D & O Liability - Insured v. Insured Exclusion Bars Coverage for Receiver’s Lawsuit
On February 27, 2008, Judge Robert Gettleman granted Indian Harbor Insurance Company’s (“Indian Harbor”) motion for judgment on the pleadings in the lawsuit captioned Paul W. Oliver, Jr. v. Indian Harbor Insurance Company,
No. 07 C 5002 (N.D. Ill.). The issue presented to the Court on the motion was whether Indian Harbor’s Financial Services Liability insurance policy provided coverage for an underlying lawsuit brought by a court-appointed receiver
(the “Receiver”) on behalf of AA Capital Partners, Inc. (“AA Capital”), an insured under the policy, against two individual insureds, where the policy contained an express exclusion for claims brought
on behalf of one insured against another insured. Specifically, Indian Harbor’s policy included an exclusion barring coverage for “Loss in connection with any Claim made against an Insured . . . brought by, or on behalf
of, or at the direction of any Insured” (the “Insured v. Insured Exclusion”).
Plaintiff Paul W. Oliver, Jr., a defendant in the underlying action, argued that the Receiver was suing on behalf of AA Capital’s investors, rather than on behalf of AA Capital itself. Indian Harbor contended that
Oliver’s argument in that regard was contrary to the express authority granted to the receiver by the Court. In this connection, Indian Harbor noted that the Court had appointed the Receiver “over AA Capital”
and had vested the Receiver with all of the powers of an “equity receiver,” including “full power over all . . . assets . . .[and] choses in action . . . belonging to or in the possession of or control of AA
Capital.” In its motion for judgment on the pleadings, Indian Harbor explained that, because the Receiver had the authority to pursue claims only on behalf of AA Capital, and because that was precisely what the Receiver had
done in the underlying action, the underlying action fell squarely within the policy’s Insured v. Insured Exclusion.
The Court agreed with Indian Harbor, finding that the Insured v. Insured Exclusion was clear and unambiguous, and therefore, under Illinois law, must be afforded its plain, ordinary and popular meaning. See Opinion at p.
3. Considering the authority that the Receiver was exercising in bringing the claim, the Court observed that the Receiver, like receivers in general, was appointed to protect and preserve the assets of the company. Accordingly, the
Court held that the underlying action was brought “on behalf of” AA Capital, in that it “seeks to maximize AA Capital’s assets, which, in turn, ultimately benefits both the investors and creditors.”
Id. at p. 5. Any benefit of the Receiver’s lawsuit to the company’s investors and creditors was simply a by-product of the suit and would not change the fact that the Receiver was acting on behalf of the company.
See id. at p. 4. In these circumstances, the Court concluded that coverage for the underlying action was barred by the policy’s Insured v. Insured Exclusion.