No. 3-02-0933

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2003

JUSTICE LYTTON delivered the opinion of the court:

Ann Phelan and R. Rootz Salon (together, Phelan), are alsodefendants in a separate, underlying lawsuit pending in the circuitcourt. Prior to opening R. Rootz Salon, Phelan was employed by Imaginations on Hair, Inc. The underlying complaint, initiated byImaginations, alleges that near the end of Phelan's employment, sheengaged in activities designed to lure clients away fromImaginations and bring them to R. Rootz Salon. The complaintalleges that Phelan told customers that Imaginations was moving toa new location, and then gave the customers the address of R. RootzSalon. The complaint further claims that Phelan made appointmentsfor Imaginations' customers at her new salon, telling customersthat Imaginations was closing, and that she engaged in otheractivities to lure customers away from Imaginations.

Phelan made a claim under the liability insurance policy thatshe purchased from Pekin to cover her and R. Rootz Salon. In theclaim, Phelan requested that Pekin defend her in the lawsuitbrought by Imaginations. Pekin denied the claim and filed acomplaint for declaratory judgment, asking the circuit court torule that the insurance policy did not cover the allegations inImaginations' complaint and that Pekin was not obligated to defendthe suit.

The policy provides that Pekin must reimburse Phelan for sumsshe is legally obligated to pay as a result of various injuries,including "advertising injury." Pekin also assumed a duty todefend any suit seeking damages from advertising injury. The policycovers offenses by the insured committed in the course ofadvertising its goods, products and services. Furthermore, thepolicy limits advertising injuries, in part, to oral or writtenstatements that disparage an organization's goods, products orservices.

Pekin moved for summary judgment, arguing that the underlyingcomplaint did not state allegations resembling those which Pekinwas obligated to defend. Phelan also moved for summary judgment,claiming that since the complaint alleges disparagement ofImaginations' services, Pekin has a duty to defend Phelan in theunderlying suit. The circuit court ruled for Phelan.

The circuit court issued its order on November 12, 2002. Pekinfiled its notice of appeal on November 26, 2002, but on December 9,Phelan filed a motion for leave to file a counterclaim. Thecounterclaim alleged that if Phelan was found liable in theunderlying suit, Pekin was obligated to reimburse her under thepolicy. The trial court denied the motion, prompting Phelan tofile a motion to reconsider. That motion is pending in the circuitcourt.

I. Jurisdiction

Subject to certain exceptions, appeals can only be taken fromfinal orders disposing of all claims against all parties; thus,this court cannot exercise jurisdiction until all claims areresolved in the trial court. Unless a trial court order includesan express finding that no just reason exists for delaying theappeal, it must resolve all claims; otherwise, an order is notappealable. Marsh v. Evangelical Covenant Church, 138 Ill. 2d 458,465 (1990).

A motion for sanctions, filed after judgment and notice ofappeal but within thirty days of judgment, nullifies the notice ofappeal and corresponding appellate court jurisdiction. John G.Phillips and Associates v. Brown, 197 Ill. 2d 337 (2001). Motionsfor sanctions under Supreme Court Rule 137 are "claims" in thecause of action with which they are connected. Brown, 197 Ill. 2dat 340. Specifically, Rule 137 defines proceedings for sanctionsas "a claim within the same civil action." S. Ct. Rule 137.

Phelan agrees that this court was vested with jurisdictionwhen Pekin filed its notice of appeal. However, relying on Brown,Phelan argues that the motion for leave to file a counterclaim,filed within thirty days of the circuit court's judgment, nullifiedthe notice of appeal and divested the appellate court of itsjurisdiction. We disagree.

In Brown, our supreme court determined that the appellatecourt lost jurisdiction because motions for sanctions are"inextricably interwoven with the case in which they arise," andbecause those motions are defined as claims by Supreme Court Rules. Brown, 197 Ill. 2d at 344-45. Motions for sanctions are uniquebecause they often necessarily depend on the course taken andconduct exhibited by counsel and the parties. Brown, 197 Ill. 2dat 344. A counterclaim filed after judgment and after the filingof a notice of appeal does not share these distinctcharacteristics. The counterclaim is not, as the court in Brownsaid, "inextricably interwoven" with the case. 197 Ill. 2d at 344. Thus, we decline Phelan's invitation to broaden the holding inBrown. Since Phelan's motion did not nullify the notice of appeal,we exercise jurisdiction over the case.

II. Disparagement

Since this issue involves the interpretation of an insurancepolicy, we review it de novo. American States Insurance Company v.Koloms, 177 Ill. 2d 473, 479-80 (1997).

Pekin claims that the injury alleged against Phelan in theunderlying complaint does not constitute an advertising injury thatfalls within the "disparagement" language of the policy. Whenreviewing an insurer's duty to defend a suit, we look to theallegations in the underlying complaint. U.S. Fidelity andGuaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 74 (1991). If the underlying complaint alleges facts within or potentiallywithin the policy coverage, the insurer is obligated to defend theinsured. U.S. Fidelity and Guaranty Co., 144 Ill. 2d at 74 . Wemust also construe the underlying complaint liberally and resolveall doubts in favor of the insured. LaGrange Memorial Hospital v.St. Paul Insurance Co., 317 Ill. App. 3d 863, 869 (2000).

In its argument, Pekin relies on Lexmark International Inc. v.Transportation Insurance Company, 327 Ill. App. 3d 128, 140 (2001),to support its position. The Lexmark court defined disparagement as"statement[s] about a competitor's goods which [are] untrue ormisleading and [are] made to influence or tend to influence thepublic not to buy." Lexmark, 327 Ill. App. 3d at 140. Thedefinition of disparagement in Lexmark can easily be broken downinto three elements. The statement (1) must be about a competitor'sgoods or services, (2) must be untrue or misleading, and (3) musthave been made to influence or tend to influence the public not tobuy those goods or services. Lexmark, 327 Ill. App. 3d at 140. Wewill examine each of these elements in light of the allegations inthe underlying action to determine whether the complaint allegesthat Phelan disparaged Imaginations, thereby obligating Pekin todefend the suit.

First, Phelan's statements were made about Imaginations'services. The underlying complaint relies on that assertion. Phelan told customers that Imaginations was closing or changinglocations. The statements imply that Imaginations is ceasing itscurrent services and leaving its current location. Since thestatements are about Imaginations, they meet the first Lexmarkrequirement.

Second, in the underlying complaint, the statements arealleged to be both untrue and misleading. Imaginations allegesthat Phelan falsely told customers that Imaginations was closing. The complaint also alleges that Phelan told customers thatImaginations was changing locations, and gave them the address toPhelan's new salon. That statement was untrue and also misleading.

Last, we must determine whether the statements were made toinfluence the public not to buy Imaginations' services. Thecomplaint alleges that the statements were made with that intent.Imaginations claims that Phelan made numerous untrue statementstrying to lure customers away from its salon. Phelan's statementsall tended to induce the customers not to use Imaginations'services in the future, because the statements suggested that theservices would be unavailable in the future.

Thus, it appears that all the elements of disparagement werealleged in the underlying complaint. Nevertheless, Pekin claimsthat Lexmark also requires that the disparaging statements be"negative," or "words which criticize the quality of one's goodsand services." Lexmark, 327 Ill. App. 3d at 140. In Lexmark, theplaintiff in the underlying action alleged that Lexmark, theinsured, advertised its products in a way that disparaged theplaintiff's product. The court found that Lexmark's statementsactually never referred to the competitor's products or services,let alone disparaged them; thus, Lexmark engaged only in self-promotion. Lexmark, 327 Ill. App. 3d at 140-41. In dicta, the courtdiscussed negative statements only in relation to proving theelements of disparagement, i.e. describing a type of statement thatmight be untrue or misleading, or that might influence a customernot to patronize a business. The Lexmark court never consideredsuch negative statements by a defendant as a separate element ofdisparagement.

In this case, the allegations against Phelan pleddisparagement under the terms of the insurance policy: Phelan'sstatements were specific to Imaginations, they misled, and theytended to influence the consuming public not to buy Imaginations'services. Since the complaint properly alleged disparagement,Imaginations' allegations fall within the coverage language of theinsurance policy. Pekin is obligated to defend the underlyingsuit.

III. Public Statement

Pekin also argues that its insurance policy requires thatinjurious statements be directed to the public at large. Thelanguage of Pekin's policy, however, belies that claim. The policydefines advertising injury, in part, as a statement that disparagesan organization's goods, products or services. We have alreadydetermined that the underlying complaint alleges that Phelandisparaged Imaginations' services. The policy includes norequirement for publication to the general public, and we will notadd one. See Oak Park Trust & Savings Bank v. Intercounty TitleCo., 287 Ill. App. 3d 647, 651 (1997).

IV. Accidental Conduct

Pekin also claims that the underlying complaint alleges onlyintentional acts by Phelan, and such acts do not qualify as an"occurrence" under the policy. Pekin asserts that the policy onlycovers damages arising from accidental conduct by the insured.

We do not accept Pekin's narrow interpretation of the policy. It provides that Pekin will "pay those sums that the insuredbecomes legally obligated to pay as damages because of ***advertising injury." No other language in the policy limits thecoverage to accidental conduct. In fact, a later provision refersto an advertising injury as an "offense" that is "committed." Thepolicy does not restrict advertising injury coverage to accidentalconduct.

V. Policy Coverage

Last, Pekin contends that the underlying complaint does notallege conduct that occurred while Phelan was insured.Specifically, Pekin argues that Phelan did not begin operating hersalon until August 2001, and since the complaint alleges that theinjurious statements were made before July 31, 2001, she could nothave been operating the salon as required by the policy. Phelanalleges that her new salon existed prior to August 2001 and withinthe time frame established by the underlying complaint. Pekincites nothing in the record before us to indicate otherwise.

CONCLUSION

The judgment of the circuit court of Peoria County isaffirmed.

Affirmed.

HOLDRIDGE and SLATER, JJ., concur.