William J. Templeman Co. v. Liberty Mut. Ins. Co.

• Decision Date: 15 August 2000
• Docket Number: No. 1-99-3104.,1-99-3104.
• Citation: 735 N.E.2d 669,249 Ill.Dec. 65,316 Ill. App.3d 379
• Court: United States Appellate Court of Illinois
• Parties: WILLIAM J. TEMPLEMAN COMPANY, an Illinois corporation and William J. Templeman, Plaintiffs-Appellees, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Appellant.

735 N.E.2d 669

316 Ill. App.3d 379

249 Ill.Dec. 65

WILLIAM J. TEMPLEMAN COMPANY, an Illinois corporation and William J. Templeman, Plaintiffs-Appellees, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Appellant.

No. 1-99-3104.

Appellate Court of Illinois, First District, Second Division.

August 15, 2000.

Robert J. Shelist, Law Offices of Robert J. Shelist, Chicago, for Appellants.

Steven B. Belgrade, George M. Velcich, Belgrade and O'Donnell, P.C., Chicago, for Appellee.

Justice GORDON delivered the opinion of the court:

Plaintiffs William J. Templeman Company and William J. Templeman (collectively "Templeman" or "plaintiffs") appeal from an order of the circuit court of Cook County granting summary judgement in favor of defendant Liberty Mutual Insurance Company (Liberty). The circuit court found that two insurance policies (collectively the "policy") issued by Liberty to Templeman which covered claims against Templeman for malicious prosecution did not cover liability incurred by Templeman due to sanctions imposed by the circuit court pursuant to Illinois Supreme Court Rule 137. On appeal Templeman argues that the trial court erred because the malicious prosecution language in the policy provides coverage for its conduct which was found to be sanctionable; because its conduct potentially raised liability under the policy and thus gave rise to a duty on the part of Liberty to defend Templeman; and because the term "malicious prosecution" in the insurance policies is ambiguous and should thus be construed in favor to Templeman. For the reasons discussed below, we affirm.

BACKGROUND

There is no dispute as to the underlying facts in this case. This litigation arose out of a construction dispute surrounding the building of an Embassy Suites hotel in Rosemont, Illinois. The hotel in question was owned by E.S. O'Hare Associates (O'Hare) and the general contractor for the project was W.E. O'Neil Construction Company (O'Neil). O'Neil entered into a subcontract with Templeman's predecessor in interest Premier Electric Company (Premier) whereby Premier would install fire alarm and detection equipment in the hotel. Premier later sued O'Hare and O'Neil seeking to recover for extra work performed on the Embassy Suites project and for interference and delays in its performance of the subcontract which it alleged were caused by O'Neil and O'Hare. The trial court granted partial summary judgement in favor of O'Neil. O'Neil then moved for sanctions pursuant to Illinois Supreme Court Rule 137 (155 Ill.2d R. 137) against Templeman and its attorney, Walter J. Trittipo (Trittipo).

On December 13, 1995, the trial court found that Templeman and Trittipo had engaged in sanctionable conduct, a decision which was ultimately upheld on appeal. William J. Templeman Co. et al., v. W.E. O'Neil Construction Co. et al., Nos. 1-96-3434 & 1-96-3557 (cons.), 298 Ill.App.3d 1167 (1998) (unpublished order under Supreme Court Rule 23). On January 8, 1996, Templeman gave written notice to Liberty of its claim for coverage and requested that Liberty defend it against the sanctions proceedings which were still ongoing, as the court had not yet decided the amount of the sanctions. Templeman's insurance policy provided for coverage of claims against Templeman for malicious prosecution. Liberty never responded to Templeman's notice of its claims. Templeman thereupon filed a declaratory judgement action against Liberty seeking coverage. The trial court granted summary judgement in favor of Liberty. This appeal followed.

ANALYSIS

The plaintiffs first argue that the malicious prosecution language in the policy is sufficient to provide coverage for the liability which plaintiffs incurred as a result of conduct which the trial court found sanctionable pursuant to Rule 137. We disagree.

The relevant policy language is as follows:

"1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of `personal injury' * * * to which this coverage part applies. We will have the right and duty to defend any `suit' seeking those damages.

* * *

b. This insurance applies to:

(1) `Personal injury' caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you;

* * *

10. `Personal injury' means injury, other than `bodily injury,' arising out of one or more of the following offenses:

* * *

b. Malicious prosecution;"

As is evident from the forgoing language the policy provides coverage for malicious prosecution, a specific common law tort. "The common law tort of malicious prosecution contains significant strictures and rules." Spiegel v. Zurich Ins. Co., 293 Ill.App.3d 129, 135, 227 Ill.Dec. 617, 687 N.E.2d 1099, 1102 (1997). Although the conduct which would support a finding of sanctions under Rule 137 may well overlap with the elements necessary to support a finding of malicious prosecution, the two categories are nevertheless discrete and distinct and under the prevailing precedent coverage for malicious prosecution does not automatically extend coverage for conduct sanctionable under Rule 137.

The case of Spiegel v. Zurich Ins. Co., 293 Ill.App.3d 129, 227 Ill.Dec. 617, 687 N.E.2d 1099, is on point. The plaintiff in Spiegel was sanctioned by the U.S. Court of Appeals for the Seventh Circuit under Rule 38 of the Federal Rules of Appellate Procedure (Fed. R.App. P. 38) for filing a frivolous appeal. The plaintiff then claimed coverage (which the defendant insurance company denied) under his insurance policy issued by the defendant which provided coverage for "malicious prosecution." The Spiegel court held that where an insurance policy provided coverage for claims of malicious prosecution against the insured, the coverage did not extend to liability incurred as a result of sanctions imposed by a federal court for the filing of a frivolous appeal.

The Spiegel court reasoned that, "Illinois law recognizes and upholds the distinction between the tort of malicious prosecution and the remedy of pleading-related sanctions available under Illinois Supreme Court Rule 137." Spiegel, 293 Ill.App.3d at 134, 227 Ill.Dec. 617, 687 N.E.2d at 1102 (citing Levin v. King, 271 Ill.App.3d 728, 737, 208 Ill.Dec. 186, 648 N.E.2d 1108, 1114 (1995)). "The common law tort of malicious prosecution contains significant strictures and rules." Spiegel, 293 Ill. App.3d at 135, 227 Ill.Dec. 617, 687 N.E.2d at 1102. Specifically, to prevail on a malicious prosecution claim the plaintiff must prove a special injury, an element that is absent from Rule 137 sanctions. The Spiegel court further stated that no "cases have been advanced by the parties or found in research that equate malicious prosecution and court-imposed sanctions." Spiegel, 293 Ill.App.3d at 134-35, 227 Ill. Dec. 617, 687 N.E.2d at 1102. The court therefore concluded that "judicially imposed sanctions are not within the ambit of the term `malicious prosecution' in the subject insurance policies" and that "a claim of malicious prosecution is not equivalent to sanctions imposed by a court for purposes of insurance coverage as a matter of law." Spiegel, 293 Ill.App.3d at 135, 227 Ill.Dec. 617, 687 N.E.2d at 1102.

We are not persuaded by the plaintiffs' insinuations that the Spiegel court was "plainly wrong" in stating that no Illinois cases equate malicious prosecution with court imposed sanctions pursuant to Rule 137, as the authorities cited by the plaintiffs are readily distinguished. In Sanelli v. Glenview State Bank, 126 Ill. App.3d 411, 416, 81 Ill.Dec. 317, 466 N.E.2d 1119, 1123 (1984) the court stated that "[s]ection 2-611 [the predecessor to Rule 137] permits sanctions against a party for conduct in the nature of malicious prosecution accomplished by false pleadings or abuse of judicial process which goes to the merits of the proceedings." See also Tabor & Co. v. Gorenz, 43 Ill. App.3d 124, 132, 1 Ill.Dec. 868, 356 N.E.2d 1150, 1156 (1976) (construing section 41 of the Civil Practice Act, an earlier predecessor to Rule 137). Sanelli and Tabor do not equate Rule 137 sanctions and claims for malicious prosecution. Rather, the cases provide that Rule 137 sanctions "conduct in the nature of malicious prosecution." (Emphasis added.) Clearly, the teaching of Sanelli and Tabor on this point is that the conduct which is sanctionable pursuant to Rule 137 overlaps with that which is actionable through the tort of malicious prosecution. The overlap in the conduct proscribed does not equate these two distinct proceedings themselves, and does not contravene the holding of the Spiegel court that the coverage provided for the one does not extend to the other.

The plaintiff nevertheless contends that even though coverage for malicious prosecution and coverage for Rule 137 sanctions are not interchangeable, they should be, when as here the specific conduct found to be sanctionable pursuant to Rule 137 is equivalent to the elements required to prove a claim for malicious prosecution. Here too we disagree.¹

While we are aware that the range of conduct which is sanctionable pursuant to Rule 137 may overlap with conduct which is actionable under the law of malicious prosecution, the conduct need not so overlap. Thus even in a specific case where the conduct alleged is actionable under either theory, coverage for one does not by itself extend coverage to the other since generically malicious prosecution and sanctions under Rule 137 present different risks.

The different risks associated with Rule 137 sanctions and malicious prosecution are illustrated by several critical differences between the two actions. For example, malicious prosecution is a common law tort action (Kent v. Muscarello, 9 Ill.App.3d 738, 740, 293 N.E.2d 6, 7 (1973) (a "suit for malicious prosecution is a common law tort action")) which may be tried to a jury (Mack v. First Security Bank of Chicago, 158 Ill.App.3d 497, 500-1, 110 Ill.Dec....