The opinion of the court was delivered by: John F. Grady, United States District Judge
Before the court is defendant Anthem Insurance Companies, Inc.'s ("Anthem") motion for summary judgment pursuant to Fed. R. Civ. P. 56. For the reasons explained below, we deny defendant's motion.
Prior to July 31, 1997, Acordia, Inc. was a wholly-owned subsidiary of Anthem. (Def. Anthem Ins. Co., Inc.'s Stmt. of Undisputed Material Facts in Support of its Mot. for Summ. J. (hereinafter "Def. SOF") at ¶ 6.) At some point prior to that date a third entity, ACO Acquisition Corp. ("ACO"), was formed to purchase Acordia. (Pl. L.R. 56.1(b)(3)(B) Stmt. of Add'l Facts in Opp'n to Def.'s Mot. for Summ. J. (hereinafter "Pl. SOF") at ¶ 1.) On July 31, 1997, ACO, Acordia and Anthem entered into a Purchase Agreement whereby Anthem conveyed Acordia's "Brokerage Operations" to ACO. (Def. SOF ¶ 7.) Included in the sale were several of Acordia's subsidiaries, including Acordia of Illinois, Inc.*fn1 (Id.) The Purchase Agreement, which is expressly governed by Indiana law, contains a lengthy, "heavily negotiated" section concerning the parties' indemnification obligations. (Def. Mem. in Support of Mot. for Summ. J. (hereinafter, "Def. Mem.") at 8.) As the outcome of Anthem's motion for summary judgment depends upon the proper interpretation of these provisions, we will discuss them in detail. In section 10.01(4) Anthem agreed to indemnify Acordia and hold it harmless "from and against every Claim . . . that arises out of or in respect of or results from . . . the Special Indemnities, as set forth in Section 10.05." (See Purchase Agreement, attached as Ex. 1 to Def. Mem.) Section 10.05, in turn, provides that Anthem shall indemnify and hold [Acordia] and the Subsidiaries harmless from and against every Loss incurred by Purchaser or the Subsidiaries . . . that arises out of or in respect of or results from . . . any Legal Proceeding . . . instituted or overtly threatened after the Closing Date with respect to any Claim arising out of or in respect of or resulting from facts or circumstances existing at or prior to the Effective Date. (Id. at § 10.05.)*fn2
The Purchase Agreement further provides, however, that Anthem will not be obligated to indemnify Acordia in certain circumstances:
(1) Anything contained in this Agreement to the contrary notwithstanding, neither Purchaser nor Parent or Seller shall be entitled to indemnification under Sections 7.06, 10.01, 10.02, 11.02 or 11.03 for any Claim in respect of which the party claiming indemnification shall not have given a Claim Notice to Indemnitor on or before the earlier to occur of:
(i) in the case of Third Party Claims, thirty (30) days following the date on which Indemnitee received notice of such Third Party Claim, or, in the case of Direct Claims, thirty (30) days following the date on which Indemnitee became aware of the circumstance or occurrence giving rise to such Claim (except, in either case, where Indemnitor has not been prejudiced in any material respect by the Indemnitee's failure to deliver notice within such thirty (30) day period).
(Id. at § 10.04(1)(i) (emphasis added).) The Purchase Agreement defines "Claim Notice" as a notice identifying in "reasonable detail" the nature of the claim, including, among other things, an estimate of the amount of anticipated losses. (Id. at § 1.01.) Section 10.03 provides that no party shall be entitled to indemnification "with respect to matters not specifically identified in a Claim Notice or to file a Claim Notice with respect to matters not known at the time of delivery of such Claim Notice but which might arise in the future." (Id. at § 10.03.) Anthem's obligation to indemnify Acordia is further limited by Section 10.04(2), which provides that Anthem is not obligated to pay any amount in indemnification of certain Claims, including the Special Indemnities, "unless the aggregate of such Claims exceeds $2,500,000 (the 'Basket Amount'), and then only to the extent of such excess." (Id. at § 10.04(2)(a).)
In this lawsuit, the parties dispute the adequacy and timeliness of notice provided by Acordia with respect to two lawsuits filed against Acordia of Illinois, Inc. and that company's president, Ralph E. Aulenta. On October 14, 1999 Acordia's Senior Vice President and Chief Human Resources Officer, Jack O'Connor, sent a letter to Michael L. Smith, Anthem's Executive Vice President and CFO (the "O'Connor Letter"). (Def. SOF ¶ 27.) In the letter, O'Connor stated that Acordia had "become aware of certain facts suggesting potential irregularities in the operation of the Schaumburg, Illinois office of Acordia of Illinois, Inc." (See O'Connor Letter, attached as Ex. B to Pl. Resp. to Def. Stmt. of Facts.) Acordia's own investigation had revealed that certain clients had been charged excessive fees over a period of years. (Id.) According to the letter, Acordia had, in response, reported the matter to the United States Attorneys' office and the Illinois Insurance Commissioner. (Id.) The letter goes on to request indemnification pursuant to Section 10.05(1)(v) for any claims arising out of these circumstances, although it notes that "[a]s of this date, there has been no claim by any third party for any penalties or liabilities." (Id.) O'Connor's letter would seem to demand a response of some kind, but neither party indicates what communications (if any) took place between Acordia and Anthem immediately after O'Connor's letter.
On December 18, 2001, more than two years after Anthem received O'Connor's letter, the Village of Rosemont sued Acordia of Illinois, Inc. and Aulenta in the Circuit Court of Cook County (the "Rosemont Lawsuit"). (Def. SOF ¶ 18.) Rosemont's complaint alleged that the defendants had defrauded Rosemont by "misrepresenting the costs of procuring insurance, collecting amounts in excess of the actual insurance premiums due and profiting from the difference." (Id. at ¶ 19.) Shortly after Rosemont filed its complaint, a federal grand jury indicted Aulenta for allegedly using sham transactions to collect excess insurance premiums paid by the Village of Rosemont to Acordia of Illinois and a second entity, ABI. (Pl. Stmt. of Facts ¶ 9.) On November 14, 2002 a second lawsuit was filed against Acordia of Illinois and Aulenta in the Circuit Court of Cook County (the "Lawndale Lawsuit"). In that lawsuit, Lawndale Restoration Limited Partnership alleged fraud similar to that alleged in the Rosemont Lawsuit. (Def. SOF ¶ 23.)
Acordia did not notify Anthem that these lawsuits had been filed until August 8, 2003, when Robert M. Greco, Acordia's General Counsel, sent a letter to Timothy P. Spears, Anthem's Vice President of Recovery/Subrogation Services (the "Greco Letter"). (Def. SOF ¶ 47.) Greco's letter attached the complaints in the Rosemont and Lawndale Lawsuits, as well as a copy of Aulenta's indictment. (Greco Letter, attached as Ex. B. to Pl. SOF.) Acordia maintains that the Greco Letter was prompted by its belief, based in part on the status of settlement negotiations in the Rosemont Lawsuit, that its aggregate liability in the Rosemont and Lawndale Lawsuits might exceed the Purchase Agreement's $2,500,000 Basket Amount. (Pl. SOF ¶¶ 20-21.) With respect to the Lawndale Lawsuit, however, Acordia maintains that relatively little happened between January 2003, when it was served with the complaint, and August 2003. According to Acordia, it had incurred less than $21,000 in attorneys' fees and other costs related to the Lawndale Lawsuit, the parties had engaged in "written and paper discovery" only, and no discovery deadlines had passed. (Id. at ¶¶ 15, 17-18.) Moreover, Acordia maintains that the "key witnesses" and other evidence in the Lawndale action were still available to Anthem on August 8, 2003.*fn3 (Id. at ¶ 29.)
Approximately two months later, on November 17, 2003, the parties to the Rosemont Lawsuit settled their dispute for $1,282,112.00. (Def. SOF ¶ 20.) In connection with that lawsuit, Acordia incurred $142,438.61 in attorneys' fees, costs and other expenses. (Id. at ¶ 22.) Aulenta, for his part, was ordered to pay Acordia $288,670.00 as restitution, of which Acordia has received $119,460.95. (Id. at ¶ 21.) Anthem did not respond to Mr. Greco's letter before the Rosemont Lawsuit was settled, and would not do so until January 2004. (Pl. SOF ¶ 23.) At that time, Mr. Greco and Mr. Spears met to discuss Anthem's indemnification obligations, if any. (Id. at ¶ 24.) According to Acordia, in early January 2004 Anthem (whether through Mr. Spears or otherwise is unclear) denied that it had any duty to indemnify Acordia for losses arising from the Lawndale Lawsuit. (Id. at ¶ 25.) Anthem's purported reason for denying indemnification, according to Acordia, was that Acordia had failed to provide timely and adequate Claim Notice and that Acordia's losses had not yet exceeded the $2.5 million Basket Amount.*fn4 (Id. at ¶ 26.) Several months later, Acordia provided further information concerning the Lawndale Lawsuit, solicited Anthem's input on the case's progress, and invited Anthem to participate in settlement negotiations. (Id. at ¶ 27.) Anthem declined, maintaining that it was not obligated to indemnify Acordia. (Def. Resp. to Pl. Stmt. of Facts (hereinafter "Def. Resp.") at ¶ 28.) The parties to the Lawndale Lawsuit settled their dispute on April 2, 2007 for $2,500,000.00. (Def. SOF ¶ 25.) Acordia incurred $353,225.70 in attorneys' fees, costs and other expenses in connection with the litigation. (Id. at ¶ 26.)
In this case, Acordia seeks an order declaring that Anthem is obligated to indemnify Acordia from any losses in excess of $2,500,000 arising out of the Rosemont and Lawndale Lawsuits. Anthem has moved for summary judgment on the ground that Acordia failed to provide adequate and timely notice of ...