In the

United States Court of Appeals

For the Seventh Circuit

No. 01-2503

Platinum Technology, Inc., 

Plaintiff-Appellee,

v.

Federal Insurance Co.,

Defendant-Appellant.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 99-C-7378--James F. Holderman, Judge.

Argued January 23, 2002--Decided March 7, 2002

 Before Bauer, Coffey and Evans, Circuit

Judges.

 Bauer, Circuit Judge. Federal Insurance

Company appeals from a judgment in favor

of Platinum Technology Incorporated on an

Illinois law claim for breach of an

insurer’s duty to defend. For the reasons

that follow, we reverse the judgment and

remand the matter to the district court

for further proceedings not inconsistent

with this opinion.

BACKGROUND

 Platinum Technology Incorporated (PTI)

sued Federal Insurance Company for

failure to defend PTI in a trademarking

infringement suit against Platinum

Software Corporation (PSC). PTI settled

with PSC and then sought to recover the

settlement amount from Federal. Count I

sought a declaration that Federal

breached its duty to defend and

indemnify. Count II sought money damages

for Federal’s breach of the duty to

defend, and Count III sought money

damages for Federal’s breach of the duty

to indemnify. Count IV sought additional

penalties because the breach was

"vexatious and unreasonable" under

Section 155 of the Illinois Insurance

Code.

 In a June 27, 2000 ruling, the district
court granted judgment on the pleadings

in favor of PTI on Count I. Both parties

then filed cross-motions for summary

judgment on the remaining counts. Federal

claimed that the settlement was neither

in anticipation of litigation nor

reasonable, thus the settlement was not

covered by the policy. Rather, Federal

contended, PTI paid the settlement to

purchase the "Platinum" trademarks from

PSC. The district court granted Federal’s

motion in part and denied it in part as

to Counts II and III, finding that issues

of material fact existed as to the

valuation of the settlement amount. The

district court held that PTI must

establish the settlement was made in

"anticipation of litigation" and that the

amount of the settlement was

"reasonable," including whether the

claims settled were insurable. The

district court also granted PTI’s motion

in part, finding that the settlement was

made "in anticipation of litigation."

Finally, the district court granted

Federal’s motion on Count IV, the section

155 claim, finding Federal’s conduct was

not vexatious or unreasonable.

 A bench trial was held on the issues

that remained. The district court found

for PTI and judgment was entered on April

9, 2001, in the amount of $9,422,356.00

(which included prejudgment interest,

attorney’s fees, and the settlement

amount of approximately $4 million in

cash paid to PSC and the $6 million in

Original Equipment Manufacturer (OEM)

product credits available for future use,

valued at $4.6 million in cash). 

 The issues in this case actually stem

from earlier events involving PTI and PSC

and the "Platinum" trademark. PSC

registered the trademark in 1988, and

prior to that used it in connection with

its software business. It turned out that

PTI was also using a similar, if not the

exact same, trademark. After PSC became

aware of this fact in 1989, it sought to

have PTI stop using the trademark. PTI

responded, stating that market confusion

between the two companies was unlikely

because they were in unrelated sectors of

the software business. PTI sold mainframe

computer software, while PSC sold

software for personal computers. Despite

this assertion, PTI began negotiating

with PSC over the trademark usage and

reached a settlement agreement in 1993.
The settlement agreement provided that

neither company would use the "Platinum"

trademark in areas of the market in which

the other’s goods and services competed.

PTI later expanded its business into new

markets, some of which may or may not

have been reserved to PSC. According to

PTI, changes in its own business, PSC’s

business, and the computer software

market caused some product overlap

between the two companies. 

 In 1996, PSC sought to change its image

and corporate name, to "re-brand" itself.

PSC approached PTI to see if PTI was

interested in buying the "Platinum"

trademark. PSC planned to use the sale to

defray the costs of re-branding. PTI

offered $100,000, and PSC countered with

$1 million demand. PTI’s offer went up

another $150,000, but PSC held firm at $1

million and discussions broke down. 

 Then in July 1997, PSC sued PTI for,

among other things, trademark

infringement. PSC once again claimed that

its "Platinum" trademark was being

infringed upon by PTI, and that PTI’s use

of the "Platinum" mark was causing

confusion in the marketplace. PSC sought

compensatory damages, treble damages, and

injunctive relief. PTI informed Federal

of the suit and tendered its defense

pursuant to the insurance policy. Federal

refused to defend or indemnify PTI. As a

result, PTI, without Federal, opened

settlement negotiations with PSC. PSC’s

settlement demands were based on its own

calculations of what it would cost to-rebrand the company, and were in excess of

$20 million. PTI’s offers were initially

less than ten percent of that figure, and

later roughly doubled, based on PTI’s own

estimate that re-branding would cost no

more than $7 million. PTI and PSC

eventually agreed on a $10 million

package, including $4 million in cash and

$6 million in OEM software credits, which

would allow PSC to acquire PTI software

at no cost and potentially resell it for

a profit. Pursuant to the settlement

agreement, PSC released and dismissed all

of its claims against PTI and assigned

all of its "Platinum" related trademarks

to PTI.

 After the settlement was entered into,

a PTI employee recorded the "Platinum"

trademark as a new "asset" with a value

of $4 million and PTI began depreciating
this asset. After the settlement in 1999,

PSC changed its name to Epicor Software

Corporation. Epicor has not used any of

the OEM credits and offered to take a

one-time cash payment of between $2.5 and

$3 million in lieu of the OEM credits. 

ANALYSIS

A. Standard of Review

 The parties dispute the proper standard

of review in this case. We review a

district court’s factual conclusions

under the familiar clear error standard.

See, e.g., Brunswick Leasing Corp. v.

Wisconsin Central, Ltd., 136 F.3d 521,

526 (7th Cir. 1998). "A finding is

’clearly erroneous’ when although there

is evidence to support it, the reviewing

court on the entire evidence is left with

the definite and firm conviction that a

mistake has been committed." United

States v. United States Gypsum Co., 333

U.S. 364, 395 (1948). In contract

interpretation cases, we review a

district court’s interpretation of an

unambiguous contract de novo. Central

States, Southeast and Southwest Areas

Pension Fund v. Kroger Co., 226 F.3d 903,

910 (7th Cir. 2000), as corrected by, 241

F.3d 842 (7th Cir. 2001). If the contract

is ambiguous, a more deferential standard

of review is applied to the

interpretation of the terms and factual

findings. Id. In cases of mixed questions

of law and fact the standard is

oftentimes clear error (or abuse of

discretion), though plenary review may be

used when certain factors indicate it is

warranted or needed. See Cook v. City of

Chicago, 192 F.3d 693, 696-97 (7th Cir.

1999). This case turns on the factual

issue of whether the settlement was a

purchase of trademark assets or a release

of legal liability, therefore we review

for clear error. Even though this is a

deferential review, it is by no means a

rubber stamp.

B. Reasonableness of the Settlement

Amount

 The district court granted PTI’s motion

for judgment on the pleadings finding

Federal breached its duty to defend, and

under Illinois law Federal is thereby

estopped from relying on certain "policy

defenses." Ins. Co. of the State of Pa.

v. Protective Ins. Co., 592 N.E.2d 117,
121 (Ill. App. 1st Dist. 1992). Several

of Federal’s arguments, including the

"known loss doctrine" barring plaintiff’s

recovery, are also defenses to the breach

of the duty to defend. As Federal did not

preserve these issues for review, we need

not address them. See Outboard Marine

Corp. v. Liberty Mut. Ins. Co., 607

N.E.2d 1204, 1209-11 (Ill. 1992)

(outlining the "known loss doctrine").

 Federal argues that the settlement

amount was not reasonable because PTI

purchased the "Platinum" trademark, an

asset, thus the settlement was more than

merely a release of legal liability.

PTI’s counters, stating that Federal’s

argument constitutes a "policy defense"

and is barred. Though policy defenses are

barred at this stage, other

considerations and defenses arise where a

settlement is involved because there is

"the additional concern that the

settlement was entered into in order to

obtain insurance coverage for an

otherwise uninsurable claim." United

States Gypsum Co. v. Admiral Ins. Co.,

643 N.E.2d 1226, 1241-46 (Ill. App. 1st

Dist. 1994). In order to alleviate this

concern, the insured is required to show

that, among other things, the "amount of

the settlement was reasonable." Id. at

1249-51; Caterpillar, Inc. v. Great Am.

Ins. Co., 62 F.3d 955, 966-67 (7th Cir.

1995); Illinois Tool Works Inc. v. The

Home Indem. Co., 24 F. Supp. 2d 851, 854

(N.D. Ill. 1998); West Am. Mortgage Co.

v. Tri-County Reports, Inc., 670 F. Supp.

819, 821 (N.D. Ill. 1987); see also Fid.

& Cas. Co. of New York v. Mobay Chem.

Corp., 625 N.E.2d 151, 159 (Ill. App. 1st

Dist. 1992); St. Michael’s Orthodox

Catholic Church v. Preferred Risk Mut.

Ins. Co., 496 N.E.2d 1176, 1178-79 (Ill.

App. 1st Dist. 1986). For instance, a

defendant may raise the defense that the

policy was not in effect when the injury

occurred or that the policy does not

cover the type of damages sustained, as

when compensatory but not punitive

damages are covered. See generally United

States Gypsum, 643 N.E.2d at 1230-52.

Federal may raise the argument that a

portion or all of the settlement was for

the purchase of PSC’s trademark assets,

and not to release PTI from liability for

trademark infringement. Cf. Zurich Ins.

Co. v. Killer Music, Inc., 998 F.2d 674,

679-80 (9th Cir. 1992) ("When the issue

of the amount of a reasonable settlement
in good faith is addressed on remand,

Zurich will have the opportunity to

demonstrate that some portion, if not

all, of the settlement amount is

allocable to the value of the songs which

Killer received in the settlement

agreement.").

 1. the cash payment

 The facts show that prior to instituting

the trademark infringement suit against

PTI, PSC attempted to sell its trademark

to PTI with a price based on the cost of

re-branding the company. Only after a

sale price could not be agreed upon did

PSC sue PTI for infringement. PSC’s

subsequent settlement demands were based

on the re-branding costs. PTI’s

settlement offer, in turn, was similarly

based on its calculations of PSC’s rebranding costs. The settlement agreement,

in addition to a release of liability,

provided for the assignment of the

"Platinum" trademark to PTI. The

"Settlement Agreement" was also called a

"Trademark Assignment Agreement" by the

parties. Then, after the settlement, PTI

labeled the trademark an "asset" and

began depreciating it. 

 Using a form of factual cognitive

dissonance, PTI argues that the

trademarks were of no value to it.

However, the fact that PTI previously

offered to pay PSC $250,000 for the

trademark shows the trademark had some

value to PTI. Moreover, PTI’s no-value

argument is wholly inconsistent with

PTI’s prior assertion that it was facing

enormous liability for invading PSC’s

markets. PTI’s stated objective was to

expand its business into new markets,

including markets reserved to PSC in the

1993 settlement. Part of the reason PTI

agreed to the $10 million settlement was

to relieve it from any future liability,

thereby allowing PTI to pursue a market

expansion that previously would have

resulted in infringement.

 The self-serving valuation of PTI’s

potential liability, in the hundreds of

millions of dollars, by PTI’s counsel was

wholly speculative, as the district court

recognized when ruling on the motions for

summary judgment. Platinum Tech., Inc. v.

Federal Ins. Co., 2001 WL 109814 at *5

(N.D. Ill. Feb. 2, 2001). And the initial
settlement offer amounts are of little

evidentiary value considering the fact

that they were based not on potential

liability, but on re-branding costs.

 According to the parties’ own agreement,

PSC’s "Platinum" trademark was worth $4

million, and PTI purchased it in the

settlement/assignment agreement. The $4

million cash payment to PSC was not made

as part of a "reasonable settlement

agreement" to relieve PTI of its

liability to PSC for trademark

infringement. United States Gypsum Co.,

643 N.E.2d at 1249-51. Based on our

review of the entire record, we conclude

the district court clearly erred in

finding that none of the settlement

amount was for the purchase of

trademarks.

 2. the OEM credits

 Generally, the purpose of a damage award

"is to place the nonbreaching party in

the position he would have been in had

the contract been performed, but not to

place him in a better position or provide

him with a windfall recovery." Kohlmeier

v. Shelter Ins. Co., 525 N.E.2d 94, 102-

03 (Ill. App. 5th Dist. 1988). The amount

of damages in insurance policy cases is

sometimes determined by the contract pro

visions, such as a liquidated damages

clause, or by proof of actual damages.

See United States Fid. and Guar. Co. v.

Klein Corp., 558 N.E.2d 1047, 1052 (Ill.

App. 1st Dist. 1990); Kohlmeier, 525

N.E.2d at 102. However, damages cannot be

based on potential or future loss, unless

it is reasonably certain to occur, nor

can damages be based on speculation and

conjecture. See Schoeneweis v. Herrin,

443 N.E.2d 36, 42 (Ill. App. 5th Dist.

1982); Harp v. Illinois Cent. Gulf R.R.

Co., 370 N.E.2d 826, 829 (Ill. App. 5th

Dist. 1977). Federal cannot escape its

obligation to repay PTI for its loss if

the damages award is based on a past or

current loss and the amount is

ascertainable. Cf. UNR Indus., Inc. v.

Cont. Cas. Co., 942 F.2d 1101, 1103-06

(7th Cir. 1991).

 The settlement in this case made

liability and the OEM credit figure

clear; however, the cash valuation of the

OEM credit was based on speculation. The

facts show that the OEM credits do not
have an actual value of $6 million, or

even $4.6 million (the cash value the

district court appears to have assigned

to the credits). PSC/Epicor had already

offered to take far less than $4.6

million in the form of an one-time cash

payment of between $2.5 and $3 million,

and, to date, PSC/Epicor has not used any

of the OEM credits. In light of this

objective valuation by PSC/Epicor, and

additional points advanced by Federal,

the calculation by PTI’s expert clearly

had no proper basis and was speculative.

See Schoeneweis, 443 N.E.2d at 42

(holding that "the party seeking to

recover" need "not only to establish that

he sustained damages but also to

establish a reasonable basis for

computation of those damages"). Given

that the exact value of the OEM credits

is speculative, requiring Federal to

reimburse PTI in the amount of $6 million

or $4.6 million for an expense PTI may

never incur would allow PTI to reap a

significant windfall. See Kohlmeier, 525

N.E.2d at 102-03. Therefore, we vacate

the district court’s valuation and remand

this issue for reconsideration to

determine the current monetary value of

the OEM credits. 

 The evidence relied on by the district

court to value the OEM credits was

clearly not credible in light of the

objective valuation of the credits by

PSC/Epicor. Thus, in considering this

issue, the district court should not only

look to expert valuations, but also seek

to determine if there are additional

objective indicators of the value of the

OEM credits beyond those mentioned in

this opinion. 

C. Prejudgment Interest

 Federal argues that prejudgment interest

only accrued from the time the district

court entered judgment against Federal

because the amount of damages was, until

then, undetermined. In the alternative,

Federal argues that prejudgment interest

should have been awarded at the statutory

rate and not the equitable rate. The

issue of prejudgment interest has been

largely rendered moot by our decision

today. Because PTI is not entitled to

part of the original damages award, it is

logically not entitled to prejudgment

interest for that portion. Prejudgment

interest for the OEM credits is another
matter.

 In Illinois, prejudgment interest,

whether grounded in a statute or equity,

is based on the concept of fairness and

is awarded to make the plaintiff whole

for the loss of use of money wrongfully

withheld. In re Estate of Wernick, 535

N.E.2d 876, 888 (Ill. 1989). "Generally,

prejudgment interest ’is not recoverable

absent a statute or agreement providing

for it.’" New Hampshire Ins. Co. v.

Hanover Ins. Co., 696 N.E.2d 22, 26 (Ill.

App. 1st Dist. 1998) (quoting City of

Springfield v. Allphin, 413 N.E.2d 394,

395 (Ill. 1980)). The Illinois Interest

Act, 815 ILCS sec. 205/2 (West 2001),

provides a statutory rate of 5%, or when

circumstances allow, a court may award

interest at an equitable rate (using the

Act as a benchmark). 815 ILCS sec. 205/2

("Creditors shall be allowed to receive

at the rate of five (5) per centum per

annum for all moneys after they become

due on any bond, bill, promissory note,

or other instrument of writing . . .").

And under Illinois law, insurance polices

are written instruments. See, e.g., J.R.

Couch v. State Farm Ins. Co., 666 N.E.2d

24, 27-28 (Ill. App. 3d Dist. 1996).

 In an action in equity, prejudgment

interest may be awarded at a rate

determined by the court. Wernick, 535

N.E.2d at 888-89. An Illinois appellate

court has thus concluded that for actions

at law, including breach of contract,

prejudgment interest cannot be awarded at

an equitable rate. Cont’l Cas. Co. v.

Commonwealth Edison Co., 676 N.E.2d 328,

331-34 (Ill. App. 1st Dist. 1997). On the

other hand, some of the broad language in

Wernick indicates that the statutory rate

is merely a benchmark used "to establish

a rate sufficient to compensate" because

the statute has not kept pace with the

times. Wernick, 535 N.E.2d at 888-89 ("We

conclude that the interest statute is a

remedy separate from the equitable powers

of the court to make an injured party

whole."); see also Cummings v. Beaton &

Associates, Inc., 618 N.E.2d 292, 310-12

(Ill. App. 1st Dist. 1992) ("Wernick does

open the way for courts to apply the

prime rate as a means of better

compensating injured parties . . .").

Continental rejected this broad reading

of Wernick, reasoning the plaintiff’s

theory that "every circuit court judge

has equitable powers" merely described
the judge’s power based on the "relief

available to a plaintiff [ ] derived from

the substance of the claim before it."

Cont’l Cas. Co., 676 N.E.2d at 331-34

(citations omitted). PTI cites Wernick as

support for the equitable award in this

case, though PTI does not argue that this

was an action in equity.

 Federal argues that absent a finding of

bad conduct, prejudgment interest can

only be awarded at the statutory rate.

The broader rule that equitable interest

awards are unavailable absent bad,

vexatious, or unreasonable conduct is

dispositive, and we need not reach the

issue of whether the increased equitable

interest award was proper under the

circumstances. There is extensive support

for this proposition in Wernick,

Continental Casualty, and Cummings.

Wernick, 535 N.E.2d at 888-89 ("The

equitable award of interest is based on

the circumstances surrounding Macks’

breach of fiduciary duty . . ."); Cont’l

Cas. Co., 676 N.E.2d at 331-34 ("We also

observed that the element of bad conduct

necessary for either a statutory or

equitable award of interest was not

present."); Cummings, 618 N.E.2d at 310-

12 (commenting, while affirming the award

of prejudgment interest at the statutory

rate that: "[u]nlike the situation in

Wernick, McDonald’s is not in a fiduciary

relationship with the Cummingses and the

award of prejudgment interest . . . was

based on the provision that permits

interest to accrue on written instruments

after the money is due."). Absent some

type of bad, vexatious, or unreasonable

conduct prejudgment interest should be

awarded at the statutory rate of 5% on

written instruments. cf. Krantz v.

Chessick, 668 N.E.2d 77, 80-81 (Ill. App.

1st Dist. 1996).

 In addressing the section 155 claim, the

district court specifically found that

Federal did not engage in vexatious

conduct. Instead, the court found that

Federal was involved in "an honest

dispute as to whether it had a legal duty

to defend PTI in its lawsuit with PSC."

Platinum Tech., Inc., 2001 WL 109814 at

*10. Nothing that happened during trial

or after indicates that Federal later

engaged in any bad conduct to warrant

imposition of a rate higher than the

statutory rate. The district court twice

characterized Federal’s conduct as merely
"wrongful" in its oral ruling of judgment

and in its denial of Federal’s post trial

motions. Rather, the district court made

the equitable determination that a higher

interest rate was required to make PTI

whole. However, as we noted, the interest

rate provided for under Illinois law for

instruments of writing is 5%, and because

the district court did not find any bad

or vexatious conduct, we need not

consider whether the increase based on

equitable considerations was warranted.

We conclude that the district court

abused its discretion in awarding

prejudgment interest at an equitable rate

and vacate that award.

 Prejudgment interest may be recovered on

written instruments, including insurance

policies, calculated from the time the

money was due under the policy. 815 ILCS

sec. 205/2; J.R. Couch, 666 N.E.2d at 27-

28. And even though the exact monetary

value of the OEM credits remains

undetermined, prejudgment interest can be

awarded for that portion of the damages

award. Once the settlement was entered

into, the amount of the OEM credits was

known to Federal ($6 million). Though the

exact cash value of the credits was not

certain, it was by no means unprovable.

Cummings, 618 N.E.2d at 310-11. More

importantly, the amount due is

susceptible to judicial determination,

therefore prejudgment interest can be

awarded. See New Hampshire Ins. Co., 696

N.E.2d at 27-28; J.R. Couch, 696 N.E.2d

22, 27-28; Bank of Chicago v. Park Nat’l

Bank, 640 N.E.2d 1288, 1296 (Ill. App.

1st Dist. 1994); Martin v. Orvis Brothers

& Co., 323 N.E.2d 73, 82-85 (Ill. App.

1st Dist. 1974); L.W. Foster Sportswear

Co. v. Goldblatt Bros., Inc., 356 F.2d

906, 910-11 (7th Cir. 1966).

CONCLUSION

 We Reverse the judgment of the district

court because the $4 million cash payment

by PTI to PSC was for the purchase of a

trademark asset and not part of a

reasonable settlement of PSC’s claims

against PTI, and Remand with directions to

the district court to determine the

current monetary value of the OEM credits

and recalculate the prejudgment interest

at the statutory rate once the precise

value of the credits is ascertained. Rule

36 to apply on the remand.