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commercial liability policies. First cites to two cases in whieh the courts found that the term must
be examined in the context of how the insured did its business, i i.e., its advertising. See Zarich Ins.
Co. v. Sunclipse, Inc., 85 F.Supp.2d 842, 852-53 (N.D. Til) (applying Califia New amphi
Ins. Co. v. Foxfire, Inc., 820 F.Supp. 489, 494 (N.D.Cal. 1993). However, in the cited cases, the
term “advertising activity” was found to be undefined and ambiguous. Here, First does not allege
that the terms “finder” or “intermediary” are ambiguous or that Colesons does not meet the terms’
ordinary meanings. Furthermore, First was obviously familiar with its own operating method in this
regard at the time it entered into the contract that contained the clause that specifically excludes
coverage for loss incurred by such business conduct, First points to nothing in the contract that
would have lead it to believe that the terms “finder” and “intermediary” meant anything other than
their ordinary meanings or that the exclusion contained the caveat that the finder or intermediary
must in fact be acting for the insured. See Hermitage, 816 F. Supp. at 1284 (courts should not
interject terms into exclusions and clearly stated exclusions are given their full meaning and effect)
Federal argues that First’s claim of bad faith denial pursuant to § 155 of the Illinois Insurance
Code should be dismissed if the Court finds that First’s claims are not covered under the Bond. First
argues that it has sufficiently pleaded a claim under § 155 even if the Court dismisses the other two
claims. However, under Illinois law, to recover under § 155, a party is required to make a
preliminary showing ofa legitimate claim for coverage. Prisco Serena Sturm Architects v. Liberty
Mut. Ins. Co., 126 F.3d 886, 894 (7th Cir. 1997); United States v. Wapinski Real Estate, 2000 WL
284299, No. 99 C 100 (N.D.II Mar. 6, 2000); Hermitage Ins. Co. v. Action Marine, Inc., 816

F.Supp. 1280 1286 (N.D.IIL. 1993), Here, First does not have a legitimate claim for coverage



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the extension of credit in reliance upon certain specified original forged documents. At all relevant
times, First was insured under the Bond as a subsidiary of Wintrust. In August of 2000, First
notified Federal of Coleson’s alleged fraud and requested indemnification under the Bond. On
November 9, 2000, Federal denied coverage based onits belief that the claims were for “bad loans”,
and coverage was excluded by the Bond.

Defendant challenges the sufficiency of First’s complaint on several grounds. Federal argues
that First’s declaratory judgment is duplicative of its breach of contract case and that First has failed
to satisfy coverage requirements of Clauses 4, 5, and 8 of the Bond. Accepting First’s allegations
as true and construing the allegations in the light most favorable to First, as required at this stage of
litigation, establishes First can request declaratory relief and has sufficiently plead coverage under
Clauses 4, 5, and 8 of the Bond.

Federal also argues that Section 3.m of the Bond excludes coverage for the fraud allegedly
committed by Colesons. Section 3.m excludes coverage for any “loss caused by any agent, broker,
commission merchant, independent contractor, intermediary, finder or other representative of the
same general character of the assured.” First does not contest that Colesons is a “finder” or
“intermediary.” First argues that Section 3.m should only be applied when the third party is in fact
acting as the insured’s finder or intermediary. First contends that because it does almost all of its
business through a finder or intermediary, accepting Federal’s interpretation of Section 3.m would
render the coverage illusory, and such an interpretation could not have been within First’s reasonable
expectations.

First asks this Court to consider its method of operating its business when deciding how to

apply Section 3.m as other courts have interpreted the term “advertising activity” in relation to


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because it is excluded by Section 3.m of the Bond.
For the reasons stated herein, Federal’s Motion to Dismiss is granted as to all counts. First’s

complaint is dismissed in full with leave to replead within 14 days of the date of this order.

Dated: MAR 26 2001 Wy - atte —

J ohne, DARRAH

United States District Judge



Minute Order Form (06/97) ay
United States District Court, Northern District of Illinois
een f
Nin Magee Jude John W. Darrah “than signed Judge
CASE NUMBER 00 C 8135 DATE 3/26/2001
CASE FIRST INSURANCE FUNDING vs. FEDERAL INSURANCE CO,
TITLE
Un the following box (a) indicate the party filing the motion, ¢.g., plaintiff, defendant, 3rd party plaintiff, and (6) state briefly the

motion: nature of the motion being presented.)
DOCKET ENTRY:
(1) im) Filed motion of [ use listing in “Motion” box above.]
(2) 0 Brief in support of motion due
(3) im) Answer brief to motion due___. Reply to answer brief due.
(4) Oo Ruling/Hearing on setfor___at
(5) oO Status hearing[held/continued to] [set for/re-set for] on —___.setfor at
(6) a Pretrial conference[held/continued to] (set for/re-set for] on —.__setfor_ so at__
(7) Q Trial{set for/re-set for]on___at
(8) o [Bench/Jury trial] [Hearing] held/continued to at
(9) Oo This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OFRCP4(m) O General Rule21 OFRCP41(a\(1) O FRCP41(a)(2).

(0) «x [Other docket entry] Status hearing held. Enter Memorandum Opinion And Order. Defendant,
Federal’s Motion To Dismiss is granted as to all counts. Plaintiff, First’s complaint is dismissed in full
with leave to replead within 14 days of the date of this order.

apy oa [For further detail see order (on reverse side offattached to) the original minute order.]

No notices required, advised in open court.

No notices required.
‘ quire Aumber of notices

MAR 27 2001

date docketed

Notices mailed by judge’s staff,

Notified counsel by telephone.

NS

Docketing to mail notices.

LF Mail AO 450 form. ww docketing deputy initials

Copy to judge/magistrate judge.

courtroom
LG deputy’s
initials

Date/time received in
central Clerk’s Office

mating deputy initials



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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

FIRST INSURANCE FUNDING CORPORATION,

Plaintiff,
No. 00 C 8135

Judge John W. Darrah
FEDERAL INSURANCE COMPANY,

)
)
)
)
v. )
)
)
)
Defendant. )

MEMORANDUM OPINION AND ORDER MAR 9% aot

Plaintiff, First Insurance Funding Corporation (First), fi led suit against defendant, Federal
Insurance Company (Federal), seeking declaratory judgment for indemnity of losses sustained by
First and alleging breach of contract and vexatious and unreasonable conduct under the Illinois
Insurance Code. Before the Court is defendant’s Motion to Dismiss.

In ruling on a motion to dismiss, the Court must accept the events as specified in the
complaint as true, and all ambiguities are construed in favor of the plaintiff. Curtis v. Bembeneck,
48 F.3d 281, 283 (7th Cir 1995) (Curtis). A complaint should be dismissed for failure to state a
claim only if it appears “beyond doubt that the plaintiff can prove no set of facts in support of his
claim which would entitle him to relief.” Conley v. Gibson, 335 U.S. 41, 45-46 (1957) (Conley).
The complaint must contain either direct or inferential allegations with respect to all material
elements necessary to sustain a recovery under some viable legal theory. Banks v. National
Collegiate Athletics Ass'n, 977 F.2d 1081, 1093 (7th Cir. 1992).

First is a large insurance finance company that makes loans to business customers desiring

to finance the expense of paying annual premiums for property and casualty insurance. These

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: business customers typically employ the services of an n independent in insurance © agent or broker who

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first acts on the customer’s behalf to © procure the desired coverage from an insurance company, and
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~ Disclosure Statement. To facilitate the loan: application and procurement process, First make: blank

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finance loans to Colesons Tnsurance Group! s (Colesons) business customers. Th the course of its

with Colesons ngage ina practice of cubmiting faudulently altered premium n finance agreements

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to First using forged signatures of purported customers seeking premium finance loans. In all

Colesons’ personnel, First authorized the disbursement of over $4. 3 milion from its bank accounts

to Colesons. Immediately following discovery of the fraud, First vi igorously pursued recovery of the

funds.