Court Opinion

ID: 3147715
Source: CourtListenerOpinion
Date Created: 2015-10-22 18:36:13.999706+00
Date Added: 2024-06-11T11:55:19.738622
License: Public Domain

ILLINOIS OFFICIAL REPORTS
                                          Appellate Court

            Yessenow v. Executive Risk Indemnity, Inc., 2011 IL App (1st) 102920

Appellate Court              JEFFREY YESSENOW AND VIJAY PATEL, Plaintiffs-Appellees, v.
Caption                      EXECUTIVE RISK INDEMNITY, INC., Defendant-Appellant.

District & No.               First District, Third Division
                             Docket No. 1–10–2920

Filed                        June 30, 2011

Held                         In an action seeking a declaration that the directors and officers policy
(Note: This syllabus         issued by defendant provided coverage for plaintiffs, who were directors
constitutes no part of the   of medical centers forced into bankruptcy by their creditors, in lawsuits
opinion of the court but     alleging mismanagement and self-dealing, the trial court properly
has been prepared by the     granted partial summary judgment for plaintiffs, since the policy’s
Reporter of Decisions for    bankruptcy exclusion is conditioned on the commencement of a
the convenience of the       bankruptcy case, but section 541(c) of the Bankruptcy Code invalidates
reader.)                     contract provisions that are conditioned on the insolvency or financial
                             condition of the debtor or on the commencement of a bankruptcy case,
                             and the bankruptcy trustee who sued plaintiffs was not an insured for
                             purposes of the insured versus insured exclusion and the trustee was not
                             asserting a claim on behalf of the bankrupt entity, but on behalf of the
                             bankruptcy estate and for the creditors' benefit.

Decision Under               Appeal from the Circuit Court of Cook County, No. 10–CH–02670; the
Review                       Hon. Daniel A. Riley, Judge, presiding.
Judgment                   Affirmed.

Counsel on                 Meckler, Bulger, Tilson, Marick & Pearson LLP, of Chicago (James H.
Appeal                     Kallianis, Jr., and Gary L. Gassman, of counsel), for appellant.

                           Patterson Law Firm, LLC, of Chicago (Thomas E. Patterson, Kristi L.
                           Browne, Joseph W. Barber, and Christine Rosso, of counsel), for
                           appellees.

Panel                      PRESIDING JUSTICE QUINN delivered the judgment of the court,
                           with opinion.
                           Justices Murphy and Steele concurred in the judgment and opinion.

                                             OPINION

¶1           Defendant, Executive Risk Indemnity, Inc. (Executive), appeals from an order of the
        circuit court of Cook County granting partial summary judgment in favor of plaintiffs, Jeffrey
        Yessenow and Vijay Patel, former directors of two bankrupt Indiana entities, holding that,
        pursuant to a directors and officers liability policy, Executive must defend plaintiffs in an
        underlying lawsuit filed by the bankruptcy trustee. On appeal, Executive contends that the
        trial court erred in finding (1) that the policy’s bankruptcy exclusion was unenforceable; and
        (2) that the policy’s “insured versus insured” exclusion was ambiguous and must be resolved
        in favor of the insured. For the reasons set forth below, we affirm.

¶2                                         I. BACKGROUND
¶3          Plaintiffs are physicians and former directors and officers of iHealthcare, Inc.
        (iHealthcare), and Illiana Surgery and Medical Center, LLC (Illiana). Illiana was organized
        as an Indiana limited liability company in February 1999 and renamed Heartland Memorial
        Hospital, LLC (Heartland), in May 2006. Heartland operated several for-profit, physician-
        owned, healthcare practices in Indiana and Illinois. iHealthcare is an Indiana corporation
        formed in June 2002 and was the sole owner of the equity of Heartland, which was managed
        by a committee of iHealthcare’s board of directors. In October 2005, Executive issued to
        plaintiffs, as directors of iHealthcare, a “Diversified Healthcare Organization Directors and
        Officers Liability Insurance Policy” (D&O policy), which covered the period of October 2,
        2005 to October 2, 2006 with a runoff endorsement extending the reporting period to October
        2, 2007.
¶4          In January 2007, Heartland was brought into involuntary bankruptcy by its creditors. In

                                                 -2-
     March 2007, iHealthcare petitioned for chapter 11 (11 U.S.C. § 101 et seq. (2006)) relief, and
     in April 2007, the cases were consolidated. In February 2009, the court-appointed trustee for
     Heartland, David Abrams, filed two lawsuits in the hospital’s bankruptcy proceeding against
     plaintiffs and several other former directors of iHealthcare. Three additional lawsuits were
     filed against plaintiffs, one by iHealthcare in its bankruptcy proceeding alleging
     mismanagement and self-dealing and two by other former directors of iHealthcare. Plaintiffs
     submitted timely notice of each of the five lawsuits to Executive seeking coverage under the
     D&O policy. In April 2009, Executive notified plaintiffs that it was denying coverage. In
     September 2009, Abrams filed an amended complaint and plaintiffs again demanded
     coverage from Executive. Over the next several months, plaintiffs received no response from
     Executive to several e-mail requests, and in January 2010, they filed a complaint naming
     Executive and the trustee, Abrams, as defendants, and seeking a declaration that the D&O
     policy provides coverage for the five underlying actions filed against them.
¶5       On March 11, 2010, plaintiffs filed a motion for partial summary judgment seeking a
     declaration that the D&O policy requires Executive to provide a defense in one of the
     underlying actions filed by the trustee in the Heartland bankruptcy, Abrams I, which alleged
     that plaintiffs mismanaged the corporation and breached their fiduciary duties. Executive
     filed a cross-motion for summary judgment seeking a finding that the D&O policy did not
     afford coverage for the Abrams I action, as well as the other four underlying actions on the
     grounds that coverage was precluded by two exclusions in the policy, the “insured versus
     insured exclusion” and the “bankruptcy exclusion.”
¶6       The policy’s insured versus insured exclusion provides as follows:
             “This policy does not apply to:
                                               ***
                 (E) any Claim by or on behalf of, or in the name or right of, the Company or any
             Insured Person,1 except that this EXCLUSION (E) will not apply to:
                     (1) any derivative action by a security holder of the Company on behalf of,
                 or in the name or right of, the Company, if such action is brought and maintained
                 independently of, and without the solicitation of, the Company or any Insured
                 Person.
                     (2) any Claim in the form of a crossclaim, third party claim or other claim for
                 contribution or indemnity by an Insured Person which is part of or results directly
                 from a Claim which is not otherwise excluded by the terms of this Policy; or
                     (3) any Claim for an Employment Practices Wrongful Act.”
¶7       Before the trial court, Executive asserted that Abrams, as bankruptcy trustee and manager
     of Heartland, is an “insured” for purposes of the D&O policy, and that iHealthcare is the

            1
             The policy defines an “insured” as “the company and any Insured Person.” An “Insured
     Person” is defined as “any past, present or future director, officer, or member manager of the
     Company.”

                                              -3-
       company itself and, therefore, also an insured. As a result, Executive argued, coverage is
       precluded under the insured versus insured exclusion. Plaintiffs contended that Abrams is
       not a normal director or manager because as trustee, he has formed a separate entity that is
       acting on behalf of Heartland’s creditors, subject to the supervision of the bankruptcy court
       and not on behalf of Heartland itself.
¶8          The trial court, citing Biltmore Associates, LLC v. Twin City Fire Insurance Co., 572
       F.3d 663 (9th Cir. 2009), found that the issue of whether a trustee or debtor in possession is
       an insured for the purposes of an insured versus insured exclusion is unsettled law and that
       “ambiguities and doubts in insurance policies are resolved in favor of the insured, especially
       those that appear in exclusionary clauses.” Outboard Marine Corp. v. Liberty Mutual
       Insurance Co., 154 Ill. 2d 90, 121 (1992). The court found that Executive could have
       sidestepped any ambiguity by including trustees and debtors-in-possession in either the
       definition of the “insured” or the language of the insured versus insured exclusion. Because
       it did not write with such specificity, the court interpreted the policy in favor of the insured
       and held that neither Abrams nor iHealthcare is an insured under the policy and that the
       insured versus insured exclusion does not preclude coverage.
¶9          The D&O policy’s bankruptcy exclusion states:
                    “(1) In the event that a bankruptcy or equivalent proceeding is commenced by or
               against the Company, no coverage will be available under the Policy for any Claim
               brought by or on behalf of:
                        (a) the bankruptcy estate or the Company in its capacity as a Debtor in
                    Possession; or
                        (b) any trustee, examiner, receiver, liquidator, rehabilitator, conservator, or
                    similar official appointed to take control of, supervise, manage or liquidate the
                    Company, or any assignee of any such official (including, but not limited to, any
                    committee or creditors or committee of equity security holders).
                    (2) For the purposes of this endorsement, the term Debtor in Possession means
               a debtor under Chapter 11 of the United States Bankruptcy Code unless a person that
               has qualified under Section 322 of Title 11 of the U.S. Code is serving as trustee of
               such debtor.”
¶ 10        In their motion before the trial court, plaintiffs argued that the exclusion was
       unenforceable because it violates section 541(c) and section 365(e)(1) of the Bankruptcy
       Code (Code). 11 U.S.C. §§ 541(c), 365(e)(1) (2006). The trial court agreed with plaintiffs’
       first contention, noting that section 541(c)(1)(B) of the Code states in pertinent part that a
       debtor’s property–in this case the D&O policy–“becomes property of the [bankruptcy] estate
       *** notwithstanding any provision in an agreement *** that is conditioned on the insolvency
       or financial condition of the debtor [or] on the commencement of a case under this title ***
       and that effects *** a forfeiture, modification, or termination of the debtor’s interest in
       property.” 11 U.S.C. § 541(c)(1)(B). The court acknowledged that under the plain language
       of the exclusion, coverage was barred for the Abrams I action but found that it was
       unenforceable under section 541(c) of the Code because its “sole purpose is to forfeit, modify

                                                 -4-
       or terminate iHealthcare’s D&O policy by rendering the policy useless.” The court rejected
       Executive’s argument that section 541(c) is not applicable because it only protects the rights
       of debtors and that plaintiffs are not debtors as defined in the Code, finding that coverage
       arises from the debtor companies’ property interest in the policy and that interest is protected
       by section 541(c).2
¶ 11       Therefore, based on its findings that neither the bankruptcy exclusion nor the insured
       versus insured exclusion precluded coverage, the trial court granted plaintiff’s motion for
       partial summary judgment and found that Executive is obligated under the D&O policy to
       defend the plaintiffs in the Abrams I action.3 The trial court entered a final and appealable
       order to that effect on September 3, 2010, and Executive filed a timely notice of appeal on
       October 1, 2010.

¶ 12                                         II. ANALYSIS
¶ 13       Summary judgment is proper where the pleadings, depositions, and admissions on file
       reveal that there is no genuine issue as to any material fact and that the moving party is
       entitled to judgment as a matter of law. 735 ILCS 5/2–1005(c) (West 2008). Where cross-
       motions for summary judgment are filed in an insurance coverage case, the parties
       acknowledge that no material questions of fact exist and only the issue of law regarding the
       construction of an insurance policy is present. American Family Mutual Insurance Co. v.
       Fisher Development, Inc., 391 Ill. App. 3d 521, 525 (2009). We review the grant of summary
       judgment de novo. Virginia Surety Co. v. Northern Insurance Co. of New York, 224 Ill. 2d
       550, 556 (2007). Additionally, we can affirm the trial court’s ruling on any basis in the
       record. Legion Insurance Co. v. Empire Fire & Marine Insurance Co., 354 Ill. App. 3d 699,
       703 (2004).
¶ 14       Before addressing the substantive issues raised on appeal, we must first determine
       whether Illinois or Indiana law applies. In the absence of a choice-of-law provision in an
       agreement, the general choice-of-law rules of the forum state control. See Diamond State
       Insurance Co. v. Chester-Jensen Co., 243 Ill. App. 3d 471, 485 (1993). It is undisputed that
       the D&O policy at issue in this litigation contains no choice-of-law provision; therefore, the
       general choice-of-law rules of the forum state, Illinois, control. Under Illinois choice-of-law
       rules, “insurance policy provisions are generally ‘governed by the location of the subject
       matter, the place of delivery of the contract, the domicile of the insured or of the insurer, the
       place of the last act to give rise to a valid contract, the place of performance, or other place
       bearing a rational relationship to the general contract.’ ” Lapham-Hickey Steel Corp. v.

               2
              The trial court’s order did not address plaintiffs’ argument under section 365(e)(1) of the
       Bankruptcy Code.
               3
                 The trial court granted Executive’s cross-claim for summary judgment as to two of the
       underlying actions but denied the motion as to the remaining actions, including Abrams I. That ruling
       is not at issue in this appeal.

                                                   -5-
       Protection Mutual Insurance Co., 166 Ill. 2d 520, 526-27 (1995) (quoting Hofeld v.
       Nationwide Life Insurance Co., 59 Ill. 2d 522, 528 (1975)). These factors do not have equal
       significance and are to be weighed according to the issue involved. See Liberty Mutual Fire
       Insurance Co. v. Woodfield Mall, L.L.C., 407 Ill. App. 3d 372, 379 (2010). In addition, in
       applying these factors consideration should be given to the justified expectations of the
       parties and to the predictability and uniformity of the result, as well as to ease in
       determination and application of the law to be applied. Liberty Mutual, 407 Ill. App. 3d at
       379.
¶ 15       In applying the test enunciated in Lapham-Hickey, we find that Indiana law applies in
       interpreting the provisions of the D&O policy. The named insured, iHealthcare, is an Indiana
       corporation located in Munster, Indiana. The policy was delivered to iHealthcare in Indiana
       through an Indiana insurance broker. Further, Heartland is an Indiana limited liability
       company and the plaintiffs are residents of Indiana. Therefore, Indiana has the most
       significant contacts with the contract and the substantive law of that jurisdiction controls the
       interpretation of the D&O policy provisions. However, because this case also requires
       interpretation of the Bankruptcy Code, federal law will also apply. With this in mind, we turn
       to the two issues raised in this appeal, whether the trial court erred in finding that neither the
       bankruptcy exclusion nor the insured versus insured exclusion bars coverage under the D&O
       policy.

¶ 16                                 A. Bankruptcy Exclusion
¶ 17       Executive argues that under the plain language of the D&O policy’s bankruptcy
       exclusion, plaintiffs are not entitled to coverage for the Abrams I action and that the trial
       court mistakenly deemed the exclusion unenforceable as a violation of section 541(c) of the
       Bankruptcy Code. Before addressing that finding, we first address the threshold issue raised
       by Executive as to whether plaintiffs, as nondebtors, have standing to challenge the validity
       of the bankruptcy exclusion under the Bankruptcy Code.
¶ 18       Section 541(c)(1) of the Code provides, in part, as follows:
               “Except as provided in paragraph (2) of this subsection, an interest of the debtor in
               property becomes property of the estate under subsection (a)(1), (a)(2), or (a)(5) of
               this section notwithstanding any provision in an agreement, transfer instrument, or
               applicable nonbankruptcy law–[.]” 11 U.S.C. § 541(c)(1) (2006).
¶ 19       The Code defines a “ ‘debtor’ ” as a “person or municipality concerning which a case
       under this title has been commenced.” 11 U.S.C. § 101(13) (2006). Executive argues that
       because the Abrams I action does not arise from plaintiffs’ own bankruptcy filing, they are
       not debtors under the Code and, therefore, should not be afforded the protections offered by
       the Code, such as invalidating the bankruptcy exclusion. Executive asserts that federal courts
       have found that other provisions of the Code, such as section 522(b), permitting exemptions
       (11 U.S.C. § 522(b) (2006)) and section 362, the automatic stay provision (11 U.S.C. § 362
       (2006)), do not apply to nondebtors. See, e.g., In re Cathcart, 203 B.R. 599, 604 (Bankr.
       E.D. Va. 1996) (“no provisions of the Bankruptcy Code provide standing for non-debtor third

                                                  -6-
       parties to claim exemptions in property of the estate”); Zurich Insurance Co. v. Raymark
       Industries, Inc., 213 Ill. App. 3d 591, 595 (1991) (holding that section 362(a) of the Code
       stays proceedings against debtor only, not codebtors). Similarly, Executive contends,
       plaintiffs are nondebtors and do not have standing to challenged the bankruptcy provision
       under section 541(c) of the Code. We disagree.
¶ 20       The D&O policy at issue in this case is an asset of the bankruptcy estate, and the trustee
       cannot obtain the possible benefits of indemnity for the insureds’ wrongdoing without
       permitting the named insureds to access the defense costs under that policy. The trustee has
       acknowledged this in his response to plaintiffs’ motion for a temporary restraining order,
       claiming that plaintiffs’ right to coverage under the policy is clear. Although coverage inures
       to the benefit of plaintiffs, it arises from the D&O policy which has become a property
       interest of iHealthcare and Heartland, the debtors. Therefore, that property interest is
       protected by section 541(c) and because any benefit to the estate will be realized only if
       plaintiffs may seek coverage under it, they have standing to challenge the exclusion.
¶ 21       We now turn to the issue of whether the trial court erred in finding that the bankruptcy
       exclusion is unenforceable under section 541(c) of the Bankruptcy Code because it renders
       the policy useless. It is clear, as the trial court found, that the plain language of the exclusion,
       which bars coverage for “any claim brought by or on behalf of *** any trustee *** liquidator
       *** or similar official appointed to take control of, supervise, manage or liquidate the
       company once a bankruptcy proceeding has commenced,” would preclude coverage for the
       adversary proceeding filed by Abrams against plaintiffs. Executive contends that the trial
       court erred in finding the exclusion rendered the policy “useless,” because it does not bar
       coverage for all claims against plaintiffs but only those claims brought by certain parties,
       such as debtors in possession and trustees in the event that the company filed bankruptcy.
       Other claims, such as an employment discrimination suit against plaintiffs would still be
       covered by the policy, and therefore, Executive asserts, the trial court erred in deeming the
       exclusion unenforceable under section 541(c).
¶ 22       Further, Executive argues that several courts have upheld the application of similar
       exclusions to preclude coverage. For instance, in Lexington Insurance Co. v. American
       Healthcare Providers, 621 N.E.2d 332 (Ind. Ct. App. 1993), the directors and officers of an
       HMO were sued by a liquidator appointed by the Indiana Department of Insurance alleging
       that they had breached their fiduciary duties to the HMO by failing to take appropriate action
       to preserve and protect its assets after they knew or should have known of the HMO’s
       deteriorating financial condition. Lexington, 621 N.E.2d at 334. The plaintiffs filed a
       complaint for declaratory judgment claiming that Lexington owed them a duty to defend
       them pursuant to a directors and officers liability policy issued by Lexington. Lexington, 621
       N.E.2d at 335. The insurer denied coverage based on the policy’s insolvency provision,
       which excluded from coverage the following:
               “ ‘Claims based upon, arising out of, due to or involving directly or indirectly the
               insolvency, receivership, bankruptcy, liquidation or financial inability to pay of any
               Insured, any Insurer or any other person, including Claims brought by any insurer ***
               or any Commissioner or Superintendent of Insurance.’ ” (Emphasis omitted.)

                                                   -7-
                Lexington, 621 N.E.2d at 335.
¶ 23        The plaintiffs reached a settlement with the liquidator and Lexington then filed a motion
       for summary judgment to which plaintiffs responded and filed a cross-motion for summary
       judgment. Lexington, 621 N.E.2d at 335. After a hearing, the trial court denied both parties’
       motions and certified each denial for interlocutory appeal. Lexington, 621 N.E.2d at 335. The
       appellate court reversed the trial court, finding that the exclusion unambiguously applies to
       the lawsuits filed by the liquidator. Lexington, 621 N.E.2d at 335. The court stated that “as
       the policy broadly excludes claims involving the insolvency or liquidation of any person, it
       is illogical to read the exclusion as applying to claims against liquidators of unrelated
       entities.” Lexington, 621 N.E.2d at 337. “Since acts which ‘lead to’ or ‘cause’ an insolvency
       or liquidation also ‘involve’ an insolvency or liquidation, giving those terms their plain and
       ordinary meanings, claims based on those acts would be excluded ***.” Lexington, 621
       N.E.2d at 337. The court also rejected the plaintiffs’ argument that the exclusion rendered
       the policy illusory or void as a matter of public policy. Lexington, 621 N.E.2d at 339-40.
¶ 24        Similarly, in Coregis Insurance Co. v. American Health Foundation, Inc., 241 F.3d 123
       (2d Cir. 2001), several nonprofit companies that operate and manage nursing homes and their
       officers and directors filed a declaratory judgment action seeking indemnity coverage from
       their insurer in two lawsuits filed by a receiver appointed by the state, alleging that the
       insureds failed to repay loans allegedly obtained through fraudulent misrepresentations about
       the financial status of the companies. The insurer denied coverage pursuant to the policy’s
       insolvency exclusion, which precluded coverage for any claim “ ‘[a]rising out of, based upon
       or related to *** [t]he insolvency of the company named in the Declarations *** [or a]
       financial impairment of the company named in the Declarations.’ ” Coregis, 241 F.3d at 126.
       Plaintiffs argued that because the claims against them were based on alleged
       misrepresentations made before the companies became insolvent, they did not fall within the
       scope of the insolvency exclusion. Coregis, 241 F.3d at 126. The trial court agreed, granting
       plaintiffs’ motion for summary judgment and denying defendant’s motion. Coregis, 241 F.3d
       at 126. However, the appellate court reversed, finding that the “[l]awsuits are unquestionably
       ‘connected to,’ ‘associated with,’ and brought ‘with reference to’ the insolvency or financial
       impairment” of the insured companies and “thus plaintiffs’ request for coverage *** is
       ‘related to’ such financial failure.” Coregis, 241 F.3d at 129. Therefore, the court concluded
       that the insolvency provision of the policy clearly and unambiguously excluded coverage for
       the underlying lawsuit. Coregis, 241 F.3d at 131.
¶ 25        Executive contends that as in Lexington and Coregis, this court should find that the
       bankruptcy exclusion unambiguously excludes coverage to plaintiffs for the Abrams I lawsuit
       and that because the policy does not preclude coverage for all claims, the trial court erred in
       finding that the exclusion rendered the policy useless and unenforceable under section
       541(c).
¶ 26        In response, plaintiffs assert that the cases relied upon by Executive, namely Lexington
       and Coregis, are inapposite because they involved the appointment of receivers under state
       statutes with language that is very different from the language in section 541(c). Plaintiffs
       note that according to its legislative history, section 541(c) invalidates contract provisions

                                                -8-
       “that are conditioned on the insolvency or financial condition of the debtor, [or] on the
       commencement of a bankruptcy case.” 11 U.S.C. § 541(c) Historical and Revision Notes,
       Senate Report No. 95–989. Because the policy’s bankruptcy exclusion states that it applies
       if the company goes bankrupt, it is “conditioned on the insolvency of the debtor,” the
       appointment of a trustee, and the “commencement of a bankruptcy case” and, therefore, is
       precluded by the Bankruptcy Code, plaintiffs assert. We agree. As discussed above, coverage
       arises from a policy that has become a property interest of iHealthcare and Heartland, the
       debtors. That property interest is protected by section 541(c), which invalidates contract
       provisions “that are conditioned on the insolvency or financial condition of the debtor [or]
       on the commencement of a bankruptcy case.” Here, because the bankruptcy exclusion is
       conditioned on the commencement of bankruptcy case, the trial court did not err in finding
       that the bankruptcy exclusion in this D&O policy is unenforceable under section 541(c).4

¶ 27                            D. Insured versus Insured Exclusion
¶ 28       Executive next argues that the trial court erred in granting partial summary judgment to
       plaintiffs on the grounds that the insured versus insured exclusion in the D&O policy was
       ambiguous and, therefore, must be resolved in favor of the insured. Executive first asserts
       that the exclusion is not ambiguous and that its plain language bars coverage for the Abrams
       I action, because any claim brought by Abrams in his postpetition role as trustee is one
       brought “by or on behalf of or in the name or right of the Company or an Insured Person”
       and, therefore, is excluded from coverage.
¶ 29       Alternatively, Executive contends that the trial court’s basis for finding that the insured
       versus insured exclusion is “ambiguous” was its determination that the question of “whether
       a trustee or debtor-in-possession is an insured for the purposes of an ‘Insured v. Insured’
       exclusion is unsettled law.” The court concluded that because the question is unsettled, the
       provision itself is ambiguous and must be resolved in favor of the insured. Executive
       contends, however, that conflicting judicial opinions do not necessarily equate to ambiguity.
       See In re Federal Press Co., 104 B.R. 56, 60 (Bankr. N.D. Ind. 1989) (“the mere fact that
       a controversy exists concerning an insurance policy and the parties to the contract assert
       opposing interpretations of the policy does not establish that ambiguity exists within the
       policy”). Although “[a] significant division between courts over the interpretation of
       identical language can itself be some evidence of ambiguity, [citation], *** Indiana has not
       gone so far as to suggest that any split of judicial authority proves the existence of an
       ambiguity that must be resolved in favor of the insured. (Such a rule would effectively
       delegate insurance coverage questions to the court most inclined to favor the insured.)”
       Aearo Corp. v. American International Specialty Lines Insurance Co., 676 F. Supp. 2d 738,
       744 (S.D. Ind. 2009). Therefore, Executive argues, the unsettled nature of the law alone,

              4
               Because we conclude that the bankruptcy exclusion is unenforceable under section 541(c)
       of the Code, we need not consider the argument raised by appellees in the trial court that the
       exclusion is also unenforceable under section 365(e)(1) of the Code.

                                                -9-
       without consideration of the arguments on both sides, is not grounds for finding the provision
       is ambiguous.
¶ 30       Executive further contends that the case law supports a finding that the insured versus
       insured exclusion bars coverage for claims against an insured by either a bankruptcy trustee
       or a debtor in possession. For support, Executive relies on Biltmore Associates, LLC v. Twin
       City Fire Insurance Co., 572 F.3d 663, 671 (9th Cir. 2009). In Biltmore, Visitalk, an Arizona
       corporation, purchased D&O policies naming it and its officers and directors as insureds.
       Biltmore, 572 F.3d at 665. Two years later, Visitalk filed a chapter 11 bankruptcy petition
       and, as “ ‘debtor and debtor in possession,’ ” sued its recently discharged officers and
       directors for breach of their fiduciary duties. Biltmore, 572 F.3d at 666. After the insurers
       denied coverage, Visitalk filed a chapter 11 reorganization plan that assigned its claims
       against the directors and officers to a trust, naming Biltmore as trustee. Biltmore, 572 F.3d
       at 667. Biltmore subsequently settled Visitalk’s claims against four directors and officers for
       a confession of judgment of $175 million and an assignment of whatever claims the directors
       and officers had against the insured. Biltmore, 572 F.3d at 667. Biltmore, as trustee of the
       creditors’ committee, then sued the insurance companies on the basis of those claims.
       Biltmore, 572 F.3d at 667. The district court dismissed the case for failure to state a claim
       on which relief could be granted, and Biltmore appealed.
¶ 31       The Ninth Circuit Court of Appeals affirmed the dismissal but on different grounds than
       the trial court, finding that the D&O policy’s insured versus insured exclusion barred
       coverage. First, in determining whether an insured versus insured exclusion applies to bar
       coverage for a fiduciary liability, the court rejected the argument that when such claims are
       brought on behalf of the creditors by the creditor’s trustee, they are not “ ‘brought or
       maintained on behalf of an Insured in any capacity.’ ” Biltmore, 572 F.3d at 669. The court
       also rejected the argument that Visitalk, as the debtor in possession, was not the same entity
       as Visitalk, the pre-bankruptcy corporation. The court noted that “[s]everal bankruptcy
       decisions around the country, including one in this circuit, treat a postbankruptcy entity as
       different from the debtor before it went into chapter 11 for purposes of the insured versus
       insured exclusion. Several others hold that they are the same entity for this purpose. Few
       cases, and no circuit court decisions, deal with the specific situation of a chapter 11 debtor
       in possession.” Biltmore, 572 F.3d at 670-71.
¶ 32       The court then stated:
                   “We conclude that for purposes of the insured versus insured exclusion, the
               prefiling company and the company as debtor in possession in chapter 11 are the
               same entity. The bankruptcy code defines a Chapter 11 debtor in possession as the
               debtor. The debtor, in turn, is defined as the ‘person or municipality concerning
               which a case under this title has been commenced.’ Bankruptcy cases can be filed
               only with respect to pre-bankruptcy persons. Thus[,] the debtor in possession is the
               debtor, and the debtor is the person, Visitalk, that filed for bankruptcy. Applying
               these statutory provisions literally, Visitalk, the debtor in possession, is the same
               person for bankruptcy purposes as Visitalk, the pre-bankruptcy corporation. There
               is no good reason to interpret the language other than literally in this context.”

                                                -10-
               Biltmore, 572 F.3d at 671.
¶ 33       The court, therefore, found that the insured versus insured exclusion barred coverage and
       stated that “[t]he alternative position would create a perverse incentive for the principals of
       a failing business to bet the dwindling treasury on a lawsuit against themselves and a
       coverage action against their insurers, bailing the company out with the money from the
       D&O policy if they win and giving themselves covenants not to execute if they lose. That is
       among the kinds of moral hazard that the insured versus insured exclusion is intended to
       avoid.” Biltmore, 572 F.3d at 674.
¶ 34       Relying on Biltmore, Executive argues that the suit filed by Abrams in his capacity as
       trustee for Heartland unambiguously falls within the scope of the insured versus insured
       exclusion and therefore, the trial court erred in granting plaintiffs’ summary judgment motion
       on these grounds. However, because Biltmore is distinguishable from the instant case in
       some key respects, we find that it does not support Executive’s argument. First, in this case,
       Abrams filed the lawsuits against plaintiffs in his capacity as a court-appointed trustee, not
       a debtor-in-possession. A court-appointed trustee, unlike a debtor-in-possession, is acting
       with the imprimatur of the court, reducing the fear of collusion, which, as the Biltmore court
       noted, is “among the kinds of moral hazard that the insured versus insured exclusion is
       intended to avoid.” Biltmore, 572 F.3d at 674. Further, in Biltmore, there was actual evidence
       of collusion, as Visitalk, the debtor-in-possession, initially filed the lawsuit against the
       corporation’s officers and directors and then consented to a judgment against itself before
       assigning the claims to the trustee. No such evidence of collusion is present in this case and,
       as noted above, would be unlikely given that the trustee is acting with the authority of the
       court. Therefore, in this case, unlike in Biltmore, where a court-appointed trustee is working
       on behalf of creditors and under the authority of the bankruptcy court, we find that the trustee
       and the debtor hospital are not the same entity for purposes of the insured versus insured
       exclusion.
¶ 35       Our conclusion is supported by several federal courts that have similarly held that
       because a bankruptcy trustee is not asserting claims by or on behalf of the bankrupt entity
       but, rather, on behalf of the estate and for the benefit of the creditors, the trustee is not a
       trustee of the entity, but rather, is a trustee of the bankruptcy estate. See, e.g., Unified
       Western Grocers, Inc. v. Twin City Fire Insurance Co., 457 F.3d 1106, 1116-17 (9th Cir.
       2006) (holding that bankruptcy trustee of subsidiary is different entity than subsidiary itself);
       In re Molten Metal Technology, Inc., 271 B.R. 711 (Bankr. D. Mass. 2002) (holding that
       while it was certainly true that trustee “stood in the shoes of the debtor” when prosecuting
       causes of action that arose in favor of debtor prepetition, this did not mean that trustee was
       the debtor, for purpose of the insured versus insured exclusion); In re Buckeye Countrymark,
       Inc., 251 B.R. 835, 840-41 (Bankr. S.D. Ohio 2000) (holding that bankruptcy trustee is
       separate legal entity from debtor).
¶ 36       Further, although Executive did not cite, and this court did not find, any Indiana cases
       directly addressing this issue, we note that in Lexington, discussed above, the Indiana Court
       of Appeals, in addressing whether insurance policies issued to two HMOs excluded coverage
       for claims arising out of insolvency, stated that the Indiana Department of Insurance, which

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       was appointed as the liquidator of the HMOs, was “not an insured under the [insurance]
       policy.” Lexington, 621 N.E.2d at 337. This is consistent with our recent holding in McRaith
       v. BDO Seidman, LLP, 391 Ill. App. 3d 565, 909 N.E.2d 310 (2009), which also addressed
       the role of a court-approved liquidator for an insurance company. In McRaith, the Director
       of the Illinois Department of Insurance as liquidator of insolvent third-party insurance
       companies sued BDO Seidman, an accounting firm, for negligence and breach of contract
       in auditing the companies. BDO filed a motion to dismiss, asserting that the owners, officers
       and directors of the insurance companies had engaged in fraudulent and willful misconduct,
       which was imputed to the insurance companies, and, in turn, to the liquidator. BDO
       contended that the liquidator was barred from bringing any claims against it because
       intentional tortfeasors cannot sue other alleged co-wrongdoers. The trial court initially denied
       BDO’s motion on the issue of imputation, relying on the holding in Holland v. Arthur
       Andersen & Co., 127 Ill. App. 3d 854 (1984), wherein this court found that the “adverse-
       interest exception” precluded imputation of fraudulent conduct to the company.
       Subsequently, on a motion to reconsider the denial of BDO’s motion to dismiss, which was
       assigned to a different judge after the original judge retired, the trial court dismissed three
       counts of the complaint with prejudice, finding that the liquidator “ ‘is now standing in the
       shoes of [the owner] or the company since it’s a sole owner.’ ” McRaith, 391 Ill. App. 3d at
       575.
¶ 37       On appeal, this court noted that Illinois courts had yet to address the issue of imputation
       of conduct in the context of the liquidation of insolvent insurers, and looked for guidance to
       a Connecticut case, Reider v. Arthur Andersen, LLP, 784 A.2d 464 (Conn. Super. Ct. 2001),
       for support. In Reider, the insurance commissioner, as liquidator of an insolvent insurer,
       brought an action against an accounting firm to recover for misreporting the value of the
       insurer’s account receivable payable by a corporation controlled by the insurer’s sole
       shareholders. Reider, 784 A.2d at 466. The accounting firm moved to strike the complaint
       arguing, in part, that the liquidator could not prevail on its claims because they sought
       damages for harm allegedly suffered by the insurance company as a result of its own
       fraudulent conduct. Reider, 784 A.2d at 468. The court rejected that argument, noting that
       although the knowledge of the agent is generally imputed to the principal, “when a corporate
       officer or agent engages in fraudulent conduct for the distinctly private purpose of lining his
       own pockets at his corporation’s expense, it is unlawful, as well as illogical, to impute the
       agent’s guilty knowledge *** to his corporate principal.” Reider, 784 A.2d at 470. The court
       concluded that fraud of the agents was fraud on the principal insurance company, not a fraud
       by it. “Because the [Insurance] Commissioner had the right and duty to take [the company]
       over and manage its affairs on behalf of the public if its insolvency was threatened, the
       company itself ha[d] an enforceable claim against any person or entity who unlawfully
       contributed materially to its insolvency by violating a legal duty to advise it, either directly
       or through the Commissioner, as to its true financial status.” Reider, 784 A.2d at 475.
¶ 38       Applying the holding and reasoning in Reider to the facts before it, the McRaith court
       reversed the trial court and held that the guilty knowledge and conduct of the insurance
       companies’ sole owners could not be imputed to the companies or their court-affirmed

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       liquidator. McRaith, 391 Ill. App. 3d at 592. The court found that its holding was supported
       by its decision in Holland v. Arthur Andersen & Co., 127 Ill. App. 3d 854, 866 (1984),
       wherein the defendant accounting firm argued that the imputation doctrine was applicable
       to the trustee in bankruptcy. This court disagreed and held that although misconduct may
       have been knowingly committed by the principal, because there was no evidence that the
       misconduct on the part of the principal was done on the behalf of the principal, the
       misconduct of the agent could not be imputed to the principal. Holland, 127 Ill. App. 3d at
       867. Therefore, this court held that recovery by the principal, and thus the bankruptcy trustee,
       against the independent auditors could not be precluded. Holland, 127 Ill. App. 3d at 868.
¶ 39       The McRaith court also found that our supreme court’s decision in Republic Life
       Insurance Co. v. Swigert, 135 Ill. 150 (1890), supported its holding that the imputation
       doctrine cannot apply to the liquidator. McRaith, 391 Ill. App. 3d at 593. In Swigert, in a case
       filed by the state auditor seeking the appointment of a receiver for an insolvent insurance
       company, our supreme court described the powers of a court appointed receiver, in part, as
       follows: “so far as his powers are derived from a statute or from a lawful decree of court, and
       the powers do not involve rights which, at the time of his appointment, were vested in such
       owners, he is not merely their representative, but is the instrument of the law and the agent
       of the court which appointed him.” Swigert, 135 Ill. at 177. Therefore, the court concluded,
       in pursuing the powers and rights granted to him by law, the trustee “is not circumscribed
       and limited by the right which was vested in and available to the owners.” Swigert, 135 Ill.
       at 177.
¶ 40       Similarly, in this case, Abrams, as a court-appointed trustee, is an instrument of the law
       and an agent of the court and has rights and powers that are not similarly vested in Heartland
       or its owners. Like the court-approved liquidator in McRaith and the bankruptcy trustee in
       Holland, who could not be precluded from recovery under the imputation doctrine, Abrams
       is a distinct entity from the prefiling hospital who is working on behalf of the hospital’s
       creditors, not on behalf of the hospital. As such, we conclude that coverage under the policy
       is not barred by the D&O policy’s insured versus insured exclusion. Therefore, although we
       do so on different grounds, we find that the trial court did not err in granting plaintiffs’
       motion for partial summary judgment on the grounds that the insured versus insured
       exclusion precludes coverage.

¶ 41                                  III. CONCLUSION
¶ 42      For the foregoing reasons, we affirm the trial court.
¶ 43      Affirmed.

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