Creation Supply, Inc. v. Selective Insurance Company of the Southeast

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 20-2509
C REATION SUPPLY, INC.,
Plaintiff-Appellee,
v.
SELECTIVE INSURANCE C OMPANY OF THE SOUTHEAST ,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 14-cv-8856 — Charles P. Kocoras, Judge.
____________________
A RGUED J ANUARY 14, 2021 — D ECIDED A PRIL 26, 2021
____________________
Before R IPPLE , KANNE , and R OVNER , Circuit Judges.
KANNE , Circuit Judge. This appeal is part of an ongoing,
decade-long, three-lawsuit fight between an insurer, Selective
Insurance Company of the Southeast, and its insured, Crea-
tion Supply, Inc. (“CSI”), over who owed what when.
The issue here, though, is a narrow question of statutory
interpretation—whether the district court properly awarded

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2 No. 20-2509
extracontractual damages to CSI under Section 155 of the Illi-
nois Insurance Code.
Section 155 permits an insured to seek extracontractual
damages from an insurer in any case in which at least one of
three issues remains undecided: (1) the insurer’s liability un-
der the policy, (2) the amount of the loss payable under the
policy, or (3) whether there was an unreasonable delay in set-
tling a claim.
None of these three threshold issues remains undecided
here: (1) Selective’s liability under its policy with CSI was re-
solved by the Illinois Appellate Court in 2015; (2) the amount
of loss payable by Selective to CSI under the policy was deter-
mined by the Illinois Appellate Court in 2017; and (3) CSI does
not seek recovery for any unreasonable delay by Selective in
settling CSI’s claim. In summary, none of CSI’s extracontrac-
tual issues remains undecided. As a result, CSI cannot pursue
Section 155 damages in this action.
This result is admittedly atypical. Section 155 claims usu-
ally proceed right alongside breach-of-contract claims, such
as the other claim brought by CSI in this suit. But the lengthy
history of this case breaks the mold. We therefore reverse the
decision of the district court granting relief to CSI under Sec-
tion 155.
I. BACKGROUND
CSI imports and sells writing markers. In 2012, a compet-
itor sued CSI in Oregon federal court for allegedly selling
copy-cat products. CSI turned to its insurer, Selective, for a
defense. But Selective refused for what the district court here
believed were dubious reasons.

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No. 20-2509 3
Selective then sued CSI in Illinois state court for a declara-
tion that it did not owe CSI a duty to defend. While this Illi-
nois action was pending, CSI settled the Oregon action in 2013
for $0 and an injunction requiring it to stop selling the alleg-
edly counterfeit markers.
The Illinois court granted summary judgment in favor of
CSI after concluding that Selective did owe CSI a defense in
the Oregon action. In 2015, that decision was affirmed by the
Illinois Appellate Court, which also held in 2017 that Selective
owed CSI the $195,000 it spent in the Oregon action from the
time the action commenced until it settled. All other expenses
fell outside the scope of the policy.
CSI filed this federal action now on appeal while the Illi-
nois state action was still ongoing. In this suit, CSI alleges in
Count I that “Selective’s refusal to grant coverage to CSI and
defend it under the Policy, and its failure to pay CSI’s fees and
expenses in the Underlying Oregon Action for over one year
after having been judicially determined to have a duty to de-
fend CSI is vexatious and unreasonable in violation of Section
155 of the Illinois Insurance Code.” On this count, CSI seeks
extracontractual damages including attorney fees and $60,000
in penalties.
In Count II, CSI alleges that Selective breached its insur-
ance contract with CSI. On this claim, Selective seeks to re-
cover “all available damages for Selective’s breach of the con-
tract, including, but not limited to, consequential damages,”
such as “unnecessary legal fees and expenses [incurred] de-
fending itself and seeking indemnification in the Underlying
Oregon Action, and in pursuing payment from Selective.”

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4 No. 20-2509
In 2017, the federal district court granted CSI partial sum-
mary judgment, finding that Selective breached its insurance
contract with CSI by failing to provide coverage and defend
CSI in the Oregon action. The federal court left the issue of
CSI’s contractual damages for a later trial.
The federal district court then held a bench trial on CSI’s
Section 155 claim in 2018. The district court found that Selec-
tive’s refusal to defend CSI in the Oregon action or to supply
insurance coverage to CSI was vexatious and unreasonable
and thus warranted Section 155 damages of $2,846,049.34.
The federal court directed entry of final judgment under
Federal Rule of Civil Procedure 54(b) on CSI’s Section 155
claim. The breach-of-contract claim is still pending.
Selective now appeals the federal district court’s Section
155 decision. On appeal, CSI filed a motion for sanctions
against Selective under Federal Rule of Civil Procedure 38 for
filing a frivolous appeal.
II. A NALYSIS
Following a bench trial, we review de novo the district
court’s legal conclusions, such as the interpretation of Section
155. See Acheron Med. Supply, LLC v. Cook Med. Inc., 958 F.3d
637, 642 (7th Cir. 2020) (citing Rain v. Rolls-Royce Corp., 626
F.3d 372, 379 (7th Cir. 2010)).
Section 155 “limits and refines recovery for the tort of vex-
atious and unreasonable delay.” Mohr v. Dix Mut. Cnty. Fire
Ins. Co., 493 N.E.2d 638, 643 (Ill. App. Ct. 1986) (citations omit-
ted). It states in relevant part:
In any action by or against a company wherein there
is in issue [1] the liability of a company under a pol-
icy or policies of insurance or [2] the amount of the

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No. 20-2509 5
loss payable thereunder, or [3] for an unreasonable
delay in settling a claim, and it appears to the court
that such action or delay is vexatious and unreason-
able, the court may allow as part of the taxable costs
in the action reasonable attorney fees [and] other
costs.
215 Ill. Comp. Stat. 5/155 (2020).
According to Illinois courts, “[t]he language of this section
is entirely plain.” Neiman v. Econ. Preferred Ins. Co., 829 N.E.2d
907, 914 (Ill. App. Ct. 2005). Section 155 does not create a cause
of action but rather “provides an extracontractual remedy for
policyholders who have suffered unreasonable and vexatious
conduct by insurers with respect to a claim under [a] policy.”
Cramer v. Ins. Exch. Agency, 675 N.E.2d 897, 902 (Ill. 1996); ac-
cord Hennessy Indus., Inc. v. Nat’l Union Fire Ins. Co. of Pitts-
burgh, 770 F.3d 676, 679 (7th Cir. 2014) (holding that Section
155 “provides a remedy in a specified type of ‘action’ (case);
it does not create a cause of action; it presupposes rather than
authorizes a suit”).
Indeed, “[t]he statute begins by stating that it applies to
those insurance cases where one of three issues remains un-
decided: [1] the liability of the insurer, [2] the amount owed
under the policy, or [3] whether a delay in settling a claim has
been unreasonable.” Neiman, 829 N.E.2d at 914.
None of those three threshold issues remains undecided
here.
1. Selective’s Liability
Two Illinois cases make our decision on the first threshold
issue quite straightforward. In Neiman, the Illinois Appellate
Court held that the first potential issue did not permit the

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6 No. 20-2509
Section 155 claim before it because an underlying judgment
“already found that defendant, as the insurer, was liable un-
der the policy to plaintiffs.” Id.
Similarly, in Pryor v. United Equitable Insurance Co., the case
could not fall under the first Section 155 category “because the
liability of the insurer … w[as] determined during arbitra-
tion.” 963 N.E.2d 299, 302 (Ill. App. Ct. 2011).
As in Neiman and Pryor, Selective’s liability under the pol-
icy was fully decided in 2015 when the Illinois Appellate
Court held that the Oregon action “triggered Selective’s duty
to defend Creation Supply.”
CSI does not offer any argument suggesting otherwise. In-
stead, CSI repeats many times that no authority—especially
not our decision in Hennessey—requires Section 155 claims to
be brought in the same action in which the duty to defend is
decided.
We agree. But one of the three threshold issues (of which
liability under the policy is just one) must remain undecided.
And this counterargument admits that Selective’s liability un-
der the policy at issue was decided in 2015.
2. CSI’s Amount of Loss Payable Under the Policy
Neiman and Pryor also provide guidance on whether the
amount of loss payable under the policy remains undecided.
In Neiman, the amount of loss payable was already decided
by an underlying judgment that found that the defendant-in-
surer “was liable under the policy to plaintiffs in the amount
remaining thereunder: $8,740 plus costs.” 829 N.E.2d at 914.
And in Pryor, “the amount owed under the policy w[as] de-
termined during arbitration.” 963 N.E.2d at 302.

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No. 20-2509 7
We see no daylight between the case before us and Neiman
and Pryor. CSI settled the Oregon action (which was the only
action covered by the policy) for $0. Then, in 2017 the Illinois
Appellate Court held that, under the policy, Selective owed
$195,000 to CSI for expenses incurred in the Oregon action
from the time it started until CSI settled it and terminated Se-
lective’s obligations.
To put a fine point on it, the Illinois Appellate Court de-
fined the precise scope of CSI’s policy with Selective as fol-
lows:
The [Oregon action] plaintiffs and Creation Supply
settled all their claims and counterclaims on July 29,
2013. The Oregon court dismissed the underlying
lawsuit against Creation Supply on August 19, 2013
without prejudice pursuant to the settlement agree-
ment. Therefore, as of August 19, 2013, the covered
claims for intellectual property infringement fell out
of the case through settlement, which precluded the
possibility of a duty to indemnify after that date and
ceased the duty to defend.
Selective Ins. Co. of the Se. v. Creation Supply, Inc., 2017 IL App
(1st) 161899-U, ¶ 58.
Then, based on that definition of the policy’s scope, the Il-
linois Appellate Court excluded from its award to CSI various
costs that arose after the settlement because they were not
covered by the policy. Thus, the only loss payable under the
policy was the $195,000 that CSI spent in the Oregon action
before reaching settlement—nothing more and nothing less.
And that means there’s nothing left to decide about the
amount that Selective owed to CSI under the policy.

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8 No. 20-2509
What CSI seeks now are consequential damages that, as
the district court aptly stated, are “the amount of loss payable
by virtue of the breach of contract already found by the Court.”
But that loss is not, as the district court held, the same as the
amount owed under the policy. As stated, the Illinois Appellate
Court already determined the amount due under the policy
in 2017.
CSI again does not directly refute this conclusion by point-
ing to some undecided amount still due under the policy. In-
stead, CSI sketches yet another straw man and argues that Se-
lective is asking the court to hold that a request for consequen-
tial damages, like the request here, precludes a Section 155
claim.
Selective has not in fact made such an argument, and we
agree with CSI that such a position would be incorrect. Con-
sequential damages are perfectly permissible alongside a Sec-
tion 155 claim. See Mohr, 493 N.E.2d at 643 (permitting a claim
for consequential damages and a claim under Section 155 in
the same action). And consequential damages may be recov-
ered after an insurance contract is breached. Clark v. Standard
Life & Acc. Ins. Co., 386 N.E.2d 890, 898 (Ill. App. Ct. 1979).
But though permissible, the consequential damages at is-
sue in this case are only those damages that arose outside of
the policy’s purview; the Illinois Appellate Court already
awarded all of the damages that arose under the policy.
CSI also asserts, without elaboration, that it seeks “com-
pensatory damages.” But we see nothing in the complaint that
brings compensatory damages (which we assume means “the
amount of loss payable under the policy”) into the case.

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No. 20-2509 9
Further, we don’t see how such damages could come into
play, as they were already awarded by the Illinois Appellate
Court. The district court seemed to agree as well by stating
that its ruling on the Section 155 claim would “be followed by
a trial for consequential damages and fees, if any, sustained by
CSI due to Selective’s breach of its insurance contract.”
In sum, any amount due to CSI under its policy with Se-
lective has already been resolved and thus cannot support a
Section 155 claim.
3. Selective’s Unreasonable Delay in Settling CSI’s Claim
What’s left is the third threshold issue—whether Selective
unreasonably delayed settling a claim. For this “portion of the
statute to be operational, there must have been an unreason-
able delay in the ‘settling of a claim,’” as opposed to a delay
in paying a “judgment.” Neiman, 829 N.E.2d at 915. The
Neiman court defined “claim” as a “[d]emand for money or
property as of right, e.g. insurance claim.” Id. (alteration in
original) (citing Claim, Black’s Law Dictionary 247 (6th ed.
1990)). And it defined “judgment” as “[t]he official and au-
thentic decision of a court of justice upon the respective rights
and claims of the parties to an action or suit therein litigated.”
Id. (citing Judgment, Black’s Law Dictionary 841–42 (6th ed.
1990)).
In that case, “the underlying cause was well beyond the
point of a claim, or even of a settlement, when plaintiffs filed
the section 155 suit. In fact, a judgment had already been en-
tered on the underlying suit—on August 3, 2001, for a sum
certain.” Id. “Accordingly, a ‘claim’ was no longer in existence,
as necessitated by the statute, but, rather, a judgment had
been instituted, foreclosing any remaining issues with respect

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10 No. 20-2509
to the underlying cause.” Id. Thus, a “claim” no longer existed
in the case before it, and a Section 155 action could not pro-
ceed.
The suit before us likewise does not seek damages for any
unreasonable delay in settling a claim. Instead, as in Neiman,
“the underlying cause [in the Oregon action i]s well beyond
the point of a claim, or even of a settlement.” Id. It was put to
bed by the 2013 settlement and by the Illinois Appellate
Court’s 2015 and 2017 decisions regarding Selective’s liability
and the amount due under the policy. So the only issue here
is whether Selective unreasonably delayed paying the Illinois
court’s judgment relating to fees, not whether it delayed set-
tling an insurance claim made by CSI.
In fact, CSI highlights its allegations that Selective failed to
pay CSI’s fees and expenses in the Oregon action “after hav-
ing been judicially determined to have a duty to defend” or
“after the [Illinois] Appellate Court affirmed … that Selective
owed CSI a duty to defend.” These allegations prove the
point—Selective allegedly failed to timely pay on a judgment;
it did not allegedly fail to timely settle a claim.
CSI also made this point plain as day in its summary judg-
ment briefing before the district court, which stated, “Selec-
tive acted vexatiously and with delay after it was found to
have a duty to defend. … On December 19, 2013, the Circuit
Court found that Selective owed CSI, a duty to defend in the
Oregon Action … . On January 7, 2014, CSI … asked to be paid
under the December 19 Judgment” (emphasis added).
* * *
Section 155 spells out in black and white that at least one
of three threshold issues must remain undecided for a Section

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No. 20-2509 11
155 claim to stand. Because none of those issues remains un-
decided here, CSI’s Section 155 claim cannot proceed. Never-
theless, CSI raises the following unpersuasive counterargu-
ments.
To start, CSI recites over and over again that this is not a
“stand-alone” Section 155 claim as Selective argues. This case
instead involves two claims: one for Selective’s breach of con-
tract and one under Section 155. And courts have often said
that a Section 155 claim can be brought alongside a breach-of-
contract claim. See, e.g., Cramer, 675 N.E.2d at 904 (“[I]n con-
junction with a breach of contract action, section 155 provides
the remedy to policyholders for insurer misconduct that does
not rise to the level of a well-established tort.”); Keller v. State
Farm Ins. Co., 536 N.E.2d 194, 198 (Ill. App. Ct. 1989) (permit-
ting a Section 155 claim to proceed alongside a breach-of-con-
tract claim). Thus, CSI argues that its Section 155 claim may
proceed by virtue of its breach-of-contract claim.
Most of the above argument is correct: CSI has not brought
a “stand-alone” Section 155 claim; CSI has also brought a
breach-of-contract claim; and Section 155 claims often accom-
pany breach-of-contract claims, as noted in Cramer and Keller.
But CSI’s conclusion—that its Section 155 claim may pro-
ceed—is wrong.
Why? Because it commits what logic books call the “fal-
lacy of the undistributed middle.” See David Kelley, The Art
of Reasoning 243 (3d ed. 1998) (“In a valid syllogism, the mid-
dle term must be distributed in at least one of the premises.”).

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12 No. 20-2509
Think of CSI’s argument like this:
1. A Section 155 claim can accompany a breach-of-contract
claim.
2. This case includes a breach-of-contract claim.
3. Therefore, a Section 155 claim can accompany this case.
The problem is that the middle term—“breach-of-contract
claim”—is “undistributed,” meaning it does not refer to all
breach-of-contract claims. So the conclusion does not flow
from the premises.
Here’s an example that is easier to digest:
1. Markers come in boxes.
2. An egg carton is a box.
3. Therefore, markers come in egg cartons.
But of course they don’t. Not all boxes carry markers. Just
some, and egg cartons aren’t among them.
So too, not all breach-of-contract claims permit an accom-
panying Section 155 claim. Just those for which “one of three
issues remains undecided: the liability of the insurer, the
amount owed under the policy, or whether a delay in settling
a claim has been unreasonable.” Neiman, 829 N.E.2d at 914.
And the breach-of-contract claim in this case is not among
them.
CSI also points to what it says are two cases in which Illi-
nois courts did exactly what CSI asks us to do today—ignore
the statute and permit a Section 155 claim even in the absence
of any undecided threshold issue. But neither case did that.
First, in Estate of Price v. Universal Casualty Co., an arbitra-
tor ordered the defendant-insurer to pay $20,000 plus costs
and interest under an insurance policy to the plaintiffs. 750

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No. 20-2509 13
N.E.2d 739 (Ill. App. Ct. 2001). The defendant refused to pay
in full. Then, as the Illinois Appellate Court has explained,
the plaintiff filed a complaint with two counts: to
confirm the arbitration and thereby enter a formal
judgment against the defendant, and to recover sec-
tion 155 damages. Thus, the section 155 allegations
went hand-in-hand with a demand for judgment
against the defendant in the amount of the arbitra-
tor’s award—a judgment that had yet to be declared.
This situation, then, amounted to a delay in the set-
tlement of a claim where the issue of liability had yet
to be resolved. Because issues were still open, sec-
tion 155 was applicable and remand was appropri-
ate for a determination in this regard.
Neiman, 829 N.E.2d at 916 (citing Price, 750 N.E.2d at 739).
Similarly, in Siwek v. White, the plaintiffs brought their Sec-
tion 155 claim in the same action in which they sought “to es-
tablish insurance coverage for [an] accident.” 905 N.E.2d 278,
285 (Ill. App. Ct. 2009). So the insurer’s liability under the pol-
icy was in issue and permitted the Section 155 claim.
Last, CSI makes the colorable argument that its Section 155
claim must stand because the Illinois Circuit Court, in 2013,
dismissed the claim without prejudice and stated that “CSI’s
rights are expressly reserved to maintain its action against Se-
lective in Federal Court … regarding claims of breach of con-
tract and violation of Section 155.”
The Illinois Circuit Court was not wrong at the time it
made this reservation, which was long before Selective’s lia-
bility and the amount owed under the policy were resolved.
But now those issues have been resolved. And though it con-
cerns us that CSI is unable to pursue an avenue for relief that

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14 No. 20-2509
another court left open to it, Section 155 leaves us with no op-
tions.
III. CONCLUSION
For the foregoing reasons, we REVERSE the decision of the
district court and REMAND the case for the district court to
dismiss CSI’s Section 155 claim and to carry out further pro-
ceedings consistent with this opinion to resolve the remaining
issue of breach-of-contract damages.
Further, because this appeal has merit, CSI’s motion for
sanctions under Federal Rule is Appellate Procedure 38 is
DENIED.

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