                               In the

      United States Court of Appeals
                  For the Seventh Circuit
                    ____________________
Nos. 14-1242, 14-1356, 14-1359


KMART CORPORATION,
                                Plaintiff-Appellant/Cross-Appellee,

                                 v.

FOOTSTAR, INC.,
                                        Defendant-Cross-Appellant,

and

LIBERTY MUTUAL FIRE INSURANCE
COMPANY,
                        Defendant-Appellee/Cross-Appellant.
                     ___________________

        Appeals from the United States District Court for the
          Northern District of Illinois, Eastern Division.
         No. 09-cv-3607 — Susan E. Cox, Magistrate Judge.
                    ____________________

  ARGUED SEPTEMBER 19, 2014 — DECIDED FEBRUARY 4, 2015
                ____________________

   Before BAUER, ROVNER, and WILLIAMS, Circuit Judges.
2                             Nos. 14-1242, 14-1356, 14-1359

    WILLIAMS, Circuit Judge. Under an agreement between
Footstar and Kmart, Footstar operated the footwear depart-
ments in various Kmart stores as though they were islands.
Footstar employees could only work in those departments
unless they had written permission from Kmart. On July 27,
2005, a Footstar employee tried to help a customer get an in-
fant carrier off a shelf outside the footwear department and
the customer was injured. She sued, and Kmart eventually
sought indemnification for the settlement and defense costs
from Footstar and its insurer, Liberty Mutual. We affirm the
magistrate judge’s finding that Footstar and Liberty Mutual
both had a duty to defend beginning the day Kmart formally
requested coverage since the injury was potentially covera-
ble under the agreement and insurance policy. However, we
reverse and hold neither Liberty Mutual nor Footstar had a
duty to indemnify Kmart because the injury did not occur
“pursuant to” or “under” the agreement between Kmart and
Footstar. That agreement specifically precluded Footstar
employees from working outside of the footwear depart-
ment, where the injury occurred, and actions taken in con-
travention of the agreement were not “pursuant to” or “un-
der” it. We also affirm the magistrate judge’s decisions that
Liberty Mutual did not deny coverage in bad faith and that
Kmart did not breach the relevant notice provisions such
that Liberty Mutual and Footstar could withhold defense
costs. We also find any argument about prejudgment inter-
est has been waived.
                    I. BACKGROUND
   Footstar and Kmart entered into an agreement authoriz-
ing Footstar to operate the footwear department in hundreds
of Kmart stores throughout the country. In essence, the
Nos. 14-1242, 14-1356, 14-1359                                 3

footwear department was a store within the larger Kmart
store. As Section 3.3 of the Master Agreement between
Kmart and Footstar noted, “[Footstar] shall have the right to
sell only the Licensed Footwear specified in this Agreement
in the Footwear Departments, and shall sell or furnish no
other merchandise or services in the Stores without the prior
written permission of [Kmart].”
    Section 18.1 of the Master Agreement required Footstar
to defend and indemnify Kmart under certain conditions:
       [Footstar] shall reimburse, indemnify, defend
       and hold harmless [Kmart] … from and against
       any and all damage … arising out of [Foot-
       star’s] performance or failure to perform under
       this Agreement ….
    That same section also required Footstar to obtain addi-
tional insurance coverage for Kmart:
       [Footstar] agrees to obtain and keep in force …
       appropriate insurance for claims against
       [Kmart] and [Footstar] for personal injury …
       arising out of or relating to the goods and ser-
       vices provided pursuant to this Agreement …
    Footstar fulfilled its obligation to obtain additional insur-
ance by contracting with Liberty Mutual. Pursuant to that
Policy, Liberty Mutual would defend and indemnify Footstar
as well as Kmart, as an additional insured, under certain
conditions. For Kmart, that coverage was dictated by Section
II, which reads in relevant part:
       WHO IS AN INSURED is amended to include
       … [any entity] for whom you have agreed in
       writing to provide liability insurance. But:
4                              Nos. 14-1242, 14-1356, 14-1359

      The insurance provided by this amendment:
      1. Applies only to “personal injury” or “prop-
         erty damage” arising out of (a) “your
         work” … ;
      2. Applies only to coverage and limits of in-
         surance required by the written agreement,
         but in no event exceeds either the scope of
         coverage or the limits of insurance provid-
         ed by this policy; ….
    On July 27, 2005, a customer named Judy Patrick walked
into a Kmart store in Hollywood, Florida. According to her
complaint, she asked for assistance from Alex Sehat, who
turned out to be a Footstar employee, in getting a stroller
down from a shelf. Sehat, along with a Kmart employee,
reached up and attempted to bring the stroller down. As
they were bringing it down, an infant carrier inside the
stroller fell and struck Patrick in the face. The accident took
place in the infant/stroller department, which is entirely out-
side of the Footstar department.
    Patrick sued Kmart on May 17, 2006, alleging negligence,
with no mention of Footstar in her initial complaint. See Pat-
rick v. Kmart Corp., No. 06-7117 (Fla. Cir. Ct.). But Patrick’s
counsel discovered during the course of the litigation that
Sehat was actually a Footstar employee and called Footstar
in May 2007 to get Sehat’s employment records. Footstar
contacted Liberty Mutual, as evidenced by an internal claim
file created by a Liberty Mutual representative on June 6,
2007, in which Liberty Mutual employees began entering
notes. Though potentially privileged, the notes were appar-
ently inadvertently turned over during discovery of the pre-
sent dispute. Because we do not need to use the notes to de-
Nos. 14-1242, 14-1356, 14-1359                               5

cide the case, we will not discuss the potentially privileged
information.
    On January 24, 2008, Kmart defense counsel wrote to
Footstar formally requesting defense and indemnification for
the first time. Footstar forwarded the request to Liberty Mu-
tual on January 30, and Patrick amended her complaint two
days later to include Footstar as a defendant. Liberty Mutual
wrote Kmart refusing to defend or indemnify, stating: “Foot-
star is not responsible for the referenced claim as it is not a
product liability incident.” Kmart settled with Patrick eight
months later for $300,000 and $10,000 in Kmart gift cards.
    Kmart then filed a complaint in this action originally
against Footstar only, but then added Liberty Mutual, alleg-
ing both owed Kmart a duty of defense and indemnification
for the Patrick suit. The magistrate judge entered partial
summary on Kmart’s breach of contract and declaratory
judgment counts, finding both defendants owed a duty to
defend, but only as of January 24, 2008, when Kmart first re-
quested defense. The court found Liberty Mutual and Foot-
star also had a duty to indemnify but only for Footstar’s rela-
tive fault, which a jury apportioned at 15%. The court also
found Liberty Mutual did not act in bad faith by denying
coverage and Kmart did not breach the notice provisions of
the Policy and Master Agreement. Kmart appealed naming
only Liberty Mutual as an Appellee, while Liberty Mutual
and Footstar cross-appealed.
                       II. ANALYSIS
   The issues on appeal are whether: (1) Footstar and/or
Liberty Mutual had a duty to indemnify Kmart; (2) Liberty
Mutual and/or Footstar had a duty to defend Kmart and, if
6                               Nos. 14-1242, 14-1356, 14-1359

so, when that duty began; (3) Liberty Mutual acted in bad
faith by denying coverage; (4) Kmart breached the notice
provisions of the Policy and Master Agreement; and (5) the
court erred in denying Kmart’s motion for prejudgment in-
terest.
    We review the magistrate judge’s grant of summary
judgment de novo. Doe v. Archdiocese of Milwaukee, 772 F.3d
437, 440 (7th Cir. 2014). Our review is under New Jersey law
for the Policy and Illinois law for the Master Agreement
since they both had forum selection clauses. We will give ef-
fect to the choice of law clauses so long as that law respects
such clauses, which both parties argue (and we find) Illinois
and New Jersey do. Jackson v. Payday Fin., LLC, 764 F.3d 765,
774–75 (7th Cir. 2014).
A. Liberty Mutual and Footstar Did Not Have a Duty to
   Indemnify
    Liberty Mutual and Footstar appeal the magistrate
judge’s determination that they had a duty to indemnify
Kmart for the Patrick suit. The magistrate judge found Liber-
ty Mutual and Footstar liable because it determined the inju-
ry arose from Footstar’s work. However, Liberty Mutual
/Footstar contend the court ignored the requirement that any
injury had to arise “pursuant to” or “under” the Master
Agreement to trigger indemnification, and the Master
Agreement explicitly prohibited Sehat’s out-of-department
action that resulted in the injury. We agree with Liberty Mu-
tual and Footstar.
    Insurance contracts are interpreted under the same rules
of construction that are generally applicable to other con-
tracts. Norem v. Lincoln Benefit Life Co., 737 F.3d 1145, 1148–49
Nos. 14-1242, 14-1356, 14-1359                                   7

(7th Cir. 2013) (Illinois law); Selective Ins. Co. of Am. v. Hudson
E. Pain Mgmt., 46 A.3d 1272, 1276 (N.J. 2012) (New Jersey
law). The duty to indemnify “only arises where the insured’s
activity and the resulting damages actually fall within the
coverage of the policy.” Rosalind Franklin Univ. of Med. & Sci.
v. Lexington Ins. Co., 8 N.E.3d 20, 39 (Ill. App. Ct. 2014) (Illi-
nois law); Polarome Int’l., Inc. v. Greenwich Ins. Co., 961 A.2d
29, 48 (N.J. Super. Ct. App. Div. 2008) (noting duty to indem-
nify exists under New Jersey law for those “occurrences for
which the policy provides coverage”). In order to determine
whether an activity actually falls within the coverage of the
policy, we review the plain language of the policy. Kieffer v.
Best Buy, 14 A.3d 737, 743 (N.J. 2011) (New Jersey law);
Rosalind, 8 N.E.3d at 36 (Illinois law). “Words and phrases
that are not defined in the policy are to be given their plain
and ordinary meaning.” Norem, 737 F.3d at 1149 (Illinois
law); Pizzullo v. N.J. Mfrs. Ins. Co., 952 A.2d 1077, 1088–89
(N.J. 2008) (New Jersey law). “[I]ndemnity contracts are to
be strictly construed, and any ambiguity in the agreement is
to be construed most strongly against the indemnitee,” in
this case, Kmart. Blackshare v. Banfield, 857 N.E.2d 743, 746
(Ill. App. Ct. 2006) (Illinois law); Kieffer, 14 A.3d at 743 (New
Jersey law).
    We begin with Liberty Mutual’s obligations in the Policy.
Under subpart 1 of the additional insured clause, Liberty
Mutual was liable to Kmart for injuries “arising out of”
Footstar’s “work.” Under subpart 2, the Policy applies only
to “coverage and limits of insurance required by” the Master
Agreement, but coverage will “in no event exceed[] either
the scope of coverage or the limits of insurance provided by
this policy.” The parties dispute what acts give rise to insur-
ance under the Policy. Kmart argues the only acts covered
8                              Nos. 14-1242, 14-1356, 14-1359

are those that fall under subpart 1 and one need not even
look at the Master Agreement. Kmart says under subpart 2,
“scope of coverage” means the type of insurance (e.g., blan-
ket, malpractice, personal injury) and “limits” means the
payout (e.g., a $5 million policy) and therefore subpart 2 does
not affect which acts give rise to coverage. Conversely, Liber-
ty Mutual argues subpart 1 could set forth the acts that give
rise to coverage, but so could subpart 2. It says the phrase
“scope of coverage or limits of insurance” explains which
underlying acts will be insured, and the Policy will cover the
narrower of those acts between the Policy or the Master
Agreement. In other words, Liberty Mutual/Footstar argue if
subpart 2’s incorporation of the Master Agreement provides
more narrow coverage, it controls and we need not look at
subpart 1.
    We agree with other courts that have analyzed these ex-
act subparts in Liberty Mutual’s Policy and found that sub-
part 2 incorporates the Master Agreement and requires us to
look at the Master Agreement to determine what acts could
give rise to coverage. See Liberty Mut. Ins. Co. v. Cont’l Res.
Inc., No. 10-35, 2011 U.S. Dist. LEXIS 80152, at *17–18, *24–26
(D. Mont. Apr. 25, 2011) (interpreting contract based on sub-
part 2); Jones v. Francis Drilling Fluids Ltd., 642 F. Supp. 2d
643, 663–64 (S.D. Tex. 2009) (referring to master services
agreement based on subpart 2); Nat’l Union Fire Ins. Co. v.
Liberty Mut. Ins. Co., No. 03-80106, 2008 U.S. Dist. LEXIS
14291, at *12–13 (S.D. Fla. Feb. 26, 2008) (noting subpart 2
“specifically refers to and incorporates the lease agree-
ment”). This reading reflects the parties’ intent that Footstar
obtain a certain type of additional insurance for Kmart. The
parties’ intent is clearly reflected in the Master Agreement
that certain acts will be covered, and Liberty Mutu-
Nos. 14-1242, 14-1356, 14-1359                                9

al/Footstar’s reading of the Policy ensures those acts get cov-
ered since it specifically incorporates the Master Agreement.
Kmart’s reading does not necessarily achieve the same result
since it does not incorporate the Master Agreement. We are
to interpret the Policy to ensure the “expectations of the par-
ties will be fulfilled,” and Liberty Mutual/Footstar’s reading
achieves that result. Flomerfelt v. Cardiello, 997 A.2d 991, 996
(N.J. 2010). The best case scenario for Kmart is that subpart 2
is ambiguous, in which case we would still adopt Liberty
Mutual/Footstar’s reading because the clause should be in-
terpreted against Kmart as the indemnitee. See Kieffer, 14
A.3d at 743.
    The next step under the Policy’s terms is to determine
which coverage is more narrow: (1) subpart 1, which limits
coverage to injuries “arising out of [Foostar’s] work” where
Footstar’s “work” is defined as “Work or operations per-
formed by you or on your behalf,” or (2) the terms of the
Master Agreement, which cover “personal injury … arising
out of or relating to the goods and services provided pursu-
ant to this Agreement.” Both provide coverage for acts “aris-
ing out of” Footstar’s work, which is a phrase New Jersey
and Illinois courts have broadly interpreted. See, e.g., Fed.
Home Loan Mortg. Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 444
(3d Cir. 2003) (“New Jersey courts have given a broad and
liberal interpretation to common insurance policy language
pertaining to coverage for additional insured parties for in-
juries ‘arising out of’ work performed by the main policy-
holder.”); Am. Econ. Ins. Co. v. DePaul Univ., 890 N.E.2d 582,
588 (Ill. App. Ct. 2008) (“‘[A]rising out of’ is ‘both broad and
vague, and must be liberally construed in favor of the in-
sured; accordingly, ‘but for’ causation, not necessarily prox-
imate causation, satisfies this language.’ Further, ‘arising out
10                               Nos. 14-1242, 14-1356, 14-1359

of’ has been held to mean originating from, having its origin
in, growing out of and flowing from.” (alterations omitted)
(citations omitted) (some internal quotation marks omitted)).
    However, “arising out of” does not exist in a vacuum in
either subpart 1 or the Master Agreement. Both are modi-
fied, in subpart 1 by “[Footstar’s] work” and in the Master
Agreement by “goods and services provided pursuant to
this Agreement.” This is where the difference in coverage
becomes apparent. The Policy covers any act that arises out
of Footstar’s work or operations, whatever and wherever
that may be. Conversely, the Master Agreement limits the
coverage to only that work provided for in the Agreement,
meaning only those acts performed in the footwear depart-
ment. See Master Agreement, Section 3.3 (stating that Foot-
star “shall sell or furnish no other merchandise or services in the
Stores without the prior written permission of [Kmart]” (empha-
sis added)). So, when Sehat helped Patrick with the carrier, it
is possible her injury arose from his “work” since his work
brought him to the store. But he was not working “pursuant
to” the Master Agreement since he was acting outside the
footwear department. In fact, he was explicitly violating the
Master Agreement. That is why Kmart originally filed a
breach of contract count against Footstar relating to Section
3.3—Kmart knew that Sehat was acting beyond his contrac-
tual authority and violated Section 3.3. Since Sehat was act-
ing in an extra-contractual manner and not “pursuant to this
Agreement,” there is no indemnification requirement.
    Turning to Footstar, it had a duty to indemnify for those
injuries “arising out of [Footstar’s] performance or failure to
perform under this Agreement.” Again, any indemnification
obligation only relates to those acts taken “under [the]
Nos. 14-1242, 14-1356, 14-1359                                  11

Agreement.” A breach of contract, however, was not a “per-
formance” under the Master Agreement—it was an act taken
in direct violation of the contract. For the same reasons as
with Liberty Mutual, Footstar had no indemnification obli-
gation for its performance.
    Kmart might have been able to argue that Footstar failed
to perform under the Agreement by violating Section 3.3, but
it chose to proceed under a different theory in front of the
magistrate judge and therefore waived the argument on ap-
peal. See Frey Corp. v. City of Peoria, 735 F.3d 505, 509 (7th Cir.
2013) (“A party ‘waive[s] the ability to make a specific ar-
gument for the first time on appeal when the party fail[s] to
present that specific argument to the district court, even
though the issue may have been before the district court in
more general terms.’”). In its motion for summary judgment
in front of the magistrate judge, Kmart implicitly argued
there was no breach of Section 3.3 because it contends Foot-
star agreed that its employees could assist Kmart customers
in all areas of the store. In support, Kmart argues that there
was an oral modification to Section 3.3 in the1990s allowing
Footstar employees to act outside the footwear department
without written permission. Not only is the evidence of any
modification weak, but the Master Agreement was amended
and restated in 2005, after this alleged revision, without any
change to Section 3.3. So, the fully integrated Master Agree-
ment shows no evidence that Footstar employees could act
beyond providing Footstar services without written permis-
sion and we agree with the magistrate judge that Kmart has
not demonstrated a change to Section 3.3. Kmart also argues
that Footstar’s interrogatory admissions that a Footstar em-
ployee was “permitted” to assist a customer who is “palpa-
bly in need of assistance … particularly in the event of a po-
12                             Nos. 14-1242, 14-1356, 14-1359

tential threat to the customer’s safety” and could help a cus-
tomer “if necessary” without breaching the agreement is an
acknowledgment that Footstar employees could go beyond
the footwear department without permission. We reject that
argument and instead read it is as admission that Footstar
employees had an obligation to act humanely towards a cus-
tomer threatened by danger. That is not the same thing as
admitting that Section 3.3’s writing requirement no longer
existed. Since Section 3.3 remained in effect and Kmart did
not pursue a theory of breach of that section in front of the
magistrate judge (we can only speculate that it did not do so
because admitting a breach would have likely relieved Liber-
ty Mutual from any indemnity obligation since Liberty Mu-
tual did not have the “failure to perform” language in its
portion of the Master Agreement), Kmart has waived the ar-
gument here.
    Kmart’s final argument for indemnity is that the injury
arose from Footstar’s obligation to “control” the premises, as
it claims is required under Section 12.1 of the Master Agree-
ment. Kmart points to language in the Patrick complaint that
Footstar “negligently and carelessly … control[led]” the
premises by “failing to properly remove unsecured over-
head merchandise … thereby creating an unsafe, dangerous,
and hazardous condition … and it further represented to its
patrons that its premises was safe and suitable when, in fact,
it was not because of the hazardous condition.” Kmart also
points to the allegations in the complaint that Footstar negli-
gently “fail[ed] to provide adequate warnings” regarding
unsafe conditions. All of this, Kmart alleges, shows that the
accident arose from Footstar’s duty to “control.” Section 12.1
states that Footstar:
Nos. 14-1242, 14-1356, 14-1359                              13

      shall exercise control over such employees, in-
      cluding hiring, firing, promoting, determining
      wages and work procedures and the like
      (“Employee Action”), which control shall be at
      Footstar’s direction subject to [union contracts,
      rules and regulations, and laws]. Footstar shall
      be responsible for all Employer Actions and
      shall reimburse, indemnify, defend and hold
      [Kmart] harmless from and against any and all
      loss, damage, cost, expense or penalty, or any
      claim or action therefor, arising out of any such
      Employer Action.
This section represents Footstar’s obligation to control its
employees through various acts (e.g., hiring and firing, de-
termining policies). There is nothing in this section that re-
quires Footstar to control any premises, let alone the premis-
es outside of the footwear department. In fact, as discussed,
Footstar was explicitly supposed to stay out of other parts of
the store. See Master Agreement, Section 3.3. So, the accident
did not arise from Footstar’s performance or failure to per-
form under Section 12.1.
    We finally reject Kmart’s argument that Liberty Mutual
was estopped from denying coverage. An insurer under
New Jersey law is only estopped after timely notice and a
direct request for coverage. Griggs v. Bertram, 443 A.2d 163,
168 (N.J. 1982) (noting estoppel applies “[u]pon the receipt
from its insured of a claim or notification of an incident that
may give rise to a claim”). Kmart did not make a direct re-
quest from Liberty Mutual, instead sending word through
Footstar, and did not give notice until one-and-a-half years
after receiving the complaint, which can hardly be timely.
14                               Nos. 14-1242, 14-1356, 14-1359

Our holding means we do not need to determine whether
the court properly handled the issue of Footstar or Liberty
Mutual’s relative fault since there is no indemnification re-
quirement and relative fault is not a factor.
     B. Liberty Mutual and Footstar Had a Duty to Defend
        and Are Liable for Defense Costs from When They
        Received Notice
    Kmart argues that even if Liberty Mutual and Footstar
did not have a duty to indemnify, they still had a duty to de-
fend. The duty to defend is broader than the duty to indem-
nify. Chandler v. Doherty, 702 N.E.2d 634, 637 (Ill. App. Ct.
1998) (“In Illinois, an insurer may be required to defend its
insured even when there will ultimately be no obligation to
indemnify.”); Jolley v. Marquess, 923 A.2d 264, 274 (N.J. Super.
Ct. App. Div. 2007) (“The duty to defend is broader than the
duty to indemnify” under New Jersey law). An insurer has a
duty to defend unless “the allegations set forth in the com-
plaint fail to state facts that bring the case within, or poten-
tially within, the coverage of the policy.” Health Care Indus.
Liab. Ins. Program. v. Momence Meadows Nursing Ctr., Inc., 566
F.3d 689, 694 (7th Cir. 2009) (quoting Valley Forge Ins. Co. v.
Swiderski Elecs., Inc., 860 N.E.2d 307, 315 (Ill. 2006)); Abouzaid
v. Mansgard Gardens Assoc., LLC, 23 A.3d 338, 346 (N.J. 2011)
(“‘Potentially coverable’ claims require a defense.”). If there
are competing reasonable interpretations of the policy, “the
court must construe the policy in favor of the insured.” Em-
ployers Ins. Of Wausau v. Ehlco Liquidating Trust, 708 N.E.2d
1122, 1130 (Ill. 1999) (Illinois law); Voorhees v. Preferred Mut.
Ins. Co., 607 A.2d 1255, 1261 (N.J. 1992) (New Jersey law).
    The complaint alleged that Footstar caused Patrick’s inju-
ries by “negligently and carelessly … failing to properly re-
Nos. 14-1242, 14-1356, 14-1359                               15

move” the infant stroller from the shelf. Based on these alle-
gations and the expansive way “arising out of” has been in-
terpreted by Illinois and New Jersey courts, the claim could
have been “potentially coverable” under subpart 1. See
Abouzaid, 23 A.3d at 346. There is certainly an argument that
Patrick’s injury arose from Sehat’s “work or operation[]”, es-
pecially if the injury does not have to be “pursuant to” the
Master Agreement, as required by subpart 2. See Cnty. of
Hudson v. Selective Ins. Co., 752 A.2d 849, 853 (N.J. Super. Ct.
App. Div. 2000) (holding that the fact that employee’s job re-
quired him to be at a location where he was injured meant
the injury arose from his work). As to Footstar, it was possi-
ble that Sehat’s actions were “potentially covered,” Momence,
566 F.3d at 694, and arose out of his performance under the
Master Agreement since, but for the Master Agreement, he
would not have been working in the store. See Am. Econ., 890
N.E.2d at 588 (defining “arising out of” as including “but
for” causation). Though we have rejected these readings for
indemnity purposes, two triers of fact found that the injury
arose from Footstar’s work, including the jury and the mag-
istrate judge, showing the injury was potentially coverable
under the terms of the Master Agreement and Policy.
    We also affirm the magistrate judge’s finding that Liberty
Mutual and Footstar do not have to pay defense costs before
January 24, 2008 when Kmart provided an official request
for coverage. New Jersey law requires notice be given to the
insurer to trigger the duty to defend. “[T]he insured being
sued is responsible for promptly conveying to its insurance
company the information that it believes will trigger cover-
age .… [I]f the insured does not properly forward the infor-
mation to the insurance company, the insured cannot de-
mand reimbursement from the insurer for defense costs the
16                               Nos. 14-1242, 14-1356, 14-1359

insurer had no opportunity to control.” SL Indus., Inc. v. Am.
Motorists Ins. Co., 607 A.2d 1266, 1272 (N.J. 1992). It is true
that Liberty Mutual knew about the suit before January 24,
2008. At the same time, Kmart sat on its knowledge of the
suit for one-and-a-half years before providing actual notice.
Neither party has clean hands when it comes to this argu-
ment, but Kmart’s failure to provide actual notice is disposi-
tive. Id.; see also Chem. Leaman Tank Lines, Inc. v. Aetna Caus. &
Sur. Co., 817 F. Supp. 1136, 1158, 1161 (D.N.J. 1993) (finding
insured cannot recover defense costs predating notice to in-
surer). Since actual notice was not given until late January
2008, Liberty Mutual did not have a duty to defend until that
point. Kmart does not make any argument that Footstar was
liable for costs before that date, and so any argument as to
Footstar is waived. Hernandez v. Cook Cnty. Sheriff's Office,
634 F.3d 906, 913–14 (7th Cir. 2011) (arguments not made in
opening briefs are waived).
     C. Liberty Mutual Did Not Act in Bad Faith
     While Liberty Mutual had a duty to defend, the flip side
is that Liberty Mutual had a defensible position and there-
fore did not act in bad faith in denying coverage. “[I]n order
to prove a claim of bad faith under New Jersey law, a plain-
tiff must prove that: ‘(1) the insurer lacked a ‘fairly debata-
ble’ reason for its failure to pay a claim, and (2) that the in-
surer knew or recklessly disregarded the lack of a reasonable
basis for denying the claim.’” Certain Underwriters at Lloyd’s
of London v. Alesi, 843 F. Supp. 2d 517, 531 (D.N.J. 2011) (cita-
tion omitted). “What is dispositive is whether, based on the
facts existing at the time of the denial, a reasonable insurer
would have denied the claim, so that even if the insurer
gives an erroneous reason for denying coverage, if there is a
Nos. 14-1242, 14-1356, 14-1359                               17

valid basis for denying coverage, the insurer is not liable for
bad faith.” On Air Entm’t Corp. v. Nat’l Indemn. Co., 210 F.3d
146, 153 n.11 (3d Cir. 2000). Though Liberty Mutual’s denial
letter erroneously refused coverage based on the nature of
the complaint—there was an indemnification requirement
for personal injury and not just products liability—our dis-
cussion makes clear that Liberty Mutual’s position was, at
the very least, “fairly debatable” at the time Liberty Mutual
denied coverage.
   D. Footstar and Liberty Mutual Cannot Deny Defense
      Costs Based on Kmart’s Breach of the Notice Provi-
      sions
     Kmart did not alert Liberty Mutual or Footstar to the suit
until thirty months after it first learned about the claim and
one-and-a-half years after the suit was filed. This was in con-
travention of the notice provisions in both the Master
Agreement (requiring Kmart to “timely advise [Footstar] of
any lawsuit, claim or proceeding”) and the Policy (requiring
Kmart to notify Liberty Mutual “as soon as practicable of an
‘occurrence’ or an offense which may result in a claim”).
However, that does not mean that Kmart’s actions precluded
it from recovering defense costs. Under New Jersey law, “an
insurer must show that it was appreciably prejudiced by its
insured’s failure to cooperate in order to disclaim coverage
based on that failure.” Hager v. Gonsalves, 942 A.2d 160, 163
(N.J. Super. Ct. App. Div. 2008). In order to show prejudice
resulting from a late notice, the insured has to show “a ‘like-
lihood of success’ in defending liability or damages if those
opportunities had been available.” Trs. of Univ. of Pa. v. Lex-
ington Ins. Co., 815 F.2d 890, 898 (3d Cir. 1987). Liberty Mutu-
al has not presented any evidence that the case would have
18                              Nos. 14-1242, 14-1356, 14-1359

turned out differently had it been involved earlier. It rests its
argument on the fact that it might have convinced Kmart to
settle for less earlier—there were settlement discussions that
Kmart turned down prior to actually settling. However, Lib-
erty Mutual has denied coverage and responsibility from the
get-go. Not only is there no evidence that Liberty Mutual
would have handled the case differently had it had notice,
but its practice calls into question whether it would have
even joined in the settlement discussions. Absent any evi-
dence that the case would have come out differently had the
insurer been involved earlier, we find no bad faith on Liberty
Mutual’s part.
    Under Illinois law, prejudice is a factor, but not a disposi-
tive one like in New Jersey. Country Mut. Ins. Co. v. Livorsi
Marine, Inc., 856 N.E.2d 338, 346 (Ill. 2006). With that said,
the Illinois Supreme Court has highlighted that an important
factor is whether the insuring party (Footstar) had actual no-
tice of the lawsuit, meaning “sufficient information to locate
and defend the suit.” W. Am. Ins. Co. v. Yorkville Nat. Bank,
939 N.E.2d 288, 296 (Ill. 2010). In that case, the Illinois Su-
preme Court upheld the trial court’s finding that the notice
provision had not been breached despite twenty-seven
months passing between when the lawsuit was filed and
when the insured sent official notice. Id. at 294. The trial
court found that the insurer had actual knowledge “within a
few months of the lawsuit” being filed, and that weighed in
favor of finding no breach of notice. Id. at 296. Here, Footstar
was aware of the suit and had sufficient information to lo-
cate and defend the suit less than a month after it was filed.
Footstar has not shown any prejudice, as discussed above,
and so we find no material breach of the notice provision.
Moreover, the Master Agreement contained a non-waiver
Nos. 14-1242, 14-1356, 14-1359                               19

clause, which stated that Kmart cannot waive any of its
rights (which would presumably include right to defense
and indemnification) through “silence, acquiescence or inac-
tion.” Such clauses are enforceable in Illinois, and Footstar
has not presented any evidence that Kmart waived this
clause. See Roboserve, Inc. v. Kato Kagaku Co., 78 F.3d 266, 277
(7th Cir. 1996). Kmart could therefore not waive its right to
defense by inaction.
   E. Kmart Waived its Prejudgment Interest Argument
    Finally, Kmart asserts in its appellate briefing that it was
entitled to prejudgment interest based on Liberty Mutual
and Footstar’s contractual obligation, and the magistrate
judge abused its discretion by denying such interest. See
BKCAP, LLC v. CAPTEC Franchise Trust 2000-1, 688 F.3d 810,
815 (7th Cir. 2012) (reviewing prejudgment interest decision
for abuse of discretion). However, this argument was “un-
derdeveloped, conclusory, or unsupported by law” in front
of the magistrate judge and is therefore waived on appeal.
C&N Corp. v. Gregory Kane & Ill. River Winery, Inc., 756 F.3d
1024, 1026 (7th Cir. 2014). Kmart referenced prejudgment in-
terest only three times in front of the magistrate judge: once
in each of the “Wherefore” clauses of its motion and memo-
randum in support of summary judgment, and in one sen-
tence in its Motion for Entry of Judgment. Kmart did not as-
sert which contract gave rise to prejudgment interest (the
Master Agreement, the Policy, or both); which state law and
prejudgment interest statute governed (Illinois or New Jer-
sey); and did not cite a single case supporting its position
that it is entitled to prejudgment interest. This argument is
waived.
20                          Nos. 14-1242, 14-1356, 14-1359

                  III. CONCLUSION
   For the foregoing reasons, we AFFIRM IN PART and
REVERSE IN PART the judgment of the magistrate judge and
remand for proceedings consistent with this opinion.
