Transamerica Ins. Co. v. South

• Decision Date: 11 September 1992
• Docket Number: Nos. 91-1769,91-1908,91-2546,91-1882,91-2547,91-2548 and 91-2549,91-1909,s. 91-1769
• Citation: 975 F.2d 321
• Parties: TRANSAMERICA INSURANCE COMPANY, Plaintiff-Appellee, v. Ronald M. SOUTH, Roy W. Brunsmann, Walter E. Jones, Kathleen Jones, and Iris L. Hannon, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 321

975 F.2d 321

TRANSAMERICA INSURANCE COMPANY, Plaintiff-Appellee, v. Ronald M. SOUTH, Roy W. Brunsmann, Walter E. Jones, Kathleen

Jones, and Iris L. Hannon, Defendants-Appellants.

Nos. 91-1769, 91-1882, 91-1908, 91-1909, 91-2546, 91-2547,

91-2548 and 91-2549.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 25, 1992.

Decided Sept. 11, 1992.

Timothy S. Richards (argued), Gundlach, Lee, Eggmann, Boyle & Roessler, Belleville, Ill., for plaintiff-appellee.

Gary L. Bement (argued), Nelson, Bement, Stubblefield & Rich, Steven E. Katzman, Robert O. Crego, Katzman, Crego & Wood, Jim Mendillo, Jeffery A. Cain, Freeark, Harvey, Mendillo, Dennis, Wuller & Buser, Belleville, Ill., Floyd E. Crowder, Curtis W. Martin, Crowder & Scoggins, Columbia, Ill., for defendants-appellants.

Before CUDAHY, COFFEY, and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

Ronald South, an investment advisor in Belleville, Illinois, purchased an errors and omissions policy from Transamerica Insurance Company (Transamerica). The policy contained a clause excluding coverage for claims arising out of the insolvency of any organization in which Mr. South placed the funds of a client. In 1988, Mr. South encouraged several clients to purchase "risk-free" annuities from First Columbia Life

                Insurance Company (First Columbia).   In fact, although an Illinois state insurance fund guarantees investments with companies that are authorized to do business in Illinois, First Columbia was not authorized to do business in Illinois and, thus, its annuities were not guaranteed.   After First Columbia became insolvent, several of Mr. South's clients, who were Illinois domiciliaries, sued Mr. South for negligence and negligent misrepresentation.   Transamerica, a California corporation, filed this suit against Mr. South and his clients based upon diversity jurisdiction.   Transamerica sought a declaration that it has no duty to defend or indemnify Mr. South for any claims of loss connected with First Columbia annuities.   The district court granted Transamerica the relief it requested on summary judgment.   Mr. South and his clients appeal, and we affirm
                

I BACKGROUND

A. Facts

In 1988, Mr. South was employed as an investment advisor/life insurance agent with First Financial Group of Illinois, Inc., in Belleville, Illinois. Mr. South was covered by an errors and omissions policy, issued by Transamerica, which included a clause excluding coverage for:

Any claim arising out of insolvency, receivership or bankruptcy of any organization (directly or indirectly) in which the INSURED has placed or obtained coverage or in which an INSURED has placed the funds of a client or account.

R.1 Ex.1 at 9. Between February and September of 1988, Mr. South recommended to several clients the purchase of annuity contracts issued by First Columbia. Allegedly, Mr. South told his clients that the First Columbia annuities were guaranteed and risk-free. Mr. South was apparently unaware that First Columbia did not hold a certificate of authority to transact insurance in Illinois, allegedly because of its poor financial condition. If First Columbia had been authorized to do business in Illinois, the Illinois Insurance Guarantee Fund would have guaranteed the investments. Allegedly, had Mr. South checked with the Illinois Department of Insurance before recommending the annuities, he would have learned that First Columbia was not authorized to do business in Illinois and that First Columbia was in poor financial condition.

On November 18, 1988, a Louisiana state court declared First Columbia to be insolvent and granted the Louisiana Insurance Commissioner's request to liquidate the company. Subsequently, several of Mr. South's clients, Walter E. Jones, Kathleen Jones, William J. Hecht, Barbara Hecht, Roy W. Brunsmann, Iris I. Hannon, and William Flach, all Illinois domiciliaries, filed suit against Mr. South to recover the lost amounts of their investments. These clients alleged that Mr. South was negligent in failing to investigate the financial stability and authorization status of First Columbia and in misrepresenting the security of the investments.

Presented with the defense of these claims, Transamerica brought this suit in the United States District Court for the Southern District of Illinois, under its diversity jurisdiction, requesting a declaratory judgment, pursuant to 28 U.S.C. § 2201, that Transamerica has no duty to defend or indemnify Mr. South for any claims of loss connected with First Columbia annuities. The parties filed cross-motions for summary judgment, and the district court heard oral argument on the motions on March 1, 1991. The remaining facts concerning proceedings in the district court are presented below.

II ANALYSIS

A. Jurisdiction

We must first determine what parties and which issues are properly before us. In order to do so, it is necessary to state clearly the timing and substance of the motions filed and orders handed down in the district court. All the relevant events occurred in 1991.

1. Early proceedings in the district court

On March 22, the district court granted summary judgment in favor of Transamerica and against each of the defendants. In addition to a five-page opinion, the court entered a formal judgment simply stating the following:

IT IS ORDERED AND ADJUDGED that summary judgment is entered in favor of the plaintiff, TRANSAMERICA INSURANCE COMPANY, and against defendants RONALD M. SOUTH, WALTER E. JONES, KATHLEEN JONES, WILLIAM J. HECHT, BARBARA J. HECHT, ROY W. BRUNSMANN, IRIS I. HANNON, and WILLIAM FLACH.

R.43. Between April 1 and April 11, Mr. South, Mr. Brunsmann, Mr. and Mrs. Jones, and Ms. Hannon filed notices of appeal from the court's March 22 judgment. On April 16, this court entered an order stating that a preliminary review of the record had revealed that the March 22 judgment neglected to supply the declaratory relief requested and, therefore, appeared not to be an appealable judgment. See Metropolitan Life Ins. Co. v. Estate of Cammon, 929 F.2d 1220, 1222 (7th Cir.1991). The order directed the appellants to file a memorandum within two weeks stating why the appeal should not be dismissed for lack of jurisdiction.

On April 26, the district court held a hearing in response to this court's order. At the conclusion of the hearing, the district court entered an amendment nunc pro tunc to its previous order, directing the clerk to enter judgment in favor of Transamerica, including a statement of declaratory relief and a fee award. The same day, April 26, an amended judgment was drafted, signed, and entered on the docket. ¹

On May 3, Transamerica filed with the district court a motion, pursuant to Federal Rule of Civil Procedure 59(e), to amend the April 26 judgment in order to clarify what it perceived to be an ambiguity. On May 10, the court granted Transamerica's motion and entered an order to amend the judgment nunc pro tunc as to March 22. An amended judgment was drafted, signed, and entered on the docket the same day, May 10. On May 17, Mr. South filed a notice of appeal from the May 10 judgment. On May 23, Mr. Brunsmann also filed a notice of appeal from the May 10 judgment. Neither Mr. Jones, Mrs. Jones, nor Ms. Hannon filed a timely notice of appeal from the May 10 judgment. Thus:

March 22 District court enters judgment that simply grants summary judgment to Transamerica.

April 1-11 Mr. South, Mr. Brunsmann, Mr. and Mrs. Jones, and Ms. Hannon filed notices of appeal from the court's March 22 judgment.

April 26 District court holds hearing in response to this court's April 16 order. At the conclusion of the hearing, the district court orders the clerk to amend the March 22 judgment, nunc pro tunc as to March 22, to provide a statement of declaratory relief and a fee award.

May 3 Transamerica files Rule 59(e) motion to state more clearly the declaratory relief provided on April 26.

May 10 District court grants Transamerica's Rule 59(e) motion and orders the clerk to enter a second amended judgment, nunc pro tunc as to March 22.

May 17 Mr. South files notice of appeal from May 10 amended judgment.

May 23 Mr. Brunsmann files notice of appeal from May 10 amended judgment.

We must now address whether all of the parties who originally filed notices of appeal are properly before this court, and whether the district court had jurisdiction to grant Transamerica's May 3 Rule 59(e) motion. Central to both of these issues is the question: What is the effective date of the final judgment?

2. Final judgment

On April 16, this court entered an order stating that a preliminary review of the record had revealed that the March 22 judgment neglected to supply the declaratory relief requested and, therefore, appeared not to be an appealable judgment. Further study has confirmed our suspicion: Transamerica's complaint requested declaratory relief and, while the district court granted summary judgment in favor of Transamerica on March 22, the court failed to provide the declaratory relief requested. This omission rendered the March 22 judgment non-final and unappealable. See Metropolitan Life Ins. Co. v. Estate of Cammon, 929 F.2d 1220, 1222 (7th Cir.1991) ("This document ... neglected to supply the declaratory relief Metropolitan Life requested--for that matter, to provide any relief. It was accordingly not an appealable judgment."); Foremost Sales Promotions, Inc. v. Director, BATF, 812 F.2d 1044, 1045 (7th Cir.1987) ("The district judge must select the language of the declaratory judgment and issue the order.").

The district court acknowledged this problem and corrected it on April 26 by amending the March 22 judgment nunc pro tunc to include a statement of declaratory relief. This was sufficient to produce a final judgment, but generated a new concern: Can such a substantive amendment have effect nunc pro tunc such that the effective date of the final judgment is March 22? If so, then the ten-day...