UPDATE: 7th Cir. Reverses Itself/D & O

“As Reported” Exclusion Applies to Claims Reported as of Policy Effective Date

In July, the Seventh Circuit, in an opinion written by Circuit Judge Barrett, reversed the district court and entered summary judgment in favor of the insurer.  At that time, the Seventh Circuit found the “as reported” language in the policy at issue precluded coverage for the underlying lawsuit, because an exclusion covered all notices of claims reported to the insured’s other insurer at any time.  However, on August 21, 2019, a Seventh Circuit panel consisting of Judge Barrett, Judge Flaum, and Judge Manion, considered Emmis Communications Corporation’s (“Emmis”) petition for rehearing.  The Seventh Circuit then vacated the Court’s prior judgment and withdrew the July 2, 2019 opinion.  The Seventh Circuit affirmed the District Court’s holding for reasons stated in the District Court’s March 21, 2018 opinion.

Emmis was insured by both Chubb Insurance Company (“Chubb”) and Illinois National Insurance Company (“Illinois National”).  The Chubb policy was a D & O liability policy for the period of October 1, 2009 to October 1, 2010.  The Illinois National policy covered liability from October 1, 2011 to October 1, 2012.  The Illinois National policy included an exclusion for any losses in connection with “Event(s),” which included “[a]ll notices of claim of circumstances as reported under policy … issued to Emmis Corporation by Chubb….”

The coverage dispute arose after Emmis attempted to obtain enough shares to go private.  By June 2010, multiple shareholders filed an action to stop Emmis’ effort.  Emmis reported the shareholder suit to Chubb.  Ultimately, the shareholder suit was dismissed after Emmis’s attempt to go private failed.  After the failure of the go private attempt, a breach of contract claim was filed against the company that was going to finance the deal.  Then, in February 2011, a derivative action was filed against Emmis’ board of directors asserting claims of breach of fiduciary duty.  Chubb accepted coverage of derivative action as a related claim to the shareholder suits.  Ultimately, Emmis acquired Preferred Stock and reissued Preferred Stock to a Retention Plan Trust.  A third suit was filed in April 2012, in which the shareholders alleged the Preferred Stock transaction violated federal securities law and the governing conduct of Indiana corporations.

Emmis sought coverage for the 2012 suit under the Illinois National policy.  Other carriers, including Chubb, were also notified of the suit.  Illinois National denied coverage relying on the policy’s “Events” exclusion.  Emmis sued Illinois National seeking damages for breach of contract and breach of the duty of good faith and fair dealing.  The parties filed cross motions for summary judgment.

The parties disputed the meaning of “as reported” as used in the Illinois National “Events” exclusion.  Illinois National argued that the provision excluded all notices that were reported to Chubb at any time – which included the shareholder dispute.  Emmis argued that the exclusion only applied to those notices that had been reported at the time the Illinois National policy went into effect and not notice provided thereafter.  The District Court found the policy language ambiguous because there were multiple reasonable interpretations of the language.  Therefore, under Indiana law, the language was to be construed in favor of coverage.  The District Court found the past tense of “as reported” must refer to events that had already occurred at the time of the drafting of the Illinois National policy: “[I]t refers only to those claims that had been reported under the Chubb policy as of the effective date of the [Illinois National] policy.”  The District Court also found that the 2012 shareholder suit was not “arising out of” the prior two suits that were defended by Chubb and did not share the same operative facts.  Thus, the “Events” exclusion did not apply.  The Seventh Circuit affirmed the District Court’s entry of summary judgment for Emmis on its claim for breach of contract.  Emmis Communications Corp. v. Illinois Nat’l Ins. Co., No. 18-3392 (7th Cir.  Aug. 21, 2019).