Bridgeview Health Care Center, Ltd. v. State Farm Fire and Casualty Company , 2014 IL 116389 ( 2014 )

Illinois Official Reports
Supreme Court
Bridgeview Health Care Center, Ltd. v. State Farm Fire & Casualty Co.,
2014 IL 116389
Caption in Supreme BRIDGEVIEW HEALTH CARE CENTER, LTD., Appellant, v.
Court: STATE FARM FIRE AND CASUALTY COMPANY, Appellee.
Docket No. 116389
Filed May 22, 2014
Held Where there were no state court cases on an insurance-coverage issue,
(Note: This syllabus two unreported cases from a federal district court within that state
constitutes no part of the which purported to predict how the state’s highest court would rule
opinion of the court but were not state law and did not create a conflict with the law of a
has been prepared by the neighboring jurisdiction so as to call for significant-contacts
Reporter of Decisions analysis—Erie.
for the convenience of
the reader.)
Decision Under Appeal from the Appellate Court for the First District; heard in that
Review court on appeal from the Circuit Court of Cook County, the Hon. Rita
Novak, Judge, presiding.
Judgment Appellate court judgment reversed.
Circuit court judgment affirmed.
Counsel on Phillip A. Bock and Robert M. Hatch, of Bock & Hatch, LLC, of
Appeal Chicago, and Brian J. Wanca, David Oppenheim and Jeffrey A.
Berman, of Anderson + Wanca, of Rolling Meadows, for appellant.
Michael C. Borders and Rosa M. Tumialán, of Dykema Gossett
PLLC, of Chicago, for appellee.
Michael M. Marick, Karen M. Dixon and Timothy H. Wright, of
Meckler Bulger Tilson Marick & Pearson LLP., of Chicago, for
amicus curiae American Insurance Association.
Justices JUSTICE BURKE delivered the judgment of the court, with opinion.
Chief Justice Garman and Justices Freeman, Thomas, Kilbride,
Karmeier, and Theis concurred in the judgment and opinion.
OPINION
¶1 This appeal presents the following question: When a federal district court sitting in a sister
state makes a prediction under Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), that the supreme
court of that state would resolve a legal issue in a way that is at odds with Illinois law, does that
prediction, in itself, establish an actual conflict between the two states’ laws for purposes of a
choice-of-law analysis? For the reasons that follow, we answer that question in the negative.
¶2 BACKGROUND
¶3 Bridgeview Health Care Center, Ltd. (Bridgeview), an Illinois corporation, filed a
three-count, class action complaint in the federal district court of Northern Illinois against
Jerry Clark, d/b/a Affordable Digital Hearing. Clark is an Illinois resident who operates
Affordable Digital Hearing, a sole proprietorship dealing in the sale and repair of hearing aids,
out of Terre Haute, Indiana. Bridgeview’s complaint alleged that Clark sent Bridgeview and
others across the United States unsolicited faxes in June of 2006. Count I of the complaint
sought recovery under the Telephone Consumer Protection Act of 1991 (TCPA) (47 U.S.C.
§ 227 (2006)). Count II alleged that Clark was liable for common law conversion of
Bridgeview’s fax machine paper and toner. Count III alleged a violation of the Consumer
Fraud and Deceptive Business Practices Act (815 ILCS 505/2 et seq. (West 2010)).
¶4 Clark was insured under a comprehensive general liability policy issued by State Farm Fire
and Casualty Company, an Illinois corporation. The policy was purchased through an agent in
Indiana and issued to Clark at his business address in Indiana out of State Farm’s West
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Lafayette, Indiana office. Relevant here, the policy provided certain business liability coverage
under both a “property damage” provision and an “advertising injury” provision.
¶5 Clark tendered defense of Bridgeview’s suit to State Farm, which accepted the defense
under a reservation of rights. In March 2010, State Farm filed a complaint for declaratory
judgment in the circuit court of Vigo County, Indiana, against Clark and Bridgeview, seeking a
declaration that it had no duty to defend Clark in the underlying federal lawsuit under either the
property damage or advertising injury provisions of its policy. This action was eventually
dismissed for want of personal jurisdiction over Bridgeview.
¶6 In June 2010, Bridgeview filed a declaratory judgment action against State Farm and Clark
in Cook County, seeking a declaration that State Farm had a duty to defend and indemnify
Clark because the unwanted faxes fell within both the advertising injury and property damage
provisions of the insurance policy. State Farm, in turn, filed a counterclaim against Bridgeview
and Clark, seeking a declaration it had no duty to defend or indemnify Clark.
¶7 Both Bridgeview and State Farm moved for partial summary judgment on the question of
whether State Farm had a duty to defend. In its motion, State Farm acknowledged that, under
Illinois law, coverage was provided under both relevant provisions of the insurance policy.
State Farm maintained, however, that Illinois law conflicts with Indiana law on the coverage
issues. State Farm conceded there were no Indiana state court cases which addressed whether
coverage was provided, but relied on two unreported federal district court decisions from the
Southern District of Indiana. These decisions predicted that the Indiana Supreme Court would
hold there is no coverage under a general comprehensive liability policy for the claims raised
in Bridgeview’s complaint. State Farm maintained that these decisions, in themselves, created
a conflict with Illinois law. Further, State Farm contended Indiana law should apply in this case
because Indiana had the most significant contacts with the dispute. Thus, State Farm
maintained its policy provided no coverage.
¶8 Bridgeview, in its motion, argued there was no conflict between Indiana and Illinois law.
Bridgeview relied on a recent appellate court decision, Pekin Insurance Co. v. XData
Solutions, Inc., 2011 IL App (1st) 102769, which held that a federal district court decision
which merely predicts what state law would be does not, in itself, constitute “state law,” and,
further, when there is no state case law on a question, there can be no conflict. Bridgeview also
maintained that, even assuming Illinois and Indiana law were in conflict, Illinois had the most
significant contacts. Therefore, according to Bridgeview, Illinois law should apply. Clark
adopted Bridgeview’s position.
¶9 On May 17, 2012, the circuit court of Cook County granted Bridgeview’s motion for
partial summary judgment and denied State Farm’s motion. The circuit court agreed with
Bridgeview that Pekin controlled the outcome; that there was no conflict between Illinois and
Indiana law; and, thus, there was no need to conduct a choice-of-law analysis. Thereafter, the
circuit court made a written finding pursuant to Supreme Court Rule 304(a) (Ill. S. Ct. R.
304(a) (eff. Feb. 26, 2010)), that there was no just reason to delay appeal.
¶ 10 The appellate court reversed and remanded. 2013 IL App (1st) 121920. The appellate court
concluded that Pekin conflicted with the purpose of the choice-of-law doctrine and chose not
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to follow that decision. Instead, the appellate court held that the federal decisions cited by State
Farm were sufficient to raise the possibility of a conflict between Illinois and Indiana law and
“that the potential for conflict between Indiana law and Illinois law requires the trial court to
engage in a choice-of-law analysis for the case.” Id. ¶ 22. We granted Bridgeview’s petition for
leave to appeal. Ill. S. Ct. R. 315(a) (eff. July 1, 2013).
¶ 11 ANALYSIS
¶ 12 This case brings before us the circuit court’s grant of partial summary judgment in favor of
Bridgeview. Summary judgment is properly granted when “the pleadings, depositions, and
admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a judgment as a matter of law.” 735
ILCS 5/2-1005(c) (West 2010). Summary judgment rulings are reviewed de novo. Hooker v.
Retirement Board of the Firemen’s Annuity & Benefit Fund, 2013 IL 114811, ¶ 15.
¶ 13 The parties do not dispute that, under Illinois law, State Farm has a duty to defend the
underlying complaint pursuant to the insurance policy’s “advertising injury” and “property
damage” coverage. See Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d
352 (2006) (coverage provided under the advertising injury provision); Insurance Corp. of
Hanover v. Shelborne Associates, 389 Ill. App. 3d 795 (2009) (coverage provided under the
property damage provision). Nevertheless, State Farm maintains that the circuit court erred in
granting Bridgeview’s summary judgment motion because Indiana law applies.
¶ 14 “[A] choice-of-law analysis begins by isolating the issue and defining the conflict.”
Townsend v. Sears, Roebuck & Co., 227 Ill. 2d 147, 155 (2007); 1A C.J.S. Actions § 45 (2005);
15A C.J.S. Conflict of Laws § 30 (2012). A choice-of-law determination “is required only
when a difference in law will make a difference in the outcome.” Townsend, 227 Ill. 2d at 155;
Barbara’s Sales, Inc. v. Intel Corp., 227 Ill. 2d 45, 59 (2007). The party seeking the
choice-of-law determination bears the burden of demonstrating a conflict, i.e., that there exists
a difference in the law that will make a difference in the outcome. See Chicago Board Options
Exchange, Inc. v. International Securities Exchange, L.L.C., 2012 IL App (1st) 102228, ¶ 44.
Once a conflict between laws is established, the analysis turns to which law should be applied.
Townsend, 227 Ill. 2d at 157.We review de novo a circuit court’s decision on a choice of law
issue. Id. at 153-54.
¶ 15 No Indiana state court has addressed the question of whether the sending of unsolicited
faxes falls within a comprehensive liability policy’s provisions, either as an advertising injury
or as property damage. However, two unreported federal district court decisions, Ace
Mortgage Funding, Inc. v. Travelers Indemnity Co. of America, No. 1:05-cv-1631-DFH-TAB,
2008 WL 686953 (S.D. Ind. Mar. 10, 2008), and Erie Insurance Exchange v. Kevin T. Watts,
Inc., No. 1:05-cv-867-JDT-TAB, 2006 WL 1547109 (S.D. Ind. May 30, 2006), have predicted
Indiana law. These decisions predicted that the Indiana Supreme Court would hold there is no
coverage for claims such as Bridgeview’s under comprehensive general liability policies. In so
holding, the district courts relied on American States Insurance Co. v. Capital Associates of
Jackson County, Inc., 392 F.3d 939 (7th Cir. 2004). In that decision, the Seventh Circuit
looked at Illinois law and predicted that this court would hold that coverage was unavailable
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under a comprehensive general liability policy. That position was subsequently rejected by this
court in Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352 (2006). The
question before us in this case is whether the federal district court decisions can be the source
of an outcome determinative conflict so as to trigger a choice-of-law analysis. State Farm
contends they can. State Farm maintains that the federal district court decisions, in and of
themselves, establish a conflict between Illinois and Indiana law. We disagree.
¶ 16 Under Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), a federal district court in a diversity
action must apply the law of the state in which the court sits with respect to substantive matters.
In the absence of prevailing authority from the state’s highest court, the district court “must
make a predictive judgment as to how the supreme court of the state would decide the matter if
it were presented presently to that tribunal.” Allstate Insurance Co. v. Menards, Inc., 285 F.3d
630, 635 (7th Cir. 2002). Such a predictive judgment is not, in fact, state law; it is an “ ‘Erie
guess’ ” as to what state law would be. Id. at 638. As one commentator has noted, “even if the
rule in question is embraced by the state’s highest court at a later date it remains true that the
rule applied in federal court did not in fact constitute a sovereign command of the state.”
Bradford R. Clark, Ascertaining the Laws of the Several States: Positivism and Judicial
Federalism After Erie, 145 U. Pa. L. Rev. 1459, 1505 (1997); see also, e.g., Pekin Insurance
Co. v. XData Solutions, Inc., 2011 IL App (1st) 102769, ¶ 23 (federal district court decision
making an Erie prediction is not state law); Paul A. LaBel, Legal Positivism and Federalism:
The Certification Experience, 19 Ga. L. Rev. 999, 1015 (1985) (“When a federal court makes
an Erie determination of a question of first impression, the ‘law of the state’ that the federal
court purports to apply to the case is, in reality, federal law.”). As in Illinois, Indiana courts
recognize that federal district court decisions making an Erie prediction are not binding on
questions of state law; Indiana courts are under no obligation to accept federal district court
decisions as the law of Indiana. League of Women Voters of Indiana, Inc. v. Rokita, 929 N.E.2d
758, 763 (Ind. 2010); Harris v. State, 985 N.E.2d 767, 781 (Ind. Ct. App. 2013).
¶ 17 Because a federal district court’s Erie prediction is not state law, such a prediction cannot,
by itself, establish a conflict between state laws. Thus, the fact that the federal district court
decisions cited by State Farm in this case predicted that the Supreme Court of Indiana would
reach a result at odds with Illinois law is not, standing alone, sufficient to establish a conflict
between the law of Illinois and Indiana. This is not to say, however, that when a circuit court in
Illinois is confronted with a motion alleging a conflict of laws it may not consider what the
federal district court has to say about our sister state’s law. If, for example, the federal district
court bases its Erie prediction on the holdings of the state’s intermediate appellate courts (see,
e.g., Menards, 285 F.3d at 637), that would be a relevant consideration for the circuit court. But
the focus must be on the underlying state law, and not merely the fact of the Erie prediction
itself. Only when the movant establishes a conflict between state laws to the circuit court’s
satisfaction is a choice-of-law analysis required.
¶ 18 State Farm maintains, however, that in Phillips Petroleum Co. v. Shutts, 472 U.S. 797
(1985), the United States Supreme Court relied upon a federal district court’s Erie prediction to
find a conflict between state laws. In Shutts, the Kansas state courts, in a class action lawsuit,
applied Kansas law to claims concerning the awarding of interest on suspended royalty
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payments from gas leases, even though 99% of the gas leases at issue and 97% of the plaintiffs
had no connection to Kansas. Id. at 814-15. On appeal to the Supreme Court, the defendant
argued that this violated due process. The Supreme Court agreed. In addressing the issue, the
Court noted it was required to determine whether Kansas law conflicted with other states’ law,
particularly Oklahoma and Texas. With respect to Oklahoma, the Court concluded that
Oklahoma law required an interest rate on the royalties of 6%, not the higher 15% imposed by
Kansas. Id. at 816-17. Thus, Oklahoma and Kansas law conflicted. In reaching this conclusion,
the Court cited to an Oklahoma statute and supreme and appellate court case law. Id.
¶ 19 With respect to Texas, several conflicts existed, including the interest rates. The Court
again cited to a Texas statute and Texas state court case law to reach this conclusion. Although
the Court did reference one published Northern District of Texas case interpreting Texas law in
a “moreover” sentence, it had already found at least one clear conflict. The basis for reversal
was the conflicting interest rates, and, because of this conflict alone, the Court concluded the
Kansas courts erred in holding that Kansas law applied to all transactions. Id. at 818. The
Supreme Court did not hold that a federal district court’s Erie prediction, by itself, established
a conflict of state laws.
¶ 20 State Farm also relies on Sears, Roebuck & Co. v. National Union, 331 Ill. App. 3d 347
(2002), for the proposition that a federal district court’s Erie decision establishes a conflict
between state law. Sears does not so hold. In Sears, the parties conceded that Pennsylvania law
applied. The question before the court was whether an Illinois circuit court could accept a
federal district court decision interpreting Pennsylvania law over a Pennsylvania intermediate
court decision. Sears, 331 Ill. App. 3d at 351. The court answered that question in the negative.
Specifically, it held, “[b]ased on the holdings in Moscov [v. Mutual Life Insurance Co. of New
York, 387 Ill. 378 (1944)] and Continental-Midwest Corp. [v. Hotel Sherman, Inc., 13 Ill. App.
2d 188 (1957)] and applying the principles set forth above, this court holds that Illinois state
courts have the discretion to rely on persuasive federal diversity decisions in predicting how a
sister state’s supreme court would rule on a matter at issue, in the absence of controlling
authority from the sister state’s supreme court or intermediate appellate court.” (Emphasis
added.) Id. at 353. In Sears, the choice of a sister state’s law was already established. The issue
for the circuit court in that case was how to determine the sister state’s law in a situation where
the court had to do so. Sears did not, however, address how a conflict of laws is to be
established and Sears did not hold that a federal district court’s Erie prediction is sufficient, in
itself, to establish a conflict of state laws. That question simply was not before the court.
¶ 21 State Farm also points to Moscov and Continental-Midwest Corp. and contends that a
circuit court can consider all data to ascertain a state’s law, including federal district court
decisions, and whether there is a conflict between two states’ laws. While it may generally be
true that a court can consider all data in ascertaining or interpreting another state’s law, neither
of these cases involved a discussion of whether it was appropriate to utilize a federal district
court’s Erie prediction to determine whether an actual conflict exists between state laws. The
question before these courts was whether a state lower court decision could be deemed that
state’s law. In Moscov, we held that Illinois courts must accept the decision of an intermediate
court of review as stating the law of another jurisdiction in the absence of any conflicting
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decision by another appellate court of coordinate jurisdiction in that state or by its highest court
of review. Moscov, 387 Ill. at 389. This holding was followed in Continental-Midwest Corp.,
which concluded that a Delaware chancery court decision stated that state’s law.
Continental-Midwest Corp., 13 Ill. App. 2d at 196. Neither Moscov nor Continental-Midwest
Corp. holds that a federal district court’s Erie prediction, standing alone, establishes a conflict
of state laws.
¶ 22 State Farm also relies on Banks v. RIBCO, Inc., 403 Ill. App. 3d 646 (2010), for the
proposition that the circuit court can rely on a federal district court’s Erie prediction to
establish a state-law conflict. Again, Banks does not support this position. In Banks, the parties
agreed there were several “critical” conflicts between Illinois and Iowa dramshop laws. In
identifying one of those conflicts, the appellate court set forth an Iowa statute as well as a
published federal district court case interpreting that statute. In identifying a second conflict,
the court set forth an Iowa statute. Id. at 649. Because a “real conflict” between state laws had
been identified, the court conducted a choice-of-law analysis.
¶ 23 Lastly, State Farm argues that the mere potential for a conflict between state laws is
sufficient to warrant a choice-of-law analysis. The appellate court below reached the same
conclusion. The appellate court reasoned that when the law of another jurisdiction is uncertain,
courts should undertake a choice-of-law analysis to determine which state’s law applies.
According to the appellate court, “because the application of Indiana law could possibly lead to
a different result than that reached under Illinois law, the trial court must first determine which
state has the most significant contacts to the dispute, and then apply to the dispute the law of
the state with the most significant contacts.” 2013 IL App (1st) 121920, ¶ 22. In reaching this
result, the appellate court below relied on Sterling. Sterling Finance Management, L.P. v. UBS
PaineWebber, Inc., 336 Ill. App. 3d 442 (2002).
¶ 24 The question before the court in Sterling was the scope of the corporate attorney-client
privilege. In defining the scope, Illinois applies the control group test. Id. at 448. New York
law on that question was not clear. The Sterling court correctly recited the principle that a
choice-of-law determination is “not implicated unless there is an actual conflict in the law of
the two states.” (Emphasis added.) Id. at 447. The court concluded that a “true conflict” existed
between Illinois and New York law. Id. at 451. Confusingly, however, the court also stated that
“[b]ased on the uncertainty of New York law, and its rejection of the control group test in a
different context, we believe it prudent to consider that an actual conflict may exist” and
therefore, undertake a choice-of-law analysis. (Emphasis added.) Id.
¶ 25 To the extent that Sterling holds that a mere possibility of a conflict of laws is sufficient to
require a choice-of-law analysis, we disagree. As the United States Supreme Court has
observed, “there can be no injury” in applying the local forum’s law if that law is not in actual
conflict with the law of another jurisdiction. Shutts, 472 U.S. at 816. Applying Illinois law in
this case does no injury to State Farm if Indiana law is not in actual conflict with Illinois.
Further, it is unclear what the appellate court below and State Farm mean by a “potential”
conflict of laws. There is always a “potential” for differences to arise on state-law questions,
even on matters that have previously been addressed. A “potential” conflict standard would
appear to create substantial uncertainty in deciding what law to apply. We adhere to settled
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law: a choice-of-law determination is required only when the moving party has established an
actual conflict between state laws.
¶ 26 Apart from the Erie predictions made in the Indiana federal district court decisions, State
Farm does not argue that Indiana law is in conflict with Illinois law. Indeed, State Farm asserts
that “what the law of Indiana actually is has no bearing on the dispositive question presented in
this appeal—whether a federal district court’s Erie prediction can be the source of an outcome
determinative conflict so as to trigger the most significant contacts test.” Because State Farm
identifies no Indiana law on point, we conclude that State Farm has failed to meet its burden of
demonstrating an actual conflict exists between Illinois and Indiana law. We note that this
holding does not offend the notions of full faith and credit. We are not refusing to give “the
public Acts, Records, and judicial Proceedings of every other State” (U.S. Const., art. IV, § 1),
here Indiana, the credit they deserve since none of those exist in Indiana on the question at bar.
¶ 27 CONCLUSION
¶ 28 For the foregoing reasons, the judgment of the appellate court is reversed. The judgment of
the circuit court awarding partial summary judgment in favor of Bridgeview is affirmed.
¶ 29 Appellate court judgment reversed.
¶ 30 Circuit court judgment affirmed.
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