State Bar Ass'n Mut. Ins. Co. v. Cavenagh

• Decision Date: 20 December 2012
• Docket Number: No. 1–11–1810.,1–11–1810.
• Citation: 2012 IL App (1st) 111810,368 Ill.Dec. 55,983 N.E.2d 468
• Parties: ILLINOIS STATE BAR ASSOCIATION MUTUAL INSURANCE COMPANY, Plaintiff–Appellee, v. Timothy J. CAVENAGH, Defendant–Appellant.
• Court: United States Appellate Court of Illinois

2012 IL App (1st) 111810

983 N.E.2d 468

368 Ill.Dec. 55

ILLINOIS STATE BAR ASSOCIATION MUTUAL INSURANCE COMPANY, Plaintiff–Appellee,

v.Timothy J. CAVENAGH, Defendant–Appellant.

No. 1–11–1810.

Appellate Court of Illinois, First District, Fourth Division.

Dec. 20, 2012.

Peter V. Bustamante, Chicago, IL, for appellant.

Robert Marc Chemera, Adrian T. Rohrer, Pretzel & Stouffer Chtrd., Chicago, IL, for appellee.

OPINION

Justice EPSTEIN delivered the judgment of the court, with opinion.

[368 Ill.Dec. 59]¶ 1 Illinois State Bar Association Mutual Insurance Company brought an action for declaratory judgment against its insured, Timothy J. Cavenagh, seeking a declaration that Cavenagh's professional liability insurance policy did not require ISBA Mutual to defend Cavenagh against a claim brought by a fellow attorney, Richard Bogusz. In response, Cavenagh claimed that ISBA Mutual was required to defend Cavenagh against Bogusz's complaint, and in a four-count counterclaim, he alleged breach of contract and tort claims based on ISBA Mutual's refusal to defend. The circuit court dismissed the counterclaim and granted summary judgment in favor of ISBA Mutual, and Cavenagh now appeals. For the reasons that follow, we affirm.

¶ 2 This insurance coverage dispute began with a personal injury suit filed by Steven Spilotro against Ken Joniak and another defendant. Spilotro was represented by Timothy Cavenagh, and both defendants were represented by Richard Bogusz. That suit ended in a default judgment award of $900,000 against Joniak. The default judgment gave rise to a second suit: Joniak filed a malpractice claim against Bogusz, claiming that Bogusz failed to appear or adequately represent him. Bogusz asked his professional liability insurance carrier, ISBA Mutual, to defend against Joniak's claims. ISBA Mutual assigned the law firm of Konicek and Dillon to defend Bogusz.

¶ 3 Bogusz later filed a third-party complaint against Cavenagh and Spilotro for fraud and conspiracy to commit fraud, alleging that Cavenagh had advanced Spilotro's personal injury claim while misrepresenting the status of the suit to Bogusz to mislead him from taking further action to defend the case. Bogusz specifically alleged that Cavenagh, without revealing that a trial date had been set, told Bogusz that he did not plan to proceed with the case and that the case would settle for a small amount. Bogusz also alleged that Cavenagh and Spilotro misled the court to procure an inflated default judgment award. Bogusz further claimed that Cavenagh and Joniak agreed to file a malpractice suit so that Joniak could recover money to satisfy the judgment against him.

¶ 4 Cavenagh presented Bogusz's third-party complaint to his malpractice insurer, ISBA Mutual, and requested representation. Cavenagh's professional liability policy required ISBA Mutual to defend Cavenagh for any claim “aris [ing] out of a wrongful act.” The policy defined the term “wrongful act”:

“1. Any actual or alleged negligent act, error or omission in the rendering of or failure to render PROFESSIONAL SERVICES, including PERSONAL INJURY committed by the INSURED in the course of rendering PROFESSIONAL SERVICES; or

2. Any actual or alleged negligent act, error or omission in an INSURED'S capacity as a director or officer of any bar related professional legal association or the governing board thereof.”

The policy also excluded from coverage any claim “arising out of any criminal, dishonest, fraudulent, or intentional act or omission committed by any of the INSURED.” After Cavenagh tendered his defense, ISBA Mutual refused to defend Cavenagh because, in ISBA Mutual's view, the complaint did not allege a “wrongful act” as defined by the policy, and claims based on the insured's fraudulent or intentional acts were specifically excluded from coverage.

¶ 5 ISBA then sought a declaratory judgment that it did not owe any duty to defend Cavenagh against the third-party complaint. Cavenagh filed an answer, counterclaim, and affirmative defense. Cavenagh alleged that the lawyer ISBA assigned to defend Bogusz against Joniak's malpractice suit was “the agent of Bogusz and ISBA Mutual.” Cavenagh further alleged that the third-party complaint against him was obviously frivolous, crafted by ISBA Mutual and Bogusz's lawyer, Konicek, so that it could justifiably deny coverage for Bogusz's suit. The counterclaim alleged that the purpose of the third-party complaint was to wrongfully exert pressure on Cavenagh and Spilotro to settle their claim against Joniak for less than the full value, which would limit ISBA Mutual's financial exposure in the malpracticecase against Bogusz. Cavenagh raised four counts against ISBA Mutual in his counterclaim: breach of contract, breach of fiduciary duty, civil conspiracy, and vexatious and unreasonable conduct in violation of section 155 of the Illinois Insurance Code (Insurance Code) (215 ILCS 5/155 (West 2008)). As to the affirmative defense, Cavenagh alleged that ISBA Mutual should be “ estopped” from raising any policy defenses against Cavenagh because ISBA had “ agreed, consented to, and, ordered” the frivolous third-party complaint against Cavenagh.

¶ 6 The circuit court granted ISBA Mutual's motion to dismiss the counterclaim and strike the affirmative defense. The court dismissed the breach of fiduciary duty and conspiracy counts with prejudice, but dismissed the breach of contract and section 155 counts with leave to amend. Cavenagh filed an amended counterclaim, which the circuit court dismissed with prejudice.

¶ 7 Cavenagh then filed a motion for leave to file a second amended counterclaim, restating his breach of contract claim based on “new facts,” specifically, that the circuit court hearing the malpractice case against Bogusz dismissed Bogusz's third-party complaint against Cavenagh. The court denied Cavenagh's motion for leave to file a second amended counterclaim. Cavenagh also served ISBA Mutual with a request to produce over 60 categories of documents and records, along with 23 interrogatories. ISBA Mutual moved for a protective order, arguing that the requested discovery was irrelevant to whether ISBA Mutual had a duty to defend Cavenagh. The circuit court granted the motion for protective order.

¶ 8 ISBA Mutual moved for summary judgment. Cavenagh then issued additional discovery, but the court again granted ISBA Mutual's motion for a protective order. Cavenagh then moved to reset the briefing schedule for the summary judgment motion; he attached an Illinois Supreme Court Rule 191(b) (eff. July 1, 2002) affidavit in support of his motion, averring that he could not respond until he was allowed to obtain additional discovery. The court denied Cavenagh's motion for discovery supported by the Rule 191(b) affidavit. Cavenagh then responded to ISBA Mutual's motion for summary judgment, attaching a Supreme Court Rule 191(a) affidavit in support. The circuit court struck Cavenagh's Rule 191(a) affidavit for failure to allege specific facts within Cavenagh's personal knowledge. The court granted ISBA Mutual's motion for summary judgment, finding that ISBA Mutual had no duty to defend Cavenagh. This appeal followed.

¶ 9 ANALYSIS

¶ 10 Cavenagh raises several issues on appeal, which can be grouped into three general categories: (1) the parties' claims as to ISBA Mutual's obligations under the policy; (2) Cavenagh's tort counterclaims; and (3) limitations on discovery prior to the summary judgment ruling in favor of ISBA Mutual.

¶ 11 Claims Based on the Policy

¶ 12 The construction of an insurance policy raises a question of law, which we review de novo. Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill.2d 278, 292, 258 Ill.Dec. 792, 757 N.E.2d 481 (2001). Because an insurance policy is a contract, the rules applicable to contract interpretation govern the interpretation of an insurance policy. Founders Insurance Co. v. Munoz, 237 Ill.2d 424, 433, 341 Ill.Dec. 485, 930 N.E.2d 999 (2010). The primary function of the court is to ascertain and enforce the intentions of the parties as expressed in the agreement. Id. [368 Ill.Dec. 62]¶ 13 The court confronted the question of coverage under the policy in dismissing Cavenagh's breach of contract counterclaim under section 2–615 of the Code of Civil Procedure (735 ILCS 5/2–615 (West 2008)) and in granting summary judgment to ISBA Mutual on its declaratory judgment action. In reviewing a section 2–615 dismissal, we consider whether the allegations, construed in the light most favorable to the plaintiff, are sufficient to establish a cause of action upon which relief may be granted. Chandler v. Illinois Central R.R. Co., 207 Ill.2d 331, 348, 278 Ill.Dec. 340, 798 N.E.2d 724 (2003). However, a plaintiff cannot rely simply on mere conclusions of law or fact unsupported by specific factual allegations. Jackson v. South Holland Dodge, Inc., 197 Ill.2d 39, 52, 258 Ill.Dec. 79, 755 N.E.2d 462 (2001). We review a section 2–615 dismissal de novo. Id. A motion for summary judgment is properly granted only when the pleadings, depositions, admissions, and affidavits on file reveal that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2–1005(c) (West 2008). We review the court's summary judgment ruling de novo. Travelers, 197 Ill.2d at 292, 258 Ill.Dec. 792, 757 N.E.2d 481.

¶ 14 To determine whether an insurer has a duty to defend the insured, the court must compare the allegations in the underlying complaint to the relevant provisions of the insurance policy. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 125, 180 Ill.Dec. 691, 607 N.E.2d 1204 (1992). “The allegations in the underlying complaint must be liberally construed in favor of the insured.” Id. “The insurer justifiably refuses to defend the insured if it is clear from the face of the underlying complaint that the allegations fail to state facts which...