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

Dist. Ct. erred in granting defendant-insurance company’s motion to dismiss plaintiff-insured’s breach of contract claim arising out of defendant’s failure to defend plaintiff in underlying intellectual-property action, under circumstances where plaintiff had previously prevailed in state-court action under declaratory-judgment statute (735 ILCS 5/2-701(c)) that concerned similar duty to defend plaintiff in same underlying action, and where plaintiff had received certain incidental relief in prior action. Record showed that: (1) prior declaratory action did not allow plaintiff to receive consequential damages or certain fees arising out of defendant’s failure to defend plaintiff in underlying lawsuit; (2) plaintiff subsequently filed in state and federal courts similar breach of contract claims that sought consequential damages arising out of defendant’s failure to defend plaintiff in same underlying action; and (3) state court eventually granted plaintiff’s voluntary motion to dismiss state-court action and expressly reserved plaintiff’s ability to proceed on his federal court breach of contract action. While Dist. Ct. granted defendant’s motion to dismiss on claim and issue preclusion grounds, claim preclusion did not apply, where second state-court action expressly reserved plaintiff’s ability to proceed on instant breach of contract action. Moreover, issue preclusion did not apply, where certain consequential damages and fees sought in instant breach of contract claim could not have been asserted in prior declaratory relief action.