Rli Insurance Company v. Conseco, Inc.
| Decision Date | 09 September 2008 |
| Docket Number | No. 07-2831.,07-2831. |
| Citation | 543 F.3d 384 |
| Parties | RLI INSURANCE COMPANY, Plaintiff-Appellee, v. CONSECO, INC., Conseco Services L.L.C., Rollin Dick, et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Steven K. Huffer, Conseco, Incorporated, Carmel, IN, Kevin Q. Butler (argued), McKnight, Kitzinger, McCarty & Pravdic, Chicago, IL, for Defendants-Appellants.
Before MANION, ROVNER, and WILLIAMS, Circuit Judges.
RLI Insurance Company ("RLI") filed a declaratory judgment action seeking a determination of its obligation, if any, to defend Conseco, Inc., and various individual defendants (collectively "Conseco") under a liability insurance policy RLI issued to Conseco. The district court entered summary judgment in favor of RLI concluding that RLI was released from any duty to defend and entitled to indemnification. Conseco appeals, and we affirm.
In April 2000, a group of plaintiffs sued Conseco and some of its officers and directors alleging securities fraud (the "Securities Action"). In their amended complaint, the plaintiffs alleged that "during 1999 and early 2000, Conseco engaged in a variety of practices to deliberately manipulate the credit loss assumptions used to value its interest-only securities and falsely report the value of these securities." The parties eventually settled the case, and on August 7, 2002, the district court entered final judgment approving the settlement. The final judgment order incorporated portions of the settlement, including that the Securities Action settlement released, among other things, any claims that a class member ever had or will have that are
related to the conduct alleged in [the Securities Action], including, but not limited to (I) claims which arise out of any of the facts, transactions, events, occurrences, acts or omissions mentioned or referred to in the Complaint or other matters that are or could have been set forth, alleged, embraced or otherwise referred to in the Action or the Consolidated Class Actions or which could have been brought against Defendants related to a Class Member's purchase or acquisition of Class Securities.
A dispute regarding coverage of the litigation costs resulting from the Securities Action arose between Conseco and several of its insurance carriers, including RLI. Conseco filed a declaratory judgment action in Indiana state court claiming that RLI owed coverage for the Securities Action under an excess directors and liability insurance policy RLI had issued to Conseco. While the Securities Action was pending, Conseco, RLI, and the other insurance carriers entered into a release agreement ("Original Agreement") on May 10, 2002. RLI agreed to pay $10 million toward the settlement of the Securities Action, but reserved its right to seek reimbursement. RLI exercised that right by filing counterclaims for restitution or reimbursement in Conseco's declaratory judgment case. On October 25, 2002, after the district court had entered final judgment in the Securities Action, RLI and Conseco entered into a Supplemental Agreement And Mutual Release ("Supplemental Agreement") through which RLI dismissed its counterclaim seeking reimbursement for the $10 million it contributed to the settlement of the Securities Action. In exchange, Conseco issued RLI a general release, which provides in relevant part:
13. General Release As To RLI. The insured, and each of them, and each of their respective past, present and future employees, agents, attorneys, directors, officers, shareholders, owners, representatives, predecessors, successors, heirs, estates, executors, administrators, trustees, affiliates, parents, subsidiaries, assigns, and any person acting on their behalf (hereafter the "Conseco Related Parties"), hereby release and forever discharge RLI and its past, present, and future employees, agents, claims personnel, attorneys, directors, officers, shareholders, owners, representatives, predecessors, successors, heirs, estates, executors, administrators, trustees, affiliates, parents, subsidiaries, assigns, reinsurers and any person acting on their behalf (hereafter the "RLI Related Parties") from any and all claims, actions, causes of action, rights or obligations, whether known or unknown, whether contingent or liquidated, of every kind, nature and description, that the Conseco Related Parties now have or may have against the RLI Related Parties based on, arising out of, or in any way related to:
(a) the Derivative actions, the Securities action, the Coverage litigation, or the RLI Excess Policy;
(b) the defense of the Derivative actions, Securities action, or Coverage litigation including, but not limited to, all attorney's fees and expenses or expert witness/consultant fees and expenses incurred in connection with that litigation;
(c) any claim for coverage under any policy of insurance issued by RLI, including RLI Excess Policy, based on, arising out of, or in any way related to the Derivative actions, Securities action, or Coverage Litigation;
(d) any notice of claim or notice of potential claim based on, arising out of, or in any way related to the Derivative actions, Securities action, or Coverage Litigation;
(e) RLI's handling of any claim for coverage based on, arising out of, or in any way related to the Derivative actions, Securities action, or Coverage Litigation, including, but not limited to, any claim for bad faith, for any breach of a duty of good faith under the statute, regulations, or common law of any state, or for any unfair or deceptive trade practices; or
(f) any claim that RLI's policy limits have been restored in whole or in part, whether in connection with [the Original Release] or otherwise.
The general release set forth in this paragraph supplants and expands the release terms set forth in paragraphs 13 and 14 of the Original Agreement.
The Supplemental Agreement also provides for indemnification:
The Security Action Defendants, and each of them, agree to indemnify, defend, and hold harmless . . . RLI . . . from and against any and all claims, demands, damages, losses, accounts, reckonings, debts, liabilities, indemnities, obligations, actions, causes of action, settlement costs, attorney's fees, court costs, and any other costs or expenses . . . brought or made against . . . RLI . . . for any amounts which heretofore or hereafter may be claimed by persons who are insureds, claim to be insureds, or claim the rights of insureds under the RLI Excess Policy in connection with the matters released by . . . Conseco . . . including, without limitation, any claim made by any of the parties to the Litigation or the Coverage Litigation or any claim made by any other putative insured with respect to . . . the matters released by the Conseco Related Parties in this agreement.
Around the same time that Conseco and RLI entered into the Supplemental Agreement, Roderick W. Russell ("Russell") filed a putative class action suit against Conseco and several other defendants alleging violations of Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a) ("Russell litigation"). Russell asserted that beginning in 1999 and through 2002 Conseco's filings with the Securities and Exchange Commission were materially false, and that Conseco mismanaged plan assets, failed to make requisite disclosures, and had divided loyalties. In December 2002, Conseco filed a motion to dismiss Russell. By this point, however, Conseco had filed for bankruptcy, and the Russell litigation was stayed during those proceedings. After the stay was lifted, Russell amended his complaint on March 22, 2004. Conseco renewed its motion to dismiss on June 1, 2004. The first line of the renewed motion read: "This case should be dismissed because it has already been litigated." The motion cited the prior Securities Action stating that its settlement included Russell and the plan on whose behalf Russell brought suit. The motion continued, "Settlement class members agreed to release Conseco and anyone affiliated with Conseco (which includes all the present Defendants) from any claims based on any facts that were alleged, or that could have been alleged, or that are related to the conduct alleged, in the securities litigation." The motion went on to note that the entire Securities Action release was included in the final judgment order and listed specific overlapping allegations set forth in Russell's amended complaint and the amended complaint filed in the Securities Action. Following the list, the motion concluded, "Because these underlying facts involved in the two cases are (at a minimum) `related,' the claims Russell brings here fall within the definition of the securities litigation release." Finally, Conseco stated that because the Securities Action "[w]as [e]nshrined in a[f]inal judgment, [ ] the [r]elated [c]laims in the [a]mended [c]omplaint [s]hould [b]e [d]ismissed under the [d]octrine of [r]es [j]udicata."
On July 30, 2004, the district court in Russell granted Conseco's motion to dismiss noting that the potential Russell class members were class members of the Securities Action, Russell was included in the settlement in the Securities Action, and Conseco was a named defendant in the Securities Action. The Russell court concluded:
The settlement of the [Securities Action], which the Court found included [Russell], and plan participants, foreclosed the future claims that [Russell] attempts now to put back at issue in this case. Therefore the argument that [Russell] makes in attempting to distinguish the instant case from the 2000 case by including a different temporal component is of no moment.
As noted above, the settlement of the Securities Action included a release of any claims arising out of the Securities...
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