UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

INSURANCE COMPANY OF )

THE STATE OF PENNSYLVANIA, )

) No. 12 C 04713

Plaintiff, )

)

v. )

) Judge Edmond E. Chang

OCÉ-USA HOLDINGS, INC., )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

Plaintiff Insurance Company of the State of Pennsylvania (ISOP) filed this

action against Océ-USA Holdings, Inc. seeking a declaration that it has no duty to

defend or indemnify its insured, Océ, in connection with a lawsuit filed in the U.S.

District Court for the Northern District of Illinois encaptioned Krase v. Océ-USA

Holdings, Inc., No. 11 C 7659 (“Underlying Lawsuit”).1

 The Underlying Lawsuit arises

from Océ’s alleged failure to uphold its duties and obligations as an employee welfare

benefit plan sponsor and administrator under the Employee Retirement Security Act

of 1974 (ERISA), 29 U.S.C. § 1001 et seq. In this insurance coverage dispute, ISOP

1

This Court has subject matter jurisdiction under 28 U.S.C. § 1332. Specifically,

Plaintiff ISOP is a citizen of Pennsylvania and New York because it is incorporated in

Pennsylvania and has its principal place of business in New York. R. 9, Am. Compl. ¶ 2.

Defendant Océ is a citizen of Delaware and Illinois because it is incorporated in Delaware and

has its principal place of business in Illinois. Id. ¶ 3. The amount in controversy requirement

is satisfied because the potential cost of both defending and indemnifying Océ in the

Underlying Lawsuit exceed $75,000, which is not a “legally impossible” amount given the fact

that Krase seeks $226,000 in life insurance benefits in the Underlying Lawsuit. Back Doctors

Ltd. v. Metro. Property & Cas. Ins. Co., 637 F.3d 827, 829 (7th Cir. 2011); see also Am. Compl.

¶ 17.

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argues that it need not defend or indemnify Océ in the Underlying Lawsuit because the

ISOP Policy contains an ERISA Exclusion. ISOP now moves for judgment on the

pleadings pursuant to Federal Rule of Civil Procedure 12(c). R. 13.2

 For the reasons

explained below, ISOP’s motion is denied.

I. Background

A. The ISOP Policy

ISOP issued a commercial general liability insurance policy to Océ in 2008,

which was effective from December 1, 2008 to December 1, 2009. R. 9-2, Pl.’s Exh. B

(ISOP Policy). The Policy contains an Employee Benefits Liability Insurance

Endorsement, which does provide for insurance coverage for Océ’s administration of

its employee benefit program: 

COVERAGE – EMPLOYEE BENEFITS LIABILITY

We will pay the Insured for those sums which the Insured shall become legally

obligated to pay as damages because of any “claim” made against the Insured

due to any “Wrongful act” of the Insured, or any other person for whose acts the

Insured is legally liable, in the “administration” of the “employee benefit

program” of the Insured. 

Except with respect to the Retained Limit as indicated in Item 2 of the

Additional Declarations, we have the right and duty to defend any suit against

the Insured seeking damages on account of such negligent act, error or omission,

even if any of the allegations of the suit are groundless, false or fraudulent, and

we may make such investigation and settlement of any “claim” or suit as we

deem expedient. However, we will have no duty to defend the insured against

any “suit” seeking damages to which this insurance does not apply.

2

Citations to the docket are indicated by “R.” followed by the docket entry.

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ISOP Policy, Empl. Benefits End. ¶ A.1.a. But the Policy also contains an exclusion

entitled, “ERISA,” which excludes coverage for:

Damages for which any insured is liable because of liability imposed on a

fiduciary by the Employee Retirement Income Security Act of 1974, as now or

hereafter amended, or by any similar federal, state or local laws.

Id. ¶ A.2.g. The sole dispute in this lawsuit is whether ISOP has a duty to defend and

indemnify Océ in the Underlying Lawsuit, or instead does the Policy’s ERISA

Exclusion apply.

B. The Underlying Lawsuit

In October 2011, Donald Krase, on behalf of his late wife Sandra Hansen-Krase,

filed a complaint against Océ and Life Insurance Company of North America, alleging

the following: Sandra Hansen-Krase was employed by Océ and received group life

insurance coverage and long term disability benefits under a group life insurance

policy provided by Océ and insured and underwritten by Life Insurance Company of

North America (LINA). R. 9-1, Underlying Compl. ¶¶ 1, 9. Due to a diagnosis of

terminal pancreatic cancer, Hansen-Krase stopped working and was placed on

disability leave on July 18, 2008. Id. ¶ 10. Her group life insurance coverage

terminated in January 2009. Id. ¶ 11. Hansen-Krase alleges that Océ was obligated,

under the group life insurance policy, to notify Hansen-Krase of her right to convert

the policy into an individual life insurance policy. Id. ¶ 12. In the alternative, Océ, as

the sponsor and administrator of the group life insurance plan, had a fiduciary duty

to notify Hansen-Krase of the availability of a “Terminal Illness Benefit” (a payment

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made if an insured is determined to be terminally ill) provided for in the group life

insurance policy. Id. ¶¶ 8, 12. Neither Océ nor LINA provided that notice. Id. ¶ 16.

On January 19, 2009, Océ sent a letter to Hansen-Krase informing her of her

conversion rights under the policy, but failed to mention the terminal illness benefit.

Id. ¶ 13. But because the letter was sent via a private courier and was misdirected,

neither Hansen-Krase nor her husband received the letter within the time allowed to

convert coverage. Id. Hansen-Krase died due to pancreatic cancer on April 9, 2009

without ever converting the group life insurance policy to an individual life insurance

policy or receiving the terminal illness benefit. Id. ¶¶ 15, 17. 

In July 2009, Donald Krase, the surviving spouse of Hansen-Krase and the

designated beneficiary of her life insurance benefits under the policy, submitted an

initial claim for life insurance benefits. Id. ¶ 18. His request was denied by Océ, who

claimed that Hansen-Krase was not covered under the policy at the time of her death.

Id. Krase made several attempts to appeal the denial to Océ and LINA, arguing that

neither he nor his wife had received notice of her conversion rights under the policy,

but was met with little success. Id. ¶¶ 19, 20. Krase thus filed the underlying

complaint alleging that he is entitled to recover the life insurance benefits due to him

as the beneficiary of his wife’s life insurance plan under § 502(a)(1)(B) of ERISA, 29

U.S.C. § 1132(a)(1)(B). Id. ¶¶ 4, 21. In the alternative, Krase alleges that Océ and

LINA breached their fiduciary duty under § 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3),

by failing to notify Hansen-Krase of her conversion right and right to the terminal

illness benefit under the policy. Id. ¶ 21.

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C. The Present Declaratory Judgment Action

In July 2012, Plaintiff ISOP filed this action seeking a declaration of ISOP’s

rights and obligations under the commercial general liability policy that it issued to

Océ. R. 9, Am. Compl. ISOP’s sole contention is that it has no duty to indemnify Océ,

basing the contention on the ERISA Exclusion contained in the Policy’s Employee

Benefits Liability Insurance Endorsement. Id. ¶¶ 24-32. Specifically, ISOP contends

that the ERISA Exclusion excludes coverage for the Underlying Lawsuit because

Krase’s claims against Océ arise solely from Océ’s alleged violations of its fiduciary

duties pursuant to ERISA. Id. ¶¶ 28-29. Because the coverage dispute turns on the

interpretation of the ERISA Exclusion, which is a pure question of law, ISOP now

moves for judgment on the pleadings [R. 13].

II. Legal Standard

A party may move for judgment on the pleadings after the pleadings are closed.

Fed. R. Civ. P. 12(c). A motion for judgment on the pleadings is subject to the same

standard as a motion to dismiss under Rule 12(b)(6). N. Ind. Gun & Outdoor Shows,

Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir. 1998). In ruling on a motion for

judgment on the pleadings, the Court must “accept as true all well-pleaded

allegations,” Forseth v. Vill. of Sussex, 199 F.3d 363, 368 (7th Cir. 2000), and view the

alleged facts in the light most favorable to the non-moving party, Flenner v. Sheahan,

107 F.3d 459, 461 (7th Cir. 1997). Judgment on the pleadings is proper if it appears

beyond doubt that the non-moving party can prove no set of facts sufficient to support

his claim for relief. Id. In ruling on a motion for judgment on the pleadings, the Court

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considers the pleadings alone, which consist of the complaint, the answer, and any

documents attached as exhibits. Northern Indiana, 163 F.3d at 452. 

III. Analysis 

To escape a duty to indemnify and to defend Océ, ISOP relies on the ERISA

Exclusion, which excludes coverage for “[d]amages for which any insured is liable

because of liability imposed on a fiduciary by [ERISA].” ISOP Policy, Empl. Benefits

End. ¶ A.2.g. According to ISOP, this policy language means that there is no coverage

for any liability that an insured, who happens to be a fiduciary, incurs under ERISA.

See R. 13, Pl.’s Mot. J. Pl. at 7. And, because Océ—who is a fiduciary by virtue of its

status as a sponsor and administrator of an employee benefit plan governed by

ERISA—faces ERISA-related liabilities in the Underlying Lawsuit, ISOP argues that

it has no duty to defend or indemnify Océ under the Policy. Id.

A. Duty to Defend Standard

Under Illinois law,3

 the interpretation of an insurance policy is a question of law.

Crum & Forster Managers Corp. v. Resolution Trust Corp., 620 N.E.2d 1073, 1077 (Ill.

1993). An insurer’s duty to defend its insured is much broader than its duty to

indemnify. Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1220 (Ill.

1992). “Whether an insurer must defend the insured is a question resolved by

comparing the allegations of the underlying complaint against the insured to the

3

The Court must apply state substantive law in diversity cases. Erie R.R. Co. v.

Tompkins, 304 U.S. 64, 78 (1938). Here, the ISOP Policy is silent as to which state’s law

governs, but because both parties assume that Illinois law governs this coverage dispute, the

Court will join in that assumption. Gould v. Artisoft, Inc., 1 F.3d 544, 549 n.7 (7th Cir. 1993). 

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insurance policy.” Conn. Indem. Co. v. DER Travel Serv., Inc., 328 F.3d 347, 349 (7th

Cir. 2003) (citing Lapham-Hickey Steel Corp. v. Prot. Mut. Ins. Co., 655 N.E.2d 842,

847 (Ill. 1995). “If the facts alleged in the underlying complaint fall within or even

potentially within policy coverage, the insurer has a duty to defend its insured against

the complaint.” United States Fire Ins. Co. v. Aetna Life & Cas., 684 N.E.2d 956, 960-61

(Ill. App. Ct. 1997) (internal quotation marks, citation, and emphasis omitted). The key

“is not the legal label that the [underlying] plaintiff attaches to the [insured’s] conduct,

but whether that conduct as alleged in the complaint is at least arguably within one

or more of the categories of wrongdoing that the policy covers.” Curtis-Universal, Inc.

v. Sheboygan Emergency Med. Servs., Inc., 43 F.3d 1119, 1122 (7th Cir. 1994) (citations

omitted). If the underlying complaint alleges several theories of recovery against the

insured, the insurer is obligated to provide a complete defense to all the claims even

if only one such theory falls within the potential coverage of the policy. U.S. Fid.&

Guar. Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 930 (Ill. 1991) (citation omitted).

The insurer has the burden of proving that an exclusion applies, while the insured has

the burden of proving that an exception to an exclusion restores coverage. Santa’s Best

Craft, LLC v. St. Paul Fire & Marine Ins. Co., 611 F.3d 339, 347 (7th Cir. 2010)

(citations omitted). 

In determining whether a duty to defend exists, the underlying complaint and

insurance policy must be construed liberally, resolving all doubts in the insured’s favor.

Wilkin, 578 N.E.2d at 930. “Where a policy provision is clear and unambiguous, its

language must be taken in its plain, ordinary, and popular sense.” Id. (citations and

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quotation marks omitted). But “if the words in the policy are susceptible to more than

one reasonable interpretation, they are ambiguous and will be construed in favor of the

insured and against the insurer who drafted the policy.” Outboard Marine Corp., 607

N.E.2d at 1212 (citations omitted). With these principles in mind, the Court now

considers ISOP’s obligations to defend Océ against the underlying complaint.

B. ISOP’s Duty to Defend 

As mentioned above, Donald Krase alleges two separate claims against Océ in

the Underlying Lawsuit. First, he brings a recovery-of-benefits claim under

§ 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B), on the basis that his wife had a

right under the group life insurance policy to personal notification of her conversion

rights. Underlying Compl. ¶ 12. Second, and in the alternative, he alleges that Océ’s

failure to notify his wife of either her conversion rights or the policy’s Terminal Illness

Benefit constituted a breach of fiduciary duty under § 502(a)(3) of ERISA, 29 U.S.C.

§ 1132(a)(3). Id. ¶¶ 12, 21. 

Remember again that the ERISA Exclusion excludes coverage for “[d]amages for

which any insured is liable because of liability imposed on a fiduciary by [ERISA] . . . .”

ISOP Policy, Empl. Benefits End. ¶ A.2.g. In its briefs, ISOP seems to advance two

different interpretations of the ERISA Exclusion’s language: In its opening brief, ISOP

broadly contends that the ERISA Exclusion should be read to bar coverage for any

claims against the insured that are brought under ERISA, whether the insured is a

fiduciary under ERISA or not, see Pl.’s Mot. J. Pl. at 7, and cites to Cape Coral Medical

Center, Inc. v. American Continental Insurance Co., 2000 WL 151275 (M.D. Fla. Feb.

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4, 2000), for support. Under this interpretation, there is no coverage for either of

Krase’s claims because both claims are brought under ERISA. But then, in its reply

brief, ISOP urges a narrower reading of the exclusion to bar coverage for any cause of

action brought under ERISA against an insured who happens to be a fiduciary. See R.

21, Pl.’s Reply Br. at 3-4. 

Neither of ISOP’s propounded interpretations is tenable in light of the policy

language’s clear command. The ERISA Exclusion precludes coverage for “[d]amages

for which any insured is liable because of liability imposed on a fiduciary by [ERISA].”

ISOP Policy, Empl. Benefits End. ¶ A.2.g (emphasis added). Unlike the ERISA

Exclusion described in Cape Coral, which simply—and sweepingly—excluded coverage

for “[l]iability based upon [ERISA],” 2000 WL 151275, at *1, the language in ISOP’s

ERISA Exclusion confines the exclusion to liability “imposed on a fiduciary by

[ERISA].” So Cape Coral does not apply here, and the Court rejects an interpretation

that would sweep all ERISA-based liability within the ambit of the ERISA Exclusion. 

ISOP’s second interpretation—that coverage should be barred for any ERISA

claim brought against an insured who happens to be a fiduciary, even if liability does

not arise out of an alleged breach of fiduciary duty—is also unreasonable. In effect,

ISOP wants the exclusion to read as if it excluded coverage for any ERISA claim

seeking “damages imposed on a fiduciary by ERISA.” But the policy language does not

say that; rather, it says that there is no coverage for an action seeking “[d]amages for

which any insured is liable because of liability imposed on a fiduciary by [ERISA].”

ISOP Policy, Empl. Benefits End. ¶ A.2.g (emphasis added). Not all actions seeking

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damages under ERISA seek damages “because of liability” for a fiduciary-duty breach;

it is only fiduciary-duty breach claims that are excluded from coverage.

ISOP insists that Just v. Accu-Turn, Inc., 2012 WL 1067106 (E.D. Wis. Mar. 28,

2012), is instructive in interpreting the exclusion language. There, the district court

interpreted an ERISA exclusion that excluded coverage for “[l]oss for which the insured

is liable because of liability imposed on a fiduciary by the Employee Retirement

[Income] Security Act of 1974 . . . .” Id. at *3. The district court stated that “[t]his

language is unambiguous. It does not exclude all ERISA claims and it does not exclude

all claims arising from a breach of fiduciary duty. Rather, it excludes losses arising

from a liability imposed on a fiduciary by ERISA.” Id. at *4. Relying on the conclusion

that the language was “unambiguous,” Just held that the exclusion should be read to

exclude neither all ERISA claims nor only those claims arising from a breach of

fiduciary duty. Instead, the policy “excludes losses arising from a liability imposed on

a fiduciary by ERISA.” Id. at *4. It would seem, then, that the district court interpreted

the policy language to exclude coverage for any ERISA claims brought against an

insured who is also a fiduciary.

But another part of Just’s analysis suggest that, perhaps, an insured who

sometimes acts as a fiduciary might not be excluded from coverage if the underlying

lawsuit alleged that the insured committed a wrong in the insured’s non-fiduciary

capacity. Just involved similar facts to the case at hand: there, the claimant in the

underlying suit brought a recovery-of-benefits claim under ERISA against his employer

for failing to notify him of his COBRA rights. Id. at *2. The insurer then brought a

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declaratory judgment action against the employer-insured to establish that it had no

duty to defend the employer in the underlying action. Id. at *1. In holding that the

ERISA exclusion excluded coverage, Just reasoned that “[the insured] came forward

with no evidence that it acted as plan administrator but not a fiduciary when advising

or failing to advise [the claimant] of his rights under COBRA and refusing payment.”

Id. at *6 (emphasis added). This reasoning suggests that whether the insured “acted

as” a fiduciary had some bearing on the applicability of the ERISA exclusion. Thus, it

cannot be the case that the insured’s mere status as a fiduciary is dispositive in

bringing the underlying complaint within the ambit of the ERISA exclusion. As Just’s

reasoning seems to suggest, the insured must have also been acting as a fiduciary in

the alleged wrongdoing to trigger the exclusion. So it appears that ISOP misplaces

reliance on Just for the proposition that the ERISA Exclusion applies so long as the

insured is being sued under ERISA and also happens to be a fiduciary.

It is worth repeating the pertinent exclusion language one more time: there is

no coverage for a lawsuit that seeks “[d]amages for which any insured is liable because

of liability imposed on a fiduciary by [ERISA] . . . .” ISOP Policy, Empl. Benefits End.

¶ A.2.g. Contrary to ISOP’s proffered interpretations, the Court concludes that the

plain and ordinary meaning of the policy’s ERISA Exclusion is that it excludes only

those ERISA claims that allege a breach of fiduciary duty under ERISA. This is so

because the limiting phrase, “because of liability imposed on a fiduciary by [ERISA],”

applies to the word immediately preceding it (here, “liable”), and does not extend to or

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include other words, phrases, or clauses that are more remote.4

 Moreover, “liability

imposed on a fiduciary by [ERISA],” most logically modifies “liable,” because the

modifying phrase itself describes a form of liability. Thus, the exclusion covers only

ERISA liability that is incurred by virtue of the fact that the insured is a fiduciary.

This reading is bolstered by the fact that the modifying phrase, “because of liability

imposed on a fiduciary by [ERISA]” describes a causal connection between a fiduciary

and the liability incurred. In other words, but- for the unique liabilities imposed on

fiduciaries under ERISA, the insured would not be liable, and the exclusion would not

apply.

Having established that the ERISA Exclusion applies only to breach of fiduciary

duty claims, the only remaining question is whether the underlying complaint alleges

any claims that do not implicate the insured’s fiduciary duties, thus triggering ISOP’s

duty to defend. Here, the underlying complaint alleges two distinct causes of action

against Océ: one for recovery of benefits under 29 U.S.C. § 1132(a)(1)(B), and another

for breach of fiduciary duty under 29 U.S.C. § 1132(a)(3). Because the latter claim is

excluded from coverage, the Court must now determine whether the recovery-ofbenefits claim also falls within the ERISA Exclusion. It is true that the Court may not

rely on legal labels to determine whether there is a duty to defend, see CurtisUniversal, 43 F.3d at 1122, but rather must determine whether it is clear from the face

of the underlying complaint that the allegations state facts that bring the case within,

4

This rule is generally applied in statutory interpretation as the “last antecedent

doctrine.” See Board of Educ. v. Regional Bd. Of Sch. Trustees, 481 N.E.2d 1266, 1271 (Ill.

1985); see also O’Kane v. Apfel, 224 F.3d 686, 690 (7th Cir. 2000). 

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or potentially within, the policy’s coverage. DER Travel Serv., Inc., 328 F.3d at 349

(citation omitted). But the underlying complaint has satisfied that burden here. Krase

alleges that his wife had a right under the policy to personal notification of her

conversion rights, and that Océ’s failure to provide that notification constituted a

breach of contract that entitles him to recover life insurance benefits. Underlying

Compl. ¶ 12. As pleaded, Krase’s recovery-of-benefits claim stems from his wife’s

contractual rights under the policy, not any general fiduciary duty owed by Océ.

Accordingly, Krase’s recovery of benefits claim is separate and distinct from Océ’s

duties as a fiduciary, and does not trigger the ERISA Exclusion.5

ISOP contends that even if the Court were to accept Océ’s more limited reading

of the ERISA Exclusion, ISOP has no duty to defend with respect to the recovery-ofbenefits claim because Krase is not seeking “damages,” as required by the Policy, but

rather only seeks to recover amounts already due to him under the group life insurance

plan. Pl.’s Reply Br. at 6-7. The Court need not wade into the morass of case law on

whether recovery of benefits under ERISA constitutes relief in law or equity because

the ISOP Policy does not use the term “damages” with this distinction in mind. Rather,

“damages,” as used in the Policy, plainly and ordinarily means any amount that the

insured becomes legally obligated to pay because of a claim brought against it for a

5

Whether Krase’s recovery-of-benefits claim can succeed on the merits is another

matter. But the Court does not decide the merits of the underlying claim when deciding

whether a duty to defend exists. See Universal Underwriters Ins. Co. v. LKQ Smart Parts, Inc.,

963 N.E.2d 930, 946 (Ill. App. Ct. 2011) (“The duty of defense depends on the nature of the

claim and has nothing to do with the merits of the claim.” (internal quotation mark and

citation omitted)).

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wrongful act committed in the administration of the insured’s employee benefit

program. See ISOP Policy, Empl. Benefits End. ¶ A.1.a. Accordingly, the Court rejects

ISOP’s argument that Krase’s recovery of benefits is excluded from coverage because

he is supposedly not seeking “damages.” Because Krase’s alternative claim for recovery

of benefits is entitled to defense and indemnification under the ISOP Policy, ISOP

must defend Océ as to the entire Underlying Lawsuit. Wilkin, 578 N.E.2d at 930.

C. Ambiguity

There is a second, independent basis for denying ISOP’s motion for judgment on

the pleadings: Even if it is not clear from the policy language that the ERISA Exclusion

applies only to breach of fiduciary duty claims, ISOP still owes a duty to defend

because the Exclusion is, at worst, ambiguous. Under Illinois law, an insurance policy

that is ambiguous or susceptible to at least two reasonable interpretations must be

construed in favor of the insured. Loftis v. Vesta Cos., 686 N.E.2d 383, 385 (Ill. App. Ct.

1997) (citation omitted). Even assuming that ISOP’s proposed interpretation of the

ERISA Exclusion is a reasonable one, we must construe the policy language in favor

of Océ, who has advanced a reasonable alternative reading. Thus, to the extent that the

ERISA Exclusion is ambiguous, the policy language must be construed in favor of Océ,

the insured, and judgment on the pleadings must be denied.

IV. Conclusion

For the reasons discussed above, ISOP’s motion for judgment on the pleadings

[R. 13] is denied. On or before April 3, 2013, the parties must submit position papers

stating their positions as to whether discovery is needed, or whether instead Defendant

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Océ intends to itself move for judgment on the pleadings or for summary judgment.

The next status hearing remains scheduled for April 4, 2013, at 9:30 a.m.

ENTERED:

 s/Edmond E. Chang 

Honorable Edmond E. Chang

United States District Judge

DATE: March 26, 2013

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