Gould & Ratner v. Vigilant Ins. Co.

• Decision Date: 04 December 2002
• Docket Number: No. 1-02-1288.,1-02-1288.
• Citation: 336 Ill. App.3d 401,270 Ill.Dec. 190,782 N.E.2d 749
• Parties: GOULD & RATNER, Plaintiff-Appellant, v. VIGILANT INSURANCE COMPANY, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

782 N.E.2d 749

336 Ill. App.3d 401

270 Ill.Dec. 190

GOULD & RATNER, Plaintiff-Appellant, v. VIGILANT INSURANCE COMPANY, Defendant-Appellee.

No. 1-02-1288.

Appellate Court of Illinois, First District, Third Division.

December 4, 2002.

Gerald Ratner, Robert A. Carson, and Andrew N. Fiske, Gould & Ratner, Chicago, for Appellant.

Robert Marc Chemers, and Amanda J. Banner, Pretzel & Stouffer, Chartered, Chicago, for Appellee.

Justice WOLFSON delivered the opinion of the court:

This dispute is about the extent of coverage provided to a law firm in a general liability policy.

Gould & Ratner, a law firm, purchased the insurance policy from Vigilant Insurance Company doing business as Chubb Group of Insurance Companies (Vigilant). Gould & Ratner was sued by David Carmell for defamation and breach of fiduciary duty (the underlying suit). Gould & Ratner notified Vigilant of the suit. Vigilant said it had no duty to defend or indemnify Gould & Ratner in the underlying suit because Carmell's claims were excluded from coverage. Gould & Ratner defended itself and eventually settled the underlying suit.

Gould & Ratner then sued Vigilant for breach of the insurance contract. Vigilant filed a countercomplaint for a declaratory judgment. Vigilant also filed an answer and affirmative defenses. On Vigilant's motion, the trial court granted summary judgment in Vigilant's favor on both Gould & Ratner's suit and Vigilant's countersuit.

Gould & Ratner appeals, contending: (1) Vigilant breached its duty to defend by neither defending Gould & Ratner under a reservation of rights nor filing a timely declaratory judgment action; and (2) Vigilant's countercomplaint was untimely as a matter of law and an improper basis for summary judgment. We affirm.

FACTS

The Insurance Policy

Gould & Ratner purchased a commercial insurance policy from Vigilant for the term July 15, 1996, to July 15, 1997. The policy included coverage for "personal injury * * * if caused by an offense committed during the policy period." "Personal injury" was defined in the policy as

"injury, other than bodily injury, arising out of one or more of the following offenses committed in the course of your business, other than your advertising activities:

* * *

4. oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services * * *."

The insurance policy contained a "Professional Exclusion." This exclusion provided:

"With respect to bodily injury, property damage, personal injury or advertising injury or any obligations assumed by contract:

This insurance does not apply to any claim or suit against the Insured for:

a. rendering or failing to render written or oral professional legal services or advice; or

b. rendering or failing to render any other written or oral services or advice that are not ordinary to the practice of law;

whether or not the Insured is acting in the capacity of a lawyer." (Emphasis in original.)

The insurance policy also contained an exclusion for:

"Personal injury or advertising injury:

1. arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity; * * *." (Emphasis in original.)

The Underlying Suit

On February 13, 1997, Carmell filed a six-count complaint against Gould & Ratner and Jonathan Backman, a partner at Gould & Ratner, for defamation and breach of fiduciary duty.

According to the complaint, Carmell was a client of Gould & Ratner. In 1996, Apex Automotive Warehouse, L.P. (Apex) filed bankruptcy. During the bankruptcy proceedings, Gould & Ratner also represented Apex.

In the complaint, Carmell alleged that on August 14, 1996, Backman faxed to several people a letter containing unfavorable statements about Carmell. Carmell alleged the statements were untrue. On August 27, 1996, Backman called Carmell as an adverse witness in the Apex bankruptcy proceedings and cross-examined Carmell utilizing information that was protected by the attorney-client privilege. On November 5, 1996, Backman faxed to various people another letter containing unfavorable statements about Carmell. Carmell alleged those statements were not true.

Gould & Ratner promptly tendered the complaint to Vigilant requesting confirmation of coverage. On March 18, 1997, Vigilant refused to defend or indemnify Gould & Ratner. Vigilant said the insurance policy did not cover the breach of fiduciary claims. The defamation claims, Vigilant said, fell within the scope of both the Professional Exclusion and the Intentional Falsehood Exclusion.

Gould & Ratner subsequently settled the suit with Carmell; the Carmell suit was dismissed with prejudice on July 27, 2000.

On January 8, 2001, Gould & Ratner filed suit against Vigilant for breach of contract. On February 26, 2001, Vigilant filed a countercomplaint for declaratory judgment seeking a declaration of noncoverage and no duty to defend.

Gould & Ratner filed a motion to dismiss. Gould & Ratner contended Vigilant's countercomplaint was untimely as a matter of law, citing Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127, 237 Ill.Dec. 82, 708 N.E.2d 1122 (1999), and Clemmons v. Travelers Insurance Company, 88 Ill.2d 469, 58 Ill. Dec. 853, 430 N.E.2d 1104 (1981) in support of its contention.

On August 10, 2001, the court granted Gould & Ratner's motion to dismiss Vigilant's countercomplaint, holding the countercomplaint was "untimely as a matter of law."

On September 7, 2001, Vigilant filed an answer and affirmative defenses. In its affirmative defenses, Vigilant said Carmell's suit was not covered under the policy because it fell within the scope of both the Professional Exclusion and the Intentional Falsehood Exclusion.

Gould & Ratner unsuccessfully moved to strike and dismiss Vigilant's affirmative defenses. Gould & Ratner contended Vigilant was estopped from raising these affirmative defenses because it refused to either defend under a reservation of rights or timely file a suit for declaratory judgment.

On October 24, 2001, Vigilant filed a motion to reconsider the court's August 10 order dismissing its countercomplaint.

On December 19, 2001, the court, relying on Pekin Insurance Company v. L.J. Shaw & Company, 291 Ill.App.3d 888, 225 Ill.Dec. 862, 684 N.E.2d 853 (1997), said, "[T]he allegations of the Carmell complaint fit squarely and unambiguously within [the Professional Exclusion] and as a result Vigilant had no duty to defend." Based on this finding, the court granted Vigilant's motion to reconsider, vacated its August 10, 2001, order dismissing Vigilant's countercomplaint, and denied Gould & Ratner's motion to dismiss the countercomplaint.

On February 7, 2002, Vigilant filed a motion for summary judgment, relying primarily on Pekin Insurance Company and the trial court's ruling on the motion to reconsider. On April 9, 2002, the trial court granted Vigilant's motion for summary judgment on both Gould & Ratner's suit and Vigilant's countersuit. This appeal followed.

DECISION

The Professional Services Exclusion

Gould & Ratner contends the trial court erred in granting summary judgment in favor of Vigilant. Gould & Ratner says Vigilant breached its duty to defend Gould & Ratner because the underlying claim potentially fell within the coverage of the insurance policy. In addition, says Gould & Ratner, since Vigilant failed to either defend under a reservation of rights or file a timely declaratory judgment action, Vigilant is estopped from asserting policy defenses.

Vigilant says the doctrine of estoppel does not apply here because Vigilant had no duty to defend. According to Vigilant, the policy clearly provided no coverage or potential for coverage for the claims raised in the underlying suit. For this reason, Vigilant says, the trial court did not err in granting summary judgment in its favor.

Summary judgment is proper where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 102, 180 Ill.Dec. 691, 607 N.E.2d 1204 (1993). The interpretation of insurance policy provisions is a question of law suitable for summary judgment. Lexmark International, Inc. v. Transportation Insurance Co., 327 Ill. App.3d 128, 134-35, 260 Ill.Dec. 658, 761 N.E.2d 1214 (2001). We review a trial court's ruling on a motion for summary judgment de novo. Outboard Marine Corp., 154 Ill.2d at 102, 180 Ill.Dec. 691, 607 N.E.2d 1204.

If an underlying complaint alleges facts within or potentially within coverage and the policy includes a duty to defend, the insurer is obliged to defend the insured. Ehlco Liquidating Trust, 186 Ill.2d at 153, 237 Ill.Dec. 82, 708 N.E.2d 1122. But an insurer has no duty to defend where it is "clear from the facts of the underlying complaint[ ] that the allegations failed to state facts which bring the case within, or potentially within, the policy's coverage." (Emphasis in original.) Ehlco Liquidating Trust, 186 Ill.2d at 153, 237 Ill.Dec. 82, 708 N.E.2d 1122 (quoting U.S. Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 74, 161 Ill. Dec. 280, 578 N.E.2d 926 (1991)).

The doctrine of estoppel provides that:

"an insurer which takes the position that a complaint potentially alleging coverage is not covered under a policy that includes a duty to defend may not simply refuse to defend the insured. Rather, the insurer has two options: (1) defend the suit under a reservation of rights or (2) seek a declaratory judgment that there is no coverage. If the insurer fails to take either of these steps and is later found to have wrongfully denied coverage, the insurer is estopped from raising policy defenses to coverage. [Citations.]" (Emphasis added.) Ehlco Liquidating Trust, 186 Ill.2d at 150-51, 237 Ill.Dec. 82, 708 N.E.2d 1122.

This doctrine does not apply if the insurer has...