TIG Insurance Company v. Canel

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State: Illinois

Court: 1st District Appellate

Docket No: 1-08-1251 Rel

Case Date: 03/24/2009

Preview:SECOND DIVISION MARCH 24, 2009

1-08-1251 TIG INSURANCE COMPANY, Plaintiff and Counterdefendant-Appellee, v. SCOTT I. CANEL and SCOTT I. CANEL & ASSOCIATES, Defendants and Counterplaintiffs-Appellants, (WW Westwood Center, LLC, Defendant-Appellee). ) ) ) ) ) ) ) ) ) ) ) ) ) Appeal from the Circuit Court of Cook County.

No. 07 CH 06561

Honorable Nancy J. Arnold, Judge Presiding.

JUSTICE CUNNINGHAM delivered the opinion of the court: Scott I. Canel and Scott I. Canel and Associates (collectively Canel Associates), as insureds, appeal from the circuit court of Cook County's May 7, 2008 order staying a complaint for declaratory judgment filed by TIG Insurance Company (TIG) against Canel Associates and WW Westwood Center, LLC (WWWC), pending the resolution of WWWC's underlying legal malpractice lawsuit against Canel Associates (the underlying action). WW Westwood Center, LLC v. Canel, No. 07-L-001155. On interlocutory appeal, Canel Associates argue that the circuit court abused its discretion by staying the proceedings because the stay was based on the court's mistaken belief that TIG was entitled to suspend its obligation to pay defense costs. For the following reasons, we affirm. BACKGROUND On February 8, 2007, WWWC filed a cause of action (the underlying complaint) against Canel Associates for legal malpractice. The underlying complaint alleged that Canel Associates, in

1-08-1251 the course of their representation of WWWC, breached the duty owed to WWWC by failing to disclose a conflict of interests to WWWC and by failing to provide a necessary easement in connection with the purchase of land in February 2001 (the transaction), to the detriment of WWWC, but to the benefit of Canel Associates. Canel Associates were covered by a policy of professional liability insurance issued by TIG (the TIG policy). It was a "claims made and reported policy" which was effective between December 1, 2001, and December 1, 2002. Canel Associates also purchased from TIG an extended reporting period endorsement at the end of the policy term for the policy in question. On April 5, 2007, Canel Associates filed an answer to the underlying complaint by WWWC, denying that they were acting as WWWC's attorneys during the transaction in question. Canel Associates then tendered the defense of the underlying action to TIG, which responded with a six-count complaint for declaratory judgment (the declaratory judgment action) denying a duty to defend or indemnify Canel Associates in the underlying action. Count I of TIG's declaratory judgment action alleged that the underlying complaint against Canel Associates "does not allege that there is an act, error, omission or [p]ersonal [i]njury arising from [p]rofessional [s]ervices rendered or which should have been rendered by the [i]nsured as defined by the TIG policy." Count II alleged that the TIG policy was not triggered because Canel Associates had a reasonable basis to foresee that a claim would be made prior to the inception of the TIG policy on December 1, 2001, because they "knew or should have known that a wrongful act, error or omission or personal injury had occurred in the transactions" before the start of the coverage period. Count III alleged that the claims in the underlying complaint against Canel Associates "arise out of dishonest, fraudulent, criminal malicious and/or knowing wrongful acts, errors, omissions and/or deliberate misrepresentations," as excluded 2

1-08-1251 by the TIG policy. Count IV alleged that the TIG policy exclusions were triggered because the claims in the underlying complaint against Canel Associates arise out of the "conversion, misappropriation, embezzlement, commingling, defalcation or ethically improper use or disposal of funds or other property." Count V alleged that coverage is excluded because Canel Associates rendered professional services to an entity of which they own an interest of 30% or more. Count VI alleged that the claims in the underlying complaint arise out of "an obligation assumed by contract other than an obligation to perform professional services. The insuring agreement of the TIG policy is only triggered when "neither the [i]nsured, [nor] the [i]nsured's management committee knew or should have known that a wrongful act, error or omission or [p]ersonal [i]njury had occurred or had a reasonable basis to foresee that a [c]laim would be made against an [i]nsured." Exclusion A.1 of the TIG policy excluded coverage for any claim or claims arising out of "any judgment or final adjuication based upon or arising out of any dishonest, fraudulent, criminal, malicious or knowingly wrongful act, error, omission or [p]ersonal [i]njury or deliberate misrepresentation committed by, at the direction of, or with the knowledge of the [i]nsured." Exclusion A.7 of the TIG policy excluded coverage for any claim or claims arising out of "any judgment of final adjudication based upon the conversion, misappropriation, embezzlement, commingling, defalcation or ethically improper use or disposal of funds or other property." Exclusion A.10 of the TIG policy excluded coverage for any claim or claims arising out of "the rendering or failure to render [p]rofessional [s]ervices by an [i]nsured, with or without compensation, to any corporation, fund, trust, association, partnership, limited partnership, business 3

1-08-1251 enterprise or other venture, other than the [n]amed [i]nsured, *** where any [i]nsured *** holds or was intended to hold a pecuniary or beneficial interest of 30% or more." Exclusion A. 13 of the TIG policy excluded coverage for any claim or claims arising out of "an obligation assumed by contract other than an obligation to perform [p]rofessional [s]ervices." On May 2, 2007, Canel Associates responded to TIG's declaratory judgment action by filing a counterclaim for declaratory judgment seeking a declaration that TIG is obligated to defend Canel Associates in the underlying action and requesting that the circuit court enter judgment in Canel Associates' favor for fees and expenses incurred to date. Further, Canel Associates filed a motion for judgment on the pleadings, pursuant to section 2-615(e) of the Code of Civil Procedure (735 ILCS 5/2-615(e) (West 2006)), seeking a declaration that TIG must defend Canel Associates against the underlying action. Canel Associates also sought judgment for fees, costs and expenses incurred to date in defending the underlying claim and dismissal with prejudice of TIG's declaratory judgment action to the extent that it seeks a declaration as to the duty to defend. Canel Associates also sought dismissal without prejudice as to TIG's duty to indemnify. On August 14, 2007, after hearing arguments on Canel Associates' motion for judgment on the pleadings, the circuit court entered an order granting Canel Associates' motion with prejudice as to counts I, III, IV and V of TIG's declaratory judgment complaint, as they relate to the duty to defend. The circuit court held that those counts had no basis on which TIG may avoid its duty to defend. However, the circuit court denied Canel Associates' motion for judgment on the pleadings as to counts II and VI, holding that they "present potential fact issues which cannot be resolved on a motion for judgment on the pleadings." In its order, the circuit court also directed TIG to file an 4

1-08-1251 amended complaint naming WWWC as a necessary party to its declaratory judgment action against Canel Associates. On September 4, 2007, TIG amended its declaratory judgment complaint (the amended complaint) to include WWWC as a party and, subsequently, initiated discovery. On February 22, 2008, TIG served interrogatories and document requests on WWWC. On April 3, 2008, WWWC filed a motion to either dismiss the amended complaint without prejudice, or to stay the declaratory judgment action. WWWC argued that resolution of the declaratory judgment action would "necessarily involve adjudication of at least two key issues that are to be resolved in the underlying case," in contravention of the ruling in Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187, 355 N.E.2d 24 (1976), and its progeny. On May 7, 2008, the circuit court granted WWWC's motion to stay the proceeding, pending resolution of the underlying legal malpractice action against Canel Associates. At the hearing on the motion to stay, Canel Associates argued that TIG's filing of the declaratory judgment complaint did not excuse TIG's obligation to pay the defense costs as they were incurred by Canel Associates in the underlying action. Canel Associates then requested the opportunity to file a brief on that issue, which the circuit court refused, stating: " I don't know how you are going to get me to force them to pay defense

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