2020 IL App (1st) 190142
Ill. App. Ct.2020Background:
- ISBA Mutual issued a professional liability policy to attorney Michael Canulli beginning June 2009.
- Canulli represented Maria Freda in a divorce and sued third parties (Prairie State); Prairie State moved for sanctions and ISBA Mutual initially refused to defend that sanctions motion.
- Freda later sued Canulli for legal malpractice; ISBA Mutual initially accepted defense but, after Freda amended to allege damages in excess of $100,000 based on incurred attorney fees for unnecessary proceedings, ISBA Mutual denied a defense and filed a declaratory-judgment action asserting no duty to defend.
- The actions were consolidated; the circuit court at various times ruled ISBA Mutual did not owe a duty to defend but reserved and later rejected waiver/estoppel arguments; the malpractice action settled in July 2018 in Canulli’s favor.
- In December 2018 the circuit court entered summary judgment for ISBA Mutual on the duty-to-defend issue; Canulli appealed, and the appellate court reversed, holding ISBA Mutual had a duty to defend and remanding for further proceedings.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appealability/jurisdiction of the summary-judgment order with counterclaims pending | ISBA: the summary judgment was final and appealable (resolved the coverage question) | Canulli: pending counterclaims deprive appellate jurisdiction | Court: order was final because summary judgment on duty to defend disposed of counterclaims; appealable |
| Whether Freda’s alleged damages (attorney fees/costs) are excluded as "legal fees" under the policy | ISBA: alleged damages are attorney fees excluded from the policy’s definition of "damages," so no duty to defend | Canulli: alleged damages flow from negligent representation, not a fee dispute, so they are covered | Court: aligned with Kaplan—damages resulted from negligent representation, not merely a fee dispute; ISBA owed a duty to defend |
| Waiver/estoppel (did ISBA waive or is it estopped from denying duty) | ISBA: no waiver or estoppel | Canulli: ISBA’s conduct (initial rejection/acceptance/withdrawal) supports waiver/estoppel | Circuit court previously found no waiver/estoppel; appellate remanded remaining counterclaims for further proceedings |
| Mootness / reimbursement after underlying settlement | ISBA: settlement extinguishes any continuing duty to defend; case now moot | Canulli: seeks reimbursement for defense expenses; counterclaims still live | Court: not moot as to reimbursement/counterclaims; remand to resolve those claims |
Key Cases Cited
- Continental Cas. Co. v. Law Offices of Melvin James Kaplan, 345 Ill. App. 3d 34 (2003) (attorney-malpractice damages measured by fees can still be covered where injury flows from negligent performance, not from the fees themselves)
- Continental Cas. Co. v. Donald T. Bertucci, Ltd., 399 Ill. App. 3d 775 (2010) (fee-dispute suits seeking return of fees fall outside coverage when injury is consequence of fees retained)
- Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384 (1993) (broad duty to defend; insurer may owe defense even if indemnity uncertain)
- Hobbs v. Hartford Ins. Co. of the Midwest, 214 Ill. 2d 11 (2005) (clear policy language governs; ambiguities construed against insurer)
- Lake Shore Assocs. v. Casalino, 352 Ill. App. 3d 1027 (2004) (summary judgment that necessarily disposes of counterclaims is final and appealable)
- Tana v. Professionals Prototype I Ins. Co., 55 Cal. Rptr. 2d 160 (Ct. App. 1996) (fee-dispute characterization supports denial of coverage)
- Continental Cas. Co. v. Brady, 907 P.2d 807 (Idaho 1995) (requests for return of fees are excluded from coverage regardless of pleading theory)