Case: 1:15-cv-04880 Document #: 1 Filed: 06/03/15 Page 1 of 11 PageID #:1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

DHR INTERNATIONAL, INC.,

Plaintiff,
v.
TRAVELERS CASUALTY AND SURETY
COMPANY OF AMERICA,
Defendant.

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Case No.

JURY TRIAL DEMANDED

COMPLAINT
Plaintiff, DHR International, Inc. (DHR) by and through its undersigned counsel and
for its Complaint against Defendant, Travelers Casualty and Surety Company of America
(Travelers), alleges as follows:
I.
1.

INTRODUCTION

Travelers issued an insurance policy to DHR requiring Travelers to defend and

indemnify DHR against Claims falling within coverage afforded under the subject policy.
2.

Three of DHRs former employees have sued DHR in separate actions for, among

other things, wrongful termination.

3.

DHR seeks a declaratory judgment relating to one such underlying action, styled

Barge v. DHR, (i) that there is a conflict of interest between Travelers and DHR, (ii) that DHR is
entitled to independent defense counsel, (iii) that Travelers had, and breached, a duty to inform
DHR of its right to independent counsel, and (iv) that Travelers is estopped from asserting any
coverage defenses.

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4.

In addition, DHR seeks a declaratory judgment that the three underlying actions

must be considered one Claim subject to one Retention under the policy Travelers issued to
DHR.
5.

DHR also seeks damages for Travelerss breach of its duty to defend and for its

vexatious and unreasonable conduct under 215 ILCS 5/155.

II.
6.

THE PARTIES

Plaintiff DHR, an executive search firm, is a Delaware corporation with its

principal place of business in Chicago, Illinois.

7.

Defendant Travelers is incorporated in Connecticut with its principal place of

business in Hartford, Connecticut. Travelers is licensed by the Illinois Department of Insurance

to do business in Illinois.
III.
8.

JURISDICTION AND VENUE

This Court has subject matter jurisdiction under 28 U.S.C. 1332(a)(1), as DHR

and Travelers are citizens of different states and the matter in controversy exceeds the sum of
$75,000, exclusive of interest and costs.
9.

Venue is proper under 28 U.S.C. 1391(b)(2) because a substantial part of the

events or omissions giving rise to the claim occurred in this District.

IV.
A.
10.

FACTS

Underlying Litigation

On April 24, 2014, DHR filed a civil action against Charlson, styled DHR

International, Inc. v. Adam D. Charlson, in the U.S. District Court for the Northern District of
California. In its complaint, DHR alleged, among other things, that Charlson breached his

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fiduciary duties to DHR by scheming with an outside consultant to move DHRs West Coast
operations to one of DHRs competitors for Charlsons own benefit.
11.

On May 28, 2014, Charlson filed a civil action, styled Adam Charlson v. DHR

International, Inc., et al., against DHR and others in California state court. In his complaint,
Charlson alleged, among other things, that DHR wrongfully terminated him.
12.

On July 2, 2014, the defendants removed Charlsons state court action to the U.S.

District Court for the Northern District of California. On July 9, 2014, that Court consolidated
the removed case with DHR v. Charlson under Case No. 4:14-CV-1899-PJH.
13.

The parties to these two cases reached a settlement and are still finalizing the

settlement agreement as of the date of the filing of this Complaint.

14.

On June 16, 2014, Torres filed a civil action, styled Angela Torres v. DHR

International, Inc. and Does I through XX, Inclusive in California state court. In her complaint,
Torres alleges, among other things, that DHR wrongly terminated her.

Torres frames her

termination in the context of Charlsons termination and her association with him.
15.

On or about January 29, 2015, Kristen Barge filed a Charge of Discrimination

against DHR with the California Department of Fair Employment and Housing (the DFEH).
On January 29, 2015, the DFEH dismissed the Charge and issued a right to sue letter.
16.

On March 12, 2015, Barge filed a civil action styled Kristen Barge v. DHR

International, and Does 1 through 25, Inclusive in the U.S. District Court for the Northern
District of California under Case No. 3:15-CV-1183-EDL. In her complaint, Barge alleges,
among other things, that DHR wrongfully terminated her and failed to pay her certain wages.
Barge also alleges that once Charlson informed her that DHR terminated him, Barge called DHR
and learned that she too had been terminated.

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B.
17.

The Travelers Policy

Travelers issued Policy No. 106084350 to DHR for the Policy Period April 7,

2014 to May 1, 2015 (the Policy). A copy of the Policy is attached hereto as Exhibit A.
18.

DHR is an Insured under the Policy.

19.

The Policy affords Directors and Officers (D&O) Liability Coverage,

Employment Practices Liability (EPL) Coverage, and Fiduciary Liability (FL) Coverage.
20.

The Policy has a $5,000,000 aggregate Limit of Liability, inclusive of Defense

Expenses.
21.

The Policy imposes on Travelers the duty to defend any Claim covered by one or

more of the Policys Liability Coverages, even if the allegations in the Claim are groundless,
false, or fraudulent.
22.

The Policy also includes the following provisions:

LIABILITY COVERAGE TERMS AND CONDITIONS

II.

DEFINITIONS

Wherever appearing in this Liability Policy, the following words and

phrases appearing in bold type will have the meanings set forth in this
Section II. DEFINITIONS:
E.

Claim has the meaning set forth in the applicable Liability

Coverage.
***

X.

Related Wrongful Act means all Wrongful Acts that have

as a common nexus, or are causally connected by reason of,
any fact, circumstance, situation, event or decision.
***

AA.

Wrongful Act has the meaning set forth in the applicable

Liability Coverage.

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***
III.

CONDITIONS
H. RELATED CLAIMS
All Claims or Potential Claims for Related Wrongful Acts will
be considered as a single Claim or Potential Claim, whichever is
applicable, for purposes of this Liability Policy. . . .
***
EMPLOYMENT PRACTICES LIABILITY COVERAGE

II.

DEFINITIONS

Wherever appearing in this Liability Coverage, the following words and

phrases appearing in bold type will have the meanings set forth in section
II. DEFINITIONS:
A.

Claim means an Employment Claim . . .

***

X.

Wrongful Act means:

1. a Wrongful Employment Practice occurring in the
course of or arising out of a Claimant's employment,
application for employment or performance of services
with the Insured Organization; . . .
All Related Wrongful Acts are a single Wrongful Act for
purposes of this Liability Coverage, 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.
***

Y.

Wrongful Employment Practice means any actual or

alleged:
5.

Wrongful Termination;
***

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Z.

23.

Wrongful Termination means the actual, alleged or

constructive termination of an employment relationship
between a Claimant and the Insured Organization, or the
actual or constructive termination of an employment
relationship between an Outside Claimant and an Outside
Entity, in a manner or for a reason which is contrary to
applicable law or public policy, or in violation of an
Employment Agreement.

In addition, each EPL Claim is subject to a $100,000 Retention.

C.

24.

Barge Reservation of Rights Letter

In a March 3, 2015 letter, Travelers acknowledged receipt of Barges DFEH

Charge and agreed to defend DHR against Barges claims, subject to a reservation of rights (the
Reservation of Rights Letter). The Reservation of Rights Letter, which Travelers has not
amended or supplemented, is attached hereto as Exhibit B.
25.

In its Reservation of Rights Letter, Travelers acknowledged that Barges

allegations implicate the EPL Liability Coverage, and that Travelers thus has a duty under the
Policy to defend DHR.
26.

After admitting that the Policy potentially covers at least some of Barges claims,

Travelers identified in its Reservation of Rights Letter several possible coverage defenses.
27.

In particular, Travelers reserved its right to disclaim liability for any Loss, other

than Defense Expenses, excluded from coverage pursuant to Exclusions B.1. and B.2. of the
Policy. In addition, Travelers reserved its right to disclaim liability for any damages that do not
qualify as Loss within the meaning of the Policy. Travelers also reserved its rights pursuant to
the Policys Wage and Hour Law Endorsement.
28.

After noting these coverage defenses, Travelers agreed to provide a defense to its

Insured(s) . . . under a full reservation of rights.

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29.

Travelers reservation of rights created a conflict of interest that entitled DHR to

independent defense counseli.e., counsel representing solely DHRs interestsrather than

defense counsel of Travelers choosing. In its Reservation of Rights Letter, Travelers did not
inform DHR of its right to independent counsel.
D.
30.

Travelers Appoints Defense Counsel

On February 23, 2015, DHR requested that Travelers appoint independent defense

counsel. Travelers refused DHRs request and assumed control over the defense by appointing
Travelers panel counsel, Freeman Mathis & Gary, LLP (Freeman Mathis).
31.

On May 5, 2015, DHR again requested that Travelers appoint independent

defense counsel, in particular, the law firm of Ruberry, Stalmack & Garvey, LLC (RSG). RSG
defended DHR in the Charlson matter and is currently defending DHR in the Torres matter.
Appointing RSG as defense counsel in the Barge matter was logical because Barges claims
against DHR are similar to, and inextricably intertwined with, Charlsons and Torres claims
against DHR. Travelers has not responded to this request, nor to DHRs May 14, 2015 followup letter.
COUNT I DECLARATORY RELIEF RIGHT TO
INDEPENDENT COUNSEL IN BARGE
32.

DHR realleges and incorporates as if fully stated herein the allegations in

Paragraphs 1 through 31 of this Complaint.

33.

This Court may declare the rights and other legal relations of the parties under 28

U.S.C. 2201(a) because an actual controversy exists between the parties concerning their
respective rights and obligations under an insurance policy that Travelers issued to DHR in
Illinois, and concerning the legality of Travelers actions in response to a claim under that
insurance policy.
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34.

Under the Policy, Travelers has at all times had a duty to defend DHR against

Barges claims. Travelers has acknowledged its duty to defend, and is defending DHR under a
reservation of rights.
35.

Travelers reservation of rights created a conflict of interest between Travelers

and DHR. Because of the conflict of interest, DHR was entitled to independent defense counsel
from March 3, 2015, the date of Travelers Reservation of Rights Letter, forward. Travelers
breached its duty to provide DHR independent defense counsel.
36.

In addition, as soon as the conflict arose, Travelers had a duty to inform DHR of

the conflict of interest and its right to independent counsel. Travelers breached this duty as well.
37.

Travelers Reservation of Rights Letter created a conflict of interest between

Travelers and DHR, yet Travelers controlled the defense by appointing defense counsel of its
own choosing and failed to advise DHR of its right to independent counsel. Travelers, therefore,
is estopped from raising any coverage defenses and is liable to DHR for all of its resultant
damages.
38.

DHR is, thus, entitled to a declaration that (i) Travelers Reservation of Rights

Letter created a conflict of interest between Travelers and DHR; (ii) DHR has been entitled to
independent defense counsel of its choosing at Travelers expense from March 3, 2015, the date
of Travelers Reservation of Rights Letter, forward; (iii) Travelers had, and breached, a duty to
advise DHR of its right to independent counsel; and (iv) as a result of its failure to appoint
independent defense counsel and its failure to properly reserve its rights, Travelers is estopped
from asserting any coverage defenses to Barges claims.

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COUNT II DECLARATORY RELIEF SINGLE RETENTION

39.

DHR realleges and incorporates as if fully stated herein the allegations in

Paragraphs 1 through 38 of this Complaint.

40.

Under the Policy, EPL Claims are subject to a $100,000 per Claim Retention.

41.

The plaintiffs in each of the three actionsCharlson, Torres, and Bargeallege

Wrongful Termination.
42.

The three alleged Wrongful Terminations are Related Wrongful Acts because

they have as a common nexus, or are causally connected by reason of, any fact, circumstance,
situation, event or decision.
43.

The three actions are inextricably intertwined because they all arise out of

Charlson, Torres, and Barges common scheme of disloyalty against DHR and DHRs decision
to terminate them all at once for their disloyalty.
44.

DHR is, thus, entitled to a declaration that the Charlson, Torres, and Barge

actions are for Related Wrongful Acts and, thus, must be considered as a single Claim
subject to one Retention under the Policy.
COUNT III BREACH OF CONTRACT (DUTY TO DEFEND)
45.

DHR realleges and incorporates as if fully stated herein the allegations in

Paragraphs 1 through 44 of this Complaint.

46.

Under the Policy, Travelers has at all times had a duty to defend DHR against

Barges claims. Travelers has acknowledged its duty to defend, and defended DHR under a
reservation of rights.
47.

Travelers reservation of rights created a conflict of interest between Travelers

and DHR. Because of the conflict of interest, DHR was entitled to independent defense counsel

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from March 3, 2015, the date of Travelers Reservation of Rights Letter, forward. Travelers
breached its duty to provide DHR independent defense counsel.
48.

In addition, as soon as the conflict arose, Travelers had a duty to inform DHR of

the conflict of interest and its right to independent counsel. Travelers breached this duty as well.
49.

Travelers breached its duty to defend by failing to appoint independent defense

counsel and by failing to advise DHR of its right to independent defense counsel. As a result,
DHR suffered damages. These damages include the attorneys fees and costs DHR incurred in
pursuing its right to independent counsel.
COUNT IV VIOLATION OF 215 ILCS 5/155
50.

DHR realleges and incorporates as if fully stated herein the allegations in

Paragraphs 1 through 49 of this Complaint.

51.

Since DHR tendered the Barge Claim to Travelers for coverage and a defense,

Travelers conduct toward DHR has been, and remains, vexatious and unreasonable, in that
Travelers (i) deprived DHR of its right to independent counsel, (ii) failed to respond to multiple
letters from DHR, and (iii) refused to communicate with DHR about its right to independent
counsel.
52.

DHR was forced to file this suit in order to protect its rights.
PRAYER FOR RELIEF

WHEREFORE, DHR respectfully request this Court to:

A.

Declare that Travelers Reservation of Rights Letter created a conflict of interest

between Travelers and DHR;

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B.

Declare that DHR has been entitled to independent defense counsel of its

choosing in the Barge matter at Travelers expense from March 3, 2015, the date of Travelers
Reservation of Rights Letter, forward;
C.

Declare that Travelers had, and breached, a duty to advise DHR of its right to

independent counsel;
D.

Declare that, as a result of its failure to appoint independent defense counsel and

its failure to properly reserve its rights, Travelers is estopped from asserting any coverage
defenses to Barges claims;
E.

Declare that the Charlson, Torres, and Barge actions are for Related Wrongful

Acts and, thus, must be considered as a single Claim subject to one Retention under the Policy;
F.

Award DHR all the damages it suffered due to Travelers breach of its duty to

defend, including all of the reasonable attorneys fees and costs that DHR incurred in pursuing
its right to independent counsel.
G.

Award DHR the maximum amount allowable under 215 ILCS 5/155; and

H.

Grant any other relief that this Court deems just and equitable under the

circumstances.
Dated: June 3, 2015

Respectfully submitted,
/s/ Edward F. Ruberry
Edward F. Ruberry (ARDC # 2411547)
Ellen D. Jenkins (ARDC # 6231011)
Zachary P. Mulcrone (ARDC # 6300387)
RUBERRY, STALMACK & GARVEY, LLC
500 W. Madison Street, Suite 2300
Chicago, IL 60661
(312) 466-8050
Ed.Ruberry@rsg-law.com
Counsel for Plaintiff
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