                             In the
 United States Court of Appeals
              For the Seventh Circuit
                         ____________

Nos. 07-1245 & 07-1464
FEDERAL INSURANCE COMPANY,
                             Plaintiff-Appellant, Cross-Appellee,

                                 v.

ARTHUR ANDERSEN LLP and LARRY J. GORRELL,
                       Defendants-Appellees, Cross-Appellants.
                        ____________
           Appeals from the United States District Court
       for the Northern District of Illinois, Eastern Division.
               No. 03 C 1174—Amy J. St. Eve, Judge.
                         ____________
     ARGUED FEBRUARY 20, 2008—DECIDED APRIL 9, 2008
                         ____________


 Before EASTERBROOK, Chief Judge, and BAUER and
WOOD, Circuit Judges.
  EASTERBROOK, Chief Judge. When the accounting firm
Arthur Andersen was indicted in the wake of Enron’s
collapse, it lost most of its clients. Active accountants
could move to other firms, whose business boomed after
the Sarbanes–Oxley Act compelled firms to purchase
more accounting services than ever before. Retirees,
however, were in trouble, for Arthur Andersen’s pension
plan was unfunded. Although ERISA requires plans
2                                   Nos. 07-1245 & 07-1464

within its scope to be established as trusts and funded
either fully (for defined-contribution plans) or according
to a formula (for defined-benefit plans), the statute covers
only plans for “employees.” Arthur Andersen treated its
senior accountants as “partners” rather than “employees”
and thus as outside of ERISA.
  For many years Arthur Andersen capitalized the retirees’
benefits and disbursed lump sums on request. (Whether
that was the retirees’ contractual right, or just an accom-
modation that the firm was free to discontinue, was
hotly disputed but is not pertinent now.) With the firm’s
collapse looming, retirees en masse demanded lump-sum
distributions. That created the equivalent of a run on a
bank. If Arthur Andersen paid 100% to the retirees who
got in line first, the rest stood to receive nothing. If it
stopped all lump-sum distributions, then it might be able
to pay some portion of all retirees’ claims—and perhaps
more in the aggregate than it could distribute if it fol-
lowed a first-come, first-served policy. So Arthur Andersen
told its retirees that it would continue monthly pension
payments but would not honor any requests for lump-
sum distributions, though it would explore the possibility
of cashing out all retirees at a reduced level.
  Litigation ensued. The first two complaints were filed in
March 2002. The parties call that litigation the Buchholz/
Bryce proceeding after the two lead plaintiffs. They alleged,
among other things, that the retirees had been employees
rather than partners, that ERISA therefore required retire-
ment benefits to be funded through a trust, and that Arthur
Andersen is liable for breach of this statutory duty. Those
claims potentially came within the scope of insurance
policies such as the one issued by Federal Insurance Co.,
which covered negligent or deliberate breach of fiduciary
Nos. 07-1245 & 07-1464                                     3

duties owed to retirees. In May 2002 Arthur Andersen’s
insurance broker first informed Federal Insurance about
the Buchholz/Bryce litigation. The letter told Federal Insur-
ance (and several other insurers) about the suits, stated
that Arthur Andersen had retained Mayer, Brown, Rowe
& Maw (now Mayer Brown LLP) to represent it, and
directed the insurers to deal with Arthur Andersen on this
matter through the broker rather than through Mayer
Brown. The broker did not ask Federal Insurance to
provide a defense (Mayer Brown already was doing that)
but did ask it to “confirm coverage” and chip in toward
the cost of Mayer Brown’s services. Federal Insurance
replied within a week that it was reserving its rights, and
it asked for a copy of the partnership agreement (so that
it could evaluate the plaintiffs’ claims) and a schedule of
Mayer Brown’s rates.
  Follow-up requests were unavailing until August 2002,
when the broker finally provided Federal Insurance with
the information—plus the news that the Buchholz/Bryce
complaint had been dismissed by the plaintiffs, who (the
broker said) planned to inaugurate arbitration instead.
Since there was neither a suit nor an arbitration pend-
ing—at least none of which Federal Insurance had been
notified—nothing happened for the next month.
  In September 2002 the broker told Federal Insurance
that there was indeed another complaint, the Waters suit,
which had been filed in a California court in July 2002.
Once again the letter did not request a defense but did ask
Federal Insurance to consent to Mayer Brown’s role as
Arthur Andersen’s lawyer. In November Arthur Andersen
proposed a compromise to all retirees and wrote to its
insurers that it needed at least $75 million from them to
fund a settlement; it asked Federal Insurance to pay the
4                                     Nos. 07-1245 & 07-1464

policy limit of $25 million. But Federal Insurance had
read the Waters complaint and learned that it did not make
any claim that Arthur Andersen (or any of its managers)
had acted negligently or breached any fiduciary duty.
Waters was a pure contract action: the complaint asserted
that every retiree was entitled by contract to immediate
distribution of retirement funds. Federal Insurance’s
policy excludes claims for retirement benefits due under
contracts, and it told Arthur Andersen that it would not
contribute toward a settlement fund. In January 2003
Arthur Andersen settled with most retirees for $168
million (the rest settled in 2006 for a further $63 million),
a fraction of the outstanding retirement balances.
  When Federal Insurance filed this diversity action in
February 2003, seeking a declaration that it was not
required to defend or indemnify Arthur Andersen, it
was met with a response (and counterclaim) seeking
indemnity not only under the policy’s terms but also on a
theory of estoppel because of failure to participate in the
defense of the suits. The district judge wrote a comprehen-
sive opinion, 2005 U.S. Dist. LEXIS 15706 (N.D. Ill. Aug. 2,
2005), that reached two fundamental conclusions: first,
the policy did not require Federal Insurance to indemnify
Arthur Andersen for payments to the retirees, but, sec-
ond, its failure to provide a defense coupled with its delay
in filing the declaratory-judgment action might require it
to pay anyway, as a matter of Illinois law (which the
parties agree supplies the rule of decision).
  A jury trial was held. The jury decided that, for the
most part, Federal Insurance’s delay was justifiable, but
that it should have acted earlier with respect to the Waters
suit and some other retirees’ actions. After trial, the district
judge granted judgment as a matter of law, see Fed. R. Civ.
Nos. 07-1245 & 07-1464                                    5

P. 50, in favor of Federal Insurance with respect to every-
thing other than the Waters claim, because the additional
matters on which the jury found against Federal Insur-
ance had not begun until after February 2003, and Federal
Insurance could not have been deemed to tarry unduly
concerning those.
  Federal Insurance was ordered to pay Arthur Andersen
approximately $5 million to cover the cost of settling the
claims of the retirees who had joined in Waters; other-
wise judgment went in favor of Federal Insurance. Both
sides have appealed. We take up the Waters claim first,
because if Federal Insurance prevails on that claim it
wins everything else too.
  Like the district court, we conclude that the policy does
not call for indemnity. It defines as a covered loss any
injury caused by negligence or a breach of fiduciary duty.
The retirees were not injured in that way; their problem
stemmed from Arthur Andersen’s business and legal
difficulties. (The firm ultimately prevailed in the crim-
inal prosecution, see Arthur Andersen LLP v. United States,
544 U.S. 696 (2005), but never recovered in the market.) In
bank-run situations, a fiduciary does exactly what Arthur
Andersen did: it defers payments so that all creditors
can be treated alike and may receive a higher percentage
of their investments than would be possible if the fiduciary
liquidated assets on short notice to pay the early demand-
ers immediately and in full.
  The policy’s exclusion for pension benefits also applies.
Even if, as Arthur Andersen insists, the firm had a right
to reduce or eliminate the benefits, the fact remains that
the settlement reflects the present value of the pension
promises (less a haircut reflecting Arthur Andersen’s
business distress) rather than damages for anyone’s
6                                   Nos. 07-1245 & 07-1464

misconduct. No insurer agrees to cover pension benefits;
moral hazard would wipe out the market. As soon as it had
purchased a policy, the employer would simply abandon
its pension plan and shift the burden to the insurer.
Knowing of this incentive, the insurer would set as a
premium the policy’s highest indemnity, and no “insur-
ance” would remain. Illinois would not read a policy in a
way that made it impossible for people to buy the insur-
ance product they want (here, coverage of negligence
and disloyalty by pension fiduciaries). See Level 3 Com-
munications, Inc. v. Federal Insurance Co., 272 F.3d 908 (7th
Cir. 2001) (Illinois law).
  There is one more reason why Federal Insurance need
not indemnify Arthur Andersen for what it agreed to pay
the retirees. A clause in the policy commits Arthur
Andersen not to settle any claim for more than $250,000
without Federal Insurance’s “written consent, which
shall not be unreasonably withheld.” (The full text of this
clause, and of the policy’s other material terms, appears
in the district court’s opinion.) Arthur Andersen didn’t ask
for the consent or even the comments of its insurers; it
presented the deal to them as a fait accompli. By cutting
Federal Insurance out of the process, Arthur Andersen
gave up any claim to indemnity—unless state law makes
the policy’s coverage clauses and exclusions irrelevant.
  Illinois requires an insurer to provide a prompt defense
on the insured’s demand or initiate a declaratory-judgment
action; it treats undue delay in doing one or the other
of these things as a forfeiture of any right to benefit from
limitations on the policy’s scope. See Employers Insurance
of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127,
150–51, 708 N.E.2d 1122, 1134–35 (1999). The jury con-
cluded that the delay between notice of the Waters action
Nos. 07-1245 & 07-1464                                  7

in September 2002 and the declaratory-judgment action
filed in February 2003 was unreasonable. The jury might
have concluded that Federal Insurance learned, or
should have learned, of the Waters action in July 2002;
Arthur Andersen says that the insurer should have acted
without waiting for a request from the broker. To simplify
matters we assume that this is so and that the countable
delay was seven or eight months.
   Treating eight months as excessive is questionable. The
state decisions on which Arthur Andersen relies involve
longer waits. Although Arthur Andersen relies on a
statement in Ehlco that delay is unreasonable as a matter
of law when the insurer does not file until the case has
been settled (186 Ill. 2d at 157, 708 N.E.2d at 1138), the
Supreme Court of Illinois did not consider in Ehlco
whether this is so when the insured settles the litigation
so swiftly that even a diligent insurer would not have
had time to discuss coverage questions with the client out
of court. Some suits are settled the day they are filed;
we doubt that the Supreme Court of Illinois meant that
such pre-packaged resolutions (common in bankruptcy)
require insurers to pay their policy limits, even though
the policies do not cover the loss and they had no chance
to evaluate the claims before the settlements occurred.
Had Arthur Andersen complied with the policy’s re-
quirement that any settlement over $250,000 be submitted
for the insurer’s review, Federal Insurance could have
filed its declaratory-judgment action before the settle-
ment occurred.
  We need not pursue this issue, however, or ask whether
a reasonable jury could have found that eight months is
unreasonably long. Illinois recognizes an exception to its
estoppel doctrine “[i]f the insured indicates that it does
8                                    Nos. 07-1245 & 07-1464

not want the insurer’s assistance or is unresponsive or
uncooperative”. Cincinnati Cos. v. West American Insurance
Co., 183 Ill. 2d 317, 326, 701 N.E.2d 499, 504 (1998). Arthur
Andersen’s insurance broker did not respond for three
months to the insurer’s reasonable requests for information
needed to evaluate the Buchholz/Bryce claim and the
potential cost of defense. More important, neither the
broker nor Arthur Andersen itself ever asked Federal
Insurance to send a team of lawyers to represent it in the
Buchholz/Bryce suits or the Waters suit.
  Arthur Andersen retained Mayer Brown directly, and,
though it wanted its insurers to pay as much of the bill as
possible, Arthur Andersen made it clear that it would
control both the defense and the law firm conducting
that defense. By not tendering its defense to Federal
Insurance, Arthur Andersen gave up any basis for de-
manding immediate action by the insurer. An insured’s
need to have legal assistance for its defense from the outset
of a suit is the main justification for the rule that Illinois
has adopted. When the insured does not want the insurer
to supply a defense (lest the insurer also control the de-
fense), it has no complaint if the insurer takes a while to
contemplate the question of indemnity. The urgent need is
for a defense to the pending suit; liability for indemnity
(the coverage question) can safely be decided later.
  What is more, Federal Insurance did not have a duty to
defend the Waters suit in the first place. The Waters com-
plaint is based on contract and nothing but. Arthur
Andersen concedes that the Waters complaint was trans-
parently outside the scope of the policy. It persuaded the
judge to read the allegations of the Buchholz/Bryce suits
into the Waters complaint, on the theory that similar
fiduciary allegations might have been added to Waters
Nos. 07-1245 & 07-1464                                       9

before it reached judgment. Yet insurers are entitled to
evaluate complaints for what they are, rather than what
they might be. Illinois requires insurers to supply a defense
if a complaint makes allegations within the scope of a
policy, even if the plaintiff is unlikely to prevail; it uses a
four-corners approach to evaluating the obligation to
defend. United States Fidelity & Guaranty Co. v. Wilkin
Insulation Co., 144 Ill. 2d 64, 578 N.E.2d 926 (1991). Just so
when the complaint omits any allegations within the
policy’s scope.
   True enough, we observed in Travelers Insurance Co. v.
Penda Corp., 974 F.2d 823 (7th Cir. 1992) (Illinois law), that
a court may consider the allegations of one complaint when
trying to interpret the scope of a related complaint. But
this means of resolving ambiguities does not come into
play when a complaint is unambiguous. Penda and the
Illinois cases it discusses do not compel insurers to reach
outside a straightforward complaint on peril of estoppel or
waiver. As we observed: “Focusing on the complaint is
necessary because the insurer must determine whether it
has an obligation to defend at the outset of the litigation.”
974 F.2d at 827.
  The parties have filed lengthy briefs addressing many
collateral points, but from our perspective none of them
matters. Arthur Andersen had a defense to the retirees’
suits and neither needed nor wanted Federal Insurance’s
involvement. Thus the time it took Federal Insurance to
commence a declaratory-judgment action does not pre-
vent it from enforcing the policy’s terms. All Arthur
Andersen cared about was reimbursement for outlays
(both counsel and settlement) that it had decided to make
without the insurer’s involvement. The policy that
Arthur Andersen purchased does not cover the retirees’
10                                  Nos. 07-1245 & 07-1464

claims to pensions, however, and though it did cover the
fiduciary claims made in the Buchholz/Bryce litigation the
settlement is for (a portion of) the promised retirement
benefits rather than harms caused by careless or disloyal
fiduciaries.
  The judgment is affirmed, except with respect to
the Waters plaintiffs. With respect to those retirees it is
reversed.




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