Judge hands Conseco setback in lawsuit settlement

When Conseco Inc. settled a class-action lawsuit two years ago, it was confident its insurance would cover “a substantial portion” of the $10 million payout.

Think again.

According to a securities filing May 9, RLI Insurance Co. was absolved of any further responsibility toward Conseco by U.S. District Court Judge Larry J. McKinney in Indianapolis. Conseco asked to appeal last month, but McKinney denied its motion.

RLI is now asking McKinney to force Conseco to reimburse RLI for its legal costs. Conseco said it would try to appeal McKinney’s first judgment after he decides on RLI’s second set of claims. A trial is scheduled in August.

Conseco wanted RLI to cover part of its settlement payment to Roderick W. Russell and other former Conseco employees. Russell claimed former Conseco executives failed to reveal the company’s true financial condition as it veered toward bankruptcy, which led employees to continue to buy Conseco stock as part of their retirement plans.

Conseco entered a nine-month bankruptcy reorganization in December 2002, which rendered its old stock worthless.

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