Miller v. St. Paul Mercury Insurance
2012 U.S. App. LEXIS 13298
| 7th Cir. | 2012Background
- D&O policy contains insured vs. insured exclusion and an allocation provision.
- Miller action: five plaintiffs, some insured (Miller, Anderson, Lane Trust acting for Lane as beneficiary) and some non-insured (King, Teresa King).
- Lane Trust is treated as an insured because Lane is a former SCBI director and acts on behalf of beneficiaries.
- District court held the exclusion barred coverage for the entire suit based on insured presence; declined defense/indemnity.
- Seventh Circuit adopts Level 3 allocation approach to divide losses between covered and uncovered matters, applying allocation to both indemnity and defense costs.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Lane Trust is an insured for purposes of the exclusion | Lane Trust should be treated as insured through Lane | Lane Trust should be outside the insureds due to trust status | Lane Trust is an insured; acts on behalf of beneficiaries. |
| Proper handling of mixed insured/non-insured claims in one suit | Allocation should not exclude all claims due to insured presence | Any insured presence bars coverage of the entire suit | Apply allocation to cover non-insured claims only. |
| Scope of indemnity under the allocation provision | Non-insured claims should be indemnified; insured claims barred | D&O policy should bar all losses when any insured sues | Indemnify non-insured claims; exclude insured claims. |
| Duty to defend in mixed claims under allocation | Defense costs allocated similarly to indemnity costs | Defense costs should be fully excluded if insured presence | Defend costs allocated; insurer defends non-insured claims only. |
| Relation to Level 3 Communications and policy language | Level 3 governs allocation here | Level 3 should be distinguished by timing/majority rules | Allocation approach from Level 3 controlled; not wholly distinguishable. |
Key Cases Cited
- Level 3 Communications, Inc. v. Federal Insurance Co., 168 F.3d 956 (7th Cir. 1999) (allocates between covered and uncovered losses; apply allocation to mixed claims)
- Sphinx International Inc. v. National Union Fire Insurance Co., 412 F.3d 1224 (11th Cir. 2005) (policy language with different terms; emphasizes insured involvement distinctions)
- Conway v. Country Casualty Ins. Co., 442 N.E.2d 245 (Ill. 1982) (Illinois duty to defend governed by policy and allocation concepts)