Illinois Insurance - RDB Obtains Ruling By Northern District of Illinois Upholding Application of “Insured v. Insured” Exclusion to Fiduciary Liability Claim Brought Under ERISA
Paul W. Oliver, Jr. v. Indian Harbor Insurance Company, U.S.D.C. No. 07 C 5002
In Paul W. Oliver, Jr. v. Indian Harbor Insurance Company, the Securities and Exchange Commission initiated an action against AA
Capital and one of its officers, alleging that the officer had embezzled approximately $10.7 million in funds from client pension funds. As a result, AA Capital was placed into receivership and a receiver was appointed. The receiver
then filed suit against the alleged embezzler and Oliver, alleging various breaches of fiduciary duties under ERISA and state law. The Complaint did not allege that Oliver embezzled any client funds, only that he “abdicated
his fiduciary duties” and thereby allowed the embezzler to misappropriate the funds. The receiver brought the lawsuit under §502(a)(2) of ERISA, which permits a plan participant, beneficiary or fiduciary to bring a claim
for breach fiduciary duties against another fiduciary.
Indian Harbor denied coverage on the ground of the “Insured v. Insured” exclusion. This exclusion precludes coverage for any claim brought by, or on behalf of, or at the direct of any insured against another insured.
Oliver then filed suit against Indian Harbor in the Northern District of Illinois, contending that the “Insured v. Insured” exclusion does not apply to lawsuits filed by a receiver.
Oliver argued that “on behalf of” should be interpreted to mean “for the benefit of” and that the receiver’s lawsuit was being brought “for the benefit of” the client pension funds
because, under §502(a)(2) of ERISA, any money recovered from Oliver would be paid back to the pension funds. Indian Harbor contended that the receiver was only authorized to bring a cause of action on behalf of AA Capital, that
AA Capital was a fiduciary under ERISA and that §502(a)(2) permitted AA Capital, as a fiduciary, to bring a claim against Oliver in his fiduciary capacity. Since both AA Capital and Oliver were insureds under the policy, Indian
Harbor contended that the “Insured v. Insured” exclusion applied.
Judge Gettleman agreed with Indian Harbor and entered judgment on the pleadings in favor of Indian Harbor. In so ruling, Judge Gettleman stated that the language in the “Insured v. Insured” exclusion was clear and unambiguous.
Because the receiver was only authorized to bring suit on behalf AA Capital, and both AA Capital and Oliver were insureds under the policy, the “Insured v. Insured” exclusion applied.
RDB attorneys, Cathy Simon, Gaby Richeimer, and Meredith Werner represented Indian Harbor in this matter.