MINNESOTA LAWYERS MUTUAL INSURANCE COMPANY v. CONOUR et al

Filing 166

ENTRY ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND MOTIONS FOR DEFAULT JUDGMENT: The Plaintiff's motion for summary judgment is GRANTED. The Plaintiff's motions f or default judgment are also GRANTED. The Court, however, is withholding final judgment in this matter pending the disbursement of the funds tendered to the Clerk by MLM (i.e., $16,337.00 plus interest). The Court takes judicial notice of the criminal proceedings against Conour and the fact that Conour is under a Restitution Order by the criminal court. See United State s v. Conour, 1:12-cr-129-RLY-TAB, Dkt. No. 178 (S.D. Ind.). The Clerk shall thus send a copy of this Entry to the Assistant United States Attorney representing the Government in the criminal matter and noted in the distribution list below. The parties and the Assistant United States Attorney shall have thirty days from the date of this Entry to advise the Court on how the funds should be disbursed (see Entry for additional information). Copy to William F. Conour and Gail L. Noll via US Mail. Signed by Judge William T. Lawrence on 10/8/2014. (SWM)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
MINNESOTA LAWYERS MUTUAL
INSURANCE COMPANY,
Plaintiff,
vs.
WILLIAM F. CONOUR, et al.
Defendants.

)
)
)
)
)
)
)
)
)
)

Cause No. 1:12-cv-1671-WTL-MJD

ENTRY ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
AND MOTIONS FOR DEFAULT JUDGMENT
This cause is before the Court on the motion for summary judgment (dkt. no. 154) and
the motions for default judgment (dkt. nos. 148-153) filed by Plaintiff Minnesota Lawyers
Mutual Insurance Company (“MLM”). The motions are ripe for ruling, 1 and the Court, being
duly advised, GRANTS the motions for the reasons set forth below.
I.

STANDARD FOR SUMMARY JUDGMENT

Federal Rule of Civil Procedure 56(a) provides that summary judgment is appropriate “if
the movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” In ruling on a motion for summary judgment, the Court
accepts as true the admissible evidence presented by the non-moving party and draws all
reasonable inferences in the non-movant’s favor. Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir.
2009). However, “[a] party who bears the burden of proof on a particular issue may not rest on
its pleadings, but must affirmatively demonstrate, by specific factual allegations, that there is a
genuine issue of material fact that requires trial.” Id. Finally, the non-moving party bears the

1

Each of MLM’s motions is unopposed.

burden of specifically identifying the relevant evidence of record, and “the court is not required
to scour the record in search of evidence to defeat a motion for summary judgment.” Ritchie v.
Glidden Co., 242 F.3d 713, 723 (7th Cir. 2001).
II.

BACKGROUND

On April 27, 2012, Defendant William Conour was charged by criminal complaint in the
United States District Court for the Southern District of Indiana with misappropriating client
funds in violation of 18 U.S.C. § 1343. 2 The complaint alleged, in part, that Conour ran a socalled “Ponzi scheme” with clients’ settlement funds and converted a large portion of those
settlement funds to his own use and benefit. Shortly thereafter, the Disciplinary Commission of
the Supreme Court of Indiana instituted disciplinary proceedings against Conour. Conour
eventually resigned from the Indiana Bar, and the disciplinary proceedings against him were
dismissed on June 28, 2012.
On July 15, 2013, Conour pled guilty to one count of wire fraud. During his
change of plea hearing, he admitted that:
Beginning as early as 1999 and continuing through April 2012, in Hamilton and
Marion Counties and elsewhere in the Southern District of Indiana, [he] . . .
knowingly devised and participated in a scheme to defraud and to obtain money
and funds from his clients and others by means of materially false and fraudulent
pretenses, representations, and promises . . .
It was part of the scheme that after receiving settlement funds on behalf of some
clients, [he] convinced the clients to accept monthly payments over a period of
years rather than to accept a lump sum payment. [He] created trust accounts for
the clients through State Bank & Trust, doing business as Reliance Financial
Services, and Ohio Financial Institution, to facilitate the monthly payments.
Rather than depositing the entire amount of settlement funds with Reliance, [he]
funded the trusts only on a yearly basis, thereby unlawfully keeping for his own
use and benefit the bulk of the settlement proceeds totaling more than $3 million.

2

See United States v. Conour, 1:12-cr-129-RLY-TAB (S.D. Ind.).
2

It was further part of the scheme that after receiving settlement funds on behalf of
some clients, [he] failed to notify the clients that he had received settlement funds
on their behalf, and in some cases falsely denied that he had received any
settlement funds. Thereafter, [he] unlawfully converted the settlement funds to his
own use and benefit and, in part, used the settlement funds obtained for some
clients to make settlement payments to other clients.
It was further part of the scheme that [he] stole, misappropriated, and unlawfully
converted to his own use more than $4,500,000 belonging to more than 25 clients.
On or about October 6, 2011, in the Southern District of Indiana and elsewhere,
[he], for the purpose of executing the above-described scheme, knowingly caused
to be transmitted in interstate commerce, by wire communication, certain
writings, signs, and signals, namely a facsimile transmission from his office in
Indianapolis, Indiana to Zurich American Insurance in New Jersey, which
contained [a client’s] release and indemnification agreement.
Dkt. No. 155-5 at 12-14. Conour was thereafter sentenced to 120 months in prison and ordered to
pay restitution to the client-victims.
Prior to that, MLM issued a series of claims made and reported attorney malpractice
insurance policies to Conour’s law firms beginning in 2007. The MLM policy number, named
insured, and effective policy dates of each of the MLM policies were as follow:
Policy No. 27625 01
Named Insured: Conour Law Firm, LLC d/b/a Conour-Daly, Attorneys
Effective: 09/29/07 – 09/29/08 (the “2007-2008 Policy”)
Policy No. 27625 02
Named Insured: Conour Law Firm, LLC
Effective: 09/29/08 – 09/29/09 (the “2008-2009 Policy”)
Policy No. 27625 03
Named Insured: Conour Law Firm, LLC
Effective: 09/29/09 – 10/01/10 (the “2009-2010 Policy”)
Policy No.1-M2K-27625-4
Named Insured: Conour Devereux Hammond
Effective: 10/01/10 – 10/01/11 (the “2010-2011 Policy”)
Policy No. 27625 05
Named Insured: Conour Devereux
Effective: 10/01/11 – 10/01/12 (the “2011-2012 Policy”)

3

The policies are collectively referred to as the “MLM Policies,” and the named insureds are
collectively referred to as the “Conour Law Firms.”
In deciding whether to issue the MLM Policies to the Conour Law Firms, MLM relied
upon statements (and omissions) made by Conour and the Conour Law Firms in various
applications, requests, certifications, and warranties that were provided to MLM. Prior to issuing
the MLM Policies, “MLM had no knowledge that Conour was embezzling, misappropriating or
converting clients’ funds.” Dkt. No. 155-1 at ¶ 27. Indeed, “MLM would not have issued any of
the MLM Policies if Conour had disclosed that he was embezzling, misappropriating or
committing conversion of clients’ funds, regardless of whether or not Conour intended to pay
back his clients the money he had taken.” Id. at ¶ 30.
The 2007-2008 Policy, 2008-2009 Policy, 2009-2010 Policy, and 2010-2011 Policy
expired without any claims being made or reported. 3 On May 24, 2012, approximately one
month after the United States initiated wire fraud charges against him, Conour wrote a letter to
MLM’s claims department advising it of “possible claims that may exist against [his] law firm”
regarding “discrepancies in the firm trust account.” Dkt. No. 39-10. He advised, however, that
“[n]o claims [had] yet been filed.” Id. He did not mention the pending criminal charge. On
September 28, 2012, Conour notified MLM by letter of “[p]otential legal negligence claims
against [him]” by several former clients. Dkt. No. 39-11. Again, however, he did not mention the
wire fraud charge. On October 31, 2012, Conour provided MLM with suit papers filed by one of

3

Again, MLM issued claims made and reported policies as opposed to “occurrence”
policies to Conour’s law firms. “Claims-made and occurrence-based insurance policies insure
different risks. ‘In the occurrence policy, the risk is the occurrence itself. In the claims made
policy, the risk insured is the claim brought by a third party against the insured.’” Med.
Protective Co. v. Kim, 507 F.3d 1076, 1082 (7th Cir. 2007) (quoting Cont’l Cas. Co. v. Coregis
Ins. Co., 738 N.E.2d 509, 518 (2000)).
4

Conour’s former clients, Dustin Webb. 4 At no time did Conour notify MLM of the criminal
complaint or disciplinary action against him.
Thereafter, MLM investigated the “possible claims,” “potential legal negligence claims,”
and the Webb suit. Through its own investigation, MLM discovered the criminal case and the
disciplinary action. On November 12, 2012, MLM notified Conour by letter that it would not be
providing a defense to Conour in the Webb case. It also advised Conour that it would be filing a
declaratory judgment action seeking to rescind the MLM Policies, or alternatively, a
determination of no coverage as to the MLM Policies. The very next day, MLM initiated the
present action against Conour, Conour’s Law Firms (and his partners at those firms), and several
of Conour’s former clients. MLM also tendered a check in the amount of $16,337.00 for deposit
with the Clerk fully refunding the premium payments for the MLM Policies. MLM’s amended
complaint seeking rescission, or in the alternative, a determination of no coverage, was filed on
December 14, 2012. MLM now seeks summary judgment on those issues.
III.

DISCUSSION

MLM argues that it is entitled to rescission of the MLM Policies due to the material
misrepresentations and omissions of Conour and his Law Firms over the years. The Court agrees.
The right to void coverage due to fraud in the making of [an insurance] policy is
well established in the common law. . . . [T]his protects the insurer’s right to
know the full extent of the risk it undertakes when an insurance policy is issued.
Accordingly, a material misrepresentation or omission of fact in an insurance
application, relied on by the insurer in issuing the policy, renders the coverage
voidable at the insurance company’s option.
Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 672 (Ind. 1997) (citation omitted).

4

Webb’s father was killed in a motor vehicle accident; Conour was one of several
attorneys who were retained to provide representation as a result of his death. The parties
ultimately reached a settlement and Conour assumed possession of the settlement proceeds.
Webb alleged that he was not given “his portion of the settlement funds.” Dkt. No. 39-12.
5

Under one definition, a misrepresentation or omission is “material” if knowledge
of the truth would have caused the insurer to refuse the risk or to charge a higher
premium for accepting the risk. . . . This inquiry focuses on whether the
representation was false and material to the decision to issue the policy. Whether
the applicant intended to mislead or knew of the falsity is irrelevant: False
representations, concerning a material fact, which mislead, will avoid an
insurance contract, like any other contract, regardless of whether the
misrepresentation was innocently made or made with a fraudulent design. . . . A
second approach to materiality in a case . . . where rescission is attempted after a
loss has been incurred, would measure the materiality not against the underwriting
decision, but rather against the loss. In other words, coverage of the incurred loss
would be voided if the misrepresentation affected that risk, but not all coverage
would necessarily be voided. Under either view, the materiality of the
representation or omission is a question of fact to be resolved by the factfinder
unless the evidence is such that there can be no reasonable difference of opinion.
Id. at 673 (citations and quotations omitted). Later, the Indiana Court of Appeals determined that
the “second approach applies only to an attempted partial rescission of a policy, and . . . limited
use of [the] second approach to the context of automotive financial responsibility laws.” Allied
Prop. & Cas. Ins. Co. v. Good, 938 N.E.2d 227, 233 (Ind. Ct. App. 2010). MLM is not seeking
partial rescission, and the MLM Policies are not automobile insurance policies. Thus, the first
definition is applicable to this case. Under that definition, it is clear that Conour made several
material misrepresentations and omissions to MLM, which were thereafter relied on by MLM in
issuing the MLM Policies.
In 2007, before MLM issued its first policy to the Conour Law Firms, the Firm answered
“no” to the following question in its insurance application: “Is any firm member aware of any
INCIDENT (whether previously reported or not), which COULD REASONABLY result in a
claim being made against the applicant, its predecessors or any past or present firm members?
The answer should include meritless cases and claims currently not in suit.” Dkt. No. 39-5 at 15.
Conour further certified that “all known claims and all known incidents which might become a
claim have been reported to the present or previous insurance carriers and the applicant has no

6

knowledge of any threatened litigation or existing fact or situation which could result in a claim
being filed against the applicant.” Id. at 23. Conour also certified that he was not “aware of any
claims or circumstances that could result in claims or disciplinary actions that have not been
reported to [MLM].” Id. at 24. Each year thereafter, Conour made similar representations and
certified that there had “been no significant changes in practice or [in] any information contained
in the previously submitted application(s).” See, e.g., Dkt. No. 39-9 at 17. 5
These representations, however, were false. As early as 1999, Conour began operating a
scheme to defraud his clients out of their settlement funds. At no time did he share this
information with MLM. In fact, Conour never notified MLM of the federal wire fraud charge or
the disciplinary action against him.
Moreover, the misrepresentations and omissions of Conour and his Law Firms were
material. “MLM would not have issued any of the MLM Policies if Conour had disclosed that he
was embezzling, misappropriating or committing conversion of clients’ funds, regardless of
whether or not Conour intended to pay back his clients the money he had taken.” Dkt. No. 155-1
at ¶ 30. This fact is not disputed. Accordingly, MLM is entitled to rescission of the MLM
Policies. See also Minnesota Lawyers Mut. Ins. Co. v. Hancock, 600 F. Supp. 2d 702, 704 (E.D.
Va. 2009) (finding that MLM was entitled to rescission of legal malpractice insurance policy
where attorney embezzled money from firm, but represented to MLM that he was not aware of
any incident which could reasonably result in a claim being made against him.). Because MLM
is entitled to summary judgment on this issue, the Court need not address MLM’s alternative
claim seeking a determination of no coverage under the MLM Policies.

5

Although, over the years, the exact language of this certification changed, the meaning
and substance of the certification did not.
7

IV.

MOTIONS FOR DEFAULT JUDGMENT

Also pending are motions for default judgment against the Conour Law Firms and James
and Rhonda Fox. The Clerk entered default against the Conour Law Firms on August 8, 2013,
and against James and Rhonda Fox on February 24, 2014. No monetary damages are sought by
MLM. Therefore, MLM is entitled to default judgment against those Defendants.
V.

CONCLUSION

For the reasons set forth above, the Plaintiff’s motion for summary judgment is
GRANTED. The Plaintiff’s motions for default judgment are also GRANTED.
The Court, however, is withholding final judgment in this matter pending the
disbursement of the funds tendered to the Clerk by MLM (i.e., $16,337.00 plus interest). The
Court takes judicial notice of the criminal proceedings against Conour and the fact that Conour is
under a Restitution Order by the criminal court. See United States v. Conour, 1:12-cr-129-RLYTAB, Dkt. No. 178 (S.D. Ind.). The Court also takes judicial notice of the fact that other funds
being held in Conour’s name have been garnished by that court. Id. at Dkt. No. 172. The Clerk
shall thus send a copy of this Entry to the Assistant United States Attorney representing the
Government in the criminal matter and noted in the distribution list below.
The parties and the Assistant United States Attorney shall have thirty days from the
date of this Entry to advise the Court on how the funds should be disbursed.
SO ORDERED: 10/08/14

_______________________________
Hon. William T. Lawrence, Judge
United States District Court
Southern District of Indiana

8

Copies by U.S. Mail to:
William F. Conour
10620-028
Morgantown Federal Correctional Institution
Inmate Mail/Parcels
P.O. Box 1000
Morgantown, WV 26507
Gail L. Noll
UNITED STATES ATTORNEY’S OFFICE
CENTRAL DISTRICT OF ILLINOIS
318 South Sixth Street
Springfield, IL 62701
Copies to all counsel of record via electronic communication.

9