Federal Court Erie Prediction Insufficient to Establish Conflict of Law

by Traub Lieberman Straus & Shrewsberry LLP
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In its recent decision in Bridgeview Health Care Ctr. v. State Farm Fire & Cas. Co., 2014 Ill. LEXIS 596 (May, 22, 2014), the Supreme Court of Illinois had occasion to consider whether a federal court’s Erie prediction is sufficient to establish an actual conflict between the laws of two states for purposes of a choice-of-law analysis.

Bridgeview Health Care Center (“Bridgeview”) filed a class action complaint in the Northern District of Illinois against Affordable Digital Hearing (“Digital Hearing”). Bridgeview’s complaint alleged that Digital Hearing sent Bridgeview and others unsolicited faxes in violation of the Telephone Consumer Protection Act (“TCPA”). Digital Hearing was insured under a commercial general liability policy issued by State Farm Fire and Casualty Company, which was purchased through an agent in Indiana and issued to Digital Hearing at its business address in Indiana. Bridgeview was an Illinois corporation.

Digital Hearing tendered its defense of the Bridgeview suit to State Farm, which agreed to defend Digital Hearing subject to a reservation of rights. State Farm took the position that the Bridgeview suit did not implicate the policy’s “advertising injury” and “property damage” coverage. In furtherance of that position, State Farm filed a declaratory judgment suit against Digital Hearing and Bridgeview in Indiana, but that matter was dismissed for want of personal jurisdiction over Bridgeview.

Bridgeview then filed a declaratory judgment action against State Farm in Illinois seeking a declaration that State Farm owed a duty to defend and indemnify Digital Hearing because the suit fell within both the “advertising injury” and “property damage” coverages of the State Farm Policy. State Farm, in turn, filed a counterclaim against Bridgeview and Digital Hearing seeking a declaration that it had no duty to defend or indemnify Digital Hearing. Both parties moved for partial summary judgment.

State Farm acknowledged that coverage was provided under both relevant provisions of the insurance policy under Illinois law. State Farm maintained, however, that Illinois law conflicted with Indiana law on the issue. Although State Farm conceded that there were no Indiana state court decisions addressing whether coverage was provided under Indiana law, State Farm relied on two unreported federal court decisions from the Southern District of Indiana that predicted that the Indiana Supreme Court would hold that there was no coverage under a CGL policy for the claims asserted in the Bridgeview suit. State Farm contended that this Erie guess from the federal courts was sufficient to create a conflict with Illinois law and require a choice of law analysis.

Bridgeview argued that there was no actual conflict between Indiana law pursuant to Pekin Ins. Co. v. XData, 958 N.E.2d 397 (Ill. App. 2011) (holding that to determine the law of a sister state for the purpose of determining whether a conflict exists, a court could not consider federal court decisions because such decisions “only attempt to ‘predict’ [the state’s] law”). Holding that Illinois law applied in the absence of an actual conflict, the trial court granted Bridgeview’s motion for partial summary judgment and denied State Farm’s motion. State Farm appealed, and the appellate court reversed and remanded. Bridgeview petitioned for leave to appeal to the Illinois Supreme Court, which was granted.

The Illinois Supreme Court held that because a federal district court’s Erie prediction is not state law, such a prediction could not, by itself, establish a conflict between state laws. The Court held that a state circuit court could rely on a federal district court that based its Erie prediction on the holding of the state’s intermediate appellate courts, but clarified that the federal district court’s focus “must be on the underlying state law, and not merely the fact of the Erie prediction itself.” Thus, the two decisions from the U.S. District Court for the Southern District of Indiana did not create an actual conflict with Illinois law such that a choice of law analysis was warranted.

Further, the court held that the absence of Indiana state court precedent on the issue is not sufficient to require a choice of law analysis. Instead of a potential conflict between states’ laws, there must be an actual conflict. Such a conflict did not exist in this case. The Illinois Supreme Court therefore reversed the judgment of the appellate court, and affirmed the judgment of the circuit court that State Farm had a duty to defend its insured.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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