United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
EDMOND E. CHANG, District Judge.
Plaintiff Landmark American Insurance Company filed this action against Defendants Michael O'Malley, O'M and Associates LLC d/b/a O'Malley and Associates (O'MA), and Peter Hilger, seeking a declaration that Landmark has no duty to defend these three Defendants in two Underlying Lawsuits, one in Michigan (the Michigan Lawsuit) and one in Tennessee (the Tennessee Lawsuit). R. 27, First Am. Compl. At the same time, Defendants seek the opposite declaration: that Landmark does have a duty to defend Defendants in both Underlying Lawsuits. R. 29, Hilger's Counterclaims; R. 32, O'Malley's Counterclaims. Each Underlying Lawsuit arises from Defendants' alleged failures to fulfill their duties and obligations in a series of secured loan transactions with various credit unions. Defendants now move for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). R. 56, Defs.' Mot. J. Pleadings; R. 60, O'Malley's Br. For the reasons explained below, Defendants' motions are granted.
A. The Landmark Policy
Landmark issued an Insurance Agents and Brokers Professional Liability Policy to O'MA. R. 27-5, Pl.'s Exh. E, Landmark Policy. The Landmark Policy covers O'MA as the "Named Insured, " see id. Decls., as well as the following relevant "Covered Persons and Entities" (the second paragraph is the relevant one):
Part I. Insuring Agreement, E. Covered Persons and Entities
1. Named Insured as shown in the Declarations, and if the Named Insured is an individual, his or her spouse, but only with respect to the professional services rendered by or on behalf of the Named Insured;
2. Any present or former principal, partner, officer, director, employee, or independent contractor of the Named Insured, but only as respects professional services rendered on behalf of the Named Insured....
Id. Pt. I.E. But the Landmark Policy also contains Exclusion D, which excludes coverage for any claims "based upon or arising out of... [a]ny business enterprise not named in the Declarations which is owned, controlled, operated or managed by any Insured." Id. Pt. II.D.
B. The Underlying Lawsuits
Both Underlying Lawsuits arose from misrepresentations that Defendants allegedly made to credit unions in Michigan and Tennessee. In both states, Defendants allegedly persuaded credit unions to fund several secured loans by overstating the value of life insurance policies that would serve as collateral for the loans. First Am. Compl. ¶¶ 13-14, 33-41, 48; see also Mich. Compl. ¶¶ 10-14, 29; Tenn. Compl. ¶¶ 16-17, 19, 43, 48. The credit unions claim to have lost more than $1, 000, 000 as a result of relying on Defendants' misrepresentations. Mich. Compl. ¶ 1; Tenn. Compl. ¶ 49.
Because of their losses, the credit unions filed lawsuits against O'Malley, O'MA, and Hilger. Mich. Compl.; Tenn. Compl. The credit unions also named Allied Solutions (Allied, or Hilger's employer), Daniel Phillips, Capital Lending Strategies (CLS, or Phillips's employer), and others as defendants in the Underlying Lawsuits. See Mich. Compl. ¶¶ 5-8; Tenn. Compl. ¶¶ 4, 6. (These additional parties are not named in this lawsuit here.) The Michigan Complaint alleges that each defendant is jointly liable for fraud, innocent misrepresentation, negligence, conspiracy, and breach of contract. Mich. Compl. ¶¶ 551-586, 597-600. The Michigan Complaint also includes alternative theories of liability including joint-venture liability against Allied, CLS, and O'Malley; individual liability against Hilger and Phillips; and respondeat superior liability against Allied and CLS. Id. ¶¶ 587-596, 601-602. The Tennessee Complaint alleges that the underlying defendants are liable for negligence, negligent misrepresentation, and unjust enrichment, among other claims. Tenn. Compl. ¶¶ 50-58, 85-87.
C. The Present Declaratory-Judgment Action
In July 2013, Plaintiff Landmark filed this action seeking a declaration that it has no duty to defend Defendants O'Malley, O'MA, and Hilger in either Underlying Lawsuit (Counts I, III, V, and VII). First Am. Compl. ¶¶ 65-71, 77-81, 88-93, 101-105. Defendants counterclaimed, seeking a declaration that Landmark does have a duty to defend O'Malley, O'MA, and Hilger in the Underlying Lawsuits. Hilger's Counterclaims ¶¶ 25-29 (Count I); O'Malley's Counterclaims ¶¶ 25-34 (Counts I and II). Because this coverage dispute turns on the Landmark Policy ...