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RLI Insurance Co. v. Conseco

September 9, 2008

RLI INSURANCE COMPANY, PLAINTIFF-APPELLEE,
v.
CONSECO, INC., CONSECO SERVICESL.L.C., ROLLINDICK, ET AL., DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 04 C 310-Larry J. McKinney, Judge.

The opinion of the court was delivered by: Manion, Circuit Judge.

ARGUED FEBRUARY 14, 2008

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.

I.

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 M utual R eleas e (" Supplem en tal 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 for-ever discharge RLI and its past, present, and future employees, agents, claims personnel, attorneys, direc- tors, 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 ...


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