In the

United States Court of Appeals

For the Seventh Circuit

No. 01-2855

FIRST INSURANCE FUNDING CORPORATION,

Plaintiff-Appellant,

v.

FEDERAL INSURANCE COMPANY,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 00 C 8135--John W. Darrah, Judge.

ARGUED FEBRUARY 20, 2002--DECIDED MARCH 28, 2002 

 

 Before BAUER, RIPPLE and MANION, Circuit

Judges.

 RIPPLE, Circuit Judge. Defrauded of over

$4.3 million, First Insurance Funding

Corporation ("First Insurance") sought

indemnification for these losses under

the terms of a financial institution bond

that its parent corporation had purchased

from Federal Insurance Co. ("Federal").

When Federal denied the claim for

coverage, First Insurance filed this

action seeking a declaratory judgment of

Federal’s obligation to indemnify for

these losses. In addition, First

Insurance alleged that Federal’s actions

constituted not only a breach of contract

but also an unreasonable and vexatious

denial of coverage in violation of the

Illinois Insurance Code. Upon Federal’s

motion, the district court dismissed the

complaint concluding that the bond did

not cover the losses for which First

Insurance sought indemnification. In the

district court’s determination, this

ruling also foreclosed First Insurance’s

claim against Federal under the Illinois

Insurance Code. For the reasons set forth

in the following opinion, we affirm the

judgment of the district court. 

I

BACKGROUND
A. Facts

 Operating from Northbrook, Illinois,

First Insurance serves as an insurance

premium finance company. In this role, it

provides loans to businesses that seek to

finance the payment of their annual

insurance premiums. Typically, these

businesses obtain financing from First

Insurance through an independent

insurance broker. More precisely, a

business seeking insurance coverage hires

an independent insurance broker for a

dual purpose; the broker not only

procures insurance coverage for the

business but also obtains the necessary

financing for this purchase from an

insurance premium finance company such as

First Insurance.

 If the broker and its business client

select First Insurance to finance the

transaction, the parties document the

loan through a standardized finance

agreement. To expedite the loan

application process, First Insurance

provides brokers with blank premium

finance agreements as well as related

computer software. Using this material,

the broker assists its business client in

filling out the loan agreement. Once the

broker and client complete and sign the

finance agreement, they forward the

document to First Insurance which then

must review and approve the application.

Once First Insurance approves the loan,

it disburses the loan amount to the

broker who, in turn, pays the insurance

premium on behalf of its client.

 Beginning in 1996, First Insurance

provided funding for a significant volume

of legitimate premium finance loans for

clients of Colesons Insurance Group

("Colesons")--an independent insurance

broker. Colesons had received

authorization from First Insurance to

select it from among vendors offering

premium financing to Colesons’ business

clients. In submitting its clients’ loan

applications, Colesons used the blank

premium finance agreements and related

software provided by First Insurance.

Based on these legitimate transactions,

Colesons developed a reputation with

First Insurance for trustworthy business

dealings.

 However, at some time prior to August
2000, certain individuals associated with

Colesons began submitting fraudulently

altered premium finance agreements to

First Insurance. Specifically, these

documents bore forged signatures of

Colesons’ clients that purportedly sought

premium finance loans from First

Insurance. The fraudulently altered

documents shared certain similarities.

Each premium finance agreement bore

Colesons’ warranty that the client’s

signature was genuine. In addition, when

preparing the altered documents, the

forgers used the software program that

First Insurance had provided Colesons. In

reliance on these forged and fraudulently

altered documents, First Insurance

disbursed over $4.3 million to Colesons.

 Upon discovering the fraudulent

transactions, First Insurance promptly

sought indemnification for its losses

under the terms of a financial

institution bond that its parent

corporation had purchased from Federal.

This bond, which served as an insurance

policy, provided coverage against losses

resulting from certain fraudulent or

dishonest conduct perpetrated against

First Insurance. Citing, among other

reasons, Exclusion 3.m of the bond,

Federal denied the request for

indemnification. Exclusion 3.m provides

that: 

This bond does not directly or indirectly

cover . . . loss caused by any agent,

broker, factor, commission merchant,

independent contractor, intermediary,

finder or other representative of the

same general character of the ASSURED.

R.12, Ex.A. Federal reasoned that

Colesons served as an intermediary,

finder or other representative of First

Insurance. As such, in Federal’s

estimation, the terms of the bond did not

cover the losses for which First

Insurance sought indemnification.

B. District Court Proceedings

1.

 On December 29, 2000, First Insurance,

invoking the diversity jurisdiction of

the district court,/1 commenced this

multi-count action against Federal. In

particular, the complaint sought a

declaratory judgment that the terms of
the bond required Federal to indemnify

First Insurance for the losses it

sustained as a result of the forgery

scheme. First Insurance also alleged that

Federal’s failure to indemnify

constituted not only a breach of contract

but also an unreasonable and vexatious

denial of coverage in violation of

Section 155 of the Illinois Insurance

Code. 

 Federal promptly moved to dismiss the

complaint. Specifically, the insurer

submitted that Colesons was an

intermediary, finder or similar

representative of First Insurance thereby

implicating Exclusion 3.m of the bond.

Thus, in Federal’s estimation, the bond

did not cover the losses for which First

Insurance sought indemnification.

Moreover, absent a valid claim for

coverage, Federal reasoned that First

Insurance could not maintain a cause of

action under the Illinois Insurance Code.

2.

 After reviewing the pleadings, the

district court dismissed First

Insurance’s complaint. Finding the terms

of the contract unambiguous, the district

court concluded that the bond excluded

from coverage the losses for which First

Insurance sought indemnification. In the

district court’s estimation, Colesons

functioned as an intermediary or finder

of First Insurance thereby implicating

Exclusion 3.m of the bond. Because this

provision barred from coverage losses

caused by an intermediary or finder,

First Insurance could not state a valid

claim for coverage under the bond.

According to the district court, this

determination also foreclosed First

Insurance’s claim under Section 155 of

the Illinois Insurance Code. Relying on

Illinois law, the court concluded that an

insured must have a legitimate claim for

coverage before it may maintain an action

against an insurer under this statutory

provision. First Insurance’s complaint

was dismissed with leave to amend its

allegations.

 Availing itself of this opportunity,

First Insurance submitted an amended

complaint to the district court./2 The

district court, however, concluded that

First Insurance had failed to allege any

new allegations and had merely
recapitulated its previous pleading.

Moreover, the district court expanded its

previous ruling, noting that, even if

Colesons had not functioned as an

intermediary or finder, the insurance

broker certainly served First Insurance

as a representative of the same general

character. Once again concluding that

Exclusion 3.m defeated First Insurance’s

request for indemnification, the district

court again dismissed the complaint with

leave to amend. First Insurance, however,

failed to amend the complaint./3 

II

DISCUSSION

 We review the district court’s grant of

a motion to dismiss de novo. See Tobin

for Governor v. Ill. State Bd. of

Elections, 268 F.3d 517, 521 (7th Cir.

2001). We not only accept as true all of

the well-pleaded factual allegations in

the plaintiff’s complaint but also draw

all reasonable inferences in the

plaintiff’s favor. See id. We, however,

need not accept as true "conclusory

statements of law or unsupported

conclusions of fact." McLeod v. Arrow

Marine Transp., Inc., 258 F.3d 608, 614

(7th Cir. 2001). After reviewing the

plaintiff’s pleadings under these rules,

if it appears beyond doubt that the

plaintiff cannot prove any set of facts

that would entitle it to relief, then we

shall affirm the district court’s

dismissal of the complaint. See Tobin for

Governor, 268 F.3d at 521. 

A.

1.

 Before turning to the provisions of the

bond, we set forth the principles that

will guide our inquiry. Interpretation of

an unambiguous contract--including

insurance policies-- poses a question of

law. See Zemco Mfg., Inc. v. Navistar

Int’l Transp. Corp., 270 F.3d 1117, 1123

(7th Cir. 2001). Under Illinois law,/4

when interpreting an insurance agreement,

the court’s primary function is to

ascertain and give effect to the true

intentions of the contracting parties.

See Fid. & Cas. Co. v. Merridew, 762

N.E.2d 570, 574 (Ill. App. Ct. 2001). In

doing so, we must consider the agreement

as a whole, "with due regard to the risk
undertaken, the subject matter that is

insured, and the purpose of the entire

contract." Maremont Corp. v. Cont’l Cas.

Co., 760 N.E.2d 550, 554 (Ill. App. Ct.

2001). Absent some contrary indication

from the terms of the agreement,

undefined and unambiguous terms are

assigned their plain and ordinary

meaning. See Benedict v. Fed. Kemper Life

Assurance Co., 759 N.E.2d 23, 27 (Ill.

App. Ct. 2001). If the terms of the

policy are unambiguous, we give effect to

the agreement as written. See id.

Although the court liberally interprets

in favor of the insured provisions that

limit or exclude coverage, it may not

read an ambiguity into a policy to

provide coverage for the insured. See

Fid. & Cas. Co., 762 N.E.2d at 574.

Rather, an ambiguity exists only if the

insurance policy is susceptible to

reasonable alternate interpretations. See

Maremont Corp., 760 N.E.2d at 554. Any

such ambiguities will be "construed in

favor of the insured and against the

insurer that drafted the policy." Id.

2.

 We now address the parties’ contentions

concerning the effect of Exclusion 3.m on

First Insurance’s claim for

indemnification. This provision of the

bond provides:

This bond does not directly or indirectly

cover . . . loss caused by any agent,

broker, factor, commission merchant,

independent contractor, intermediary,

finder or other representative of the

same general character of the ASSURED.

R.12, Ex.A. The district court concluded

that this provision unambiguously barred

First Insurance from recovering, under

the terms of the bond, the losses

resulting from the forgery scheme

perpetrated against it. First Insurance,

however, submits that, during the

fraudulent transactions, Colesons acted

solely on its own behalf, and thus could

not have served as an intermediary,

finder or other representative of First

Insurance thereby rendering Exclusion 3.m

inapplicable to the request for

indemnification. Moreover, relying on an

unsupported and conclusory statement in

its pleadings, First Insurance alleges

that it never employed Colesons at any

time to serve as an intermediary, finder
or similar representative. Federal’s

position on appeal largely tracks the

rationale of the district court’s

opinion.

 Because the bond does not define the

terms "intermediary", "finder", or "other

representative of the same general

character", we must assign these words

their plain and ordinary meaning.

Generally, an intermediary acts as a

middleman, "a broker, one who is employed

to negotiate a matter between two

parties, and who for that purpose may be

[an] agent of both." Black’s Law

Dictionary 731 (5th ed. 1979). Likewise,

Illinois courts have defined a finder

relationship as "an arrangement by which

an intermediary finds, introduces, and

brings together parties to a business

opportunity, leaving the ultimate

negotiation and consummation of the

business transaction to the principals."

Ruskin v. Rodgers, 399 N.E.2d 623, 637

(Ill. App. Ct. 1979) (quoting 24 A.L.R.3d

1164). Although the final phrase "other

representative of the same general

character" lacks a precise definition,

the import of these words is clear. The

parties designed the phrase as a

catchall--excluding from coverage losses

caused by entities that, although failing

to fit the technical definition of an

intermediary or finder, functioned

essentially in that same general

capacity.

 Although Illinois law instructs us to

construe liberally in favor of the

insured provisions that exclude coverage,

the terms of Exclusion 3.m are

unequivocal: the bond does not cover

losses caused by an intermediary, finder

or other similar representative of First

Insurance. In its brief to this court,

First Insurance, relying on a conclusory

statement from its pleadings, submitted

that it never employed Colesons to act as

its intermediary, finder or similar

representative. However, at oral

argument, when asked directly to

characterize the relationship between

First Insurance and Colesons with regard

to the legitimate transactions, counsel

for First Insurance conceded that

Colesons functioned as an intermediary of

the premium finance company. Even absent

this concession, it is evident from the

pleadings that First Insurance enjoyed a

special relationship with Colesons. First
Insurance not only authorized Colesons to

select it from among vendors offering

premium financing to Colesons’ business

clients but also provided Colesons with

blank finance agreements and related

computer software. Colesons then used the

documents and software to obtain for its

clients premium financing from First

Insurance. This activity is the precise

type of conduct in which an intermediary,

finder or other representative engages--

bringing businesses together to

consummate a transaction. Based on the

pleadings and counsel’s concession at

oral argument, we conclude that Colesons

served as First Insurance’s intermediary,

finder or other representative of the

same general character.

 Although this determination seemingly

would preclude First Insurance from

recovering its losses under the terms of

the bond, it also has submitted that

Colesons could not have functioned as an

intermediary or finder during the

fraudulent transactions. Intermediaries

or finders bring two or more parties

together for the purpose of conducting

business. Because Colesons brought First

Insurance together with a fictitious

party during the fraudulent transactions,

First Insurance posits that Colesons

could not have functioned as finder or

intermediary during the course of the

forgery scheme thereby removing the claim

for indemnification from the ambit of

Exclusion 3.m.

 We cannot accept this contention. The

bond places squarely on First Insurance

the risk associated with dishonest or

fraudulent conduct perpetrated against it

by a certain class of entities. In

unequivocal terms, Exclusion 3.m states

that First Insurance, rather than

Federal, must bear losses caused by,

among others, First Insurance’s agents,

intermediaries, finders or other

representatives of the same general

character. In this case, First Insurance

cloaked Colesons with the authority to

act as its intermediary, finder or other

representative of the same general

character. During the fraudulent

transactions, First Insurance dealt with

Colesons under the apprehension that

Colesons was acting in such a capacity.

It relied on Colesons’ status as its

intermediary in approving the loans to

the fictitious customers and disbursing
the funds to this independent insurance

broker. Although employees of Colesons

abused their employer’s status as an

intermediary or finder, this factor does

not permit First Insurance to escape the

plain implications of the exclusion

clause. Under the terms of the bond,

First Insurance bore the risk of cloaking

Colesons with the authority to act as its

intermediary, finder or other

representative of the same general

character. Federal did not agree to

indemnify First Insurance for such

losses. Accordingly, we conclude that

Federal properly denied under Exclusion

3.m First Insurance’s request for

indemnification./5 

B.

 Finally, we turn to First Insurance’s

contention that Federal unreasonably and

vexatiously denied its request for

indemnification thereby creating a cause

of action against Federal under Section

155 of the Illinois Insurance Code.

Section 155 provides

In any action by or against a company

wherein there is in issue the liability

of a company on a policy or policies of

insurance or the amount of the loss

payable thereunder, or for an

unreasonable delay in settling a claim,

and it appears to the court that such

action or delay is vexatious and

unreasonable, the court may allow as part

of the taxable costs in the action

reasonable attorney fees, [and] other

costs.

215 ILCS 5/155(1). The Illinois

legislature designed this provision to

provide a remedy to "insureds who

encounter unnecessary difficulties

resulting from an insurance company’s

unreasonable and vexatious refusal to

honor its contract with the insured."

Korte Constr. Corp. v. Am. States Ins.,

750 N.E.2d 764, 771 (Ill. App. Ct. 2001).

However, when an insurer denies the claim

of an insured because no coverage exists,

the insurer has not failed to honor its

contractual obligations under an

insurance policy. As such, Illinois

courts allow a cause of action to proceed

under Section 155 only if the insurer

owed the insured benefits under the terms

of the policy. See Armando v. State Farm

Mut. Auto. Ins. Co., 751 N.E.2d 582, 586
(Ill. App. Ct. 2001) ("Furthermore,

because there is no coverage under the

State Farm policy, we find that State

Farm did not act vexatiously or

unreasonably in handling plaintiff’s

claim."); Martin v. Ill. Farmers Ins.,

742 N.E.2d 848, 857 (Ill. App. Ct. 2000)

("A[n] [insurer] cannot be liable for

section 155 relief where no benefits are

owed."). See also Prisco Serena Sturm

Architects, Ltd. v. Liberty Mut. Ins.

Co., 126 F.3d 886, 894 (7th Cir. 1997)

(construing Section 155 of the Illinois

Insurance Code). In this case, we have

concluded that Federal had no obligation

to indemnify First Insurance for the

losses it suffered as a result of the

forgery scheme. Pursuant to Illinois law,

absent a legitimate claim for coverage

under the terms of the bond, First

Federal may not seek relief under Section

155. As such, we conclude that the

district court properly dismissed this

portion of First Insurance’s complaint.

Conclusion

 We conclude that the district court

correctly dismissed First Insurance’s

complaint. Accordingly, the judgment of

the district court is affirmed.

AFFIRMED

FOOTNOTES

/1 First Insurance is an Illinois corporation with

its principal place of business in Northbrook,

Illinois. Federal is incorporated in Indiana with

its principal place of business in Warren, New

Jersey. The amount in controversy exceeds

$75,000.

/2 In the most conclusory fashion, First Insurance

pleaded in its amended complaint that the "exclusion contains one or more ambiguities that must

be resolved in favor of coverage." R.12, para.

18.b. In a similar manner, First Insurance stated

that it "never engaged, employed or contracted

with Colesons to act as its ’finder,’ ’intermediary,’ or other representative for the purpose of

generating premium finance business." R.12, para.

18.c.

/3 We note that the district court never entered a

final judgment as required by Fed. R. Civ. P. 58.

We have criticized in the past the practice

followed here. Nevertheless, because it is clear

that the district court intended to terminate the

litigation, we may exercise appellate jurisdic-
tion. See Otis v. City of Chicago, 29 F.3d 1159,

1164 (7th Cir. 1994) (en banc); Eberhardt v.

O’Malley, 17 F.3d 1023, 1024 (7th Cir. 1994).

/4 The parties agree that Illinois law governs

construction of the terms of the bond.

/5 Because we believe that Federal must prevail on

the basis of Exclusion 3.m, we need not address

its alternative arguments for affirmance.