## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it

N o. 08

- 3570 J AM ES R IVER I NSURANCE C OMPAN Y, Plai nt i f f

-Appe l l ant, v. K EM PE R C ASU ALT Y I NSURANCE C OMPAN Y, D efend a nt-A pp ellee.

A pp eal from the United S t ates Di strictC our t fo r the N o rthernDi stricto f Illino is, Eas tern Div isi on. No . 07 C4233

—H arry D . L einenw eber, Judge
.
A RG UE D S EP TE MBE R 24, 2009

— D ECI DE D O CT OB ER 28, 2009

Befo re P OSNER, M A NI ON, a nd T INDER, C ircu it Judges . P OSNER, Cir cu i tJudg e . Thi s di ver si ty s u i t pi ts the J am es Riv eri nsurance com pany ag ai nst t h e K em per i nsurance co m pan y . J ames Ri ve r s ee k s a dec l ar at i o n tha t i t ha d no du ty to de fen d or i nd em ni fy tw o l aw yer s ( and thei r l aw fi rm , but w e ca n i gnor e that detai l ) wh o w er e s ued fo r m alp ra cti ce and whom K em per had a l so i nsured. A s is oft e n tru e in a d ec lar at or y-ju d gm en t s u it, th e p lain tiff in2 N o. 08

- 3570 the s uiti s r eal l y the defend an t. ForJ am es Riv erwants n othi ng fro m Kem per, wh i l e Kem per w ants J am es Riv er to c o nt r ibut e to the expens e i t i nc ur r ed i n de f en di ngthe l aw yer s i n the m al pract i ce s uitand i n payi ng the se ttl em ent that e nd ed the sui t. The di str i ct c ourtgr anted su m m ary j ud gm en t in f avor of K em p er. Both i nsurance pol i ci es ar e “ cl aim s m ade” pol i ci es. That m eans they i nsure aga i nst l i abi l i ty base d on legal cl ai m s a gains t the i nsured fi l ed duri ng the per i od c ov er ed by th e p olic y (t h e “ p olic y p er i o d ,” a s itis c a l l e d ) , p r o v i d e d th o s e c l a i ms a r e b a s e d o n a c t s c o mm i tte d a fter the pol i cy’ s “r etr oac ti ve date. ” Th e p oli cy perio d in the K em per pol i cy w as Se ptem ber27, 20 00, to Se ptem ber 27, 2002 , and the re tr oac ti ve da te was J anuary 1, 19 37. The policy per i od i n the J am es Riv er po l i cywas Nov embe r 8 , 2 00 4, t o Nov embe r 8 , 2 005, a nd th e retroac ti ve da te was Nov embe r 8 , 2 00 2. ( The s i xwee kg ap be twe enthe e nd o fKemper ’ s co verage a nd the beginning ofJ am es Riv er ’ s i s i m m ate ri al

. ) The m al pract i ce sui t ( the “ cl ai m ”) acc used the l aw yer s o fwrongful acts duri ng b oththe pe r i o d c o ve r ed byKemper ’ s po l i cya nd the l ate r peri od cov er ed by J am es Riv er ’ s pol i cy. The l aw yer s had r epres ented the w ife in a di vor ce case . I n Decem ber19 99, wellwithi n the cove ra ge of K em per’ s pol i cy for act s g i vi ng r i se to cl ai m s, the parti es m ade a pr o pe r t y s e t t l e men ta s a p r e l ud e t o the e nt r y o f a divo rce decree

. The set tl em ent gave the w i fe a big chunk ofherso on- to-be e x-husband’ s em p loyee sto ck o pti o ns . Buti n F eb r ua r y o fthe f o l l o wi ng y ea r the empl o y erwro te the pa r ti es tha t th e m etho d b y whi chtheN o. 08

- 3570 3 proper ty set tl em ent had t ri ed to tr ansferthe sto ck o pt i o ns wa s i nv a l i d. T wo mo nths l a t e r the i ns ur e ds i nsti tuted o n t he ex- w i f e’ s be hal fa proce edi ng i n sta te cou rt against h er ex-h us ban d , c om p lai nin g of his fai lure to e ff ec tu at e th e tr an sfer . The pr o ce edi ngwas pe ndi ng w hen, i n J uly20 01, hi s e m plo yerdecl ar ed ban kr u p tcy a nd the e mpl o y e e s t o c ko pt i o ns e v a po r a t e d. The m al pract i ce sui t accused the l aw yer s o fpro f ess i onal negl i gence i n f ai l i ng to ge t the s to c k opti ons tr ansfer re d bef or e the bankruptcy re nd er ed the opti ons w or thl ess . T h ey co u ld an d sh ou ld h av e d on e t h is, th e s u it ch ar g ed, e i th erb y i ns i st i ngthat the pr o per tys et tl ement ( drafted by the husband’s l aw yer ) use a pro per m etho d of c onvey ance, o r by am ending the s ett l em ent. I nstea d they had negl i gentl y deci ded to i nsti tute a lega l pro

c e e d i n gth a t dr a g g e d o n u n t i l th e s t o c ko p t i o n s b e c a me w or thl ess . The a l l eg ed m i sc o nduc t o cc ur r ed m ainl y dur i ng K em p er’s policy period , bu t not e nt irel y; th e plaintiff al l eg ed th ati t co nt i nue d i nto 20 03 ( whi chwas dur i ngthe J am es Riv erpolicyper i od) , wh en the I l l i noi s a pp el l ate cour t di sm i sse d the pro ceed in g to re cove r the o pti ons. The op t i o ns we r e wo r thl e s s b y the n, s o i t ’ s ha r d t o se e h ow th e ru lin g c ou ld h av e h u rtth e p lain tiff. Its sign ificance ra therwas i n confi rm i ng the fu til i ty ofthe proce edi nga nd thus r einf o r ci ngthe c l ai m tha t th e l aw yer s s houl d have be en doi ng so m ethi ng e lse to re c o ve r th e o p tio n s, ra th er th an j u st ap p ea lin g t h eir defe at i n the tr i alco urt. The m al pract i ce s uitfurtheral l ege d that the defendants had conceal ed a b usi ness re l ati onshi p that they had4 N o. 08

- 3570

w i th the husband’s di vor c e l aw yer . Thi s char ge al so o ve r l appe d the c o ve r ag e o fthe t wo po l i ce s, a s di d the furtherchar ge that the defen d ants had conspi re d to preve n t the pl ai nti fffro m br i ngi ng the m al pract i ce sui t a gai nst he r f or m erl aw yer s unti l the sta tute ofl i m i tati o ns ha d r un. J am es Riv erpoi nts t o seve ra l excl usi ons in its pol i cy th ati t co nt en ds ex cuse it fr o m ha vi ngt o pa y f o r the l a wy e r s ’ d e f e n s e a g a i n s tth e c l a i m o fw r o n g fu l a c t s c o mm i tt ed dur i ngthe J ames Ri ve r po l i cype r i o d, o r t o pay a ny p ar t of the se ttl em ent that r eso l ved the m al pract i ce s uit
. Kem pera r g ue s tha t J ames Ri ve r has the bur denofpr o vi ng th at th e e x c lu sio n s a p p ly, an d th at is co rre c t, b u t it is i m port ant t o dist i ngui sh be tw een t w o gr ounds f orthat pl ac emento fthe b ur den

. The fi r stg r o und i s si m pl y tha t J ames Ri ve r i s th e pl ainti ff, and pla i nti ff s hav e the bur den ofp ro of e xcept with resp ect to d efense s. T he secon d grou nd is base d on insu ran ce l aw. I fthe insur eds ( th e l awy er s) ha d b ee n s ui ng J ames Ri ve r, i t woul d ha ve h ad the b ur deno fpr o vi ng th a ti t s i n s u r a n c e p o l i c y di d n ’ tc o v e r a n y o fth e c l a i ms ag ai n s t t h em . Th at is th e ru le in Il lin ois
. H i l de b r and v. Frankl i n L i

f eIns . Co. , 455 N
. E
. 2d 553, 564 (I ll. A p p . 1983); Sokol & C o. v. A t l ant i c M ut ual Ins . Co. , 430 F. 3d 417, 42 2- 23 ( 7t h C i r . 2 0 0 5 ) ( I l l i n o i s l a w)

. An d th e a l l o c a t i o n o ft he burden of p ro ofi n a di ver si ty case ( orany othe r case go ve rn ed by st at e la w ) is d et er m in ed by st at e la w . Rale igh v. Il l i noi s D ept
. of

Re ve nue, 5 3 0 U .S. 15 , 20-2 1 (2 00 0); D ick v. Ne w Y o rk Li

f eIns . Co. , 359 U .S. 43 7, 44 6 (1 95 9); In re Sto eck er, 179 F.3d 54 6, 55 1-5 2 (7 th C ir. 19 99 )

. A t l e a st th isN o. 08

- 3570 5 i s s o w hen there i s no d i re ct c onfl i ct with a federa l st atute , or wi th a r ul e a do pt e d un de r the Ru l e s En a b l i ngA ct. Wa lk er v. A rm co Steel C o rp . , 44 6 U. S

. 74 0, 74 7- 58 ( 19 80 )

. The al l oca ti on o fburden o fpro of( in t h e sense o fburden o f persuas i on

— w hi ch si de l ose s a t i e) abs ol utel y dete rm i nes the o utcom e in c ases wh er e the ev i dence i s i n equi poi se, an d by d oing so ad van ces th e sub stan tive polic ie s o f a st at e, cf. Thor ogood v. Se ars , Roeb uc k & Co. , 54 7 F
. 3d 742, 74 6 (7t h C ir. 20 08 ); H ar b orIns
. C o. v. Cont i ne nt al Bank Corp. , 92 2 F
. 2 d 3 5 7, 3 6 4

- 6 5 ( 7 th C i r . 1 9 9 0 ) , h e r e a p o l i c y o ff av o r i ng i nsureds in l i ti gat i on wit h thei r i nsurance com panie s. A m e r i c a n S t a t e s In s . C o . v . Ko l o ms , 687 N .E .2d 72 -75 (Ill

. 19 97 ); Conne ct i cu tSp e ci al ty Ins . Co. v. Lo op Pape rRe cy cl ing, Inc. , 82 4 N
. E.2 d 1125, 11 30 ( I l l

. A pp . 20 05). To a pp l y a di ff e r e ntr ul e i n a di v e r s i t y s ui two ul d ma k e the h a ppenstance ofdi ver si ty provi d e a deci si ve advantage to o ne o fthe l i t i g a nt s i fthe e v i de nc e wa s e v e nl y b a l a nc e d. Thi s su i t, ho wev er, i s no t be twe enan insu r ed an d an i nsurance com pany, bu t be tw een t w o i nsurance com pani es ( th e i nsur eds wer e par ti es b uta r e no l o ng er ) , a nd the r ealpl ai nti ffi s K em p er, wh i ch i s s eek i ng a m oney j udg m en t ag ai ns t J ames Ri ve r . A pl aint i ffha s th e burden of p ro of, exce pt w i th r ega rd to affi rm ati ve def enses , and thi s s houl d be th e ru l e a l so f ora decl ar ato ry j udg m en t d efe nda ntwho i s th e r ea l pl aint i ff, the d ec lar at or y-ju d gm e n t a c tio n h av in g b ee n br ou gh t m er ely to accel er ate the defe nd ant’ s s uitf ordam age s o r othe r re lief. B y s ee kin g d ec lar at or y re lief in lieu of sim p ly ba l k i nga t a demand f o r pa y m en t, a n i ns ura nc e co m pan y pr o te ct s i ts el ffr o m b eingf o und t o ha ve r efus ed th e i nsure d’s dem and i n bad f ai th, a fi nd i ng tha t would e xpose the c om pany to havi ng to pay pu ni ti ve dam age s.6 N o. 08

- 3570 I t is s e ns ib l e t o p l a c e the b ur de n o fp r o o fo fa n a ff i rm ati ve defen se o n th e defen dan t, r athe r th an m aki ng the pla i nti ffpro ve a neg ati ve; and the sense o fthe rul e i s no t di mi ni s he d j us tb e c a us e the “ de f e nd a nt ” h a s made him se l fa “ pl aint i ff ” byfi l i nga de cl ar at o r y -j udg m en t acti on rat h er than wai ti ng to be sued. Leni ence extended to i nsureds who fi nd them sel ves i n l i ti gat i on with an i ns ur an ce c om p an y ha s no pl ac e when th e pl aint i ffi n a su it a ga in st an ins u re r is a n ot h er i n su re r. A s e x p lain ed in R o ya l Ind em nity C o . v. Wing a te, 353 F. Su p p . 10 02, 10 04 ( D. M d

. ) , affi rm ed w i thout opi ni on, 48 7 F
. 2d 1398 ( 4th Ci r . 1 97 3) , i n a de cl ar at o r y -j udg m en t a ct i o n “ th e burden ofproof sh oul d not be m echani cal l y pl aced o n th e do o r st ep o fthe pl aint i ffs i m pl y b ec au se i t i s the o ne se eki ng r el i ef

. . . . [ I ] t would s eem unw i se to ap p ly any ge ne r a l f o r mul a t i o n wi th r e s pe c tt o the b ur de n of pr o o fb utr athe r t o a ddr es s su cha que st i o n fr o m the st an d p oin t o f w h ich p ar ty m u st lose w h er e t h er e is failu re of p ro of.” Stil l, that ap p roach , sens ibl e as it seem s, is not un iversally fol low ed

. 10B Ch arles A

. W right, A rthu r R. M il ler & M ar y K ay K an e, Fed eral P rac tice an d P roc edu re§ 2 7 7 0 , p p. 67 7-8 0 (3 d ed . 199 8). B u t is it law in Illin ois ? A fte r w e s aid i n Intern a tio na l H o tel C o . v . Libbey, 158 F.2d 717, 721 (7th C ir. 1946 ) , tho ugh w i thout expla nati on, that “w hen an i ssue of f ac t i s te nde r ed bythe c o m pl ainta nd de ni ed by the answ er, the pla i nti ffm ust pro ve i ts com pla i nt, ev en tho ugh i ti s a c o mp l a i n tf o r a de c l a r a t o r y j u d g me n t, ” t h e S u p r e me Court ofI l l i noi s, quoti ng thi s l anguage fro m o ur o pini on wi tho ut a ny e l a b o r a t i o n, s a i d tha t t hi s was th e ru le in Illino is. B o a rd o

f Trad e of C ity of C hic ago v. D o w Jon es & C o .,N o. 08

- 3570 7 456 N
. E.2 d 84, 87( I l l

. 19 83)

. N ei thercas e was an i nsurance ca se , b utthe “r ul e” w as re pea te d i n St one r i dgeD e ve l opm e nt C o . v. E ssex Ins. C o ., 888 N
. E
. 2d 633, 650 (I ll

. A p p . 2008). H o w the s t a t e ’ s s up r e me c o ur two ul d d e c i de the questi o n wer e i t po se d i n an ins ura nc e ca se i n whi chthe p r o s a n d c o n s o fth e r ul e we r e a r g u e d , we d o n o tk n o w; butne ither nee d we de ci de i n o r dert o r es o l ve the p rese ntc as e. The r e ar e no i ss ue s o ff ac t an d the r efore no r ea so n f o r Kempert o ha ve r ai se d the que st i o n o fthe burde n o fp r o o f

. And a ny wa y I l l i no i s l a w t r e a ts excl usi ons i n an in su ra nce pol i cy as affi rm ati ve def enses. Rapr age rv. Al l s t at eIns . Co. , 53 9 N
. E.2 d 787, 79 1- 92 (Ill. A p p . 1 9 8 9 ); Wahl s v. Ae t na Li f eIns . Co. , 46 1 N .E .2d 46 6, 47 0 (Ill. A p p . 198 3); Il li nois Schoo l D is t. Agency v. Paci f i c Ins . Co. , 47 1 F
. 3d 71 4, 716-1 7 ( 7th Ci r. 20 06) ( I l l i noi s l aw )

. That i s a notherexam ple o fa p ro c ed u ra l rule tha t has a su bsta nt ive m otivation an d therefore bi nd s the federa l co urts i n div er si ty sui ts. J am es Riv erbas es its appeal m ai nl y o n a pr ovi si on o f its p o l i c y t h at ex c lu d es an y c laim “d ire c tly or in d ire c tly ar i si ng fro m . . . any com m on fac t, ci rcum sta nces, tr ansacti on a dvic e o r deci si on i nvol ved i n a ‘ profess i onalse rv i ce’ re port ed as a cl ai m o r potenti alcl ai m under any pri or P olic y.” T h e la w ye r d efe n d a n t s in th e m alp ra c tic e s u it d uly re p o r t e d the m alprac tice clai m to both insu rers when th e cl aim w as fi l ed i n May 20 05 ; a nd i t i s appa r en t th atthe wro ng ful a ct s al l eg ed to have o cc ur r ed dur i ng the Ja m es Ri ve r po l i cype r i o d a r o se fr o m the de ci si o ns that the insured l aw yer s had m ade duri ng the Kem per p olic y p er iod . Th os e w er e t h e d ec isio n s re lat in g t o t h eir8 N o. 08

- 3570 effo rt s t o ob ta in t h e s to c k op tio n s fo r th eir clie n t b ot h in th e initi al prop erty settlem en t and after the hu sba nd ’s em plo yerr efused t o tra nsf erthe opti ons, co ntending that the m etho d oftr ansferi n the proper ty se tt lem ent was i nv al i d. The I l l i no i s appe l l at e r ul i ngi s th e o nl y wro ng ful act al l ege d to have occurre d enti re l y duri ng the l ate r po li cy peri od ( though we r epeat our pu zzl em ent that a j ud i ci alr uling co uld be an a c t ofm al pract i ce r atherthan atm o ste vi den ce o fmal pr ac ti ce b y a l awy erha ndl i ngthe case i n w hi ch the ruling w as re nd er ed), and i t t oo ar ose f r o m th e l a wy e r s ’ i n i t i a l h a n d l i n go fth e s t o c k

- o p t i o ns i ssue. W e m ustn’ t pr ess the concept o f“a ri si ng fro m ” t oo hard, however

. W hat i fthe d efendants i n the m al pract i ce su i t, be ca us e th ei r r es o ur ce s ha d be en depl eted by the su i t, cu t co r ne r s i n h an dl i nga n un r el at ed m at te r dur i ng Jam es R ive r’s p olic y pe riod an d w er e su ed f o r m alpract i ce; would J am es Riv er ’ s p ri or - pol i cy provi si on excl ud e cover age f orthatsui t? I t would not, bec ause “arising from ” im p li es a tighter con ne ction th an a m ere “but f or ” c au se cr eat es. M aybe i fCol um bus hadn’tdi scove re d A m er i ca the federa l co urts o fap peal s would not have been cre ate d i n 189 1; but i t would be o dd to sa y th a tth e fe d e r a l a p p e l l a t e j ud i c i a r y “ a r o s e fr o m” C o l u mbus’ s v oya ges . I t i s tru e th at I l l i noi s ca ses s ayth at “a ris in g fro m ” is sa tis fied b y a sh ow in g of “b u t fo r” ca u sa tio n . E .g., Am e r i ca n E conom y Ins
. Co
. v. D ePa ul U niversi ty, 89 0 N
. E .2d 5 82, 58 8 (Ill. A p p . 200 8); Shell O il Co
. v. AC & S, Inc. , 649 N
. E.2 d 946, 95 1-5 2 (Ill. A p p . 199 5). B u t w h at t h ey m ea n is th at a c laimN o. 08

- 3570 9 need not have been f or ese eabl e to be d eem ed to ar i se f ro m ana ctby the i ns ur ed. I l l i no i s di st i ng ui sh es b etwee n “ but f o r ” ca us at i o n ( w hich the c as es c al l “ ca us e i n f ac t” ) a nd “le ga l ca u se ,” w h ich m ea n s fo re se ea b i l ity
. City of Chi cago v. Bere t t a U.S
. A. Corp. , 8 21 N. E. 2d 10 99 , 1 12 7 ( I l l

. 2004); Abram s v. Ci ty of

Chi cago , 811 N
. E
. 2d 670, 674-75 (I ll

. 2004); M aj e t i ch v. P. T. Fe r ro C ons t r uc t i on Co. , 90 6 N
. E.2 d 713, 71 7 ( Il l. A p p . 200 9); Cle ve l and v. Rot m an , 2 9 7 F
. 3 d 5 6 9 , 57 3 ( 7th Ci r . 2 00 2) ( I l l i no i s l aw)

. I fI l l i no i s un d erst o o d “ but f or ” li te ra ll y, to m ean j ust a co nd i ti on that had to exi st f orthe eve nt i n questi on t o occur( a s ubsequent a ct o f m al pract i ce, i n thi s ca se) , l i abi l i ty i nsurance com panie s w oul d have no w ay o fse tti ng pre m i um s e qual to expected co st; theywould be i nsuri ng ag ain st a range of possibl e cl ai m s s o vastthatan e sti m ate o fthe proba b ili ty that a cl ai m withi n that ra nge woul d actual l y b e fi l ed w oul d be a rbi tr ar y. The oute r bounds of“but f or ” cau sa ti on a pp l i ed to i nsurance case s a re sug gested by the A me r i c a n E c o n o my case , ci ted abo ve. A n offi ce work erwas i nj ured b y ul tr avi ol et ra diat i on fro m fl uore scen t l i ghts i nstal l ed by a contr acto r i n her workpl ace. S he had l up us , a n d it w as the inter acti on o fthe radia ti on with her co nd i ti on that ca us ed th e i nj ur i es ; the y woul d no t ha ve o cc ur r ed, s he c laim ed , ha d “c om m er c i a l ly a va ilab le a n d rea so n ab ly pri ced diffuser s or fi l ter s that would di ffuse o r re du ce the ul tr avi ol et ( U V) ra ys em i tte d by the fl uore scent l i ghts to a s a fe le ve l” b ee n ins ta lled . 890 N .E .2d at58 5. It i s underst andabl e why i n deter m i nin g the s cope o f a l i a b i lity -in su ra n c e p olic y a co u rtw ou ld th in k it i rr el evantwh eth er the contr acto r shoul d have f or ese en10 N o. 08

- 3570
th e p r e s e n c e o fw o r k e r s su ff e r i n gfr o m l u p u s o r s o me othe r l i ght- sensi ti ve dise ase and tak en pre caution s accor dingl y. For o ne does n’tpurchase l i abi l i ty i nsurance j us t to pr o te cto ne se l fa g ains t b ei ngs ue d f o r i nfl i ct i ng f or ese eabl e i nj uri es; o ne buys pro tect i on a gai nst any cl aim ari si ng fro m the potenti all i abi l i ty- causi ng ac ti vi ty i n whi cho ne e ng ag es, an d a c l ai m c ana r i se fr o m the acti vi ty w i thout bei ng f or ese eabl e. T h e r e a r e l i mi t s t o wh a t c a n b e s a i d t o “ a r i s e fr o m” s o me eve nt. But they ar e no t ba sed o n unfo rseeabi l i ty. I fChri stopherCol um bus had bought i nsurance aga i nst l i abi l i ty f o r c l a i ms a r i s i ng o ut o f hi s v o y a g e s a nd ha d l a t er bee n sued f oras saul ti ng an I nd i an i n H i spani ol a, he c ou ld not have re quir ed the i nsurance com pany t o d efend hi m o n th e g r o und tha t ha d it no t be enf o r hi s vo y ag e to Hi spa ni ol a he w oul d not hav e a ssa ult ed anyo ne the re . A way t o hel p parti ti on l i abi l i ty between succe ssi ve i ns ur e r s , a n d th u s d e c i d e wh e n a c l a i m ma d e d u r i n gt he policy peri od ofthe seco nd i nsurersho uld be deem ed to a r i se o ut of a ct i vi tydur i ngthe po l i cype r i o d o fthe fi r st i ns ur er, i s to as k what se ns e i t woul d m ake for th e d e f e n s e o fth e ma l p r a c t i c e s u i t, a n d t h e c o s to ft h e i n d e mni f i cat i o n o fthe de f e nd a nt s i n tha ts ui t, t o b e s ha r ed be twe ent wo i ns ur an ce compani es . The s ui t ag ains t th e i nsureds i n t h is case al l ege d an i nter tw i ned set of w r o n gfu l ac ts th at st ra d d led th e t w o p olic y p er iod s. It woul dn’ t be fea sibl e t o a ppo r ti o n de f en se o r s et tl ement c o s t s b e t we e n a c t s co mm i t t e d in the t wo p e r i o ds

. Ov e r l a ppi ngc o ve r ag e, r equi r i nga p p or ti o nm en t o fde f en se a nd i nd e mni t y c o s t s b e t we en in s ur e r s , i s s o met i mes u na v o i d-N o. 08

- 3570 11 ab le, se e, e.g ., O utbo a rd M a rine C o rp. v. Liberty M utu a l Ins. Co. , 6 70 N. E
. 2d 74 0, 7 57( I l l

. App. 1 99 6) , b utthe r e i s no re aso n to m anufa cture o ccasi ons f orsuch a pp or ti onm ent. As i n Cont i ne nt al Casu al ty Co. v. Cor egi s Ins . Co. , 73 8 N
. E.2 d 50 9 , 5 2 3 a n d n . 3 ( I l l

. Ap p . 2 0 0 0 ) , i t i s a p p a r e n t th a tt he seco nd i nsurer (Jam es Riv er ) excl ud ed cov er age i n si tuati ons i n wh i ch the w ro ngful acts co m m i tte d du ri ng i ts p o l i c y p e r i o d w e r e a c o n t i n u a t i o n o fw r o n g fu l a c t s c o mm i tt ed dur i ngthe po l i cype r i o d o fthe pr evi ou s i nsure r

— and they w er e. Bu t that doe s no t e nd the case . The di str i ct c ourtr ule d th a tKe mpe r ’ s p o l i c y wa s n o ta “ p r i o rP o l i c y ” wi th i n t he m ea ni ngo fthe J ames Ri ve r po l i cy, a nd if thati s r i g ht then the excl usi on we’v e be en di scussi ng does notapply

. K em pe r ’ s p o l i c y g r a nt s the i ns ur e d a n “ e xt e nd e d r eporti ng per i od opti on”: f ora fi xed fe e, the i nsured ca n extend the peri od w i thi n w hi ch i t i s r equi re d to re porta cl ai m ag ainst i t t o K em per. The cl ai m m ust sti l l have ar i se n fr o m pr o f es si o na l s er vi ce s r en der ed be twe enthe retroact i ve da te o fJ an ua r y 1 , 1 93 7, a nd the e nd o fthe pol i cy peri od, wh i ch r em em berwas Se ptem ber27, 20 02, but i t ca n be r epor ted l ate r. The l aw yer s purchas ed a fi veyea r extensi on, wh i ch ther ef or e e xpir ed on S eptem ber27, 2007, wellafterthe Jam es Riv erpol i cy peri od, wh i ch end ed i n N ove m ber20 05. ( The m al pract i ce s uitwas fi l ed i n 2 005, buttha t was wi th i n the e xt en ded r epo r ting p e r i o d , wh i c h i s wh y Ke mp e r h a d t o de f e n d i ta n d i n d e mn ify th e in su re d s fo r th e s et tle m en t w ith t h e p lain tiff.) Theref or e, the j ud ge rul ed, Kem per’ s pol i cy w as not “pri or ” t o J am es Riv er ’ s.12 N o. 08

- 3570 T he exte nd ed -reporting -p e r iod op tion (or “tail cove rage ” a s i t i s ca l l ed) m ay see m a curi ous a ni m al

. I t m ay see m thatan insured would w an t su ch an o pti on ( f or w hi ch he would have to pay K em per $48, 033, wh ich was 225 percen t of the r egul arannual pre m i um o f$2 1, 348) o nl y i f h e e xpe ct ed to b e su ed, a nd o ne woul d thi nk that such an e xpectati on would gr eat l y i ncre ase the ri sk to the i nsura nce co m pan y o fi nc ur r i ngl i ab i l i tyo n the p olic y a n d th u s t h e c os t t o t h e c om p an y of t h e a d d iti o na l c ove r ag e so ug ht

. The pr i ce o fthe e xt en si o n o fthe report i ng per i od se em s, i n thos e ci rcum sta nces, awful ly l ow, though typi calo fl aw yer s’ pro f ess ion al l i abi l i ty p olic ies . M ich ae l D av id so n, “C h oo sin g t h e R igh t T ail Cover age , ” 1 9 E xperi ence3 4 , 3 5 ( 2 0 0 9 ) ; B e r tL i n d er, “ L a wyer s Pr ofess i onalLi abil i ty I nsurance M ar ket pla ce, ” 6 09 P LI/Lit37 1, 42 7 ( 199 9). T he i nsureri s pro tect ed to a degre e b y the dol l arl i m i ts on l i abi l i ty i n the pol i cy; yetbec ause ofthe potenti alf oradver se sel ecti on ( that i s, the purchas e of i nsurance by perso ns w ho have an above

a v e r a g e l i k e l i ho o d o fe xp e r i e nc i ngthe i ns ur e d- a g ai nst e v e nt ) , s uc h “ ’ t a i l ’ c o v e r a g e mus tbe r a t e d f o r the i nd i v i dua l r i sk. The r i sk’ s [ i
. e. , the i nsured’ s] hi sto ryo fi nsured ex po su r es , p r ev i o us ty pes a nd a m o unt s o fi ns ur an ce , the possibi lity of parti alexhausti on o fthe agg re gat e l i m i ts, th e amoun t an d ty pes o fha za rd s re la tingt o l at en t inj ury p oten tial an d th e in su red ’s p revious loss h istory are am ong the m any f acto rs wh i ch m ay i nfl uence the pri ce of the ‘ tai l ’ co ver age . ” J am es K
. Kil l el ea, “F or m at of Liab i l i ty I nsurance Pol i ci es, ” 2 96 P LI/Lit229, 243 (1985 ). I n any eve nt, the re portin g peri od i s no t the pol i cy peri od

— K em p er ’s p olic y is e x p lic i t t h at a c laimN o. 08

- 3570 13

re port ed i n the extended re p orti ng per i od m ust hav e ari se n “ pr i o r t o the e nd o fthe po l i cype r i o d. ” And not hin g i n th e p rior -policy exclu sion in Jam es R iver’s p olic y l im its the tim e w ithin w hich a clai m un d er a pri orpol i cy m ust be r epor ted f orthe excl usi on t o apply. Jam es R iver ci tes tw o other ex clusion s. O n e is for a cl ai m “ di r ectl y or i ndi r ec tl y a r i singo uto fo r r es ul ting fro m an y con sp ira c y” an d th e oth er a cla i m “d ire c tly ori nd i re ctl y a ri si ng o ut of o r resul ti ng fro m any act com m i tte d w i th kno w l edge o fi ts w ro ngful nature o r wi th th e i nt en t to ca us e damag e. ” The pr i nc i palwro ng ful acts all eged against th e insu r ed l aw yers in Jam es R iver’s po l i cype r i o d c o nc ern the c o ns pi r ac y t o preven t the cl i ent fro m fi l i ng a tim el y s uit; and a c l ai m o fco nspir acy i s e xpli ci tl y e xcl ud ed. T h e negl i gent f ai l ure both to reveal the confli ct of i nt erest in v o lv ing the hu sba nd ’s l aw ye r, a nd t o a c c o mpl i s h the t r a ns f e r o fthe s toc k op tions b efo r e th e ba nk r upt cy, i s al l eg ed to ha ve c o nti nued unti l M ay 2003 ( w hi ch w as w i thi n the J am es Riv er pol i cy peri od) , wh en the I l l i noi s Ap pel l ate Courtr ej ecte d th e ex - wif e’ s su i t to o bt ain the pr o m i se d o pti o ns . The ba nk r upt cyha d o cc ur r ed ne ar l y t wo y ea r s be f o r e th e ap p ell a t e r u lin g, an d aft er th e b an kr u p tc y t h e o n ly furtherhar m the l aw ye rs co uld do thei r cl i ent was t o c o v e r u p th e i r n e g l i g e n c e s o th a ts h e w o u l d n ’ ts u e th e m. So o nl y the n eg lige nt f ai l ure to disc l ose the confl i ct o f i nter estco uld have har m ed the cl i en t by del ayi ng her sui ng them

. Bu t the al l ege d ne gl i gent f ai lu re per si ste d i nto J ames Ri ve r ’ s po l i cype r i o d a nd do es n’ t f al l i nt o the pol i cy’ s co nspir acy orwrongful- knowle dge excl usi ons.14 N o. 08

- 3570 N ev er th el es s th e pr i o r - po l i cye xc l us i o n a ppl i es . The l aw yer s’ al l ege d m i sco nd uct o ccurr ed w i thi n the pol i cy p eriod, and th e s uit w as fi led d uring the tail. K em p er’s p oli cy ap p li es, an d i t the refore f oll ow s t ha t Jam es R iver’s does not, si nce i t e xcl ud es cove ra ge ofco nd uct cover ed bya pr ior insu r er ; a l l the wro ng ful a ct s al l eg ed i n the m alp ra c tic e s u it a ro se from ev en ts th at to ok p lac e in Ke mpe r ’ s p o l i c y p e r i o d. The j ud gm ent i s r eve rs ed w i th i nstr u c tio n s t o enter th e d eclaratory j ud gm en t requ ested by the plaintiff

. R EV ER S ED WI T H I NS T RUCT I ONS .

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