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Federal Insurance Co. v. Illinois Funeral Directors Association

July 29, 2009

FEDERAL INSURANCE COMPANY, PLAINTIFF,
v.
ILLINOIS FUNERAL DIRECTOR'S ASSOCIATION, ET AL., DEFENDANT.



The opinion of the court was delivered by: Samuel Der-Yeghiayan United States District Court Judge

MEMORANDUM OPINION

This matter is before the court on Calvert Funeral Homes, Ltd.'s, ClancyGernon Funeral Homes Inc.'s, Aaron Todd Dean's, Fred C. Dames Funeral Homes, Inc.'s, McCracken-Dean Funeral Home, Inc.'s, and Knapp Funeral Homes, Inc.'s (collectively referred to as "Funeral Directors") motion to intervene. For the reasons stated below, we deny the motion to intervene.

BACKGROUND

Plaintiff Federal Insurance Company (Federal) alleges that it issued an insurance policy known as the ForeFront Portfolio Policy No. 8169-9276 (Policy) to Defendant Illinois Funeral Directors Association (IFDA) for one-year periods in 2005 (2005 Policy), 2006 (2006 Policy), 2007 (2007 Policy), and 2008 (2008 Policy). The IFDA is allegedly a not-for-profit organization whose membership consists of funeral directors in Illinois. Defendant I.F.D.A. Services, Inc. (IFDAS) is allegedly a subsidiary of the IFDA, and offers for-profit services to funeral directors in Illinois. According to Federal, one such service offered by IFDAS was the establishment of a Preneed Trust (Trust), which allowed customers of various funeral homes in Illinois to pre-finance their funeral arrangements and deposit funds for such purposes in a Trust administered by IFDAS.

Federal claims that on June 21, 2006, the Illinois Office of the Comptroller, Cemetery Care and Burial Trust Division (IOC) informed the IFDA and IFDAS in a letter (IOC Letter) that audits of the Trust's records revealed that IFDAS had taken unauthorized excess fees of approximately $8.6 million between 2000 and 2005. Federal alleges that the IOC Letter further stated that the IOC investigation had revealed that the Trust was underfunded by approximately $39 Million.

Federal alleges that on November 26, 2008, individual beneficiaries of the Trust filed a class-action complaint in the Circuit Court of Kane County against IFDA and IFDAS (Dunkle Action) alleging that IFDAS had mismanaged the Trust and failed to follow required procedures. According to Federal, the plaintiffs in the Dunkle Action alleged that the Division of Banking for the Illinois Department of Financial and Professional Regulation had issued a Cease and Desist Order to IFDAS prohibiting it from conducting further business involving the Trust. The plaintiffs in the Dunkle Action also alleged that funds of the Trust were improperly invested and there was a deficit in the assets of the Trust.

Federal alleges that on January 28, 2009, the Funeral Directors filed a derivative action in the Circuit Court of Cook County against the IFDA, IFDAS, individual members of the IFDA and IFDAS Board of Directors, and other financial advisors of the Trust (Calvert Action). The Funeral Directors also alleged in the Calvert Action that the individuals responsible for managing the Trust mismanaged the funds, made improper investments, took excessive administration fees, and otherwise left the Trust underfunded.

Federal alleges that it was not provided with notice of any of the legal issues surrounding the Trust until the Dunkle Action was tendered to it on December 18, 2008. Federal claims that in January 2009, it received, for the first time, copies of the complaints in the Dunkle Action and the Calvert Action. According to Federal, it was through the allegations in the Calvert Action complaint that Federal first learned of the existence of the IOC Letter. Federal alleges that, pursuant to the terms of the Policy, Federal promptly provided the IFDA with a letter notifying the IFDA of Federal's reservation of rights not to provide coverage for liability associated with the IOC Letter, the Dunkle Action and the Calvert Action.

Federal brought the instant declaratory judgment action seeking: a declaration that there is no coverage under the 2006 Policy, 2007 Policy, or 2008 Policy for liability stemming from the IOC Letter, the Dunkle Action, and the Calvert Action since all three relate to back to the IOC letter which was issued when the 2005 Policy was in effect (Count I), a declaration that there is no coverage under the 2006 Policy, 2007 Policy, or 2008 Policy for liability stemming from the IOC Letter, the Dunkle Action, and the Calvert Action due to undisclosed prior knowledge of the IOC Letter before the inception of the 2006 Policy, 2007 Policy, and 2008 Policy (Count II), a declaration that there is no coverage under the 2006 Policy, 2007 Policy, or 2008 Policy for liability stemming from the IOC Letter, the Dunkle Action, and the Calvert Action due to other policy exclusions (Count III), a declaration that there is no coverage under the 2005 Policy for liability stemming from the IOC Letter, the Dunkle Action, and the Calvert Action since there was a failure to provide timely notice of a claim (Count IV), and a declaration that there is no coverage under the 2005 Policy based on other exclusions under the terms of the 2005 Policy (Count V). The Funeral Directors have filed the instant motion to intervene in the instant action.

LEGAL STANDARD

Pursuant to Federal Rule of Civil Procedure 24(a)(2) (Rule 24(a)(2)), a party that seeks intervention in a timely manner is entitled to intervene as a matter of right if the party "claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest." Fed. R. Civ. P. 24(a)(2). A party seeking to intervene is required to establish each of the elements enumerated in Rule 24(a)(2) in order to intervene as a matter of right and failure to establish any one of the elements is grounds for denial of a petition to intervene. Ligas ex rel. Foster v. Maram, 478 F.3d 771, 773 (7th Cir. 2007).

If a party cannot intervene as a matter of right under Rule 24(a)(2), it can move for permissive intervention under Federal Rule of Civil Procedure 24(b) (Rule 24(b)), whereby a court may allow intervention if the party seeking intervention "has a claim or defense that shares with the main action a common question of law or fact." Fed. R. Civ. P. 24(b)(1)(B). Whether to allow a party to intervene under Rule 24(b) is "within the discretion of the district court." Ligas ex rel. Foster, 478 F.3d at 775.

DISCUSSION

The Funeral Directors, who are also the plaintiffs in the Calvert Action, seek to intervene in the instant action and state that they intend to move for a stay of the instant action pending a resolution of the other legal matters regarding Defendants' liability with respect to the Trust. The Funeral Directors argue that they should be able to intervene in the instant action as a matter of right under Rule 24(a)(2) or, in the alternative, they move for permissive intervention under Rule 24(b). Federal and Defendants (collectively referred to as "Instant Parties") have separately filed briefs in opposition to the instant motion. The Instant ...


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