IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

XF, LLC, an Illinois limited

liability company; A. 

Lawrence Carroll and Regina

C. Rafferty, Individually, as

Executor of the Estate of 

J. Robert Collins; and as 

Successor Trustee of the J.

Robert Collins 2006 Trust,

 Plaintiffs,

v.

ACE American Insurance

Company,

 Defendant.

Case No. 20 C 4756

Judge Harry D. Leinenweber

MEMORANDUM OPINION AND ORDER

I. BACKGROUND

This is an insurance coverage dispute concerning two private 

management liability insurance policies consecutively issued by 

Defendant Ace American Insurance Co. (“Ace”). The three

plaintiffs, XF, LLC, (formerly known as RCG Holdings, LLC); A. 

Lawrence Carroll, (the holder of a power of attorney for J. Robert 

Collins, the deceased manager of RCG Holdings); and Regina C. 

Rafferty (the executor of Mr. Collins’ estate, and Secretary and 

current Manager of XF, and Successor Trustee of the J. Robert 

Collins 2006 Trust), are the defendants in a state court case 

currently pending in Cook County. (Am. State Compl. ¶¶ 13–16, Not. 

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of Removal, Ex. 6, Dkt. No. 1-6.) Plaintiffs contend that they are 

insured under the 2017 and 2019 policy for any resulting damages 

in the Cook County state court case. (Id. ¶ 1.) Specifically, 

Plaintiffs argue coverage exists because the case involves two 

separate claims, the first occurring during the term of the first 

policy and the second occurring during the term of the second 

policy. (Id. ¶¶ 7–10.) The Defendant denies coverage under the 

second policy because it contends that both arise out of the same 

lawsuit against the insured Defendants and therefore constitute a 

single claim under the terms of the earlier issued policy. (Id. ¶¶ 

27–32.) The underlying lawsuit, Dreadnought Partners, LLC, et al. 

v. A. Lawrence Carroll, et al., is currently pending in the Circuit 

Court of Cook County Chancery Division, Case No. 2019 CH 12127. 

(Id. ¶ 1.) The four Plaintiffs in the Dreadnought case are

Dreadnought Partners, LLC (a current member of XF), Shirley Smith 

as Trustee of the Leslie Rosenthal 2012 Trust, Harriet Rosenthal,

and Arla Rosenthal. (Id. ¶ 9.)

A review of the historical background clarifies the 

generational relationships of the parties and the stakes involved. 

As pled in the Dreadnaught complaint, in 1988 two commodity 

brokerage firms, Rosenthal & Co. and Collins Commodities, merged 

into Rosenthal Collins Group, LLC and became one of world’s leading 

regulated Futures Commission Merchants. (State Compl. ¶ 43, Not. 

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of Removal, Ex. 4, Dkt. No. 1-4.) In 2012 the firm was reorganized

to become a wholly owned subsidiary of RCG Holdings, LLC

(collectively, the “Company”) organized under Illinois law and 

subject to the Company’s Operating Agreement. (Id. ¶¶ 44–45.) The 

Company was co-managed by Leslie Rosenthal (“Rosenthal”) and J. 

Robert Collins (“Collins”), heads of the respective firms that had 

merged in 1988. (Id. ¶ 51.) 

Company membership was divided into two classes, A and C.

(Id. ¶ 46.) Class A controlled the operation of the company and 

was split evenly between the two managers. Rosenthal owned half

through a 49% interest held in Dreadnought Partners, LLC and 1% 

held by Rosenthal personally, and Collins owned half with 49% held 

in Knot, LLC and 1% held by Collins personally. (Id. ¶ 48.) Class 

C membership included Rosenthal’s widow Harriet and their children 

and grandchildren, company employees, and investors. (Id. ¶ 49.)

Class C members also had a preference in distribution if the 

company was to be liquidated. (Id. ¶ 59.)

After Leslie Rosenthal’s death on September 16, 2017, Collins 

became the sole manager. (Id. ¶ 52.) Around this same time, some 

of the accounts fell on hard times, leaving the accounts of Leslie 

Rosenthal’s Class A member account and Andrew Rosenthal’s Class C 

member account millions of dollars underwater. (Id. ¶¶ 70–74.)

Collins, now sole manager, requested that some Rosenthal Class C 

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members and the Dreadnaught Partners, LLC Class A member, also a

Rosenthal company, to agree to “net-down” their accounts to offset 

the negative accounts of the underwater Rosenthal member accounts. 

(Id. ¶¶ 75–76, 83.) He proposed a 2017 Member Account Agreement 

that would give him the authority to carry out the net-down. (Id.) 

At the time, the Operating Agreement did not require a net-down to 

be made by members of either class, nor did it require members 

holding negative accounts to eliminate their negative balances. 

(Id. ¶¶ 64–69.)

As a result of the disinclination of the Rosenthal members 

with positive balances to accept the proposed agreement, Collins 

threatened to shut down the company if the members failed to go 

along with the proposed agreement. (Id. ¶ 76.) Such an action would 

jeopardize so-called “hot money” held in Class C member accounts

which was used to meet trading margin escrow requirements under 

federal regulations in order to stay in business. (Id. ¶¶ 77–78.) 

Further, a shut-down would destroy the value of the company’s 

assets and subject the company to the claims of customers, lenders, 

lessors, vendors, and regulators, and would render member accounts 

valueless, and expose them to liability for some of the company’s 

losses. (Id. ¶ 79.) 

Therefore, on December 13, 2017, the Rosenthal Class C 

members executed the Member Account Agreement. (Id. ¶ 80.) On 

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February 9, 2018 Collins exercised the discretion granted by the 

Member Account Agreement and netted-down the accounts held in 

Dreadnought Partners, LLC and other Rosenthal family member 

accounts. (Id. ¶ 86.) These accounts were reduced by a total of 

$13,274,949.90. (Id. ¶¶ 88–90.) On or after February 13, 2018 the 

assets of the company, including the name RCG Holdings, were sold. 

(Id. ¶ 94.) 

On September 10, 2019, J. Robert Collins also passed away. 

(Id. ¶ 41.) Prior to Collins’ death, A. Lawrence Carroll

(“Carroll”), a plaintiff in this proceeding (and defendant in the 

Dreadnought case), began managing the company pursuant to a power 

of attorney granted to him by Collins and executed prior to 

Collins’ death. (Id. ¶ 32.)

On July 1, 2019, the original Secretary of the Company 

resigned. (Id. ¶ 120.) Carroll engineered Plaintiff Regina C. 

Rafferty’s (“Rafferty”) appointment to the office of Secretary of 

the Company. On or around July 3, 2019, acting in his manager 

capacity, Carroll also appointed the Raffety as successor trustee 

of the J. Robert Collins 2006 Trust, which held Knot, LLC’s Class 

A membership in the Company. (Id. ¶¶ 33–38.)

On July 9, 2019, the company made an interim distribution of 

$16,262,742.26 to the Collins Trust, Knot, LLC, and Dreadnought 

LLC. (Id. 138–139.) The Dreadnought plaintiffs contend that the 

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forced net-down, the sale of company assets, and the interim 

distribution were done in violation of the Operating Agreement and 

Illinois law.

In apparent preparation for the interim distribution,

Rafferty, in violation of the Operating Agreement and Illinois 

law, caused the Class A memberships to be redistributed to the 

detriment of the Dreadnought plaintiffs on July 3, 2019. (Id. ¶ 

130.) Post-redistribution, the amended Class A membership was

68.3% to the J. Robert Collins Trust, 13.4% to Knot, LLC, and 18.3% 

to Dreadnought Partners, LLC. (Id. ¶ 132.) Even though 

Dreadnought’s membership was reduced, Rafferty did not honor these 

reduced percentages in making the interim distribution. (Id. ¶ 

147.) The actual distribution, which was made in July 2019,

allocated $15.4 million to the Collins Trust and only $299,210.00 

to Dreadnought. (Id. ¶ 144.)

On October 5, 2019, Rafferty became Executor for Collins’

Estate. (Id. ¶ 42.) The Dreadnought lawsuit was filed on October 

18, 2019. The original Complaint consisted of six counts: Count I 

– Breach of Fiduciary Duty against Rafferty as Executor of the 

Estate of Collins; Count II - Aiding and Abetting Breach of 

Fiduciary Duty against Raffety and Carroll; Count III – Conversion 

against Carroll and Rafferty; Count IV – Unjust Enrichment against

Rafferty as Executor and Rafferty as Successor Trustee of the 

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Collins Trust; Count V – Fraudulent Transfer against all 

defendants; and Count VI – Constructive Fraud against all 

defendants. (Id. ¶¶ 158–203.) The original complaint alleged two

separate wrongdoings: the net-down of the Dreadnought membership 

accounts wrongfully carried out by Collins in 2018, and the July 

2019 interim distribution made by Rafferty that shortchanged the

Dreadnought plaintiffs. These two actions were joined together in 

the six counts. (Id.) 

The Dreadnought Complaint was amended on December 2, 2020, 

reducing the case to two counts: Count I, against Rafferty as 

executor of Collins Estate, and is based on the forced “net-down”

of the Dreadnought membership accounts, in violation of Collins’

fiduciary duty as manager; and Count II, against Carroll and 

Rafferty, individually, and as successor trustee for the J. Robert 

Colins 2006 Trust, and is based on breach of fiduciary duty for 

making the wrongful distribution of Company assets to the Collins 

Trust to the detriment of the Dreadnought plaintiffs. (Am. State 

Compl., Letter to the Court, Ex. 1, Dkt. No. 24-1.) Ace has moved 

to dismiss. (Dkt. No. 28.) 

II. THE POLICIES IN QUESTION

Ace issued two claims-made and reported policies that are the 

subject of this Motion: A Private Company Management Liability 

Policy issued to RCG Holdings, LLC, for the period from May 31, 

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2017 to February 8, 2019, and a similar one issued to XF, LLC (The 

successor to RCG Holdings), for the period from February 8, 2019 

to February 8, 2020. (2017 Insurance Policy, Not. of Removal, Ex. 

2, Dkt. No. 1-2; 2019 Insurance Policy, Not. of Removal, Ex. 3, 

Dkt. No. 1-3.) The relevant insuring agreements and definitions 

are the same for each policy, with two exceptions: the 2017 policy 

had an “extended reporting period” endorsement which extended the 

notice and reporting deadline to February 8, 2025, and the 2019 

policy had a Prior Acts Exclusion for all claims arising prior to 

February 8, 2019. The policies cover defense costs as well as 

damages.

Under the policies the relevant terms are defined as follows:

Claim means:

1. a written demand against the Insured for monetary 

damages, or, except with respect to Insuring 

Agreement B, Employment Practices Liability, nonmonetary or injunctive relief;

2. a civil proceeding against the Insured seeking 

monetary damages or non-monetary or injunctive relief, 

commenced by the service of a complaint or similar

pleading;

3. a criminal proceeding against the Insured commenced 

by a return of an indictment, information, or similar 

document, or receipt or filing of a notice of charges;

4. an arbitration proceeding against the Insured seeking 

monetary damages or non-monetary or injunctive relief;

5. a civil, administrative, or regulatory proceeding 

against the Insured commenced by the filing of a notice 

of charges, investigative order, or similar document; or

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6. a civil, administrative, or regulatory investigation 

against the Insured, commenced by the service upon or 

other receipt by the Insured of a written notice or

subpoena from the investigating authority identifying 

the Insured as an individual against whom a civil,

administrative or regulatory investigation or proceeding

may be commenced;

including any appeal therefrom. However, notwithstanding 

the foregoing, with respect to Insuring Agreement B, 

Employment Practices Liability, Claim shall not include 

a labor or grievance proceeding which is pursuant to a 

collective bargaining agreement.

(2017 Insurance Policy at 6; 2019 Insurance Policy at 6.) The 

relevant portions and the term “Wrongful Act” are defined as:

Wrongful Act means:

1. With respect to Insuring Agreement A, Management 

Liability: any error, misstatement, misleading 

statement, act, omission, neglect, or breach of duty 

actually or allegedly committed or attempted by:

a. any Insured Person in his or her capacity as 

such, or any matter claimed against any Insured Person 

solely by reason of his or her serving in such capacity, 

with respect to Insuring Agreement A1, Management 

Liability, and Insuring Agreement A2, Company

Reimbursement;

b. the Company, with respect to Insuring 

Agreement A3, Company Liability; or

c. any Outside Entity Insured Person in his or her 

capacity as such, or any matter claimed against any 

Outside Entity Insured Person solely by reason of his or

her serving in such capacity, with respect to Insuring 

Agreement A4, Outside Entity Management Liability.

. . .

The foregoing definitions shall apply equally to the 

singular and plural forms of the respective words.

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(2017 Insurance Policy at 9–10; 2019 Insurance Policy at 9–10.)The 

prior Acts Exclusion contained in the 2019 policy provides that 

“The Insurer shall not be liable for Loss on account of any claim

. . . alleging, based upon, arising out of, or attributable to any 

Wrongful Act committed, attempted or allegedly committed or 

attempted, in whole or in part, before 02/08/2019.” (2019 Insurance 

Policy at 46.) 

Insurers offer two different approaches to determine coverage 

when writing liability insurance: “claims-made” and “occurrence” 

policies. The difference is the event that triggers coverage. An 

occurrence policy’s coverage is triggered by the date of the event 

or accident giving rise to the claim. The policy in force at the 

time of the event or accident provides the coverage. In the case 

of a claims-made policy, coverage is triggered by the date the 

insured first becomes aware and notifies the insurance company of 

the claim. The policy in force on the date of awareness and notice 

provides coverage. If a claim-made policy contains a “prior acts” 

date, this is what determines the extent of retroactive coverage. 

Claims resulting from acts occurring before this date are not 

covered, i.e., for the 2019 policy acts occurring prior to 

February 8, 2019. As asserted by Ace in its briefing, this 

provision is intended to prevent double coverage.

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III. DISCUSSION

Plaintiffs contend that the Dreadnought suit alleges two 

separate wrongful acts committed by them. The first occurred in 

December of 2017 when Collins allegedly forced the Dreadnought 

Plaintiffs to agree to net-down their membership accounts and then 

wrongfully executed the net-down in February 2018 in violation of 

their fiduciary duties, Illinois law, and the Operating Agreement. 

The second occurred in July of 2019 when Mr. Carroll and Ms. 

Rafferty distributed substantial cash assets of XF to the Collins 

Trust at the expense of the Dreadnought Plaintiffs, also in 

violation of their fiduciary duties, Illinois law, and the 

Operating Agreement. Ace contends that both alleged wrongful acts 

are pled in the same Dreadnought complaint, which, it insists,

constitutes a single claim under as defined in its policy.

According to Ace, the policy definition of “claim” limits coverage 

to wrongful acts that are alleged in a “civil proceeding” against 

the Insured seeking monetary damages and commenced by the service 

of a complaint.

The parties agree to the ground rules for interpreting 

insurance policies. Illinois courts interpret insurance contracts 

pursuant to the general rules of contract interpretation by 

ascertaining and giving effect to the intent of the parties as 

expressed in the contract and, if unambiguous and does not offend 

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public policy, to apply as written. Netherlands Ins. Co. v. Phusion 

Projects, Inc., 737 F. 3d 1174, 1177 (7th Cir. 2013). However,

both the policy terms and the allegations in the underlying 

Complaint are liberally construed in favor of the insured and any 

doubts and ambiguities are resolved in favor of the insured and 

against the insurer. Amerisure Mut. Ins. Co. v. Microplastics,

Inc., 622 F.3d 806, 811 (7th Cir. 2010). This is likewise true 

when interpreting policy exclusions. State Farm Ins. Co. v. Moore,

103 Ill. App. 3d 250, 255-56 (1981).

Ace asks the Court to interpret the prior acts exclusion in 

the 2019 policy to defeat coverage under that policy for the 

Dreadnought Count II which charges the wrongful distribution to 

the Collins’ trust, even though the act occurred in July 2019, 

during the term of the 2019 policy. Ace argues that the exclusion 

was intended to prevent double coverage by excluding coverage in 

areas normally covered under other policies. In support, Ace cites

Aetna Cas. & Sur. Co. v. Beautiful Signs, Inc., 146 Ill. App. 3d 

434 (3rd Dist. 1986). Reliance on Beautiful Signs, however, is 

misplaced. The insurer in that case, Aetna, insured an employer of 

an employee who was killed while at work on the property of a third 

party. Id. at 435. The employee’s estate sued the third party for 

wrongful death. Id. The third party sought to bring in the employer 

seeking contribution. Id. Aetna declined coverage for contribution

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based on an exclusion in its policy for death or bodily injury to 

its employees. Id. at 436. The Illinois Appellate Court held the 

exclusion to be applicable because any contribution sought from 

the employer on account of the death or bodily injury of an

employee was clearly covered by the exclusion. Id. The Illinois 

Appellate Court pointed out that the purpose of the exclusion was 

to prevent double coverage on the part of the employer because he

was liable for his employee’s death under the state worker’s 

compensation laws. Id. Requiring the employer’s insurance to 

contribute to payment for the employee’s death in addition to the 

payment of worker’s compensation benefits would constitute double 

coverage which the exclusion was intended to avoid. Id.

This case is different. The prior acts exclusion is, as 

explained by Ace, to prevent double coverage. In this case, the 

double coverage danger is created by the eight-year extended 

reporting date contained in the 2017 policy. But the danger is 

immediately remedied by the prior acts exclusion contained in the 

2019 policy. To illustrate, suppose the insured commits some 

wrongdoing in 2018 within the coverage of the 2017 policy but a 

claim is not made until 2020. Without the prior acts exclusion in 

the 2019 policy, the insured would be covered under both policies 

and there would be double coverage. But that danger does not exist 

in this suit.

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Plaintiffs are asking to be covered by the 2017 policy for an 

act that occurred and was reported during that policy period. They 

are also asking to be covered by the 2019 policy for acts that 

occurred and reported during the period that the 2019 policy was 

in effect. The Amended Complaint clearly meets the policy reporting 

requirement. Plaintiffs are not demanding that the 2017 policy 

applies to the 2019 claim, so they are not seeking double coverage.

They are seeking to be covered by the 2017 policy for the 2017 

alleged wrongdoing and seeking coverage from the 2019 policy for 

the 2019 alleged wrongdoing. The obvious problem to which Ace is 

addressing is not double coverage but increased policy limits. If 

the claims are covered by separate policies, the policy limits of 

each would be applicable to the specific covered claim. This is 

not double coverage but separate coverage.

Ace also cites Market Street Bancshares, Inc. v. Federal 

Insurance Co., 962 F.3d 947 (7th Cir. 2020). This case was brought 

against an insurer pursuant to a claims-made professional 

liability insurance policy seeking to recover losses, including 

defense costs, incurred in defending an underlying lawsuit 

alleging breach of contract and breach of fiduciary duty. Id. at 

949. The lawsuit was filed more than ten years prior, long before 

the issuance of the policy in question. Id. at 950. The suit was 

bifurcated and was initially considered on a motion for summary 

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judgment on the liability issue which ended in favor of the 

plaintiff prior to the issuance of the policy in question. Id.

Later the issue of damages was tried, which was after the issuance 

of the policy in question. Id. at 950–51. The insurer denied 

coverage for the damage phase arguing that, under the terms of its 

policy, the claim consisted of the lawsuit which had been filed 

well before its claims-made policy was issued. Id. at 951. The

insured contended that the damage phase was a new claim and 

therefore was covered. Id. The Seventh Circuit sided with the 

insurer and affirmed the grant of summary judgment in its favor. 

Id. at 955. The court held that a lawsuit consists of both

liability and damages, and therefore could not be separated under 

the terms of the policy. Id. This makes sense: a suit for damages 

includes both the issue of liability as well as the issue of 

damages. Id. However here we have a different situation: a suit 

for two separate claims that each includes the issue of liability 

and the issue of damages.

A provision of its policies not cited by Ace is the Prior or 

Pending Proceeding exclusion contained in the 2019 policy. It 

reads:

I. Prior or Pending Proceeding

alleging, based upon, arising out of, or attributable 

to:

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1. any prior or pending litigation or administrative 

or regulatory proceeding filed on or before the

prior or pending proceeding date shown in Item 5 of 

the Declarations, or the same or substantially the 

same Wrongful Act, fact, circumstance, or situation 

underlying or alleged therein; or

2. any other Wrongful Act whenever occurring which, 

together with a Wrongful Act underlying or alleged in 

such prior or pending proceeding, would constitute 

Interrelated Wrongful Acts.

(2019 Insurance Policy at 12.) Interrelated wrongful is defined 

as: 

Interrelated Wrongful Acts means all Wrongful Acts 

that have as a common nexus any fact, circumstance, 

situation, event, transaction, cause or series of 

related facts, circumstances, situations, events, 

transactions or causes.

(Id. at 7.) Common nexus is generally understood to mean that the 

claims arise from common facts and circumstances that are seen

from a side-by-side review. Cushman & Wakefield v. Illinois 

National Ins. Co., 2018 WL 1898339 at *17 (N.D. Ill. April 20, 

2018). Here the only commonality immediately apparent to this Court 

is the fact that Collins’ interests benefited from both alleged 

fiduciary violations. Whether this provision applies, how it would 

be interpreted, or whether it is ambiguous if it does, is waived 

as it was not raised by Ace.

Two other matters raised by Ace in its Motion are whether the 

requested indemnity is premature as that the Dreadnought case has 

not concluded, and whether Ace has violated 215 ILL. COMP. STAT.

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5/155 (bad faith refusal to reimburse defense costs and acknowledge 

coverage).

Ace first argues the current case has been prematurely brought 

before this Court as there has been no judgment as to damages in 

the underlying action. However, an insured is not prohibited from 

maintaining a declaratory judgment to determine indemnity rights 

unless the suit would require factual findings relevant to the 

underlying lawsuit, as this could subject a party to possible 

collateral estoppel. Bonnie Owen Realty, Inc. v. The Cincinnati 

Ins. Co., 283 Ill. App. 3d 812, 818–19 (Ill. App. Ct. 1996).

Ace acknowledges its agreement to indemnify Carroll and 

Rafferty for all amounts they are legally obligated to pay. (See

Ace Mem. at 3, Dkt. No. 29.) Whether Ace is obligated to pay 

anything, of course, is dependent on the outcome of the Dreadnought 

litigation. The main issue in this case is whether Count II is to 

be covered by the 2019 policy or the 2017 policy. This issue does 

not appear to be relevant to any issue in the Dreadnought case. 

The issue in Dreadnought, obviously, is whether Collins and/or 

Rafferty was guilty of breach of fiduciary duty. If the Collins’ 

estate and Rafferty win, Ace will of course have no occasion to 

indemnify the estate. Therefore, there is no overlap between the

two cases.

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Ace also seeks to have the Plaintiffs’ claim for violation of 

Section 155 dismissed. However, there is an issue of fact whether 

Ace’s conduct was vexatious, which is highly factual and not 

subject to a dismissal on motion.

IV. CONCLUSION

For the reasons stated herein, Ace American’s Motion to 

Dismiss is denied.

IT IS SO ORDERED.

Harry D. Leinenweber, Judge

United States District Court

Dated: 9/10/2021

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