Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-16-01669/USCOURTS-ca7-16-01669-0/pdf.json

Parties Involved:
Angela Brown
Appellee
Selective Insurance Company of South Carolina
Appellant
Target Corporation
Appellee

Document Text:

In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 16-1669

SELECTIVE INSURANCE COMPANY OF SOUTH CAROLINA,

Plaintiff-Appellant,

v.

TARGET CORPORATION,

Defendant-Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 13-cv-5910 — Elaine E. Bucklo, District Judge.

____________________

ARGUED NOVEMBER 4, 2016 — DECIDED DECEMBER 29, 2016

____________________

Before FLAUM and KANNE, Circuit Judges, and MAGNUSSTINSON, District Judge.∗

MAGNUS-STINSON, District Judge. Plaintiff-Appellant Selective Insurance Company of South Carolina (“Selective”) filed 

a declaratory judgment action, asking the district court to declare that it owed no duty to defend or indemnify Defendant-

 ∗ Of the Southern District of Indiana, sitting by designation. 

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Appellee Target Corporation (“Target”) in a lawsuit initiated 

by customer Angela Brown, who sued Target after a fitting 

room door fell on her. The district court granted summary 

judgment in favor of Target, finding that Target was an additional insured on a commercial general liability insurance policy (the “Policy”) that the door supplier, Harbor Industries, 

Inc. (“Harbor”), had with Selective. The district court further 

held that Selective had both a duty to defend and indemnify 

Target for the entire cost Target incurred settling the Brown 

litigation. Selective appealed the district court’s decision and, 

for the reasons that follow, we affirm.

I. Background

On December 17, 2011, Angela Brown was injured at a Target store in Gurnee, Illinois, when a fitting room door came 

off its hinges and fell on her. She sued Target in Illinois state 

court on February 14, 2012, and Target removed the case to 

federal court. In her complaint, Ms. Brown alleged that Target 

was negligent for failing to maintain and repair the fitting 

room door and failing to warn her that the fitting room door 

was in an unreasonably dangerous and hazardous condition.

Target filed a third-party complaint against Harbor—the company that Target had contracted to supply the fitting rooms at 

the Gurnee store—seeking contribution and indemnification.

Discovery during the Brown litigation revealed that the same 

fitting room door fell on another Target customer approximately one week before it fell on Ms. Brown. Ultimately, both 

Target and Harbor settled with Ms. Brown.

Target tendered its defense of Ms. Brown’s lawsuit to Selective on May 7, 2012, claiming that it was an additional insured on Harbor’s Policy with Selective because of a contract 

with Harbor. On July 30, 2013, Selective filed the underlying 

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No. 16-1669 3

declaratory judgment action against Target in Illinois state 

court, and Target removed it to federal court on the basis of

diversity jurisdiction.

The parties filed cross-motions for summary judgment, 

and the district court granted summary judgment to Target

after finding in its favor on three issues. First, the district court 

found that Target was an additional insured on Harbor’s Policy with Selective because of the interaction between a Supplier Qualification Agreement (“Supplier Agreement”) that 

required Harbor to designate Target as an additional insured 

and their Program Agreement for the fitting rooms. Second, 

the district court found that Selective had a duty to defend 

Target because Ms. Brown’s allegations fell within the scope 

of the Policy, since they could reasonably be read to assert a 

bodily injury caused in whole or in part by Harbor’s product. 

Third, the district court found that Target had settled the lawsuit with Ms. Brown in reasonable anticipation of liability 

and, thus, Selective had a duty to indemnify Target for costs 

incurred defending and settling the Brown litigation. Final 

judgment was entered in favor of Target in the total amount 

of $714,450.24. Selective now appeals.

II. Analysis

Summary judgment is appropriate where there are no 

genuine issues of material fact and the movant is entitled to 

judgment as a matter of law. Fed. R. Civ. P. 56(a). We review 

de novo a district court’s decision on cross-motions for summary judgment. Calumet River Fleeting, Inc. v. Int’l Union of 

Operating Eng’rs, Local 150, AFL-CIO, 824 F.3d 645, 647 (7th 

Cir. 2016) (citations omitted). “The general standards for summary judgment do not change: with cross summary judgment 

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motions, we construe all facts and inferences therefrom in favor of the party against whom the motion under consideration is made.” Id. at 647-48 (citations and quotations omitted). 

Because we are only considering whether it was proper for 

the district court to grant summary judgment in favor of Target, we resolve any factual disputes in Selective’s favor. 

Our subject matter jurisdiction over this dispute is based 

on the parties’ diversity of citizenship. 28 U.S.C. § 1332. Federal courts deciding state law claims under diversity jurisdiction apply the forum state’s choice of law rules to select the 

applicable state substantive law. McCoy v. Iberdrola Renewables, 

Inc., 760 F.3d 674, 684 (7th Cir. 2014) (citations omitted). If no 

party raises a choice of law issue to the district court, “the federal court may simply apply the forum state’s substantive 

law.” Id. Although Selective correctly points out that there is 

a Minnesota choice-of-law provision in one of the contracts at 

issue, it admits that Target and Selective have both argued the 

insurance coverage issues under Illinois law. Thus, we will 

continue to apply Illinois law to this case.

A. The Contracts at Issue

Three contracts are relevant to addressing the parties’ arguments—Target and Harbor’s Supplier Agreement, which 

was executed in April 2001; Target and Harbor’s Program 

Agreement for the fitting rooms, which was executed in April 

2009; and Harbor and Selective’s Policy, which was in effect 

when Ms. Brown was injured on December 17, 2011.

Target and Harbor executed the Supplier Agreement in 

April 2001. It provides, in relevant part, that it

shall apply to and control and shall be deemed 

incorporated into all agreements relating to the 

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purchase of non-retail (not for resale) goods 

and/or services from [Harbor] by Target, including, but not limited to, any program agreement 

(or other agreement specific to the goods or services to be provided) entered into by the parties 

(Program Agreement)... . In the event of any 

conflict between this Agreement and the specific Order or Program Agreement, the terms of 

the Order or Program Agreement shall govern.

The Supplier Agreement requires Harbor to maintain commercial general liability (“CGL”) insurance “in full force and 

effect during the term of this Agreement” and to “designate 

Target as an additional insured by endorsement acceptable to 

Target.” The Supplier Agreement provides that it “shall remain in effect until terminated as provided herein.” It is undisputed that neither Target nor Harbor has terminated the 

Supplier Agreement pursuant to that provision.

In April 2009, Target and Harbor entered into the Program 

Agreement for Harbor to supply fitting rooms to Target. The 

Program Agreement incorporates the terms and conditions of 

the Supplier Agreement and provides that as long as Harbor 

complies with certain criteria, “Target agrees to purchase 

from [Harbor] all of Target’s needed supply of the Goods [Fitting Rooms] during the Term of this Program Agreement.” It 

identifies specific parts to be provided, including fitting room 

doors. It further provides that “[t]his Program Agreement 

shall begin on the Effective Date and end on July 1, 2010 

(through the July 2010 cycle) unless otherwise terminated.”

Harbor’s Policy with Selective that was in effect on the 

date of Ms. Brown’s injury provides, in relevant part, that Selective “will pay those sums that the insured becomes legally 

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obligated to pay as damages because of ‘bodily injury’ or 

‘property damage’ to which this insurance applies.” The Policy specifically provides “[p]roducts-completed operations 

hazard” coverage that “[i]ncludes all ‘bodily injury’ and 

‘property damage’ occurring away from premises you own or 

rent and arising out of ‘your product.’” An endorsement to 

the Policy provides as follows:

WHO IS AN INSURED is amended to include 

as an additional insured any person or organization whom you have agreed in a written contract, written agreement or written permit to 

add as an additional insured on your policy. 

Such person or organization is an additional insured only with respect to liability for “bodily 

injury” or “property damage” or “personal and 

advertising injury” caused, in whole or in part, 

by ... “your product” ... .

B. The Additional Insured Provision of the Selective Policy

The parties dispute whether Target was an additional insured on Harbor’s Policy with Selective. Specifically, the parties dispute the interaction between Target and Harbor’s Supplier Agreement and Program Agreement and whether the 

term provisions in those contracts conflict. 

Under Illinois law, the goal of contract interpretation is to 

ascertain the parties’ intent and, in doing so, we first look to 

“the plain and ordinary meaning” of the contract language. 

Aeroground, Inc. v. CenterPoint Properties Trust, 738 F.3d 810, 

813 (7th Cir. 2013) (quoting Gallagher v. Lenart, 874 N.E.2d 43, 

58 (Ill. 2007)). We must construe the contract “as a whole, 

viewing each part in light of the others.” Aeroground, 738 F.3d 

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at 813 (citing Gallagher, 874 N.E.2d at 58). We also must seek 

to give effect to each clause and word used, withoutrendering 

any terms meaningless. Aeroground, 738 F.3d at 813 (citing 

Hufford v. Balk, 497 N.E.2d 742, 744 (Ill. 1986)).

There is no dispute that the Program Agreement for Harbor to supply Target with the fitting rooms terminated in July 

2010 before Ms. Brown’s injury. The parties dispute, however, 

whether the Supplier Agreement remained in effect when Ms. 

Brown was injured, such that it could be a “written contract” 

rendering Target an additional insured on Harbor’s Policy 

with Selective. Selective argues that although the term of the 

Supplier Agreement was open ended, that provision directly 

conflicts with the Program Agreement’s July 2010 termination 

date, and the Supplier Agreement expressly states that the 

Program Agreement controls if there is a conflict. Target disagrees with this interpretation, emphasizing that the Supplier 

Agreement was a broad agreement that even now has not 

been terminated.

We agree with the district court that applying the plain 

and ordinary meaning of the contract language, the Supplier 

Agreement is a broad agreement governing the overarching 

relationship between Target and Harbor. It contemplates discrete purchases by Target from Harbor to be governed by the 

provisions set forth in future program agreements. One of 

those future agreements was the Program Agreement executed by Target and Harbor eight years after the Supplier 

Agreement. That Program Agreement required Target to purchase fitting rooms from Harbor until July 2010 if Harbor met 

the conditions specified therein. Although that obligation 

ended in July 2010, the language in the more general Supplier 

Agreement makes it clear that the parties did not intend for 

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the Supplier Agreement to terminate when specific program 

agreements terminated. For example, the Supplier Agreement 

states that Harbor must maintain “[p]roducts and completed 

operations liability coverage,” and it also requires Harbor to 

provide Target with a certificate of insurance evidencing the 

required coverage “upon each renewal of such policies.” 

These provisions confirm the parties’ intent for the insurance 

requirement set forth in the Supplier Agreement to survive 

the expiration of specific program agreements entered into 

between Target and Harbor. Additionally, this understanding

of the relationship between the Supplier Agreement and the 

Program Agreement construes both contracts as a whole, renders no terms or clauses in either meaningless, and applies the 

plain and ordinary meaning of the language in each contract 

to ascertain the parties’ intent as to the relationship between 

the two.1 For these reasons, we agree with the district court 

that the Supplier Agreement is a “written contract” requiring 

Harbor to designate Target as an additional insured on the 

Policy.

But the inquiry does not end there. The Policy specifically 

limits additional insured coverage such that, in relevant part,

Target is “an additional insured only with respect to liability 

 

1 Selective argues that Target concedes that the Supplier Agreement and 

the Program Agreement were a single contract. Selective cites Target’s 

third-party complaint in the Brown litigation to support this position because Target attached the contracts as a single exhibit to its pleading and 

referred to them as one. Selective’s position ignores the reality that the two 

contracts were executed eight years apart and were not one contract. Cf.

Gallagher v. Lenart, 874 N.E.2d 43, 58 (Ill. 2007) (“We further note the longstanding principle that instruments executed at the same time, by the 

same parties, for the same purpose, and in the course of the same transaction are regarded as one contract ... ”).

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for ‘bodily injury’ ... caused, in whole or in part, by ... ‘[Harbor’s] product’ ... .” Accordingly, we must also determine 

whether liability for Ms. Brown’s claim was caused by Harbor’s product before we can conclude that Target was an additional insured. 

It is beyond dispute that the fitting room door that fell on

Ms. Brown was Harbor’s product. The Program Agreement 

between Harbor and Target explicitly states that the “product” at issue in the agreement is “fitting rooms,” and it specifically identifies “fitting room door” as a component to be purchased.2 Ms. Brown’s complaint alleged that she sustained 

bodily injury after being struck by a fitting room door that 

was in “an unreasonably hazardous and dangerous condition.” We readily conclude that Ms. Brown’s claim for “bodily 

injury” was “caused, in whole or in part,” by Harbor’s “product.” (Emphasis added.) Thus, we agree with the district court 

that Target was an additional insured under the Selective Policy. 

C. Selective’s Duty to Defend Target

The parties dispute whether Selective owed Target a duty 

to defend it in the Brown litigation. Specifically, the parties 

dispute whether the allegations in Ms. Brown’s complaint 

against Target were sufficient to trigger Selective’s duty to defend. The parties also dispute whether the allegations in Target’s third-party complaint against Harbor can be considered

in determining whether Selective had a duty to defend Target.

 2 We reject Selective’s specious argument that a fitting room may have 

goods or products in it but that it is not a “product” entitled to coverage 

under the Policy. The Program Agreement unequivocally provides otherwise.

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The duty to defend is broader than the duty to indemnify. 

Health Care Indus. Liab. Ins. Program v. Momence Meadows Nursing Ctr., Inc., 566 F.3d 689, 693 (7th Cir. 2009). As a general rule 

under Illinois law, the duty of an insurance company to defend against a suit “is determined by the allegations of the 

complaint in that suit rather than by what is actually proved.” 

Nat’l Am. Ins. Co. v. Artisan & Truckers Cas. Co., 796 F.3d 717, 

724 (7th Cir. 2015). To determine whether an insurer has a 

duty to defend, we compare the factual allegations of the underlying complaint to the language of the insurance policy. 

Amerisure Mut. Ins. Co. v. Microplastics, Inc., 622 F.3d 806, 810 

(7th Cir. 2010). If the facts alleged fall within or potentially 

within the policy’s coverage, the insurer’s duty to defend 

arises. Id. “Both the policy terms and the allegations in the 

underlying complaint are liberally construed in favor of the 

insured, and any doubts and ambiguities are resolved against 

the insurer.” Id. at 811 (citations omitted). The general rules 

that favor the insured, however, must “yield to the paramount 

rule of reasonable construction which guides all contract interpretations.” Id.

When an insurer tries to deny coverage without seeking a 

declaratory judgment or defending under a reservation of 

rights, our inquiry is necessarily limited to the allegations in 

the underlying complaint. See Landmark Am. Ins. Co. v. Hilger, 

838 F.3d 821, 824 (7th Cir. 2016) (citing MFA Mut. Ins. Co. v. 

Crowther, Inc., 458 N.E.2d 71, 73 (Ill. App. Ct. 1983) (“An insurer may not justifiably refuse to defend an action against its 

insured unless it is clear from the face of the complaint that 

the allegations fail to state facts which bring the claim within, 

or potentially within, the policy’s coverage.”)). When an insurer seeks a declaratory judgment, however, that limitation 

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does not apply. Landmark Am., 838 F.3d at 824. In fact, the Illinois Supreme Court has emphasized that “‘[t]he trial court 

should be able to consider all the relevant facts contained in 

the pleadings, including a third-party complaint, to determine whether there is a duty to defend. After all, the trial 

court need not wear judicial blinders and may look beyond 

the complaint at other evidence appropriate to a motion for 

summary judgment.’” Pekin Ins. Co. v. Wilson, 930 N.E.2d 

1011, 1020 (Ill. 2010) (emphasis omitted) (quoting Am. Econ. 

Ins. Co. v. Holabird & Root, 886 N.E.2d 1166, 1179 (Ill. App. Ct.

2008)). “The only time such evidence should not be permitted 

is when it tends to determine an issue crucial to the determination of the underlying lawsuit.” Pekin Ins., 930 N.E.2d at 

1020 (citation omitted); see also Landmark Am., 838 F.3d at 824-

25 (“[W]hen an insurer has elected to either defend under a 

reservation of rights or file a declaratory judgment action, ...

the insurer may present evidence beyond the underlying 

complaint, so long as it does not tend to determine an ultimate 

issue in the underlying proceeding.”) (citation omitted). A 

crucial issue is “one that would collaterally estop the plaintiff 

in the underlying lawsuit from raising a theory of recovery or 

be crucial to the insured’s liability.” Landmark Am., 838 F.3d at 

825.

Bearing in mind that we must construe the Policy liberally 

in favor of coverage when determining the duty to defend, we 

agree with the district court that the allegations in Ms. 

Brown’s complaint against Target were sufficient to trigger Selective’s duty to defend. Ms. Brown alleged that she was a 

business invitee at Target’s store in Gurnee when the fitting 

room door fell off its hinges and injured her. While Selective 

emphasizes that Ms. Brown’s legal claims focused on Target’s 

negligence, Illinois law gives little weight to the legal label a 

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party uses to characterize the underlying allegations. Santa’s 

Best Craft, LLC v. St. Paul Fire & Marine Ins., 611 F.3d 339, 346 

(7th Cir. 2010) (citing Lexmark Int’l, Inc. v. Transp. Ins. Co., 761 

N.E.2d 1214, 1221 (Ill. App. Ct. 2001)). Instead, if “the alleged 

conduct arguably falls within at least one of the categories of 

wrongdoing listed in the policy,” a duty to defend arises. 

Santa’s Best, 611 F.3d at 346 (citing Lexmark, 761 N.E.2d at 

1221). 

As we have concluded, Target is an additional insured on 

the Policy because the allegations in Ms. Brown’s complaint 

can reasonably be read to fall within the Policy’s coverage for 

bodily injury caused in whole or in part by Harbor’s product. 

The parties do not dispute that the Policy provides liability 

coverage for bodily injury arising out of Harbor’s product 

within the “products-completed operations hazard” provision. This triggered Selective’s duty to defend. See Amerisure, 

622 F.3d at 810 (“If the facts alleged in the underlying complaint fall within, or potentially within, the policy’s coverage, 

the insurer’s duty to defend arises.”). Illinois law rejects Selective’s argument that it can avoid this duty simply because of 

legal labels Ms. Brown used in her complaint. See Santa’s Best, 

611 F.3d at 346 (citing Lexmark, 761 N.E.2d at 1221).

Alternatively, even if the facts alleged in Ms. Brown’s complaint were insufficient to trigger Selective’s duty to defend, 

the allegations in Target’s third-party complaint against Harbor certainly were enough. We can consider the allegations of 

Target’s third-party complaint because Selective sought a declaratory judgment and does not argue that considering them

will determine an issue crucial to the determination of the underlying lawsuit. Landmark Am., 838 F.3d at 824. In its thirdparty complaint, Target alleged that it contracted with Harbor

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for Harbor to design and provide materials for the construction of the Gurnee fitting rooms. Target also alleged that Harbor’s negligence in doing so caused Ms. Brown’s injuries. 

Again, these allegations squarely fall within the Policy’s coverage. Thus, we agree with the district court that Selective had 

a duty to defend Target in the Brown litigation.

D. Selective’s Duty to Indemnify Target

The parties disagree whether Selective had a duty to indemnify Target for costs it incurred while defending and settling the lawsuit with Ms. Brown. On appeal, Selective emphasizes that it is impossible to reasonably conclude that Target’s entire settlement payment represented damages for a 

covered loss.3

The duty to indemnify “is determined once liability has 

been affixed.” Nat’l Am. Ins. Co. v. Artisan & Truckers Cas. Co., 

796 F.3d 717, 724 (7th Cir. 2015). If an insured settles an underlying claim before trial, “it must show that it settled an otherwise covered loss in reasonable anticipation of liability” for 

the duty to indemnify to apply. Caterpillar, Inc. v. Great Am. Ins. 

Co., 62 F.3d 955, 966-67 (7th Cir. 1995) (citing United States Gypsum Co. v. Admiral Ins. Co., 643 N.E.2d 1226, 1244 (Ill. App. Ct. 

1994)); see also Rosalind Franklin Univ. of Med. & Sci. v. Lexington 

Ins. Co., 8 N.E.3d 20, 39 (Ill. App. Ct. 2004) (“When an insured 

settles an underlying claim, it must show that the settlement 

was made in reasonable anticipation of liability for an otherwise covered loss.”). 

 3 Selective does not challenge the reasonableness of the amount of Target’s 

settlement.

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There is no evidence in the record that Target allocated its 

settlement with Ms. Brown into covered and uncovered 

claims. We have previously predicted how Illinois courts 

would handle this situation in the context of the duty to indemnify:

Consistent with the Illinois policy that a coverage action should not require the insureds to 

conclusively establish their own liability in the 

interest of promoting settlement, we think the 

proper inquiry is whether the claims were not 

even potentially covered by the insurance policy. A competing policy interest is equity—it is 

inequitable to require an insurer to pay for a settlement that is clearly not within the terms of its 

policy. Consequently, our prediction is that Illinois courts, in cases in which it is possible that 

none of the settlement was attributable to the 

dismissal of claims for damage covered by the 

insurer’s policy, would evaluate whether a “primary focus” of the claims that were settled was 

a potentially covered loss (burden on the insured). Conversely, if it can be established that 

the claims were not even potentially covered 

(burden on the insurer), then the insurer is not 

required to reimburse the settlement. 

Santa’s Best, 611 F.3d at 351-52. After Santa’s Best, the Illinois 

Appellate Court followed our predicted approach. See 

Rosalind, 8 N.E.3d at 40 (“In cases where an insured enters into 

a settlement that disposes of both covered and non-covered 

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claims, the insurer’s duty to indemnify encompasses the entire settlement if the covered claims were ‘a primary focus of 

the litigation.’”) (citing Santa’s Best, 611 F.3d at 352).

Based on this precedent, the first question is whether Target settled an otherwise covered loss in reasonable anticipation of liability. If so, the second question is whether the covered claims were a primary focus of the litigation.

We conclude that Target settled an otherwise covered loss 

in reasonable anticipation of liability in the Brown litigation. 

Ms. Brown testified that she carried an article of clothing into 

Target’s fitting room, she closed the fitting room door behind 

her and latched it, she tried on the clothing, and then she unlatched the fitting room door and it fell on her. Discovery in 

that case revealed that the same fitting room door fell on another Target patron on December 9, 2011—approximately one 

week before it fell on Ms. Brown. This establishes a covered 

loss because it shows that Ms. Brown sought damages from 

Target for a bodily injury “arising out of” Harbor’s “product”—the fitting room door. Thus, we conclude that Target 

settled an otherwise covered loss in reasonable anticipation of 

liability to Ms. Brown.4

Turning to the second question, Selective argues that it 

does not have a duty to indemnify Target for the entire 

amount of its settlement because at least some of Ms. Brown’s 

 4 Target submitted an affidavit from counsel to the district court to support its position, but Selective objected to its admissibility and the district 

court did not consider it. We agree with the district court that even without considering counsel’s affidavit, the cited evidence is sufficient to confirm that Target settled an otherwise covered loss in reasonable anticipation of liability.

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claims against Target were based on premises liability, which 

would not be covered by the Policy. This argument requires 

us to determine whether the covered claims were “a primary 

focus of the litigation.” See Rosalind, 8 N.E.3d at 40 (“In cases 

where an insured enters into a settlement that disposes of 

both covered and non-covered claims, the insurer’s duty to 

indemnify encompasses the entire settlement if the covered 

claims were ‘a primary focus of the litigation.’”) (citing Santa’s 

Best, 611 F.3d at 352). While neither the district court nor the 

parties addressed the primary focus standard in analyzing Selective’s duty to indemnify Target, it is clear from the evidence 

that the district court cited in analyzing the duty to indemnify 

that covered claims were a primary focus of the litigation.

Specifically, the Brown litigation focused on the injuries Ms. 

Brown sustained when Harbor’s fitting room door fell on her, 

and Selective’s counsel admitted at oral argument that Selective defended Harbor in the Brown litigation and also settled 

with her for the injuries she sustained. For these reasons, we 

conclude that Selective had a duty to indemnify Target for the 

entire cost it incurred settling the Brown litigation. 

III. Conclusion

For the foregoing reasons, we AFFIRM the judgment of the 

district court. 

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