Hanover Insurance Company v. R.W. Dunteman Company ( 2022 )

In the
United States Court of Appeals
for the Seventh Circuit
____________________
Nos. 20-1826 & 20-1830
THE HANOVER INSURANCE COMPANY,
Plaintiff-Appellee,
v.
R.W. DUNTEMAN COMPANY, et al.,
Defendants-Appellants.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 19-cv-1979 — Mary M. Rowland, Judge.
____________________
ARGUED JANUARY 15, 2021 — DECIDED OCTOBER 24, 2022
____________________
Before SYKES, Chief Judge, and WOOD and HAMILTON,
Circuit Judges.
SYKES, Chief Judge. This insurance-coverage dispute arises
from a conflict among family members over ownership
interests in the family’s construction business located in
Addison, Illinois. Jane Dunteman, the matriarch, held a
minority stake in Du-Kane Asphalt Company and Crush
Crete, Inc., two companies owned and operated by her
husband, Paul Dunteman Sr., and other family members.
2 Nos. 20-1826 & 20-1830
The couple divorced in 2009, and Jane died in March 2017.
Paul died six months later.
Jane’s death spawned litigation in state court over the
size of her interest in the family business; her estate sued the
companies and her sons, Paul Jr., Jeffrey, Roland, and
Matthew Dunteman. The four Dunteman brothers are the
majority shareholders and officers and directors of the
companies. Their sister, Audrey, as the personal representa-
tive of her mother’s estate, alleged that Jane’s ownership
interest was wrongfully diluted after their parents divorced.
All six codefendants were insured under consecutive
“claims made” liability policies issued in 2017 and 2018 by
The Hanover Insurance Company to R.W. Dunteman
Company, an affiliated family business. The distinguishing
feature of “claims made” insurance, as the name suggests, is
that the insured must notify the insurer of a “claim” in the
same policy period in which it is first “made.” If a claim goes
unreported in the relevant policy period, then the insurer
owes no duty to defend or indemnify.
The estate filed its suit in August 2017. The wrinkle is
that the original complaint sought a declaratory judgment
and named only Du-Kane Asphalt as the defendant, though
the allegations concerned the brothers’ actions as officers,
directors, and shareholders. In an amended complaint filed
in July 2018, the estate broadened its factual allegations and
added Crush-Crete and the Dunteman brothers as code-
fendants. At that point the insureds first notified Hanover
and sought coverage under the 2018 policy.
Hanover denied the request because the claim was first
made in 2017 and had not been timely reported during that
Nos. 20-1826 & 20-1830 3
policy period. After denying coverage, Hanover filed suit in
federal court seeking a declaration that it owes no defense or
indemnity. The insureds counterclaimed for breach of
contract. The district court entered judgment for Hanover.
We affirm. The estate’s original complaint triggered a re-
portable claim during the 2017 policy period. Subsequent
amendments to that complaint did not commence a new and
distinct claim first made in 2018. The insureds’ notice to
Hanover was therefore untimely and no coverage is owed.
I. Background
The Dunteman brothers are majority shareholders, offic-
ers, and directors of three construction businesses founded
by their father’s family: R.W. Dunteman Company, Du-Kane
Asphalt, and Crush-Crete. Their mother, Jane, was a minori-
ty shareholder in Du-Kane Asphalt and Crush-Crete, and
their sister, Audrey Coffey, serves as the personal representa-
tive of Jane’s estate.
As relevant here, all three companies and the Dunteman
brothers were insured under consecutive 12-month “D&O”
policies issued by Hanover Insurance in 2017 and 2018. The
policies provided “Directors, Officers, and Entity Liability
Coverage” on a claims-made basis from March 31, 2017 to
March 31, 2018, and from March 31, 2018 to March 31, 2019.
Specifically, the Hanover policies provided defense and
indemnity coverage for a “Loss” that an “Insured Entity” or
“Insured Individual” is “legally obligated to pay due to a
Claim first made … during the Policy Period.” However,
coverage was conditioned on timely notice to the insurer.
With an exception not relevant here, the insureds were
required to report claims to Hanover “as soon as practica-
4 Nos. 20-1826 & 20-1830
ble” after becoming aware of them or at the latest within
90 days of the policy’s expiration date.
A. The Underlying State-Court Litigation
We take the details of the underlying litigation from the
original and amended complaints in the state-court action.
Jane Dunteman acquired shares in Du-Kane Asphalt and
Crush-Crete during her long marriage to Paul Dunteman Sr.
When the couple divorced in 2009, they agreed to retain
roughly equal ownership of Du-Kane Asphalt. Tax docu-
ments that year and the years that followed showed that
Paul Sr. and Jane owned approximately 26% and 24% of
Du-Kane Asphalt’s shares, respectively.
In the years after the divorce, the Dunteman brothers
gradually gained majority control of Du-Kane Asphalt. First,
Paul Sr. gifted his shares to his sons in December 2012. Then,
in 2013 Jane’s ownership interest in Du-Kane Asphalt was
reduced from 24% to 10% without consideration and with-
out “her knowledge, permission or consent.” The shares
taken from Jane were divided equally among the Dunteman
brothers and transferred to them. After Jane died in March
2017, Du-Kane Asphalt sought to recoup from the estate
what it said were overpaid dividends, maintaining that Jane
“never owned 24% of the business” and was “incorrectly
listed as a 24% shareholder” until “the issue was corrected in
2013.” Audrey Coffey, as the personal representative of
Jane’s estate, disputed that characterization.
On August 28, 2017, the estate filed suit in state court
seeking a declaratory judgment against Du-Kane Asphalt
that Jane owned 24% of the company at the time of her death
and asking the court to invalidate the wrongful reduction in
Nos. 20-1826 & 20-1830 5
her ownership interest. The lawsuit was not reported to
Hanover during the 2017 policy period.
On July 6, 2018, while discovery was still underway, the
estate moved for leave to file a second amended complaint.
(The first amended complaint, filed in December 2017, is not
relevant here.) The second amended complaint 1 broadened
the factual allegations and added Crush-Crete and the
Dunteman brothers as codefendants. In particular, the estate
specifically alleged that the Dunteman brothers—as direc-
tors and officers of Du-Kane Asphalt—were responsible for
the surreptitious reduction in Jane’s shares.
The estate also detailed what it saw as a broader scheme
by the Dunteman brothers to freeze out Jane (and later her
estate) as a minority shareholder in Du-Kane Asphalt and
Crush-Crete. The estate alleged, for example, that Du-Kane
Asphalt and Crush-Crete stopped paying dividends owed to
Jane after her death. And although the companies cited
profitability concerns, the estate maintained that the
Dunteman brothers deliberately depressed earnings by,
among other things, diverting business away from Du-Kane
Asphalt and Crush-Crete. The second amended complaint
also alleged that Du-Kane Asphalt and Crush-Crete stopped
holding annual shareholder meetings and that the
Dunteman brothers failed to repay a $1.3 million loan they
had received from Du-Kane Asphalt in 2005. That loan, in
turn, paid off a bank loan the brothers had obtained to buy
1 The estate filed its motion for leave to amend together with the pro-
posed second amended complaint on July 6, 2018. It filed its verified
second amended complaint on July 16, 2018.
6 Nos. 20-1826 & 20-1830
out shares in the companies held by Allan Dunteman (Paul
Sr.’s brother) and his wife, Sheila.
The second amended complaint retained the request for a
declaratory judgment against Du-Kane Asphalt and added
counts against Du-Kane Asphalt and Crush-Crete for
minority-shareholder oppression and against the Dunteman
brothers for breach of fiduciary duty, fraud, and conspiracy.
B. Federal Coverage Litigation
On July 13, 2018—about a week after the estate moved
for leave to file the second amended complaint—Du-Kane
Asphalt, Crush-Crete, and the Dunteman brothers first
notified Hanover of the estate’s suit. The insureds sought
coverage under the 2018 policy. Hanover denied the request,
explaining that the estate’s lawsuit was first filed during the
2017 policy period and that the insureds had failed to pro-
vide notice of it within the time prescribed by the policy. The
insurer then commenced this coverage action in federal
court seeking a declaration that it did not owe a defense or
indemnity based on the untimely notice of the estate’s
lawsuit. The insureds counterclaimed for breach of contract.
The case was submitted on cross-motions for judgment
on the pleadings. See FED. R. CIV. P. 12(c). The parties disput-
ed whether the estate’s original complaint initiated a report-
able claim under the 2017 policy. 2 The policy defines
“Claim” to include any “[c]ivil proceeding commenced by
the service of a complaint or similar pleading” against an
2 The 2017 policy’s provisions are primarily relevant here, so we’ll
hereafter simply refer to it as “the policy” unless context requires that we
distinguish the two policy years.
Nos. 20-1826 & 20-1830 7
insured “for a Wrongful Act.”3 In turn, “Wrongful Act
means any actual or alleged act, error, omission, misstate-
ment, misleading statement, neglect, breach of duty commit-
ted or attempted, or allegedly committed or attempted by”
an insured individual or entity.
Because the second amended complaint broadened the
underlying litigation, the parties also disagreed as to wheth-
er it was merely a continuation of the claim filed in August
2017 or the creation of a new one. The policy’s aggregation
provisions bear on this question. First, the policy treats all
“Related Wrongful Acts”—broadly defined as acts that are
“logically or causally connected by reason of any common
fact, circumstance, situation, transaction, casualty, event,
result, injury or decision”—as functionally one wrongful act.
And “all Related Wrongful Acts will be deemed to have
occurred at the time the first of such Related Wrongful Acts
occurred[,] whether prior to or during the Policy Period.”
In a similar vein, the policy also aggregates “Related
Claims,” broadly defined as “all Claims based upon, arising
from or in any way related to the same facts, circumstances,
situations, transactions, results, damage or events or the
same series of facts, circumstances, situations, transactions,
results, damage or events.” “Related Claims will be consid-
ered as a single Claim made in the Policy Period … in which
the earliest of such Related Claims was first made or first
deemed to have been made … .” And they are likewise
“subject to the Limits of Liability, Retention and other terms
and conditions applicable to the earliest Related Claim.”
3 The policy includes several other triggering events that create reporta-
ble “claims,” but no other variants are relevant here.
8 Nos. 20-1826 & 20-1830
The district judge agreed with Hanover’s argument re-
garding the untimeliness of the insureds’ notice. First, she
held that the estate’s original complaint qualified as a re-
portable claim under the 2017 policy because it contained
allegations of wrongful acts against Du-Kane Asphalt, an
insured. She further concluded that amendments to a com-
plaint in the same civil action could not create a new claim.
Because the original complaint and the second amended
complaint concerned “Related Wrongful Acts” and “Related
Claims,” the policy’s aggregation provisions treated them as
a single claim reportable when first made in 2017. Accord-
ingly, the 2018 notice to Hanover was too late. The judge
held that the insurer’s no-coverage determination was sound
and entered judgment in its favor.
II. Discussion
We review the district court’s order granting judgment on
the pleadings de novo. Landmark Am. Ins. Co. v. Hilger,
838 F.3d 821, 824 (7th Cir. 2016). Like a dismissal for the
failure to state a claim under Rule 12(b)(6), our task is to
determine “whether the well-pleaded factual allegations
viewed in favor of the nonmoving party state a facially
plausible claim for relief.” Sinn v. Lemmon, 911 F.3d 412, 418
(7th Cir. 2018).
Whether Hanover was right to deny coverage hinges on
our review of the text of the policy and the allegations in the
underlying state-court case. Under Illinois law, which all
agree controls here, we must “give the terms of an unambig-
uous insurance policy their plain and ordinary meaning,
reading the policy as a whole and considering the type of
insurance purchased, the nature of the risks involved, and
the overall purpose of the contract.” Mkt. St. Bancshares, Inc.
Nos. 20-1826 & 20-1830 9
v. Fed. Ins. Co., 962 F.3d 947, 952 (7th Cir. 2020) (quotation
marks omitted).
Timely reporting of claims is key for an insurer’s duties
under a “claims made” D&O policy. Generally speaking,
these policies require “not only that the claim be first made
during the policy period, but also that it be reported to the
insurer during the policy period.” Med. Protective Co. v. Kim,
507 F.3d 1076, 1083 (7th Cir. 2007) (quotation marks omit-
ted).
“The purpose of a claims-made policy is to allow the in-
surance company to easily identify risks, allowing it to know
in advance the extent of its claims exposure and compute its
premiums with greater certainty.” Uhlich Child.’s Advantage
Network v. Nat’l Union Fire Co. of Pittsburgh, 929 N.E.2d 531,
537 (Ill. App. Ct. 2010). Because the insurer has a clearer
picture of its risk exposure, it “in turn may offer insureds
more-available and less-expensive policies.” Mkt. St.
Bancshares, 962 F.3d at 952.
The trade-off, however, is that the insured must comply
with strict reporting requirements to get the benefit of this
less expensive coverage. If a claim was made in one policy
period but reported in another, then the insurer owes no
duty to defend or indemnify. 4
4 Occurrence policies, in contrast, are more expensive because the
insurance company bears more risk for claims that go unreported in a
given policy period. See Mkt. St. Bancshares, Inc. v. Fed. Ins. Co., 962 F.3d
947, 952 (7th Cir. 2020) (explaining that an occurrence policy “protects
against the risk of an injurious act or omission occurring during the
covered period” and that “claims for covered occurrences may be
asserted after the policy period ends”).
10 Nos. 20-1826 & 20-1830
A. The Estate’s Original Complaint Commenced a Claim
We begin with the insureds’ argument that the estate’s
original complaint in the state-court action was not a “claim”
under the policy. If they’re right, then there was nothing to
report during the 2017 policy period and Hanover’s justifica-
tion for denying coverage falls apart.
Recall that the policy defines a “claim” to include a
“[c]ivil proceeding commenced by the service of a com-
plaint” against an insured “for a Wrongful Act.” The in-
sureds do not dispute that the estate’s original complaint
“commenced” a “civil proceeding,” but they insist that the
original complaint did not yet include allegations of a
wrongful act. That’s an untenable position under the policy’s
broad definition of the term “wrongful act,” which covers
“any … alleged act, error, omission, misstatement, mislead-
ing statement, neglect, [or] breach of duty” by an insured
entity or individual. (Emphasis added.) The estate’s allega-
tions that Du-Kane Asphalt reduced Jane’s shares without
consideration and without her knowledge and consent fit
comfortably within this definition.
That the complaint is styled as a request for a declaratory
judgment makes no difference. The reporting obligation
does not depend on the specific remedies that the plaintiff
requests in the underlying litigation. Nor is it relevant
whether the suit could have led to a compensable loss. The
policy’s reporting requirement kicks in when an insured
receives notice of a claim against it, including the filing of a
civil action alleging any wrongful act. The estate’s original
complaint clearly fits the bill under the policy’s broad defini-
tions of the terms “claim” and “wrongful act,” and that
complaint triggered a reporting duty under the 2017 policy.
Nos. 20-1826 & 20-1830 11
B. The Second Amended Complaint Was Not a Claim First
Made in 2018
The insureds next argue that the estate’s second amended
complaint created a distinct claim first made during the 2018
policy period because it contained new allegations and
added Crush-Crete and the Dunteman brothers as defend-
ants for the first time. We’ll examine the effect of the new
allegations and defendants separately. The analysis for each
is slightly different but leads to the same result: under the
policy’s broad aggregation provisions, the new allegations
against additional defendants clearly related to the claim
that was first made during the 2017 policy period.
1. New Allegations
The second amended complaint added new allegations of
oppressive behavior both before and after Jane’s death, as
well as associated theories of relief. But the estate’s original
complaint was a reportable claim first made during the 2017
policy period. Under the policy’s aggregation provisions, the
broadened allegations in the amended pleading are related
to and thus are treated as part of that claim.
To repeat, the policy treats “related wrongful acts” as a
“single wrongful act.” And it broadly defines “related
wrongful acts” as acts that are “logically or causally con-
nected by reason of any common fact, circumstance, situa-
tion, transaction, casualty, event, result, injury or decision.”
At the very least, the allegations in the original and second
amended complaints are “logically … connected” because
they collectively concern the insureds’ wrongful reduction of
Jane’s ownership interest in the family business. Under the
12 Nos. 20-1826 & 20-1830
policy’s aggregation provisions, the “claim” encompassed
the estate’s initial allegations and subsequent elaborations.
This conclusion follows from the plain policy language
but is also informed by the fact that the 2017 claim took the
form of a “[c]ivil proceeding commenced by the service of a
complaint.” Amendments to a complaint, of course, do not
commence a new action. Mkt. St. Bancshares, 962 F.3d at 954
(“[A] complaint commences an action as a whole, not just
part of one.”). And more fundamentally, a civil proceeding
encompasses far more than just the allegations and theories
contained in a first pleading.
Our decision in Market Street Bancshares is instructive
here. That case involved a claims-made policy with language
that closely mirrors the Hanover contract. The policy pro-
vided coverage for a three-year period from April 2014 to
April 2017, but the underlying litigation began more than a
decade earlier. Id. at 950–51. The insured nevertheless sought
coverage under the 2014–2017 policy based on a theory of
recovery that was raised for the first time in the damages
phase of the litigation. Id. at 951. We held that the new
damages theory was not a new claim but instead was related
to—and thus was part of—the claim that was first made long
before the policy period began. Id. at 953. We explained: “[A]
‘claim’ taking the form of ‘a civil proceeding commenced by
the service of a complaint’ spans the entire civil action, not
just the legal theories and factual allegations in the com-
plaint that commenced the action.” Id. So too here. The
estate’s new allegations in the same action built on the claim
it first made during the 2017 policy period.
The chronology in the underlying litigation here drives
the point home. The discovery process apparently revealed
Nos. 20-1826 & 20-1830 13
evidence that prompted the estate to elaborate on its allega-
tions of wrongdoing and add theories of relief. The reporting
requirement would be meaningless if this routine occurrence
in litigation could excuse the insured’s failure to report the
original complaint to the insurer during the policy period in
which it was filed.
Our conclusion flows from a straightforward application
of the policy language, but we note as well that accepting the
insureds’ argument would undermine the purpose and
ordinary operation of claims-made insurance. It bears re-
peating that this type of insurance “is geared toward easy
identification of the insurer’s risk exposure.” Id. at 954. The
insurer gets predictable risk exposure, and the insured pays
a lower premium as a result. Id. at 952. The insured’s failure
to report a claim in the same policy period in which it was
first made makes the insurer’s “risk exposure … significantly
more difficult to calculate.” Id. at 955. In short, the insureds
can’t have it both ways by reaping the benefits of claims-
made insurance without complying with their correspond-
ing policy obligations.
2. New Codefendants
Crush-Crete and the Dunteman brothers object that the
estate’s original complaint could not have commenced a
claim against them during the 2017 policy period because
they were new to the litigation in 2018. Their point has some
surface appeal. See Cmty. Found. for Jewish Educ. v. Fed. Ins.
Co., 16 F. App’x 462, 467 (7th Cir. 2001) (“If the insured is
brought into the litigation for the first time through the
amended complaint, the claim is obviously new to that
entity; thus it is a claim first made.”). Had the original
complaint named an unaffiliated defendant or raised unre-
14 Nos. 20-1826 & 20-1830
lated wrongful acts, Hanover’s position would be on shakier
ground. But Du-Kane Asphalt, Crush-Crete, and the
Dunteman brothers were coinsureds under the same D&O
policy (with R.W. Dunteman Company), and the policy’s
aggregation provisions tie the allegations in the second
amended complaint to the claim raised earlier in the estate’s
original complaint against Du-Kane Asphalt.
Indeed, the policy defines “Related Claims” even more
broadly than “Related Wrongful Acts.” The former encom-
passes “all Claims based upon, arising from or in any way
related to the same facts, circumstances, situations, transac-
tions, results, damage or events or the same series of facts,
circumstances, situations, transactions, results, damage or
events.” And “Related Claims,” as we’ve noted, are treated
as “a single Claim made in the Policy Period … in which the
earliest of such Related Claims was first made or first
deemed to have been made.” Moreover, “[a]ll Related
Claims are subject to the … terms and conditions applicable
to the earliest Related Claim.” Simply put, all related claims
arising from the common series of events surrounding the
dispute over Jane’s share of the family business are consid-
ered “first made” in 2017 and subject to the 2017 policy’s
reporting obligation.
Just as the estate’s original and amended complaints con-
cern related wrongful acts, the new theories of relief brought
against Crush-Crete and the Dunteman brothers are “based
upon” or at least “related to” the common scheme to dimin-
ish Jane’s minority stake in the family companies. 5 Here
5 The Dunteman brothers maintain that we cannot assess relatedness
here without giving credence to the estate’s allegations of a broad
conspiracy to target Jane and now her estate. Not so. To say that the
Nos. 20-1826 & 20-1830 15
again, this conclusion follows from a straightforward appli-
cation of the policy’s aggregation provisions, but it also
comports with the distribution of risk inherent in claims-
made insurance. The purpose of the reporting requirement
would be seriously undermined if later iterations of the
complaint based on facts learned during discovery could
excuse the insured’s failure to timely notify the insurer of the
lawsuit when it was first filed.
III. Conclusion
The estate’s original complaint commenced a reportable
claim under the 2017 policy. The second amended complaint
did not create a new claim first made during the 2018 policy
period. The insureds’ notice to Hanover was therefore
untimely, and the insurer was justified in denying coverage.
AFFIRMED
allegations here meet the policy’s aggregation requirements has nothing
to do with whether the estate’s allegations are true. See Am. Bankers Ins.
Co. of Fla. v. Shockley, 3 F.4th 322, 326 n.4 (7th Cir. 2021) (explaining that
in a coverage dispute, “[w]e do not opine on the merits of the facts
alleged”).
16 Nos. 20-1826 & 20-1830
HAMILTON, Circuit Judge, concurring. This case tends to
confirm an almost tongue-in-cheek definition of directors and
officers liability insurance: “Paying a premium now for the
right to sue your insurance carrier later.” Mark Herrmann,
The Curmudgeon’s Guide to Practicing Law 54 (ABA Pub-
lishing 2006).
I join Chief Judge Sykes’ opinion, being persuaded that it
correctly applies the insurance policy’s broad definitions of
“claims,” “related wrongful acts,” and “related claims.” I
write to highlight three practical implications.
First, this decision creates a powerful incentive for any
company with a claims-made D&O policy to give the insurer
notice of even the most minor claims, including those against
only the company. As this case shows, an initial claim that
looks minor and manageable can sometimes morph into a
monstrous threat not only to the company but also to individ-
ual directors and officers personally. If that happens, failure
to give notice of the original minor claim against only the
company will leave the insureds without defense or coverage
for the larger threat that emerges later.
The original declaratory judgment action filed by the es-
tate of Jane Dunteman in August 2017 was quite narrow. It
sought relief against only the company, Du-Kane Asphalt.
And rather than seeking damages, the estate sought only a
declaration as to whether, at the time of her death, Jane
Dunteman had owned 24% of Du-Kane Asphalt or just 10%.
But a year later, when the estate moved for leave to file its
second amended complaint, the scope of the lawsuit ex-
panded by at least an order of magnitude. The amended com-
plaint added individual defendants, and it added allegations
of many new and serious wrongful acts separated from the
Nos. 20-1826 & 20-1830 17
original stock-ownership events by many years. Since the in-
surer and this court are treating all of those additions as re-
lated to the original stock-ownership claim, the insured com-
pany’s incentive to flood the D&O insurer with notice of even
seemingly minor claims (even well within a policy deducti-
ble) becomes powerful indeed.
Second, and closely related, the pattern in this case will
give outside directors incentives to pressure management to
make sure the company gives notice of such minor claims as-
serted against only the company. D&O insurance coverage
can be a valuable benefit for those who serve as directors. Un-
der the approach we endorse here, however, directors can
lose coverage for their personal defense and personal liability
if, through no involvement or fault of the directors, the com-
pany fails to give the insurer timely notice of a minor claim
against only the company. If that minor claim later morphs
into the larger threat, it may then be too late to give notice to
invoke D&O coverage.
Third, the reasoning of this decision cuts both ways. Sup-
pose an insured like Du-Kane Asphalt does provide timely
notice of something like the original, rather minor claim in the
estate’s original complaint for a declaratory judgment. Under
our reasoning, that notice may trigger coverage for the much
larger, more extensive, and more complex “related claims.”
That coverage would apply to the new claims adding new de-
fendants and arising from events that occurred years later,
and it would apply even if the new claims were added to a
pending lawsuit long after the policy period for the claims-
made policy. We cannot know whether the insurer here, if it
had been given timely notice of the original declaratory judg-
ment action, would actually have embraced that consequence
18 Nos. 20-1826 & 20-1830
of such broad coverage. The direction of the insurer’s logic,
however, is clear.