duty to indemnify CSC for “all sums which CSC is or may become legally obligated to
pay in connection with the AOL claim.” In Count ll, CSC alleges that Philadelphia
Indemnity breached its contract with CSC by not acting in good faith. Count IT also

contains a request for punitive damages.

DISCUSSION

A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests
whether the plaintiff has stated a claim, not whether the plaintiff will prevail on the
merits. Scheur v. Rhodes, 416 U.S, 232, 236, 94 §.Ct. 1683 (1974). In ruling on a
motion to dismiss, the Court must assume all facts in the complaint to be true, construe
the allegations liberally, and view the allegations in a light most favorable to the plaintiff.
Caremark, Inc., v. Coram Healthcare Corp., 113 F.3d 645, 648 (7th Cir. 1997). The
Court may dismiss a complaint for failure to state a claim under Rule 12(b)(6) only if it is
clear from the complaint that no set of facts consistent with its allegations would entitle
the plaintiff to relief. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 $.Ct, 2229
(1984).

1. Duty To Defend And Indemnify

“An insurer’s duty to defend its insured arises from the contract of insurance.”
American Standard Ins, Co. v. Basbagill, 333 Tll. App. 3d 11, 16, 775 N.E.2d 255, 259
(2002). “Because the duty to defend is a creature of contract, determining the scope of
the duty requires [a court] to construe the policy.” In construing the policy, we must give
unambiguous words their ordinary meaning but construe ambiguous language in favor of

the insured. Grzeszcak v. Illinois Farmers Insurance Co., 168 Ill. 2d 216, 223, 659


CONCLUSION
For the foregoing reasons, Philadelphia Indemnity’s motions to dismiss Counts I
and Il are denied.

It is so ordered.

bt), C2

/ Wayne R. Andersen
United States District Judge

Dated: Que 5 2063



list down to the postal carriers route level of detail, AOL would have been allowed to
take advantage of the postal service's Carrier Route discount on the postage cost. Due to
complications within CSC’s company, certain AOL mailings were processed without
LOT numbers, a loss costing AOL $748,769.52.

Th June 2002, AOL formally notified CSC of its claim for $748,769.52, and that
AOL “expect[ed CSC] to resolve a settlement of these damages immediately.” CSC then
notified Philadelphia Indemnity of the AOL claim. In a letter dated June 19, 2002,
Philadelphia Indemnity acknowledged receiving the letter and stated that it would
investigate the claim.

During the next few months, CSC claims it provided Philadelphia Indemnity with
all necessary information and at all times pressed for a quick settlement of the claim.
CSC further alleges that Philadelphia Indemnity did not respond to its repeated requests
for a meeting to discuss the AOL matter until CSC threatened litigation. CSC and
Philadelphia Indemnity had two meetings on November 20, 2002, and November 22,
2002, At the close of the second meeting, CSC alleges that Philadelphia Indemnity
claimed it needed additional time to investigate the matter. On December 5, 2002, CSC
claims that it sent Philadelphia Indemnity a letter via facsimile, reminding Philadelphia
Indemnity that it should let CSC know if it needed any additional information.
According to CSC, Philadelphia Indemnity has not responded to that letter or provided
CSC with any additional questions or information regarding the AOL matter. Thus, CSC
brings this action.

CSC’s complaint contains two counts, In Count I for Declaratory Judgment, CSC
prays for a judgment alleging that Philadelphia Indemnity has both a duty ta defend and a

3


N.E.2d 952 (1995). Policy language, in turn, is ambiguous if there can be more than one
reasonable interpretation of it, Traveler's Insurance Co. v. Eljer Manufacturing, Inc.,
197 Dl. 2d 278, 293, 757 N.E.2d 481 (2001). Once again, the important language of the
policy is as follows:

The company shall pay on behalf of the “insured” al] sums, not exceeding

the Limits of Liability and in excess of the applicable Deductible set forth

in the Declarations, for which the “insured” shall become legally obligated

to pay as “Damages” resulting from any “Claim” first made against the

“Insured” and reported to the company by written notice during the
“Policy Period.”

“Claim” means a demand received by the “Insured” for money, including
the service of suit or institution of arbitration proceedings involving the
“Insured.”

“Damages” means a monetary judgment, award or settlement and does
not include fines, sanctions, statutory penalties, punitive damages or

exemplary damages, including those based upon legal fees whether
imposed by law, court or otherwise.

The Company, in the “Insured’s” name and on the “Insured’s” behalf,

shall have the right and the duty to investigate, defend and conduct

settlement negotiations, including selection of defense counsel, in any

“Claim” or suit. (emphasis added).

Philadelphia Indemnity argues that it has no duty to its insured unless and until an
underlying complaint has been filed against CSC and there is a judicial determination of
CSC’s liability. Because AOL has not obtained a judgment against plaintiff CSC,
Philadelphia Indemnity argues it does not owe a duty to defend and indemnify CSC.

We reject Philadelphia Indemnity’s argument, The Insurance Policy requires

Philadelphia Indemnity to defend, investigate, and conduct settlement negotiations in any

5



Minute Oragt Foren (06/97)

United States District Court, Northern District of Illinois

Nate of Assigned Judge Wayne R. Andersen Sitting Judge if Other
or Magistrate Judge than Assigned Judge
CASE NUMBER 2C 8913 DATE 6/5/2003
CASE Computer Strategy Coordinators, Inc. vs. Philadelphia Indemnity Insurance Co.
TITLE

[in the foltowing box (a) indicate the party filing the motion, e.g... plaintiff, defendant, 3rd party plaintiff, and (b) state brictly le nuwure
ff the motion being presented,}

MOTION:

DOCKET ENTRY:

(1) oO Filed motion of | use listing in “Motion” box above.]

(2) 0 Brief in support of motion duc

(3) o Answer bricf to motion due___. Reply to answer brief due__

(4) o Ruling/Hearingon_____ setfor__—sat

(5) o Status hearing[held/continued to] [set for/re-set for]on__—s set for at
(6) ai Pretrial conference[held/continued to] [set for/re-setfor]on__ se setfor__-sssat__—
(7) QO Trial{sct for/re-set for]on at

(8) ad [BenelyJury trial] [Hearing] held/continued to at.

) oO This case is dismissed [with/without] prejudice and without costs|by/agreement/pursuant to}

OFRCP4(m) Local Rule 41.1 OFRCP4l(ay(1) OO FRCP41(4)(2).

(10) Ml [Other docket entry] Enter MEMORANDUM, OPINION AND ORDER: For the foregoing
reasons, Philadelphia Indemnity’s motions to dismiss Counts I and II [4-1] are denied.

di) [For further detail sec order attached to the original minute order.]
No notices required, advised in open court Document
A ‘Number
No notices required, number of nota
Notices mailed hy judge's staff. JUN 0 6 2003
Notified counsel by telephone. dnc dxkeet
| Docketing to mail notices
Mail AQ 450 form, 44N09 LoMISIq 5: 1 ne ee
Copy to judge/magi judge. Msg rey nN
courtroom WY g~ Nn ty 4406 auld notice
TSA depity's .
initials Or G#
ithed fag received in
central Clerk's Office ealingdepuny inital



“claim” or “suit.” The Policy further defines “claim” as a “demand receive[d] by the
‘Insured’ for money.” Accordingly, the Policy requires Philadelphia Indemnity to
investigate, defend, and conduct settlement negotiations for a “demand for money”
received by CSC.

In this case, AOL made a formal demand for $ 748,769.52 and informed CSC that
AOL expected CSC to resolve a settlement of these damages immediately. AOL’s
demand constitutes a “demand for money” under the Policy. CSC provided notice of the
AOL claim to Philadelphia Indemnity in June, 2002. The AOL claim falls within the
coverage of the Policy. Thus, CSC has stated a cause of action for Philadelphia
Indemnity’s duty to defend and indemnify based on the clear language of the Policy.

Il, Breach Of Contract

In Count I, CSC alleges a cause of action for breach of contract. CSC alleges
that, under the Policy, Philadelphia Indemnity owed CSC an implied duty of good faith
and fair dealing. CSC alleges that Philadelphia Indemnity breached its contractual
obligations to CSC by failing to act in good faith, by failing to protect CSC’s interests in
its customer relationship, and by deliberately delaying the settlement of the AOL claim.
Finally, CSC alleges that as a direct and proximate result of Philadelphia Indemnity’s
breach of the Policy, CSC has sustained substantial losses. CSC requests compensatory,
consequential and punitive damages.

We find that CSC has adequately alleged a cause of action for breach of contract
based upon the foregoing allegations. Therefore, we deny Philadelphia Indemnity’s

motion to dismiss Count Il,


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
COMPUTER STRATEGY ) -_
COORDINATORS, INC., )
) yo eB 7a
Plaintiff, )
)
ve ) No. 02 C 8913
)
PHILADELPHIA INDEMNITY ) Wayne R. Andersen
INSURANCE CO., ) District Judge
)
Defendant. )

MEMORANDUM OPINION AND ORDER

The Plaintiff, Computer Strategy Coordinators (“CSC”), an Illinois corporation,
has filed a two-count complaint against the defendant, Philadelphia Indemnity Insurance
Co. (“Philadelphia Indemnity”), a Pennsylvania corporation. This Court has jurisdiction
to hear this case under 28 U.S.C. § 1332(a)(1) because the parties are citizens of different
states and the amount in controversy exceeds $75,000. Pursuant to 28 U.S.C. § 2201,
CSC, the insured, seeks a declaratory judgment from this Court regarding the contractual
obligations of the insurer, Philadelphia Indemnity, under an insurance policy. CSC also
seeks damages for breach of contract, which include punitive damages. Philadelphia
Indemnity has filed a motion to dismiss both counts pursuant to Fed.R.Civ.P. 12(b)(6).

For the following reasons, the motion is denied,

BO



BACKGROUND
The following facts are taken from plaintiff CSC’s complaint. Philadelphia
Indemnity sold CSC, a company that provides mailing list services for commercial
customers, an insurance policy providing coverage from December 13, 2001 though
December 13, 2002. In the policy, Philadelphia Indemnity agreed to pay up to $1 million
on behalf of CSC for any claim which the insured shall become obligated to pay. The
following is the critical language of the policy:

The company [Philadelphia Indemnity] shal] pay on behalf of the
“insured” all sums, not exceeding the Limits of Liability and in excess of
the applicable Deductible set forth in the Declarations, for which the
“insured” shall become legally obligated to pay as “Damages” resulting
from any “Claim” first made against the “Insured” and reported to the
company by written notice during the “Policy Period.”

“Claim” means a demand received by the “Insured” for money,
including the service of suit or institution of arbitration proceedings
involving the “Insured.”

“Damages” means a monetary judgment, award or settlement and
does not include fines, sanctions, statutory penalties, punitive damages or
exemplary damages, including those based upon legal fees whether
imposed by law, court or otherwise.

The Company [Philadelphia Indemnity], in the “Insured’s” name and on

the “Insured’s” behalf, shall have the right and the duty to investigate,

defend and conduct settlement negotiations, including selection of defense

counsel, in any “Claim” or suit.

During the Policy period, CSC was hired by America Online (“AOL”) to perform
mailing list services. In February 2002, AOL requested that line of travel (“LOT”)

numbers be included in CSC’s processing and reports for AOL mailings. By sorting the

2