RLI INSURANCE COMPANY, Plaintiff-Appellee, v. CONSECO, INC., CONSECO SERVICES L.L.C., ROLLIN DICK, et al., Defendants-Appellants.
No. 07-2831
United States Court of Appeals For the Seventh Circuit
ARGUED FEBRUARY 14, 2008—DECIDED SEPTEMBER 9, 2008
Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 04 C 310—Larry J. McKinney, Judge.
MANION, Circuit Judge. RLI Insurance Company (“RLI“) filed a declaratory judgment action seeking a determination of its obligation, if any, to defend Conseco, Inc., and various individual defendants (collectively “Conseco“) under a liability insurance policy RLI issued to Conseco. The district court entered summary judgment in favor of RLI concluding that RLI was released from any duty to
I.
In April 2000, a group of plaintiffs sued Conseco and some of its officers and directors alleging securities fraud (the “Securities Action“). In their amended complaint, the plaintiffs alleged that “during 1999 and early 2000, Conseco engaged in a variety of practices to deliberately manipulate the credit loss assumptions used to value its interest-only securities and falsely report the value of these securities.” The parties eventually settled the case, and on August 7, 2002, the district court entered final judgment approving the settlement. The final judgment order incorporated portions of the settlement, including that the Securities Action settlement released, among other things, any claims that a class member ever had or will have that are
related to the conduct alleged in [the Securities Action], including, but not limited to (I) claims which arise out of any of the facts, transactions, events, occurrences, acts or omissions mentioned or referred to in the Complaint or other matters that are or could have been set forth, alleged, embraced or otherwise referred to in the Action or the Consolidated Class Actions or which could have been brought against Defendants related to a Class Member‘s purchase or acquisition of Class Securities.
A dispute regarding coverage of the litigation costs resulting from the Securities Action arose between Conseco
13. General Release As To RLI. The insured, and each of them, and each of their respective past, present and future employees, agents, attorneys, directors, officers, shareholders, owners, representatives, predecessors, successors, heirs, estates, executors, administrators, trustees, affiliates, parents, subsidiaries, assigns, and any person acting on their behalf (hereafter the “Conseco Related Parties“), hereby release and forever discharge RLI and its past, present, and future employees, agents, claims personnel, attorneys, direc-
tors, officers, shareholders, owners, representatives, predecessors, successors, heirs, estates, executors, administrators, trustees, affiliates, parents, subsidiaries, assigns, reinsurers and any person acting on their behalf (hereafter the “RLI Related Parties“) from any and all claims, actions, causes of action, rights or obligations, whether known or unknown, whether contingent or liquidated, of every kind, nature and description, that the Conseco Related Parties now have or may have against the RLI Related Parties based on, arising out of, or in any way related to: (a) the Derivative actions, the Securities action, the Coverage litigation, or the RLI Excess Policy;
(b) the defense of the Derivative actions, Securities action, or Coverage litigation including, but not limited to, all attorney‘s fees and expenses or expert witness/consultant fees and expenses incurred in connection with that litigation;
(c) any claim for coverage under any policy of insurance issued by RLI, including RLI Excess Policy, based on, arising out of, or in any way related to the Derivative actions, Securities action, or Coverage Litigation;
(d) any notice of claim or notice of potential claim based on, arising out of, or in any way related to the Derivative actions, Securities action, or Coverage Litigation;
(e) RLI‘s handling of any claim for coverage based on, arising out of, or in any way related to the
Derivative actions, Securities action, or Coverage Litigation, including, but not limited to, any claim for bad faith, for any breach of a duty of good faith under the statute, regulations, or common law of any state, or for any unfair or deceptive trade practices; or (f) any claim that RLI‘s policy limits have been restored in whole or in part, whether in connection with [the Original Release] or otherwise.
The general release set forth in this paragraph supplants and expands the release terms set forth in paragraphs 13 and 14 of the Original Agreement.
The Supplemental Agreement also provides for indemnification:
The Security Action Defendants, and each of them, agree to indemnify, defend, and hold harmless . . . RLI . . . from and against any and all claims, demands, damages, losses, accounts, reckonings, debts, liabilities, indemnities, obligations, actions, causes of action, settlement costs, attorney‘s fees, court costs, and any other costs or expenses . . . brought or made against . . . RLI . . . for any amounts which heretofore or hereafter may be claimed by persons who are insureds, claim to be insureds, or claim the rights of insureds under the RLI Excess Policy in connection with the matters released by . . . Conseco . . . including, without limitation, any claim made by any of the parties to the Litigation or the Coverage Litigation or any claim made by any other putative insured with respect to . . . the matters released by the Conseco Related Parties in this agreement.
On July 30, 2004, the district court in Russell granted Conseco‘s motion to dismiss noting that the potential Russell class members were class members of the Securities Action, Russell was included in the settlement in the Securities Action, and Conseco was a named defendant in the Securities Action. The Russell court concluded:
The settlement of the [Securities Action], which the Court found included [Russell], and plan participants, foreclosed the future claims that [Russell] attempts now to put back at issue in this case. Therefore the argument that [Russell] makes in attempting to distinguish the instant case from the 2000 case by including a different temporal component is of no moment.
As noted above, the settlement of the Securities Action included a release of any claims arising out of the Securities Action regardless of temporal proximity.
While Russell was still pending, on January 9, 2003, Conseco notified RLI about the Russell litigation. A week later, RLI responded with a letter in which it requested various pleadings, summary of discovery, and other information from Conseco for RLI‘s investigation. RLI noted that based on discussions with Conseco, the case
In early January 2004, Conseco notified RLI that it had approached the policy‘s deductible. About a month later, on February 13, 2004, RLI responded to Conseco in a letter cataloguing its investigation of the Russell litigation and its conclusion that the Supplemental Release barred coverage. The letter concluded with RLI‘s belief that RLI had no obligation to provide coverage in Russell, but stated it would fund Conseco‘s Russell defense with a full reservation of rights.
That same day, RLI filed this declaratory action, later amending its complaint on March 30, 2004. Conseco filed counterclaims asserting claims for declaratory relief for a duty to defend and duty to indemnify as well as breach of duty of good faith and fair dealing claims. On Conseco‘s motion, the district court stayed this case while the Russell litigation proceeded. Following the lift of the stay, RLI filed a third amended complaint in which it asserted breach of contract claims against the Supplemental Agreement signatories for failing to indemnify RLI for the coverage claims in connection with the Russell litigation. RLI also sought restitution. Conseco renewed its counterclaims.
The district court denied Conseco‘s motion concluding that there was no ambiguity in the Supplemental Agreement release and that it covered the Russell case. The district court also granted RLI‘s motion for summary judgment on Conseco‘s counterclaim that RLI breached the covenant of good faith and fair dealing. In a separate order, the district court granted RLI‘s motion for indemnification, in part, concluding that RLI was entitled to recover the money it advanced in Russell and fees and costs associated with defending against the counterclaims in this case. The district court denied RLI‘s motion insofar as it sought recovery of costs and attorneys’ fees associated with enforcing the Supplemental Agreement‘s indemnification provision. The district court entered judgment in favor of RLI against Conseco for $242,038.11 for defense costs advanced by RLI in the Russell litigation and $1,256,961.89 for costs RLI incurred in defending the counterclaims in this case. Conseco appeals.
II.
On appeal, Conseco argues that the Supplemental Agreement contains a latent ambiguity, and therefore the district court should have considered the Original Agreement and the parties’ negotiations in addition to
An ambiguity does not arise simply because the parties disagree on the interpretation, but “[r]ather language is ambiguous only if reasonable people could come to different conclusions about its meaning.” Simon Prop. Group, L.P. v. Mich. Sporting Goods Distrib., Inc., 837 N.E.2d 1058, 1070 (Ind. Ct. App. 2005). An ambiguity may be patent or latent. A patent ambiguity is “apparent on the face of the instrument and arises from an inconsistency or inherent uncertainty of language used so that it either
Conseco asserts that the district court erred in failing to interpret the Supplemental Agreement in conjunction with the Original Agreement and evidence of the parties’ negotiations surrounding these contracts. In support of its position of looking outside the four corners of the Supplemental Agreement, Conseco asserts that the Supplemental Agreement contains a latent ambiguity “as shown by the [Original Agreement] which should have been considered by the district court because it was expressly incorporated into that agreement.” Rather than first attempting to apply language of the Supplemental Release to ascertain whether there is a latent ambiguity, Conseco starts its interpretation with the Original Agreement and then proceeds to the Supplemental Agreement, arguing that the Supplemental Agreement contains a latent ambiguity in the meaning of “in any way related.” Before implementing the release language in the Supplemental Agreement, however, we note that the Supplemental Agreement provides that the general release at issue in this case ”supplants and expands the release terms set forth in paragraphs 13 and 14 of the Original Agreement.” (Emphasis added.) Thus, the latter release supersedes or sets aside the release in the Original Agreement. See Hilbert v. Conseco Services, L.L.C., 836 N.E.2d 1001, 1011 (Ind. Ct. App. 2005) (noting that “supersede” means to supplant or set aside). Therefore, only if the language in the Supplemental Agreement contains a latent ambiguity will we look to the Original Agreement.
Under the unambiguous terms of the Supplemental Agreement, for RLI to be released on any duty to defend Conseco in Russell, Russell must have a relationship or a connection with the Securities Action. We conclude that it does. Conseco was a defendant in both the Securities Action and in Russell, and the Russell plaintiff was a
Conseco also asserts that the district court‘s interpretation resulted in some Supplemental Agreement language becoming surplusage and that extrinsic evidence is admissible because the Supplemental Agreement is not an integrated contract. Because Conseco did not raise either of these arguments before the district court, they are waived on appeal. Metzger v. Illinois State Police, 519 F.3d 677, 682 (7th Cir. 2008).
The district court did not err in its interpretation of the Supplemental Agreement because there was no latent ambiguity. Moreover, RLI did not have a duty to defend Conseco in Russell because Russell was a “claim for coverage . . . in any way related to . . . the Securities action.” Therefore, RLI was entitled to indemnification and reimbursement. Finally, Conseco waived its “mend the hold” challenge to the district court‘s denial of its breach of good faith and fair dealing claim. We AFFIRM.
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Notes
We agree with the district court that Conseco itself “specifically argued that the two matters were related as support for their request for [the district court] to dismiss the Russell matter.” As noted above, Conseco asserted that the Securities Action‘s “[s]ettlement class members agreed to release Conseco . . . from any claims . . . that are related to conduct alleged, in the securities action.” Conseco contends that the district court erred in concluding that it was judicially estopped from arguing that Russell was not related to the Securities Action. We disagree with Conseco‘s characterization (i.e., judicial estoppel) of the district court‘s observation. The district court did not hold that Conseco was judicially estopped, but rather, as we did above, independent of Conseco‘s shifting arguments, that the Supplemental Agreement released RLI from any obligation that it may have had under its policy to defend Conseco in Russell.
Conseco also challenges the district court‘s grant of summary judgment to RLI on Conseco‘s claims that RLI breached its duty of good faith and fair dealing. Conseco invokes the “mend the hold” doctrine. According to the “mend the hold” doctrine, a contract party is not permitted “to change its position on the meaning of the contract in the middle of litigation over it.” Utica Mut. Ins. Co. v. Vigo Coal Co., Inc., 393 F.3d 707, 716 (7th Cir. 2004). Conseco, however, did not assert the “mend the hold” doctrine before the district court, thereby waiving its argument on appeal. Metzger, 519 F.3d at 682.