measure of

contract damages, to a “T”. See Nilsson v. NBD Bank of Illinois,

731 N.E.2d 774, 781 (Ill. App. Ct. 1999) (“The proper measure

of damages in a breach of contract action ... places the injured

party in the same position at the time of judgment as he would

have been had the contract been performed.”). All three of

Stampley’s claims in his underlying suit arise directly from

his lease agreement with Altom, and therefore fall within the

policy’s contract claim exception.  

Altom’s last argument is that Westchester is estopped

from claiming noncoverage. Under Illinois law, if an insurer

neither defends nor seeks a declaratory judgment defining its

coverage obligation, “it will be estopped from raising the de‐

fense of noncoverage in a subsequent action.” Country Mut.

Ins. Co., 908 N.E.2d at 1098 (internal quotation marks omit‐

ted). But estoppel applies only when the insurer breaches its

duty to defend in the later action. Emp’rs Ins. of Wausau v. Eh‐

lco Liquidating Trust, 708 N.E.2d 1122, 1135 (Ill. 1999).

Westchester did not breach its duty, and so Altom cannot as‐

sert estoppel.

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10 Nos. 15‐2279 & 15‐2363

IV

Because all of Stampley’s claims fall within the policy’s

contract claim exception, we do not reach the question

whether his claims are within the unpaid wages exception.

Michael Stampley is DISMISSED as a party in this case, and the

judgment of the district court is otherwise AFFIRMED.

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