American Economy Insurance Company v. Jones et al

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
AMERICAN ECONOMY
INSURANCE COMPANY,
Plaintiff,
v.
RAY JONES AND RANDY CLEAVES,
Defendants.
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Case No. 23-cv-2602-RJD
REPORT AND RECOMMENDATION
DALY, Magistrate Judge:
This case has been assigned to the undersigned Magistrate Judge pursuant to
Administrative Order 257. Plaintiff’s Motion for Summary Judgment (Doc. 69) and Motion for
Default Judgment (Doc. 79) require attention, but not all parties have entered their appearance and
consented to the magistrate judge’s jurisdiction. Accordingly, the undersigned is issuing a Report
and Recommendation for consideration by a District Judge. See 28 U.S.C. § 636(b)(1)(b); Fed. R.
Civ. P. 72(b). For the reasons set forth below, it is RECOMMENDED that the Motion for
Summary Judgment (Doc. 69) and the Motion for Default Judgment (Doc. 79) be GRANTED and
DECLARATORY JUDGMENT be entered in favor of the Plaintiff American Economy
Insurance Company (“American Economy”). It is further RECOMMENDED that the Court adopt
the following findings of fact and conclusions of law.
FINDINGS OF FACTS
The Underlying Lawsuit
This case arises out of a collision between two all-terrain vehicles (“ATVs”) operated by
Defendant Ray Jones (“Jones”) and Defendant Randy Cleaves (“Cleaves”) on September 24, 2022,
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in Alexander County, Illinois (the “Accident”). (Doc. 1, pp. 3-4; Doc. 69, p. 2). Cleaves filed a
complaint against Jones as well as two nonparties, the City of Cairo and Alexander County, in a
case titled Randy Cleaves v. Ray Jones, et al., Cause No. 2023LA2, in Alexander County, Illinois
(the “Underlying Lawsuit”), for damages Cleaves allegedly sustained at the Accident. (Doc. 1, p.
3; Doc. 69, p. 2).
At the time of the Accident, Jones was the owner and operator of a yellow Honda Sportrax
400 ATV, bearing VIN 478TE2330944404735. (Doc. 1, p. 4; Doc. 69, p. 3; Doc. 61-1, p. 6).1 The
Accident occurred in Alexander County, Illinois, on a public thoroughfare, in an “area north of the
viaduct on U.S. Highway 51 and South of Future City, a location formally referred to as Preacher
Crains Produce.” (Doc. 1, p. 4; Doc. 69, p. 3; Doc. 61-1, p. 6). The Underlying Complaint alleges
that the “injuries . . . alleged by [Cleaves] were . . . caused by the negligence . . . [of Jones] because
he failed to exercise the highest degree of care while operating his all-terrain vehicle.” (Doc. 1, p.
4; Doc. 69, p. 3).
The Homeowners Policy
Jones and nonparty Kimberly Williams maintained, as of the date of the Accident, an
American Economy Homeowners Policy, policy number OZ4928775 (the “Homeowners Policy”),
with a policy period of June 18, 2022, to June 18, 2023, in connection with their residence at 1606
Lexington Avenue, Cape Girardeau, Missouri. (Doc. 1, p. 5; Doc. 69, p. 3; Doc. 1, pp. 22-92).
Section II of the Homeowners Policy provides certain liability coverages, including Coverage E
1 Based on the allegation of the Complaint, the Cairo Police Department Detail Incident Report, which is
referenced and attached to the Complaint, identified Jones as the owner and operator of the yellow Honda
Sportrax 400 ATV with a vehicle identification number (“VIN”) of 478TE230944404735. (Doc. 1, p. 4).
Further, Jones’ ownership of the yellow Honda Sportrax 400 ATV has also been deemed admitted pursuant
to the Court’s Order granting American Economy’s Motion to Deem Requests for Admission Admitted.
(Doc. 62; Doc. 61-1, p. 6; Doc. 69, p. 3).
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— Personal Liability, the insuring agreement for which states as follows:
If a claim is made or a suit is brought against any insured for damages because of
bodily injury or property damage caused by an occurrence to which this coverage
applies, we will:
1. pay up to our limit of liability for the damages for which the
insured is legally liable; and
2. provide a defense at our expense by counsel of our choice even if
the allegations are groundless, false or fraudulent. We may
investigate and settle any claim or suit that we decide is
appropriate. Our duty to settle or defend ends when the amount we
pay for damages resulting from the occurrence equals our limit of
liability.
(Doc. 1, pp. 5, 67; Doc. 69, p. 3). Section II of the Homeowners Policy includes exclusions stating
in part as follows:
1. Coverage E — Personal Liability and Coverage F — Medical Payments to
Others do not apply to bodily injury or property damage . . . [.)
f. arising out of the ownership, maintenance, use, loading or unloading of . . .[:)
(2) motorized land vehicles, including any trailers, owned or operated
by or rented or loaned to any insured.
This exclusion does not apply to:
(a) a trailer not towed by or carried on a motorized land vehicle;
(b) a motorized land vehicle designed for recreational use off public
roads, not subject to motor vehicle registration, licensing or
permits, and:
i. not owned by any insured; or
ii. owned by any insured, while on an insured location[.]
(Doc. 1, pp. 5, 68; Doc. 69, p. 3).
The Homeowners Policy also includes the following definitions:
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h. “Insured location” means:
(1) the residence premises
(2) the part of any other premises, other structures and grounds, used by you as a
residence and which is shown in your Policy Declarations. This includes any
premises, structures and grounds which are acquired by you during the policy
period for your use as a residence;
(3) any premises not owned by you which you have a right or privilege to use
arising out of h.1. or h.2. above . . .
o. “Residence premises” means:
(1) the one, two, three, or four family dwelling, used principally
as a private residence;
(2) other structures and grounds; or
(3) that part of any other building;
where you reside and which is shown in your Policy Declarations.
(Doc. 1, pp. 6, 51-52; Doc. 69, p. 3). The Homeowners Policy’s Declarations, in turn, show the
insureds’ address and the “insured location” as 1606 Lexington Avenue, Cape Girardeau,
Missouri. (Doc. 1, pp. 33-35).
Procedural History
Following the filing of the Underlying Lawsuit and service of process, Jones requested that
American Economy defend and indemnify him in the Underlying Lawsuit. (Doc. 1, p. 3; Doc. 69,
p. 5). Cleaves also demanded a settlement payment from American Economy on Jones’ behalf.
(Id.). On July 26, 2023, American Economy filed this declaratory action under 28 U.S.C. § 2201
and Fed. R. Civ. P. 57, seeking a declaration of no liability coverage against Jones and Cleaves in
connection with the Underlying Lawsuit. (Doc. 1). Cleaves waived service of the Complaint (Doc.
14) and, on January 11, 2024, filed an Amended Answer (Doc. 50). Jones was served with the
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Complaint on August 14, 2023. (Doc. 10). He did not enter his appearance or file a response, and
on October 31, 2023, the Clerk of Court entered a default pursuant to Rule 55(a) of the Federal
Rules of Civil Procedure. (Doc. 32). To date, Jones has not appeared or otherwise participated in
this litigation.
On September 30, 2024, American Economy moved for summary judgment against Jones
and Cleaves. (Doc. 69). Defendants did not respond. On December 20, 2024, the Court advised
American Economy that the proper mechanism for obtaining judgment against Jones, a defaulted
party, was a motion for default under Rule 55—not a motion for summary judgment. (Doc. 78).
On January 2, 2025, American Economy filed the Motion for Default Judgment against Jones.
(Doc. 79). However, on February 14, 2025, while the motion for default judgment was pending,
American Economy filed a Suggestion of Bankruptcy (Doc. 81) informing the Court that
Defendant Jones and his wife were debtors in a Chapter 7 bankruptcy petition seeking relief under
Title 11, pending in the United States Bankruptcy Court for the Eastern District of Missouri, Bk.
Case No. 25-10060 (the “Bankruptcy Case”). Thereafter, the Court entered an order staying this
case pursuant to 11 U.S.C. § 362.2 (Doc. 82).
On August 20, 2025, American Economy advised that on July 22, 2025, the Bankruptcy
Court issued a Discharge of Debtors Order and closed the Bankruptcy Case. (Doc. 83, p. 1).
Further, the public record shows that on October 30, 2024, Cleaves voluntarily dismissed the
Underlying Lawsuit with prejudice. (Doc. 84, p. 2). Accordingly, the Court lifted the stay and
ordered the parties to file supplemental briefs on the implications of the bankruptcy discharge and
the voluntary dismissal with prejudice of the Underlying Lawsuit on this case. (Doc. 84).
2 While the stay under § 362 does not automatically extend to non-debtors, such as Defendant Cleaves, the
Court stayed the case in its entirety to avoid inconsistent rulings between the Defendants.
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American Economy filed its supplemental brief on December 19, 2025. (Doc. 87). With
respect to the Bankruptcy Case, American Economy advised that Cleaves was listed as an
unsecured creditor in the amount of $50,000, for property damage, not bodily injury, and he did
not file a claim in the bankruptcy proceeding. (Doc. 87, p. 2; Doc. 87-3, p. 9; Doc. 87-2, p. 7). It
further advised that this declaratory judgment action was listed in the bankruptcy case as related
to Jones’ spouse only. (Doc. 87, p. 2; Doc. 87-3, p. 4). American Economy failed to address the
legal implications of the bankruptcy proceeding in its pending motions despite the Court’s explicit
order to do so. As to the dismissal of the Underlying Lawsuit, American Economy advised that it
was unaware of the refiling of any personal injury case by Cleaves against Jones in either Missouri
or Illinois since the voluntary dismissal of the Underlying Lawsuit. (Doc. 87, p. 2). It noted that
counsel for Cleaves had not confirmed or otherwise established that a lawsuit similar to the
Underlying Lawsuit would not be refiled. (Id.). Neither Cleaves nor Jones complied with the
Court’s order for supplemental briefing.
This matter is now before the Court on Plaintiff’s Motion for Summary Judgment (Doc.
69) and Motion for Default Judgment (Doc. 79). The Court will address each motion in order.
CONCLUSIONS OF LAW
Plaintiff’s Motion for Summary Judgment (Doc. 69)
Legal Standard
Summary judgment is appropriate only if the moving party can demonstrate “that there is
no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 91 L.
Ed. 2d 265 (1986); see also Ruffin-Thompkins v. Experian Info. Sols., Inc., 422 F.3d 603, 607 (7th
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Cir. 2005). The moving party bears the initial burden of demonstrating the lack of any genuine
issue of material fact. Celotex, 477 U.S. at 323. Once a properly supported motion for summary
judgment is made, the adverse party “must set forth specific facts showing there is a genuine issue
for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S. Ct. 2505, 91 L. Ed. 2d 202
(1986). A genuine issue of material fact exists when “the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Est. of Simpson v. Gorbett, 863 F.3d 740, 745
(7th Cir. 2017) (quoting Anderson, 477 U.S. at 248). In assessing a summary judgment motion,
the district court views the facts in the light most favorable to, and draws all reasonable inferences
in favor of, the nonmoving party. Apex Digital, Inc. v. Sears, Roebuck & Co., 735 F.3d 962, 965
(7th Cir. 2013).
Bankruptcy Proceeding
As a preliminary matter, the Court addresses the impact, if any, of Jones’ bankruptcy on
this matter. American Economy seeks a declaration that it owes no duty to defend or indemnify
Jones or Cleaves in the Underlying Lawsuit. Because there is no dispute that Cleaves is not an
insured under the Homeowners Policy, the duty to defend is not implicated as to him. As for the
duty to indemnify, Jones’ bankruptcy proceeding does not bar the Court from ruling on the motion
for summary judgment against Cleaves. It is true that to reach any proceeds under the liability
provision of the Homeowners Policy, Cleaves would have to bring a suit against Jones as a nominal
party. See Rockford Mut. Ins. Co. v. Amerisure Ins. Co., 925 F.2d 193, 196 (7th Cir. 1991) (noting
that Illinois law prohibits an injured party from directly suing a tortfeasor’s insurer). A bankruptcy
court’s discharge order generally has the force of an injunction against a suit by any holders of
listed debts to collect those debts. See 11 U.S.C. § 524(a)(2); Matter of Hendrix, 986 F.2d 195,
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197 (7th Cir. 1993). However, the Seventh Circuit has held that such an injunction does not extend
“to a suit only nominally against the debtor because the only relief sought is against his insurer.”
Matter of Hendrix, 986 F.2d at 197 (collecting relevant case law); see also In re Kewanee Boiler
Corp., 297 B.R. 720, 734–35 (Bankr. N.D. Ill. 2003) (“It is well established that the discharge of
a debtor’s liability pursuant to 11 U.S.C. § 524 does not affect the liability of any other entity for
the debt, including any insurance carriers). Accordingly, even assuming that Cleaves’ underlying
claim against Jones was discharged pursuant to the Bankruptcy Court’s Discharge of Debtors
Order, Cleaves could still bring a suit only nominally against Jones to collect the insurance
proceeds. 3 Therefore, even assuming the Bankruptcy Court discharged Cleaves’ underlying
claims against Jones, the Court is not barred from ruling on the Motion for Summary Judgment,
and American Economy’s claim against Cleaves is not moot. The Court thus turns to the merits of
the Motion for Summary Judgment.
Choice of Law
Federal courts exercising diversity jurisdiction apply state substantive law. Windy City
Metal Fabricators & Supply, Inc. v. CIT Tech. Fin. Servs., Inc., 536 F.3d 663, 670 (7th Cir. 2008)
(citing Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). The federal court
must apply that law as it believes the highest state court would apply it if it were hearing the issues.
See State Farm Mut. Auto. Ins. Co. v. Pate, 275 F.3d 666, 669 (7th Cir. 2001). When the highest
state court has not addressed an issue, the federal court gives great weight to the decisions of
intermediate appellate courts so long as there is no reason to believe their rulings would differ
from those of the highest court. Id. Here, American Economy represents in its motion that the
3 The Court does not reach the issue of any res judicata effect of the Underlying Suit in any such proceeding.
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Accident occurred in Illinois, but the Homeowners Policy was issued to Jones in Missouri. (Doc.
69, p. 7). It argues, however, that a robust choice-of-laws analysis is unnecessary because Illinois
and Missouri law align on the issue before the Court. (Doc. 69, pp. 6-7).
Under both Illinois and Missouri law, the “[p]roper interpretation of an insurance policy,
even if it is ambiguous, generally presents a question of law that is appropriate for summary
judgment.” USA Gymnastics v. Liberty Ins. Underwriters, Inc., 27 F.4th 499, 512 (7th Cir.
2022) (quoting Am. Home Assur. Co. v. Allen, 814 N.E.2d 662, 666 (Ind. Ct. App. 2004)); see also
McCormack Baron Mgmt. Servs., Inc. v. Am. Guar. & Liab. Ins. Co., 989 S.W.2d 168, 171 (Mo.
1999). When the issue is an insurer’s duty to defend, both Illinois and Missouri law instruct courts
to compare the allegations in the underlying complaint with the relevant provisions of the
insurance policy. Pekin Ins. Co. v. McKeown Classic Homes, Inc., 2020 IL App (2d) 190631, ¶
17, 161 N.E.3d 1059, 1065; Stark Liquidation Co. v. Florists' Mut. Ins. Co., 243 S.W.3d 385, 392
(Mo. Ct. App. 2007). The duty to defend arises if the underlying complaint alleges facts that
potentially fall within policy coverage. Pekin Ins. Co., 2020 IL App (2d) 190631, ¶ 17, 161 N.E.3d
1059, 1065; Stark Liquidation Co., 243 S.W.3d at 392. The burden of showing that an insurance
policy exclusion applies rests with the insurer. Panfil v. Nautilus Ins. Co., 799 F.3d 716, 721 (7th
Cir. 2015); Sherman v. Missouri Pros. Mut.-Physicians Pro. Indem. Ass'n, 599 S.W.3d 207, 214
(Mo. Ct. App. 2020). When the comparison shows that there is no coverage or potential for
coverage, an insured has no duty to defend. Id. And because the duty to defend is broader than the
duty to indemnify, there is no duty to indemnify where there is no duty to defend. Crum & Forster
Managers Corp. v. Resolution Trust Corp., 620 N.E.2d 1073, 1081 (Ill. 1993); Penn-Am. Ins. Co.
v. The Bar, Inc., 201 S.W.3d 91, 98 (Mo. Ct. App. 2006).
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While the inquiry on the duty to defend begins with the allegations of the underlying
complaint, it does not end there. Illinois courts instruct that an insurer seeking a summary
declaratory judgment on the duty to defend is entitled to introduce evidence beyond the allegations
of the underlying complaint so long as that evidence is appropriate for a motion for summary
judgment and does not implicate an “ultimate issue” of the underlying action. Landmark Am. Ins.
Co. v. Hilger, 838 F.3d 821, 826 (7th Cir. 2016); see also Pekin Ins. Co. v. Wilson, 237 Ill.2d 446,
341 Ill.Dec. 497, 930 N.E.2d 1011, 1020 (2010) (“the trial court need not wear judicial blinders
and may look beyond the complaint at other evidence appropriate to a motion for summary
judgment” in determining an insurer’s duty to defend).
Likewise, under Missouri law, “a liability insurer’s duty to defend does not depend alone
upon the allegations of the petition filed against the insured.” Standard Artificial Limb, Inc. v.
Allianz Ins. Co., 895 S.W.2d 205, 210 (Mo. Ct. App. 1995) (citing Travelers Ins. Co. v. Cole, 631
S.W.2d 661, 665[6] (Mo.App.1982)). Rather, the inquiry also extends to facts the insurer knew or
were “reasonably apparent” at the outset of the case. Allen v. Bryers, 512 S.W.3d 17, 31 (Mo.
2016), as modified (Apr. 4, 2017). Other courts have explained that the inquiry includes
consideration of facts that the insurer “could have learned from a reasonable investigation at the
time the lawsuit was filed,” but does not encompass facts revealed by a later investigation or a trial
of the case. Interstate Bakeries Corp. v. OneBeacon Ins. Co., 686 F.3d 539, 542 (8th Cir. 2012)
(citation and internal quotations omitted). When a party argues for consideration of facts beyond
the allegations of the petition, there must be evidence of what the insurer would have found in a
reasonable investigation at that time. Mitchell v. Durham Enterprises, Inc., 99 F.4th 978, 987 (7th
Cir. 2024).
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A review of the relevant tests under Illinois and Missouri law shows that the two
jurisdictions, while not fully aligned as to the facts that may be considered in determining an
insurer’s duty to defend, permit consideration of facts beyond the allegations of the underlying
complaint. However, Missouri law appears to impose a time limit on facts known or reasonably
ascertainable at the outset of the case that is not found in the relevant Illinois law. Even so, this
distinction is immaterial in this case. The only material fact at issue that goes beyond the factual
allegations of the underlying complaint is Jones’ ownership of the ATV he was operating at the
time of the Accident. American Economy relies on the Cairo Police Department’s Detail Incident
Report, which was prepared contemporaneously with the Accident, and identifies Jones as the
ATV’s owner. Accordingly, the Court finds that Jones’ ownership of the ATV is a fact that was
reasonably ascertainable at the outset of the case and can be considered in determining American
Economy’s duty to defend Jones in the Underlying Lawsuit.
Liability Coverage
The complaint in the Underlying Lawsuit asserts a negligence claim against Jones for the
bodily injury Cleaves sustained as a result of Jones’ alleged negligent operation of his all-terrain
vehicle (“ATV”). Under the Homeowners Policy, American Economy promised to defend and
indemnify Jones for any claims or suits “brought against any insured for damages because of
bodily injury or property damage caused by an occurrence to which this coverage applies.” (Doc.
69, p. 3; Doc. 1, p. 67). American Economy, however, argues that no coverage is afforded in this
case based on exclusion 1.f.(2).
Exclusion 1.f.(2)
Homeowners Policy exclusion 1.f.(2) provides in part that “Coverage E – Personal
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Liability . . . do[es] not apply to bodily injury . . . arising out of the . . . use . . . of motorized land
vehicles . . . owned or operated by . . . any insured.” (Doc. 69, p. 3; Doc. 1, p. 68). Illinois courts
turn to the Illinois Vehicle Code to construe policy terms. See Goldstein v. Grinnell Select Ins.
Co., 2016 IL App (1st) 140317, 58 N.E.3d 779 (interpreting Illinois Vehicle Code to conclude a
riding lawnmower qualifies as a motor vehicle); People v. Martinez, 296 Ill. App. 3d 330, 332
(1998) (“The plain language of the statute demonstrates that an ATV is a motor vehicle.”). The
Illinois Vehicle Code (the “Code”) defines an “all-terrain vehicle” in relevant part, as “[a]ny
motorized off-highway device designed to travel primarily off-highway . . . .” 625 ILCS 5/1-101.8.
Likewise, “all-terrain vehicle” is expressly included in the Code’s definition of a “non-highway
vehicle.” See 625 ILCS 5/11-1426.1(a)(1). Accordingly, an ATV qualifies as a motorized land
vehicle under Illinois law.
An ATV also qualifies as a motorized land vehicle under Missouri law. See Am. Fam. Mut.
Ins. Co. v. Peck, 169 S.W.3d 563, 567 (Mo. Ct. App. 2005) (in assessing whether an ATV qualified
as a “motorized land conveyance,” the court determined “it is self-evident that this vehicle has a
motor and is used on land”); Rice v. Fire Ins. Exch., 946 S.W.2d 40, 43 (Mo. Ct. App. 1997)
(insured’s four-wheel off-road recreational vehicle fit within the policy’s definition of “motor
vehicle” and, as a result, the accident was within the exclusion for bodily injury or property damage
arising out of the use of a motor vehicle by an insured). Likewise, the Missouri Vehicle Code
defines an “all-terrain vehicle”, in relevant part, as “any motorized vehicle manufactured and used
exclusively for off-highway use . . . .” Mo. Ann. Stat. § 301.010.
Because under both Illinois and Missouri law, ATVs are deemed motorized land vehicles,
and the Underlying Complaint states that Cleaves was injured due to Jones’ negligent operation of
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his ATV, exclusion 1.f.(2) is triggered. The inquiry, however, does not end there because
American Economy still needs to establish that none of the exceptions to exclusion 1.f.(2) applies
in this case. Exclusion 1.f.(2) contains the two following exceptions:
This exclusion does not apply to:
(a) a trailer not towed by or carried on a motorized land vehicle;
(b) a motorized land vehicle designed for recreational use off public
roads, not subject to motor vehicle registration, licensing or
permits, and:
i. not owned by any insured; or
ii. owned by any insured, while on an insured location[.]
(Doc. 69, p. 3; Doc. 1, p. 68). Because the Underlying Complaint does not assert that a trailer was
involved in the Accident, only exception 1.f.(2)(b) is potentially relevant. Section 1.f.(2)(b)i is
triggered only if the motorized land vehicle is “not owned by any insured.” As discussed above,
Jones is an “insured.” Further, it is established that Jones owned the ATV he operated at the time
of the Accident. Accordingly, Section 1.f.(2)(b)i does not apply to this case.
Section 1.f.(2)(b)ii, in turn, applies only while a vehicle owned by an “insured” is “on an
insured location[.]” The Homeowners Policy defines “insured location” as including “the
residence premises,” as well as “the part of any other premises, other structures and grounds, used
by you as a residence and which is shown in your Policy Declarations . . . .” The “residence
premises” is defined as including “the one, two, three, or four family dwelling, used principally as
a private residence[,] . . . where [the named insured] reside[s] and which is shown in [the] Policy
Declarations.” (Doc. 69, p. 3; Doc. 1, pp. 51-52). Here, the residence premises shown in the
Homeowners Policy’s Declarations are at 1606 Lexington Avenue, Cape Girardeau, Missouri.
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(Doc. 1, pp. 33-35). By contrast, the Accident occurred in a public thoroughfare in Alexander
County, Illinois, at the “area north of the viaduct on U.S. Highway 51 and South of Future City.”
(Doc. 61-1, p. 6).
The Homeowners Policy further defines “insured location” as including “any premises not
owned by you which you have a right or privilege to use arising out of h.1. or h.2. above.”4 Here,
the Accident occurred in a public thoroughfare in Alexander County, Illinois, geographically
remote from the residence listed in the Homeowners Policy Declarations. Further, there is no
indication that Jones had any right or privilege to use that area, which right or privilege arose out
of the residence premises shown in the Homeowners Policy’s Declarations. See, e.g., Hoppe v.
Safeco Ins. Co. of Indiana, 174 N.E.3d 1123, 1132 (Ind. Ct. App. 2021) (“Without a nexus between
the residence premises and the alleged insured location, any alleged privilege to use an area cannot
be said to arise from the residence premises).
Accordingly, the Accident did not take place on an insured location, and exception
1.f.(2)(b)ii does not apply. Because under the clear and unambiguous language of the Homeowners
Policy, exclusion 1.f.(2) applies in this case and none of its exceptions is triggered, Cleaves’ claims
against Jones in the Underlying Lawsuit do not potentially fall within policy coverage, and
American Economy has no duty to defend Jones. Because “there is no duty to indemnify where
there is no duty to defend,” American Economy has also no duty to indemnify Jones or Cleaves
for the claims asserted in the Underlying Lawsuit. See Crum & Forster Managers Corp., 620
N.E.2d at 1081; Penn-Am. Ins. Co., 201 S.W.3d at 98.
4 The Homeowners Policy further defines the “insured location” as including other locations which the
insureds rented or owned or on which the insureds temporarily reside. (Doc. 1, p. 51). Because the Accident
occurred on a public thoroughfare, those definitions are also inapplicable in this case.
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Motion for Default Judgment Against Jones (Doc. 79)
American Economy also seeks a default judgment against Jones, declaring that the
Homeowners Policy provides no liability coverage for the claim of Defendant Cleaves against
Jones and thus it owes no duty to defend or indemnify Jones in the Underlying Lawsuit. (Doc. 79).
Legal Standard
Under Federal Rule of Civil Procedure 55, obtaining a default judgment entails two steps.
First, the party seeking a default judgment must file a motion for entry of default with the clerk of
court by demonstrating that the opposing party has failed to answer or otherwise respond to the
complaint. Fed. R. Civ. P. 55(a). After a default has been established, the moving party must then
seek entry of a default judgment. In re Catt, 368 F.3d 789, 793 (7th Cir. 2004).
Default judgment establishes, as a matter of law, that a defendant is liable to the plaintiff on each
cause of action alleged in the complaint. United States v. Di Mucci, 879 F.2d 1488, 1497 (7th Cir.
1989) (citation omitted). When a defendant is found in default, all factual allegations in the
complaint are deemed admitted and not subject to challenge. Wehrs v. Wells, 688 F.3d 886, 892
(7th Cir. 2012). The Court has authority to enter declaratory default judgments. See Western Div.
Nautilus Ins. Co. v. Front Range Env't, LLC, No. 14-CV-50083, 2014 WL 4414516, at *2 (N.D.
Ill. Aug. 6, 2014) (citations omitted).
Rule 55(b) required American Economy to establish the following for the grant of a default
judgment: (1) when and against what parties the default was entered; (2) the pleading as to which
the default was entered; (3) that the defaulting parties were neither infants nor incompetent; (4)
that the defendant is not in the military services; and (5) that notice has been served on the
defaulting party if required under Rule 55(b)(2). UMG Recordings, Inc. v. Stewart, 461 F.Supp.2d
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837, 841 (S.D. Ill. 2006).
Here, the Court has already found that the Homeowners Policy provides no liability
coverage for the claims asserted in the Underlying Action. Further, the procedural requirements
for default judgment have been satisfied. A clerk’s entry of default has been entered against Jones
for his failure to respond to the Complaint. (Doc. 32). Jones has also not contested the motion, and
there is no indication that Jones is either a minor or an incompetent person. The Court, however,
must also determine any legal implications arising from Jones’ bankruptcy proceeding.
Bankruptcy Proceeding
Under 11 U.S.C. § 541(a)(1), the bankruptcy estate includes “all legal or equitable interests
of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). “[E]very
conceivable interest of the debtor, future, nonpossessory, contingent, speculative, and derivative,
is within the reach of § 541.” In re Yonikus, 996 F.2d 866, 869 (7th Cir. 1993) (partially overruled
on different grounds). Unless otherwise ordered, any properly scheduled property “not otherwise
administered at the time of the closing of a case is abandoned to the debtor . . . .” 11 U.S.C. § 554.
Here, any potential claims Jones has under the Homeowners Policy regarding the
Underlying Action arose before the commencement of the Bankruptcy Case. Thus, after the filing
of the bankruptcy petition, Jones’ potential claims against American Economy Insurance under the
Homeowners Policy became property of the bankruptcy estate. However, the Trustee’s Final
Account and Distribution Report does not indicate that any claims Jones potentially had against
American Economy Insurance were otherwise administered. (Doc. 87-2). Based on the record
before the Court, the Court assumes that Jones’ potential claim against American Economy
Insurance was deemed abandoned to Jones. Accordingly, the Court may proceed with entry of a
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default judgment against Jones.
Therefore, it is recommended that Plaintiff’s Motion for Default Judgment (Doc. 79) be
GRANTED, and judgment be entered in favor of Plaintiff and against Defendant Jones.
RECOMMENDATIONS
Based on the foregoing, it is RECOMMENDED that Plaintiff’s Motion for Summary
Judgment (Doc. 69) and Motion for Default Judgment (Doc. 79) be GRANTED; it is
further RECOMMENDED that a DECLARATORY JUDGMENT be entered in favor of
American Economy Insurance Company as follows:
The Homeowners Policy provides no liability coverage for the claim against
Defendant Ray Jones in the Underlying Lawsuit, and American Economy
Insurance Company has no duty to defend or indemnify Defendants Ray Jones and
Randy Cleaves in the Underlying Lawsuit.
Pursuant to 28 U.S.C. § 636(b)(1) and SDIL-LR 73.1(b), the parties shall have fourteen
(14) days after service of this Report and Recommendation to file a written objection thereto. The
failure to file a timely objection may result in the waiver of the right to challenge this Report and
Recommendation before either the District Court or the Court of Appeals. See, e.g., Snyder v.
Nolen, 380 F.3d 279, 284 (7th Cir. 2004).
The Clerk of Court is DIRECTED to assign a District Judge for consideration of the
undersigned’s Report and Recommendation.
DATED: January 15, 2026
s/ Reona J. Daly
Hon. Reona J. Daly
United States Magistrate Judge
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