Nat. Union Fire Ins. v. Continental Ill. Corp.

Decision Date24 July 1987
Docket Number85 C 7081.,No. 85 C 7080,85 C 7080
Citation666 F. Supp. 1180
PartiesNATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Plaintiff, v. CONTINENTAL ILLINOIS CORPORATION, et al., Defendants. HARBOR INSURANCE COMPANY and Allstate Insurance Company, Plaintiffs, v. CONTINENTAL ILLINOIS CORPORATION, et al., Defendants.
CourtU.S. District Court — Northern District of Illinois

COPYRIGHT MATERIAL OMITTED

James G. Hiering, Dennis C. Waldon, Jeffrey I. Berkowitz and A. Benjamin Goldgar, Keck, Mahin & Cate, Chicago, Ill., for plaintiffs.

Roger W. Barrett, Franklin P. Auwarter, Michele Odorizzi, Mayer, Brown & Platt, H. Blair White, Walter C. Carlson, Sidley & Austin, Lowell E. Sachnoff, Barry S. Rosen, Candace J. Fabri, and Carolyn Rosenberg Safer, Sachnoff, Weaver & Rubenstein, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Allstate Insurance Company ("Allstate") and National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union") (collectively "Insurers")1 have sued Continental Illinois Corporation ("CIC"), its subsidiary Continental Illinois National Bank and Trust Company of Chicago ("Bank")2 and a host of other defendants, seeking to avoid liability under the directors' and officers' ("D & O") liability policies (the "Policies") Insurers had issued to CIC.3 Defendants now move for judgment on the pleadings under Fed.R.Civ.P. ("Rule") 12(c) on Counts III, IV, V and VI of Insurers' Amended Complaints.4 For the reasons stated in this memorandum opinion and order, that motion is granted in principal part and denied in limited respects.

Standards for Decision

Rule 12(c) motions, like those for summary judgment, are designed to achieve a resolution of claims on their merits. Unlike the summary judgment motion, however, the Rule 12(c) motion limits the court to the pleadings themselves and to matters subject to judicial notice. 5 Wright & Miller, Federal Practice and Procedure: Civil § 1367, at 685 (1969).

Because Insurers are the nonmovants, all well-pleaded allegations in the Complaints must be accepted as true and all reasonable inferences drawn in Insurers' favor. Republic Steel Corp. v. Pennsylvania Engineering Corp., 785 F.2d 174, 177 n. 2 (7th Cir.1986).5 Evidentiary submissions are unnecessary (or, more accurately, inappropriate), for the question is which party is entitled to judgment as a matter of law on the assumption that all Insurers' well-pleaded factual allegations are true.

Despite their right to such favorable assumptions and despite this Court's admonitions to the contrary, Insurers included evidentiary submissions with their memorandum in opposition to defendants' motion. They insist such matters outside the pleadings are necessary to put their allegations and the legal issues "in full context," and they urge consideration of those matters by converting defendants' motion into a Rule 56 motion for summary judgment. It is scarcely surprising that defendants (likely out of an abundance of caution) responded with rebuttal evidence accompanying their reply memorandum, while at the same time insisting matters outside the pleadings were not necessary for resolving their motion.

Where both sides have thus tendered materials outside the pleadings, a court may properly opt to convert a Rule 12(c) motion into one for summary judgment. Republic Steel, 785 F.2d at 178. In this case, however, such a conversion would be both premature and unnecessary. Insurers themselves point out that discovery in these cases is still ongoing. Insurers are therefore unprepared or unable to proffer evidence in support of many of their factual allegations.6

In any event, what evidence Insurers have submitted adds nothing to their claims. In the context of defendants' Rule 12(c) motion, judgment can be entered on those claims as a matter of law, with only one real exception. For that reason both sides' evidentiary submissions are stricken, and this opinion proceeds on the assumption that all Insurers' allegations in Counts 3, 4, 5 and 6 are true.7

Underlying Litigation

Several of the earlier opinions in these cases (see, e.g., 116 F.R.D. 252, 253 n. 4 (1987)) have used the term "underlying litigation" in referring to the numerous actions brought against Continental and its officers and directors that could result in claims under Insurers' Policies. Until now it has never been necessary to define precisely what that term comprises. Now it is: Although Counts 4 and 5 seek declaratory judgments as to specific types of claims, Counts 3 and 6 ask similar relief as to specific claims. Insurers and defendants disagree as to what claims are included in Counts 3 and 6.

Complaint ¶¶ 97-99 in fact define the underlying claims for purposes of deciding Insurers' claims here. Those underlying claims were made in these cases:

1. Goodman v. CIC, Master File No. 82 C 4712 (N.D.Ill.) (also referred to as In re Continental Securities Litigation and the Consolidated Litigation), which includes class and derivative claims;8
2. Frankenstein v. CIC, No. 82 L 50353 and Vlahandreas v. CIC, No. 82 CH 8526, which contain only derivative claims and were both originally filed in the Circuit Court of Cook County (Vlahandreas was later filed as No. 7146 in the Chancery Court of New Castle County, Delaware);
3. Spring v. CIC, 84 C 4648, Rothschild v. CIC, 84 C 8596 and DiLeo v. Raymond C. Baumhart, 84 C 7305, all of which were filed in this District Court and contain only class claims; and
4. California Public Employees' Retirement System v. CIC, 85 C 9872 (N.D. Ill.), which contains only individual claims.

Although Continental originally refused to assume the derivative claims, on September 26, 1984 those claims were assigned to Federal Deposit Insurance Corporation ("FDIC") and FDIC was then substituted for the derivative plaintiffs in the derivative cases (Consolidated Litigation, Frankenstein and Vlahandreas). FDIC filed a Second Amended Complaint in Consolidated Litigation (recaptioned FDIC v. Anderson, 82 C 4712 (see IX 1)), realleging the derivative claims and adding claims for breach of contract and breach of fiduciary duty.9

As defendants' memoranda correctly point out, many of the underlying claims have been settled. FDIC settled its claims (both the original derivative claims in Frankenstein, Vlahandreas and Consolidated Litigation and its later claims in FDIC v. Anderson) against certain of Continental's directors and officers. As part of the settlement agreement, those directors and officers assigned their rights under the Policies to FDIC. That settlement is the source of FDIC's Counterclaim against Insurers (see the Eleventh Opinion, 113 F.R.D. 527, 529 (N.D.Ill.1986)).10 All the class claims in Consolidated Litigation have been settled too. Again as part of that settlement the defendant directors and officers assigned their rights under the Policies to the plaintiff class, which then unsuccessfully tried to intervene in these cases to assert their assigned rights against Insurers (see the Twelfth Opinion, 113 F.R.D. 532 (N.D.Ill.1986)). Finally, the class claims in Spring and Rothschild have also been settled. Continental has indemnified its officers and directors for the costs of that settlement and has filed a counterclaim against Insurers to recover those amounts under the Policies.

Defendants have assumed those settled claims are the only relevant underlying claims for Counts 3 and 6. They acknowledge the continued pendency of the claims in DiLeo (now an individual rather than a class action) and California Retirement,11 but they somewhat lamely insist those claims are not relevant to Counts 3 and 6.12 They are wrong.

Count 3 seeks a declaration regarding only "the Class Action, Derivative and FDIC Litigation" (¶ 126), terms of art defined in ¶¶ 97-99. According to defendants, Count 3 cannot include DiLeo (because it is now an individual action) or California Retirement (because it is not within the ¶ 97 definition of the "Class Action and Derivative Litigation"). As for DiLeo, the ¶ 97 definition (and not the present character of the DiLeo claims) is what determines the meaning of the terms "Class Action and FDIC Litigation," and the DiLeo claims are clearly included in that definition. As for California Retirement, it was filed after these cases began and was therefore not included here until Insurers filed the Complaints. Although Count 3 specifically incorporates ¶ 98, which adds the California Retirement claims to the list of the underlying litigation, Insurers carelessly neglected to refer specifically to those claims in Count 3's ¶ 126 and in the Count 3 Prayer for Relief. As Insurers recently confirmed, that omission was not intentional.

As for Count 6, defendants really have no excuse for ignoring the DiLeo and California Retirement claims. Count 6 incorporates ¶¶ 97-99 and seeks a declaratory judgment as to "the claims asserted against the defendants." That is clearly a reference to the claims discussed in ¶¶ 97-99, which include those in DiLeo and California Retirement.

Thus Counts 3 and 6 do seek declarations as to coverage under the Policies for all the claims listed in ¶¶ 97-99 (which this opinion will embrace within the term "Underlying Litigation"). Some of those claims are still pending. Fortunately for defendants, those facts do not really affect their legal arguments, and this Court can enter judgment on Counts 3 and 6 as to both the settled and pending claims, with only one exception.

Count 3

Under Count 3 Insurers seek a declaration from this Court that:

1. Defendants have engaged in willful misconduct.
2. That conduct resulted in the claims made against defendants in the Underlying Litigation.
3. Federal law and public policy prohibit providing insurance coverage for losses suffered by defendants because of willful misconduct.
4. Insurers' Policies therefore cannot provide coverage for the claims made against defendants in the Underlying Litigation.

Defenda...

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