### In the



# United States Court of Appeals

For the Seventh Circuit

No. 15

‐ 3292

M ADISON M UTUAL I NSURANCE

C OMPANY

, Plaintiff

‐ Appellant

,

v.

D IAMOND S TATE I NSURANCE

C OMPANY

, Defendant

‐ Appellee.

Appeal from the United States District Court for the

Southern District of Illinois.

No. 3:14

‐ cv

‐ 00565

— J. Phil Gilbert

, Judge.

A RGUED J ANUARY 10, 2017

— D ECIDED M ARCH 21, 2017

Before W OOD

, Chief Judge, and R OVNER and H AMILTON

,

Circuit Judges

.

R OVNER

, Circuit Judge. Madison Mutual Insurance Com

‐

pany (“Madison Mutual”) brought suit seeking a declaratory

judgment obliging Diamond State Insurance Company2 No. 15

‐ 3292

(“Diamond State”) to defend Geraldine Davidson in a state

‐

court action filed by her former neighbors, Dr. William and

Wendy Dribben. Diamond State previously provided profes

‐

sional liability errors and omissions coverage to Davidson in

her capacity as a real estate broker and supplied a defense to

Davidson in a previous suit alleging certain wrongdoing by

Davidson as a broker. Because the new suit repeats certain

allegations from the prior suit, Madison Mutual asserts that it

both relates back to the earlier action and may potentially

involve claims within the coverage provided by Diamond

State. The district court rejected these assertions and entered

summary judgment in favor of Diamond State. We affirm.

I.

In 1999, the Dribbens purchased a home from Todd and

Sherry Favre on 42 acres in an exclusive four

‐ parcel develop

‐

ment known as Heartland Oaks, in Southern Illinois not far

from Saint Louis, Missouri. Davidson represented the Favres

in that purchase. Davidson had also conceived of and was one

of the developers of Heartland Oaks, and she and her husband

owned one of the four parcels in the development. At the

center of the development is a 30

‐ acre artificial lake (sometimes

referred to in the pleadings as the “Large Lake,” as a smaller

lake was added later), and the dam creating that lake is located

on the parcel that the Dribbens purchased. In a 2006 lawsuit

filed by the Dribbens against Davidson and the other original

owners in the development, the Dribbens alleged that

Davidson had failed to disclose that the original

owners/developers had never obtained a permit from the

Illinois Department of Natural Resources (“IDNR”) authoriz

‐ ing the dam. The 2006 suit alleged, inter alia

, that Davidson’sNo. 15

‐ 3292 3

non

‐ disclosure amounted to fraudulent concealment and

consumer fraud. Davidson tendered the suit to Diamond State,

which had issued a professional liability errors and omissions

policy to her effective from October 2005 through October 2006

and extended by endorsement to November 22, 2007. The

Diamond State policy applied to claims made and reported

during the policy period and provided coverage for “wrongful

acts arising out of the performance of professional services for

others.” R. 26

‐ 1 at 6. The policy defines a “wrongful act” as

“any actual or alleged negligent act, error or omission, or

‘personal injury’” arising out of the services Davidson pro

‐

vided as a real estate broker. R. 26

‐ 1 at 14. Under a reservation

of rights, Diamond State agreed to provide Davidson with a

defense to the 2006 suit. The two counts asserting claims

against Davidson as a real estate broker were eventually

severed from the remainder of the 2006 suit and arbitrated in

favor of Davidson. R. 26

‐ 9, 26

‐ 10.

In 2011, the Dribbens filed a second suit, this one against

both Davidson and her husband, alleging a pattern of harass

‐

ment, intimidation, and interference with the Dribbens’

property rights by the Davidsons. The wrongful acts attributed

to the Davidsons in the prolix first and second amended

complaints range from commercially farming their own

property and the Dribbens’ property (without their consent),

in violation of restrictive covenants; polluting the Large Lake

with crop runoff; filing lawsuits with the aim of interfering

with the Dribbens’ easement rights; spreading rumors that Dr.

Dribben was a serial killer; posting offensive signs; and

stalking and intimidating the Dribben family and their attor

‐

neys. The first amended complaint asserted claims for enforce

‐4 No. 15

‐ 3292

ment of covenants, trespass, malicious prosecution, interfer

‐

ence with the Dribbens’ right to sell their property, intentional

and negligent infliction of emotional distress, unjust enrich

‐

ment, a declaration that there had been no adverse possession

of the Dribbens’ property, and for an order of protection. The

second amended complaint, dated May 2014, added two more

claims of trespass (including criminal trespass), three counts

seeking to remove clouds upon and quiet title to the Dribbens’

property, two counts of nuisance, one count of negligence, and

one count seeking to enjoin other neighbors in the develop

‐

ment vis

‐ à

‐ vis the disputed easements, for a total of 18 counts.

Davidson tendered the 2011 lawsuit to Madison Mutual,

which had provided homeowner’s insurance coverage to

Davidson and her husband (including personal liability

coverage up to $500,000 per occurrence) from July 2004 to July

2011. Madison Mutual had also issued umbrella liability

coverage to the Davidsons (with a limit of $1 million per

occurrence) from December 2005 to December 2011. Madison

Mutual agreed to provide the Davidsons with a defense

pursuant to their homeowner’s coverage.

Davidson also tendered the first and later the second

amended complaints to Diamond State, but on both occasions

Diamond State refused to supply her with a defense in the 2011

litigation. Diamond State did not view either complaint as

seeking relief for acts arising out of any professional services

Mrs. Davidson had provided to others as a real estate broker.

In 2014, Madison Mutual filed this suit in the district court

seeking a declaratory judgment to the effect that Diamond

State has breached its duty to defend Davidson in the 2011 suitNo. 15

‐ 3292 5

and bears a duty to reimburse Madison Mutual for the costs it

has incurred in supplying a defense to her in that litigation.

(Davidson herself is not a party to the suit.) Madison Mutual

posits that the factual allegations made in the 2011 suit support

a potential claim against Davidson in her capacity as a real

estate broker for her failure to disclose to the Dribbens that the

dam lacked a permit; Madison Mutual views that potential

claim as relating back to the 2006 suit against Dribben, which

Diamond State was obligated to (and did) defend.

The district court entered summary judgment in favor of

Diamond State, concluding that it has no duty to defend

Davidson. In relevant part, the court reasoned the allegations

made against the Davidsons in the 2011 suit (which the district

court referred to as the “Underlying Litigation”) did not

support a potential claim against Mrs. Davidson as a broker

that in turn might relate back to the 2006 suit (referred to as the

“Original Litigation”) and trigger a duty to defend on the part

of Diamond State.

Although there are factual statements relating to

the dam and the IDNR in the Underlying Litiga

‐

tion, those statements pertain to the allegations

of [the] Davidsons’ harassment of the Dribbens

and not the failure to disclose the requirement

for a dam permit which was the issue in the

Original Litigation.

The question becomes whether any of the allega

‐

tions contained in the Underlying Litigation

could be deemed as “rising out of the wrongful

act” contained in the Original Litigation. There6 No. 15

‐ 3292

was a single wrongful act alleged in the Original

Litigation—that of Geraldine’s failure to disclose

that the lake did not have an IDNR permit for

the dam.

The fact that Geraldine Davidson was the real

estate agent that represented the Favres in the

sale of their home to the Dribbens and that she

[was] one of the developers of Heartland

Oaks—are facts—but the allegations in the

Underlying Litigation must arise from the

previous wrongful act

. It could be argued that all

of the allegations—both in the Original and

Underlying Litigations—arise from Ms.

Davidson’s actions as a real estate agent in the

sale of the property from the Favres to the

Dribbens (for if she had not sold them the home,

none of these allegations could have occurred),

but the sale of the home was not the “wrongful

act” alleged in the Original [L]itigation. The

“wrongful act” was the failure to disclose the

lack of the dam permit.

The failure of Geraldine Davidson to disclose

the lack of the dam permit does not extend to

the inclusion [of] all problems, omissions,

harassment, trespassing, and numerous other

allegations contained in the Underlying

Litigation. Those allegations stand apart from

the initial “wrongful act” and as such, Diamond

has no duty to defend.No. 15

‐ 3292 7

R. 41 at 11 (emphasis in original).

II.

As the district court disposed of this case on summary

judgment, we review its decision de novo. E.g.

, Panfil v.

Nautilus Ins. Co.

, 799 F.3d 716, 718–19 (7th Cir. 2015). This is a

diversity action, and the parties agree that we should look to

the law of Illinois, the forum state, for the relevant substantive

legal principles. See

, e.g.

, Am. Alternative Ins. Corp. v. Metro

Paramedic Servs., Inc.

, 829 F.3d 509, 513 (7th Cir. 2016). 1

An insurer’s duty to defend its insured in litigation

depends on both the terms of the insurance policy at issue and

the nature of the underlying action. The duty to defend is

logically broader than the duty to indemnify. See Cincinnati Ins.

Co. v. H.D. Smith, LLC

, 829 F.3d 771, 774 (7th Cir. 2016).

Whereas the latter duty requires a claim that actually falls

within the scope of coverage, the former duty is triggered by

allegations in the underlying litigation that plausibly may fall

within the scope of coverage. See Health Care Indus. Liab. Ins.

Program v. Momence Meadows Nursing Ctr., Inc.

, 566 F.3d 689,

693 (7th Cir. 2009) (discussing Crum & Forster v. Resolution

Trust Corp.

, 620 N.E.2d 1073, 1081 (Ill. 1993)). An insurer

therefore cannot refuse to defend unless it is clear that the

underlying allegations do not bring the case even potentially

within the scope of coverage. E.g.

, Panfil

, 799 F.3d at 719

(quoting Lyerla v. AMCO Ins. Co.

, 536 F.3d 684, 688 (7th Cir.

2008)). In determining whether the insurer has a duty to

1 Each of the Seventh Circuit precedents that we cite in this opinon applies

Illinois law.8 No. 15

‐ 3292

defend, a court applies what is known as the “eight

‐ corners”

rule: we compare the four corners of the underlying complaint

with the four corners of the policy, according both the

complaint and the policy a liberal construction. Am. Alternative

,

829 F.3d at 513–14 (quoting Pekin Ins. Co. v. Precision Dose, Inc.

,

968 N.E.2d 664, 674 (Ill. 2012)). In applying this rule, our focus

is on what has actually been alleged in the underlying action

rather than what hypothetically could be alleged. Amerisure

Mut. Ins. Co. v. Microplastics, Inc.

, 622 F.3d 806, 812 (7th Cir.

2010) (quoting Del Monte Fresh Produce N.A., Inc. v. Transport.

Ins. Co.

, 500 F.3d 640, 643 (7th Cir. 2007)). If any portion of the

complaint in the underlying litigation potentially falls within

the coverage provided by the policy, the insurer must defend

the entire suit. Philadelphia Indem. Ins. Co. v. Chicago Title Ins.

Co.

, 771 F.3d 391, 398 (7th Cir. 2014) (collecting cases).

The Diamond State policy is a real estate errors and

omissions policy covering claims arising out of the professional

services Davidson provided as a real estate broker. So the

essential question is whether the allegations in the 2011

litigation potentially implicate Davidson’s conduct as a broker.

But more than that, because the policy is a “claims made and

reported” policy and Diamond State’s coverage ended in 2007

(with a corresponding notice period ending early in 2008), the

claim nominally must be one that was made against Davidson

within the policy period and which was reported to Diamond

State no later than 60 days after the end of that period. The

2011 suit, of course, was filed years after Diamond State’s

coverage terminated, and so at first glance timely reporting of

that suit would appear to be out of the question. But Madison

Mutual’s theory is that the 2011 litigation relates back to theNo. 15

‐ 3292 9

2006 suit. There is no dispute that Diamond State had timely

notice of the 2006 suit (and, in fact, supplied Davidson with a

defense in that action). The policy provides that once Diamond

State has received timely notice of a “wrongful act” within the

policy’s scope, “[a]ny claim that may subsequently be made

against [the insured] arising out of that wrongful act will be

deemed for the purpose of this insurance to have been made

on the date [Diamond State] received such [timely] notice.”

This is referred to by the parties as the “awareness clause” of

the policy. Madison Mutual asserts that the 2011 suit, like the

2006 suit, rests in part on an assertion that Davidson breached

her professional obligations to the Dribbens by failing to

disclose that the dam on the property that the Dribbens

purchased was never properly permitted. In that respect,

Madison Mutual contends, the 2011 suit arises out of the same

wrongful act as the 2006 suit (and potentially asserts a

professional misconduct claim of the sort that is covered by the

Diamond State policy). And because Diamond State had timely

notice of the 2006 suit, under the awareness clause, it may be

deemed to have had timely notice of the 2011 suit as well, in

Madison Mutual’s view.

There are, to be sure, factual allegations in the 2011 suit

regarding the dam and Davidson’s status as a real estate

broker. Thus, the Second Amended Complaint filed in that suit

alleges that:

• Davidson is both a developer (who

spearheaded the creation of Heartland Oaks)

and a real estate broker. R. 21

‐ 9 ¶¶ 18, 25, 48, 51,

521.10 No. 15

‐ 3292

• As a broker, Davidson had represented the

Favres in the sale of their property to the Dribbens

and received a commission for the sale. R. 21

‐ 9 ¶

18.

• The dam for the Large Lake in the Heartland

Oaks development resides on the property sold by

the Favres to the Dribbens. R. 21

‐ 9 ¶ 67.

• Davidson was advised during the construction

of the Large Lake that a permit would be needed

(although she denies being told this). R. 21

‐ 9 ¶ 72.

• Davidson and the other original owners of the

Heartland Oaks properties nonetheless decided to

forgo obtaining a permit for the dam, in order to

spare expense and to avoid future involvement

with the IDNR. R. 21

‐ 9 ¶ 73.

• After buying into the Heartland Oaks

development, the Dribbens were advised by IDNR

that because they owned the property on which

the dam was located, they were responsible for

obtaining a permit. R. 21

‐ 9 ¶ 163.

• When the Dribbens sued Davidson for failing to

tell them that the dam was not permitted,

Davidson in turned filed suit against Mrs.

Dribben, alleging that she had slandered

Davidson. The slander complaint was based on

the charge in the Dribbens’ suit that Davidson had

committed fraud by not disclosing the lack of a

permit, an allegation that purportedly injuredNo. 15

‐ 3292 11

Davidson’s reputation as a broker. R. 21

‐ 9 ¶¶ 247,

248.

• “As the next door neighbors of the Dribbens, as

the owner/real estate broker who sold the Favres’

property to the Dribbens, as two of the developers

of Heartland Oaks, as two of the signatories to the

Restrictions, the Easement Agreement and the

Amendment, and because Geraldine Davidson as

the realtor for at least the Favres had convinced

the Dribbens that Heartland Oaks was a first class

development, the Defendants owed the Dribbens

a duty of care to act reasonably and to hold

themselves to the same standard of care that they

have demanded of their neighbors, and to not

negligently engage in acts that the Dribbens

would perceive as stalking, harassment or

intimidation.” R. 21

‐ 9 ¶ 525.

• “Accordingly, under the above facts, the

Defendants owed the Dribbens a duty of care, and

they breached that duty of care by engaging in the

conduct alleged in this amended complaint. R. 21

‐

9 ¶ 528.

Focusing on these last two allegations regarding a duty of care,

Madison Mutual alleges that it is reasonable to infer that said

duty includes Mrs. Davidson’s duty of care as a realtor and

that the alleged breach of that duty includes her failure, in

connection with the sale of the Favres’ property to the

Dribbens, to disclose that no permit had been obtained for the

dam.12 No. 15

‐ 3292

To make the obvious point first, nowhere in either the first

or second amended complaints filed in the 2011 litigation is the

allegation made that Davidson breached her professional

obligations as a real estate broker by failing to disclose to the

Dribbens that the dam lacked a permit. Her status as a real

estate broker is noted; the lack of a permit for the dam is also

noted; and for that matter, the Dribbens’ 2006 suit against

Davidson over her failure to disclose the lack of a permit is

noted. But there is no allegation, express or implied, that

Davidson wronged the Dribbens in her capacity as a realtor by

not disclosing that the dam was un

‐ permitted.

The complaint overall is one about Mr. and Mrs.

Davidson’s pattern of alleged acts—as neighboring

landowners—that have interfered with the Dribbens’ ability to

use, enjoy, and sell their own property. The allegations on

which Madison Mutual has focused are but a few of the many

hundreds of allegations set forth in an effort to establish why

and how the Davidsons made living in the Heartland Oaks

development a misery for the Dribbens. 2

To be sure, there are references in the final two paragraphs

of the list set out above to a duty of care that the Davidsons

owed to the Dribbens stemming in part from Mrs. Davidson’s

role as the realtor who brokered the sale of the Favre property

to the Dribbens. These are the references that Madison Mutual

2 Even the Dribbens’ 2006 suit for failure to disclose the lack of a dam

permit is referenced only as the triggering event for the slander suit that

Davidson filed against Mrs. Dribben, and the slander suit in turn is noted

as one component of the general pattern of harassment alleged by the

Dribbens.No. 15

‐ 3292 13

principally relies on to support the notion that the litigation

plausibly might assert a claim against Mrs. Davidson based on

her failure to make full disclosure with respect to the dam. But

the relevant language of the second amended complaint, which

we have quoted verbatim, makes clear that the duty at issue is

not a professional duty that Mrs. Davidson bears as a realtor,

but a duty of care that both Mr. and Mrs. Davidson share “to

act reasonably and to hold themselves to the same standard of

care that they have demanded of their neighbors, and to not

negligently engage in acts that the Dribbens would perceive as

stalking, harassment or intimidation.” R. 21

‐ 9 ¶ 525. Read in

this context, the reference to Mrs. Davidson’s status as a realtor

appears aimed at suggesting that she, better than anyone,

should have understood how her actions as the Dribbens’

neighbor would interfere with the quiet enjoyment of their

rights as property owners. Beyond this, there is no allegation

that Mrs. Davidson was providing professional services to the

Dribbens and breached any duty that she may have owed them

in that regard.

What we are left with, then, is a small subset of factual

allegations that overlap with the factual underpinnings of the

2006 suit regarding the dam permit, but no allegation of injury

resulting from Mrs. Davidson’s failure to disclose the lack of

the permit to the Dribbens and no theory of recovery

predicated on that failure. Madison Mutual nonetheless asserts

that because this subset of alleged facts could support a claim

related to her alleged failure to disclose, we should construe

the 2011 litigation as potentially asserting such a claim against

Davidson in her capacity as a realtor and hold that Diamond

State has a duty to defend Davidson in the later suit.14 No. 15

‐ 3292

Our decision in Health Care Indus. Liability Ins. Program v.

Momence Meadows Nursing Ctr., Inc.

, supra

, 566 F.3d 689, makes

clear why Madison Mutual’s reasoning is faulty in this respect.

Momence Meadows was a duty

‐ to

‐ defend case in which the

underlying suit was one brought by former employees of a

nursing home seeking recompense for exposing fraudulent

charges that the nursing home had submitted to Medicare and

Medicaid—i.e., claims for services that did not meet

professionally recognized standards for health care. Each of the

claims asserted in their complaint was premised either on the

submission of claims falsely certifying that the services

provided by the nursing home complied with the requisite

standard of care (and the employees’ role in exposing the

fraud) or the nursing home’s alleged retaliation against the

employees for blowing the whistle on the fraud. None of the

claims, as framed, fell within the scope of coverage provided

by the nursing home’s liability carrier. But the nursing home

pointed to factual allegations in the underlying complaint

describing the physical harms the home’s residents had

suffered as a result of the substandard care they had received.

Those injuries, the nursing home argued, would support

potential claims for bodily injury and malpractice under the

home’s liability coverage, even though no such claims had

been asserted thus far. In rejecting this argument, we

emphasized first that the factual allegations, although they

“put a human touch on the otherwise administrative act of

false billing,” were not necessary to the types of statutory

claims the plaintiffs in the underlying litigation were actually

pursuing. Id. at 695. And in response to the nursing home’s

contention that the factual allegations of the underlyingNo. 15

‐ 3292 15

complaint, rather than particular legal theory alleged, control,

we stated:

Momence is correct that the factual allegations

in the complaint, and not the legal labels a

plaintiff uses, control. But factual allegations are

only important insofar as they point to a theory

of recovery. And it is impossible to construe the

underlying complaint as raising any theory of

recovery based on bodily injury.

...

566 F.3d at 696 (citations omitted). Likewise here, the factual

allegations concerning the dam, the lack of a permit, and

Davidson’s role in selling the property to the Dribbens, while

they may provide explanatory background for the Davidsons’

alleged acts of harassment (including the slander suit), do not

point to any theory of recovery against Davidson for breach of

her professional obligations as a realtor.

Still, Madison Mutual contends that a catch

‐ all request in

the Dribbens’ prayer for relief for “[a]ny other further relief

that the Court feels is necessary, proper or just” (R. 21

‐ 9,

Request for Relief ¶ S) leaves the door open to theories their

complaint does not otherwise assert. But this type of boiler

‐ plate request does not operate as an independent request for

relief, let alone an independent theory of recovery not

otherwise factually supported in the body of the complaint. See

Employers Ins. Co. of Wausau v. Bodi

‐ Wachs Aviation Ins. Agency,

Inc.

, 846 F. Supp. 677, 686 (N.D. Ill 1994); Penn. Cnty. Risk Pool

v. Northland Ins.

, No. 1:07

‐ cv

‐ 00898, 2009 WL 506369, at *9

(M.D. Pa. Feb. 27, 2009); XXL of Ohio, Inc. v. City of Broadview

Hts.

, 341 F. Supp. 2d 825, 841 (N.D. Oh. 2004).16 No. 15

‐ 3292

Madison Mutual alternatively suggests that because the

Dribbens, by their own account, would never have purchased

property in the Heartland Oaks development and become the

Davidsons’ neighbors had Davidson disclosed that the dam

lacked a permit, her failure to disclose as alleged in the 2006

suit was a but

‐ for cause of the claims raised in the 2011 suit.

Granted, had the Dribbens never purchased the property, they

would have no reason to complain about the Davidsons’

actions as neighbors. In the very broadest factual sense, then,

the wrongs alleged in the 2011 litigation might be said to arise

from the wrongs alleged in the 2006 suit. But that does not

transform what is otherwise a suit about the Davidsons’

actions as the Dribbens’ neighbors into a suit about Mrs.

Davidson’s prior actions as the broker who sold them the

property. See James River Ins. Co. v. Kemper Cas. Ins. Co.

, 585

F.3d 382, 386 (7th Cir. 2009) (noting the logical limits as to what

may be said to arise from a particular event in assessing an

insurer’s duty to defend).

For all of these reasons, the 2011 suit does not assert, or

potentially assert, a claim that is plausibly within the

professional liability coverage that Diamond State provided to

Davidson. Diamond State has no duty to defend her in the 2011

litigation.

In view of this conclusion, we have no need to reach the

policy exclusions set forth in the Diamond State policy and

whether they might independently operate to relieve Diamond

State of any duty to defend Davidson.No. 15

‐ 3292 17

III.

For the reasons discussed, we AFFIRM the district court’s

judgment.