In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 07-2831

RLI INSURANCE COMPANY,

Plaintiff-Appellee,

v.

CONSECO, INC., CONSECO SERVICES L.L.C.,

ROLLIN DICK, et al.,

Defendants-Appellants.

____________

Appeal from the United States District Court

for the Southern District of Indiana, Indianapolis Division.

No. 04 C 310—Larry J. McKinney, Judge.

____________

ARGUED FEBRUARY 14, 2008—DECIDED SEPTEMBER 9, 2008

____________

Before MANION, ROVNER, and WILLIAMS, Circuit Judges.

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
2 No. 07-2831

defend and entitled to indemnification. Conseco appeals,

and we affirm.

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
No. 07-2831 3

and several of its insurance carriers, including RLI.

Conseco filed a declaratory judgment action in Indiana

state court claiming that RLI owed coverage for the

Securities Action under an excess directors and liability

insurance policy RLI had issued to Conseco. While the

Securities Action was pending, Conseco, RLI, and the

other insurance carriers entered into a release agreement

(“Original Agreement”) on May 10, 2002. RLI agreed to

pay $10 million toward the settlement of the Securities

Action, but reserved its right to seek reimbursement. RLI

exercised that right by filing counterclaims for restitution

or reimbursement in Conseco’s declaratory judgment

case. On October 25, 2002, after the district court had

entered final judgment in the Securities Action, RLI and

Conseco entered into a Supplemental Agreement And

Mutual Re lease (“Suppleme ntal Agreement” )

through which RLI dismissed its counterclaim seeking

reimbursement for the $10 million it contributed to the

settlement of the Securities Action. In exchange, Conseco

issued RLI a general release, which provides in relevant

part:

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-
4 No. 07-2831

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
No. 07-2831 5

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.
6 No. 07-2831

Around the same time that Conseco and RLI entered

into the Supplemental Agreement, Roderick W. Russell

(“Russell”) filed a putative class action suit against

Conseco and several other defendants alleging violations of Employment Retirement Income Security Act

(“ERISA”), 29 U.S.C. § 1132(a) (“Russell litigation”). Russell

asserted that beginning in 1999 and through 2002

Conseco’s filings with the Securities and Exchange Commission were materially false, and that Conseco mismanaged plan assets, failed to make requisite disclosures, and

had divided loyalties. In December 2002, Conseco filed

a motion to dismiss Russell. By this point, however,

Conseco had filed for bankruptcy, and the Russell litigation was stayed during those proceedings. After the

stay was lifted, Russell amended his complaint on

March 22, 2004. Conseco renewed its motion to dismiss

on June 1, 2004. The first line of the renewed motion

read: “This case should be dismissed because it has

already been litigated.” The motion cited the prior Securities Action stating that its settlement included Russell

and the plan on whose behalf Russell brought suit. The

motion continued, “Settlement class members agreed to

release Conseco and anyone affiliated with Conseco (which

includes all the present Defendants) from any claims

based on any facts that were alleged, or that could have

been alleged, or that are related to the conduct alleged, in

the securities litigation.” The motion went on to note

that the entire Securities Action release was included in

the final judgment order and listed specific overlapping

allegations set forth in Russell’s amended complaint and

the amended complaint filed in the Securities Action.
No. 07-2831 7

Following the list, the motion concluded, “Because these

underlying facts involved in the two cases are (at a minimum) ‘related,’ the claims Russell brings here fall within

the definition of the securities litigation release.” Finally,

Conseco stated that because the Securities Action “[w]as

[e]nshrined in a [f]inal judgment, [ ] the [r]elated [c]laims

in the [a]mended [c]omplaint [s]hould [b]e [d]ismissed

under the [d]octrine of [r]es [j]udicata.”

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
8 No. 07-2831

was stayed for three months, and RLI stated that it was

investigating the case under a full and complete reservation of rights. Seven months later, on July 15, 2003, RLI

wrote Conseco noting that Conseco still had not provided RLI with the information requested in RLI’s

January 16, 2003, letter. RLI further noted that it was

continuing its investigation of Russell and its reservation

of rights.

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.
No. 07-2831 9

On May 4, 2006, Conseco filed a motion for partial

summary judgment on its declaratory relief claim of a

duty to defend and on its claim of breach of duty to

defend. Conseco asserted that under Indiana law and

RLI’s policy, RLI had a duty to defend against all potential claims and that RLI breached that duty by not providing Conseco with a prompt and full defense. RLI responded by filing a separate motion in which it set forth

its response to Conseco’s motion as well as its own

request for partial summary judgment. RLI responded

that it had no duty to defend Conseco in Russell because

the Supplemental Agreement covered the Russell litigation by extending to any claims in any way related to the

Securities Action. RLI also noted that Conseco had successfully argued to the Russell court that Russell was

barred by the settlement and final judgment in the Securities Action. For those same reasons, RLI asserted that it

was entitled to summary judgment in relation to Conseco’s

breach of covenant of good faith and fair dealing claims.

In response, Conseco asserted that the Supplemental

Agreement did not apply to Russell because it said nothing

about claims from the Russell litigation and the claims

Conseco was asserting now were related to claims for

coverage in Russell and not in any way related to the

Securities Action. Conseco continued by arguing that

“[e]ven if the underlying facts of Russell and the Securities

action are related, the two cases are not, and thus, the

RLI Release does not cover the Russell claims.” Conseco

noted that in Russell the district court was interpreting

the release in the Securities Action’s settlement agreement and not the release in the Supplemental Agreement.
10 No. 07-2831

Conseco also asserted that the district court in

Russell “never held that the Russell litigation ‘relates to’ the

Securities Action.” Finally, Conseco contended that the

Supplemental Release contained ambiguous language,

namely “in any way related,” thereby requiring that the

language used in the drafting of the release be reviewed.

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
No. 07-2831 11

the Supplemental Agreement in deciding whether

Russell fell within the release in the Supplemental Agreement. We apply state law to substantive issues in cases

before us on diversity jurisdiction. Bevolo v. Carter, 447

F.3d 979, 982 (7th Cir. 2006). When neither party raises

a conflict of law issue in a diversity case, the applicable

law is that of the state in which the federal court sits. Ind.

Ins. Co. v. Pana Cmty Unit Sch. Dist. No. 8, 314 F.3d 895,

900 (7th Cir. 2002). Because the parties do not raise a

conflict of law issue and this case was filed in a federal

court in Indiana, we apply Indiana law. Under Indiana

law, contracts are interpreted to effectuate the parties’

intent as expressed in the agreement. If the language is

unambiguous, it should be given its plain and ordinary

meaning. Reuille v. E.E. Brandenberger Constr., Inc., 888

N.E.2d 770, 771 (Ind. 2008). Parol, or extrinsic evidence,

is inadmissible to explain or vary the clear and unambiguous terms of a written agreement. Evan v. Poe & Assoc., Inc.,

873 N.E.2d 92, 101 (Ind. Ct. App. 2007). However, where

the contract language is ambiguous, extrinsic evidence

is permitted to ascertain the parties’ intent. Hoose v. Doody,

886 N.E.2d 83, 90 (Ind. Ct. App. 2008).

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
12 No. 07-2831

conveys no definite meaning or a confused meaning.” Id.

at 1070-71 (internal quotation and citation omitted). On

the other hand, a latent ambiguity arises only in the

course of implementing the contract. Id. at 1071.

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.
No. 07-2831 13

In entering the Supplemental Agreement, the parties

each gave valuable consideration: RLI agreed to release

its claim to the $10 million it contributed to Conseco’s

defense in the Securities Action and, in return, Conseco

agreed to release RLI “from any and all claims, actions,

causes of action” that Conseco had or may have “based on,

arising out of, or in any way related to . . . the Securities

action . . . ; any claim for coverage . . . in any way related

to the . . . Securities action . . . .” This court (as well

as the Indiana Court of Appeals) has held that in interpreting a contract under Indiana law, “related” has a

common understanding and meaning and “covers a very

broad range of connections, both causal and logical.”

Gregory v. Home Ins. Co., 876 F.2d 602, 606 (7th Cir. 1989).

See Am. Home Assurance Co. v. Allen, 814 N.E.2d 662, 669

(Ind. Ct. App. 2004). In other words, it means “having

relationship: connected by reason of an established or

discoverable relation.” Gregory, 876 F.2d at 606, n.5 (quoting Webster’s Third New Int’l Dictionary (1981)). This

release language which the parties freely negotiated is

broad, but its expansiveness does not create an ambiguity, and the district court did not err in concluding

that there was no ambiguity in the Supplemental Agreement and confining its interpretation to the Supplemental 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
14 No. 07-2831

We agree with the district court that Conseco itself “specifi- 1

cally 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.

plaintiff in the Securities Action and a party to the Securities Action’s settlement. As we noted above, the settlement to the Securities Action released any claims that the

class members, such as the Russell plaintiff, ever had or

would have arising out of Conseco’s manipulation of and

false reporting regarding securities during 1999 and 2000.

It was the same false reporting and manipulation alleged

in the Securities action that precipitated the Russell action,

thus the Russell action is “related to” the Securities Action.

It was Russell’s very connection with the Securities Action

that precipitated its dismissal. Accordingly, RLI did not

have a duty to defend Conseco in Russell because it was

a “claim for coverage . . . in any way related to . . . the

Securities action” as set forth in the Supplemental Agreement.1
No. 07-2831 15

Conseco also challenges the district court’s grant of summary 2

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.

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).

Conseco also challenges the district court’s grant of

summary judgment in favor of RLI on its claim for indemnification and reimbursement. In appealing this judgment, Conseco relies upon the arguments challenging

the district court’s interpretation of the Supplemental

Release. Because the district court properly interpreted

the Supplemental Release, we affirm the district court’s

award of indemnification and reimbursement of attorneys’ fees and costs to RLI.2
16 No. 07-2831

III.

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.

9-9-08