Opinion ID: 2996289
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: ICW provided excess public entity liability insurance to the County under a policy that contained a $250,000 selfinsured retention and a $5,000,000 liability limit. In August 1999 Indeck filed a lawsuit against the County in Illinois state court seeking injunctive relief and $25 million in damages based on the County’s enforcement of zoning ordinances to prevent Indeck from building an electrical No. 02-3275 3 generating facility called a “peaker” plant. Following numerous amendments to the complaint by Indeck and dismissals of claims by the state court, three out of six counts survived in Indeck’s lawsuit against the County: Count I sought a declaration that the County’s zoning ordinance was unenforceable against Indeck; Count III sought money damages and injunctive relief arising from the County’s violation of Indeck’s due process rights by interfering with Indeck’s right to build the peaker plant; and Count VI sought declaratory and injunctive relief based on the County’s arbitrary and capricious application of the invalid zoning ordinance to Indeck. As required by the insurance policy, the County notified ICW of Indeck’s claims against it, requested that its rights be protected, and inquired whether ICW intended to participate in the County’s defense. In March 2002 ICW brought an action of its own against the County and Indeck in federal district court seeking a declaration that it had no duty to defend or indemnify the County against Indeck’s claims. ICW alleged that the County’s policy does not provide coverage for the kind of declarative and injunctive relief sought in Counts I & VI of Indeck’s complaint, and that Count III pleaded a cause of action for inverse condemnation, which was explicitly excluded from coverage under the policy. The district court dismissed ICW’s suit for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1), holding in part that there was no controversy within the meaning of Article III with respect to the duty to defend because the policy did not require ICW to defend the County, and the County never demanded that ICW assist in its defense. The court also held that the question of ICW’s duty to indemnify was not yet ripe for adjudication because it was not clear from Indeck’s complaint whether Count III asserted a claim based on a procedural due process violation or a taking without just compensation. The dis- 4 No. 02-3275 trict court noted that “principles of inverse condemnation arguably are apparent” in Count III, but that it was uncertain from the pleadings whether, if Indeck prevailed, its “victory will be based on something akin to a theory of inverse condemnation or a theory of capricious enforcement. If the former, ICW likely will be off the hook; if the latter, ICW likely will remain on the hook.” Thus, the court decided that issuing a declaratory judgment regarding ICW’s duty to indemnify would be premature. ICW timely filed its appeal of the district court’s decision in this court and soon thereafter re-filed its declaratory judgment action in the district court. ICW claimed that it re-filed its lawsuit because the County had nearly spent its $250,000 self-insured retention on defense costs when the court entered its judgment in the first suit. ICW believed this fact made the issues ripe for adjudication because the County’s exhaustion of its self-insured retention triggered ICW’s duty to indemnify under the policy. The County disagreed, arguing that ICW’s duty to indemnify could only be determined when the underlying claims were resolved, and not when the County depleted its selfinsured retention to pay its litigation defense costs. After this appeal was filed and just before ICW’s reply brief was due, ICW reached a settlement agreement with Indeck for $5 million, the full amount of ICW’s policy with the County, to dispose of all money damages claims against the County in the underlying lawsuit. ICW then requested additional time from this court to file its reply, hinting that it would instead submit a Fed. R. App. P. 42(b) motion for voluntary dismissal of its appeal because the settlement agreement with Indeck rendered the substantive issues in the appeal moot. After we granted ICW’s request for more time, the County filed a motion of its own objecting to the request for an extension and No. 02-3275 5 renewing1 its request for sanctions under Fed. R. App. P. 38 based on its assertion that ICW’s appeal was frivolous. Soon after, ICW sought permission of this court to voluntarily dismiss its appeal without costs. ICW stated that since the sole purpose of the appeal was to determine from the “eight corners” of the insurance policy and Indeck’s complaint whether ICW owed a duty to defend and indemnify the County, the settlement of the underlying claim provided a new factual basis for resolving those issues and the appeal was now moot. The County objected to voluntary dismissal under Fed. R. App. P. 42(b), arguing that ICW’s settlement with Indeck did not render moot the County’s motion for costs and damages under Fed. R. App. P. 38 based on ICW’s filing of its allegedly frivolous appeal. We denied ICW’s Rule 42(b) motion to voluntarily dismiss the appeal because the parties could not agree on the allocation of costs, see Hope Clinic v. Ryan, 249 F.3d 603, 605 (7th Cir. 2001), and ordered that the merits of the County’s Rule 38 motion be addressed during oral argument. At oral argument both sides agreed that the issues of ICW’s duty to defend and indemnify were no longer debatable in the context of this appeal; the only live issue before the court was whether ICW’s appeal had a reasonable basis in law and fact, as ICW contends, or was frivolous and deserving of sanctions, as argued by the County. We now turn to that question.