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01/11/88 Richard Mortell Et Al., D v. E Company of North America

January 11, 1988





520 N.E.2d 847, 165 Ill. App. 3d 915, 117 Ill. Dec. 496 1988.IL.13

Appeal from the Circuit Court of Cook County; the Hon. Edwin M. Berman, Judge, presiding.


PRESIDING JUSTICE CAMPBELL delivered the opinion of the court. BUCKLEY and O'CONNOR, JJ., concur.


This interlocutory appeal arises out of this court's decision in Mortell v. Insurance Company of North America (1983), 120 Ill. App. 3d 1016, 458 N.E.2d 922 (Mortell I) to vacate summary judgment and to remand for a trial on the issue of plaintiffs' compliance with the notice provisions on certain fidelity bonds issued by defendant, Insurance Company of North America. In the initial complaint, plaintiffs Richard Mortell, Alan Freeman, Leslie Rosenthal and Robert Myron, together doing business as Rosenthal & Co. (Rosenthal), sought a declaration of their rights with respect to claims made during 1976 through 1978 under two fidelity bonds issued by defendant in 1975 and amended in 1977. The bonds provided indemnity to Rosenthal for losses suffered as a result of the dishonesty of its employees, and also as a result of forgery, theft and other such acts. The trial court entered summary judgment in favor of defendant and Rosenthal appealed. In reaching its decision in Mortell I, this court divided the claims into those discovered prior to the 1977 amendment and those discovered subsequent to the amendment, and vacated summary judgment as to the former and remanded that issue for a trial, and affirmed summary judgment as to the post-amendment claims. Upon remand, Rosenthal was granted leave to add count III, which alleged that defendant had violated the Consumer Fraud and Deceptive Business Practices Act *fn1 (Ill. Rev. Stat. 1985, ch. 121 1/2, par. 261 et seq.) by requiring Rosenthal to execute the 1977 amendment which, Rosenthal claimed, narrowed the scope of coverage provided by the original bond. The trial court dismissed count III and Rosenthal appeals. The sole issue before this court is whether the trial court erred in dismissing count III of Rosenthal's complaint. For the following reasons, we affirm the trial court's order.

Preliminarily, a brief summary of the underlying facts and issues addressed in Mortell I is necessary to provide the framework for our decision. In October 1976, the Commodities Futures Trading Commission filed a complaint in Federal district court against Rosenthal alleging that Rosenthal had engaged in cheating, defrauding and deceiving purchasers of certain commodity options, and seeking injunctive relief. Approximately six months later, the CFTC also filed an administrative complaint which contained the same allegations. Following a hearing, the administrative law Judge found that the evidence had failed to establish that the defendants had violated either the Commodities Exchange Act or CFTC regulations. Subsequently, the Federal district court dismissed the CFTC complaint without prejudice "for want of equity." In addition, during the period between 1976 and 1978, numerous customers filed complaints against Rosenthal's salesmen, alleging dishonesty and deceptive sales practices and seeking rescission of their transactions pursuant to provisions of the Commodity Exchange Act (7 U.S.C. § 1 et seq. (1982)).

Meanwhile, on January 8, 1977, at defendant's request, Rosenthal signed an amendment to the dishonesty clause of the fidelity bonds. *fn2 Over the next few months, meetings were held between defendant and Rosenthal to discuss the CFTC litigation and the numerous customer complaints. As the insurer, defendant had unlimited access to Rosenthal's files, and after thoroughly examining the files, defendant exercised its right to cancel the bonds, effective July 8, 1978. Rosenthal then filed its complaint seeking a declaration that the $2 million in losses it had incurred between 1976 and 1978 as the result of customer claims and attorney fees were covered by the bonds.

The trial court entered summary judgment in favor of defendant. On appeal, plaintiff presented the following issues for review:

"(1) Whether summary judgment was proper with respect to claims discovered by the insured prior to the January 8, 1977, amendment to coverage in light of the alleged factual issue of timely notice to the insured of these losses; (2) Whether the January 8, 1977, amendment to coverage was valid and enforceable with respect to claims the insured delivered after this date; [and] (3) Whether the policy clause which excludes coverage for losses resulting from acts of the insured's partners releases the insurer of any obligation to indemnify the insured for attorney fees spent in defending the CFTC action." (Mortell, 120 Ill. App. 3d at 1018.)

After dividing the claims into preamendment and post-amendment, the Mortell I court found that a genuine issue of material fact existed regarding the preamendment claims as to whether Rosenthal had timely notified defendant of the claims. With respect to the post-amendment claims, the court found that the 1977 amendment controlled and defendant was not liable for coverage. Accordingly, the Mortell I court vacated the summary judgment as to the preamendment claims and remanded the cause for a trial on the issue of whether Rosenthal had given proper notice to defendant regarding those claims, and affirmed the summary judgment as to the post-amendment claims. Rosenthal's subsequent petition for rehearing and leave to appeal to the Illinois Supreme Court were denied.

Upon remand for a trial on the preamendment claims, Rosenthal filed a post-judgment amended complaint which added count III, as follows:

"1-4. Plaintiffs reallege paragraphs 1 through 4 of Count I as and for paragraphs 1-4 of Count III.

5. On or about January 8, 1977, defendant required plaintiffs to execute an amendment to the Brokers Blanket Bonds, a copy of which is attached hereto as exhibit 'B.' Defendant continued to represent that it would insure plaintiffs from losses caused by the dishonesty of plaintiffs' employees. Defendant did not reduce plaintiffs' premium at the time that it required plaintiffs to execute the amendment, nor did defendant inform ...

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