2016 IL App (2d) 150303
Ill. App. Ct.2016Background
- The Robert R. McCormick Foundation and Cantigny Foundation were large former Tribune Co. shareholders sued after Tribune’s 2007 leveraged buyout (LBO) and subsequent bankruptcy; bondholders filed multiple suits seeking to unwind the LBO.
- The Foundations had purchased a $15M Chubb D&O policy (later allowed to lapse) and then a Chartis $25M policy based on broker Gallagher’s advice.
- After LBO-related suits named the Foundations, Chartis denied coverage under a securities exclusion; the Foundations sued Gallagher for malpractice, claiming they would have retained the Chubb policy and received coverage for defense and indemnity.
- Gallagher defended on the basis that the Chubb policy’s section 5(k) securities-law exclusion would have barred coverage as well.
- The trial court granted Gallagher summary judgment, holding the Chubb exclusion applied; the Foundations appealed.
- The appellate court considered whether the Chubb exclusion’s definition of “Securities Laws” unambiguously excluded the LBO suits from defense coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Ambiguity of Chubb policy’s definition of “Securities Laws” (clause 4: “any other provision...used to impose liability in connection with the offer to sell or purchase, or the sale or purchase, of securities”) | The catch‑all should be read ejusdem generis—limited to laws like the federal/state securities statutes listed earlier; construed narrowly in favor of coverage | The phrase means any statutory or common law provision used to impose liability that arises in connection with a securities sale—i.e., it broadly excludes any suit connected to a stock sale | The clause is ambiguous and must be construed narrowly for the insured; the narrower ejusdem generis reading controls. |
| 2. Application: Would section 5(k) have barred defense coverage for the LBO suits (fiduciary‑duty and fraudulent‑conveyance claims)? | The underlying complaints allege breaches of fiduciary duty and fraudulent‑conveyance claims, not violations of securities statutes, so they fall outside the narrowly construed exclusion | If clause 4 is read broadly, the LBO suits arise “in connection with” the sale/purchase of securities and would be excluded | The complaints would not have been excluded under section 5(k); summary judgment for Gallagher on that ground was reversed and remanded. |
Key Cases Cited
- Pekin Ins. Co. v. Wilson, 237 Ill. 2d 446 (principle for determining duty to defend by comparing underlying complaint to policy)
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90 (insurer must defend if complaint potentially within coverage; policy construed for insured)
- Central Ill. Light Co. v. Home Ins. Co., 213 Ill. 2d 141 (ambiguities construed against insurer)
- Gillen v. State Farm Mut. Auto. Ins. Co., 215 Ill. 2d 381 (exclusions construed narrowly in favor of coverage)
- Maryland Cas. Co. v. Peppers, 64 Ill. 2d 187 (insurer obligated to defend if any theory possibly within coverage)
- Gavin v. AT&T Corp., 464 F.3d 634 (fraud claims are not automatically securities-law claims)
- Marine Bank v. Weaver, 455 U.S. 551 (securities laws do not provide a remedy for all fraud)