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CHICAGO BD. OF OPTIONS EXCH., INC. v. HARBOR INS.

June 6, 1990

CHICAGO BOARD OF OPTIONS EXCHANGE, INC., Plaintiff,
v.
HARBOR INSURANCE COMPANY, Defendant



The opinion of the court was delivered by: DUFF

 BRIAN BARNETT DUFF, UNITED STATES DISTRICT JUDGE

 On December 26, 1989, Harbor Insurance Company moved for judgment in its favor on the pleadings of Chicago Board of Options Exchange, Inc. ("CBOE"). See Rule 12(c), Fed.R.Civ.Pro. After reviewing the parties' briefs on the motion, *fn1" the court converted Harbor's motion to one for summary judgment under Rule 56. The parties have filed statements in accordance with the local rules, and now the motion is ready for decision.

 These are the uncontested facts: Harbor is a California corporation whose principal place of business is Los Angeles, California. CBOE is a Delaware corporation whose principal place of business is Chicago, Illinois. On May 1, 1980, Harbor issued CBOE a directors and officers liability policy, effective from April 26, 1980 to April 26, 1983. The policy provided two types of coverage, one reimbursing CBOE for certain payments made as indemnity to CBOE's officers and directors (Section A) and one directly insuring CBOE's officers and directors for certain liabilities (Section B). More specifically, Harbor promised in Clause 1 of Section A:

 
This policy shall, subject to its terms, conditions and limitations as hereinafter provided, pay on behalf of [CBOE] loss (as hereinafter defined) arising from any claim or claims made during the policy period against each and every person . . . who . . . now is . . . a director or officer of [CBOE] who is included in the meaning of those terms as defined in Clause 2(A) of this policy (who are hereinafter individually or collectively sometimes called the "directors"), by reason of any wrongful act (as hereinafter defined) in their respective capacities of directors or officers of [CBOE], but only when [CBOE] shall be required or permitted to indemnify the directors for damages, judgments, settlements, costs, charges or other expenses incurred in connection with the defense of any action, suit or proceeding to which the directors are a party or with which they are threatened . . ., pursuant to the law, common or statutory, or the charter or by-laws of [CBOE] duly effective under law, which determines and defines such rights of indemnity.

 Clause 2(C) defined "loss" as

 
any amount [CBOE] is required or permitted to pay to a director or officer as indemnity for a claim or claims against him arising out of those matters set forth in [Clause 1] above whether actual or asserted and, subject to the applicable limits and conditions of this policy, shall include damages, judgments, settlements and costs, charges and expenses, incurred in the defense of actions, suits or proceedings . . . for which payment by [CBOE] may be required or permitted according to applicable law, common or statutory, or under provisions of [CBOE's] charter or by-laws effective pursuant to law; provided always that such subject of loss shall not include fines or penalties imposed by law or other matters which are uninsurable under the law pursuant to which this policy shall be construed.

 Clause 2(D) defined "wrongful act" as

 
any breach of duty, neglect, error, misstatement, misleading statement, omission or other act done or wrongfully attempted by the directors or any of the foregoing so alleged by any claimant or any matter claimed against them solely by reason of their being such directors.

 In November 1982, the former chief enforcement counsel of the CBOE, Paul Sussman, filed suit in the Circuit Court of Cook County. Sussman named as defendants CBOE, the chairman of CBOE's board of directors, CBOE's president, its first vice president, and its senior vice president. In Count I of his complaint, Sussman alleged that these defendants fired him in retaliation for his urging his superiors to enforce the rules and regulations of the federal government and the CBOE, as well as for his pointing out conflicts of interest between CBOE officials and CBOE members. Sussman alleged that his discharge was wrong, and thus the Sussman defendants owed him $ 1 million. In Count II, Sussman alleged that Sussman defendants' actions were "willful and malicious." Sussman thus sought $ 10 million in punitive damages from them.

 On February 13, 1987, CBOE notified Harbor that it had settled the Sussman matter for $ 99,000. Nearly five months later, CBOE further informed Harbor that its costs of defending against Sussman, including the settlement, were $ 430,696.81. Harbor has not paid CBOE anything towards this amount, and this suit has resulted. CBOE's complaint has two counts. Count 1 is for breach of contract -- specifically, breach of Harbor's insurance policy. That policy does not say which law governs its construction, but the parties assume throughout their briefs that Illinois law governs this court's interpretation of the policy. The court will treat this as a stipulation. See City of Clinton, Ill. v. Moffitt, 812 F.2d 341, 342 (7th Cir. 1987) (parties may stipulate informally to applicable substantive law, within broad limits). Count 2 of CBOE's complaint is a claim for unreasonable delay in payment under an insurance policy, pursuant to § 155 of the Illinois Insurance Code, Ill.Rev.Stat. ch. 73, § 767 (1987).

 Harbor raises essentially three arguments in favor of the entry of summary judgment. Harbor's first contention starts out with the suggestion that under Illinois law, Paul Sussman could have recovered only from his employer, CBOE, for retaliatory discharge. Harbor refers to Morton v. Hartigan, 145 Ill. App. 3d 417, 421-22, 495 N.E.2d 1159, 1162, 99 Ill. Dec. 424 (1986), for this proposition. CBOE contends that at the time Sussman filed his complaint, however, no court had ruled on the issue, and that the only court to address it prior to Morton had held to the contrary. See Zurek v. Hasten, 553 F. Supp. 745, 749 (N.D.Ill. 1982).

 The question whether Sussman had a cause of action against CBOE's officers and directors for retaliatory discharge is fascinating, *fn2" but Harbor never explains why the answer to this question affects its contractual obligation to the CBOE. Subject to the terms of its policy, Harbor agreed to reimburse CBOE for any "loss . . . arising from any claim or claims" against CBOE's directors and officers "by reason of any wrongful act. . . ." The policy defined "wrongful act" as including " any. . . act done . . . by the directors or . . . so alleged by any claimant. . . ." (Emphasis added.) Harbor did not confine its obligation to claims which had legal merit, or those filed by CBOE's stockholders, or those filed in federal court. The court is obliged to hold Harbor to the terms of its policy: any claim against an officer or director for a wrongful act, for which CBOE had to indemnify that officer or director, triggers Harbor's obligation to reimburse CBOE. See Ratcliffe v. Int'l Surplus Lines Ins. Co., 194 Ill. App. 3d 18, 29-30, 550 N.E.2d 1052, 1059-60, 141 Ill. Dec. 6 (1990) (in interpreting directors and officers policy, court should not modify otherwise unmodified terms). Thus, whether Sussman's claims against CBOE's officers and directors would have survived a motion to dismiss in the Illinois courts has no bearing on Harbor's promise to CBOE. *fn3"

 Harbor fares somewhat better with its second argument, for unlike its first contention, Harbor roots this one in the language of its policy. As noted earlier, Clause 2(C) of Harbor's policy contained an important exception to its definition of loss: "such subject of loss shall not include fines or penalties imposed by law or other matters which are uninsurable under the law pursuant to which this policy shall be construed." Harbor contends that the acts which CBOE's directors and officers allegedly perpetrated are wholly uninsurable. The parties agree that under Illinois law, the act of retaliatory discharge is an intentional tort. See U.S. Fire Ins. Co. v. Beltmann North American Co., 883 F.2d 564, 568-69 (7th Cir. 1989) (applying Illinois law). Harbor argues that one may not insure himself or herself for his or her own intentional torts under Illinois law. This may be the general rule, see Davis v. Commonwealth Edison Co., 61 Ill. 2d 494, 500-01, 336 N.E.2d 881, 885 (1975), one which ...


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