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OLD REPUBLIC INS. CO. v. CHUHAK & TECSON

November 2, 1995

OLD REPUBLIC INSURANCE COMPANY, Plaintiff,
v.
CHUHAK & TECSON, P.C., et al., Defendants.



The opinion of the court was delivered by: SHADUR

 Old Republic Insurance Company ("Old Republic") has filed a declaratory judgment action against Chuhak & Tecson, P.C. ("Chuhak Firm"), one of its partners Edwin Josephson ("Josephson") and Josephson's one-time client Michael Kearns ("Kearns"). Old Republic asks this Court to determine that it has no obligation under its Lawyers Professional Liability Insurance Policy No. CUG23235 (the "Policy")--a policy that it issued to provide Chuhak Firm and its partners with legal malpractice coverage--either to defend or to indemnify Josephson against the claims that Kearns has made against Josephson in Circuit Court of Cook County Case No. 95 L 8773 ("1995 Kearns Action").

 Chuhak Firm and Josephson have filed an Answer and Counterclaim, which they followed by filing an alternative motion for judgment on the pleadings or summary judgment, while Kearns has filed an Answer followed by an adoption of the Chuhak Firm-Josephson motion. Old Republic has responded to those motions, and it is plain that the scheduled defendants' replies (which are due November 8) are not required for resolution of the issues. For the reasons stated in this memorandum opinion and order, this Court determines that Old Republic is obligated to defend Josephson in the 1995 Kearns Action. *fn1"

 This matter has been complicated by a prior lawsuit between the parties, stemming from an earlier Complaint brought by Kearns against virtually identical defendants (including Josephson) in Circuit Court of Cook County Case No. 91 L 8429 ("1991 Kearns Action"). As to that 1991 lawsuit, this Court's colleague Honorable Charles Norgle granted summary judgment for Old Republic in this District Court's Case No. 93 C 4407, holding there that Old Republic did not have a duty to defend Josephson because under the allegations of the 1991 Kearns Action Josephson was not an insured under the Policy. *fn2" That, says Old Republic, bars this action under principles of claim preclusion. *fn3"

 Old Republic is simply wrong. It is of course conventional wisdom that claim preclusion cannot bar future litigation between litigants that is based in part or whole on facts that arise after the earlier litigation between them. For recent examples under Illinois law, which both parties have treated as providing the rules of decision here, see such cases as Torcasso v. Standard Outdoor Sales, Inc., 157 Ill. 2d 484, 490-93, 626 N.E.2d 225, 228-29, 193 Ill. Dec. 192 (1993), Mannion Mechanical Serv., Inc. v. Stallings & Co., 189 Ill. App. 3d 1097, 1103, 545 N.E.2d 956, 960, 137 Ill. Dec. 195 (1st Dist. 1989) and cases cited in both. *fn4" And in this instance the 1995 Kearns Action, which forms the gravamen for Josephson's current demand to be defended, includes some critical (and in this case outcome-determinative) allegations that Kearns did not make in his 1991 Complaint on which Judge Norgle based his decision. Hence the decision by Judge Norgle negating Old Republic's obligation to defend the 1991 Kearns Action cannot have preclusive effect here--there is no reason that Old Republic could not be excused from that quite different obligation to defend (assuming for this purpose that our Court of Appeals upholds Judge Norgle's decision) while it still remains duty-bound to defend Kearns' present (and materially different) 1995 lawsuit.

 
42. That after his association with the firm of Chuhak & Tecson, defendant, Edwin Josephson, committed the acts or omissions described in this complaint as an agent and/or employee of the firm of Chuhak & Tecson.
 
43. That at the time the alternative statute of limitations expired on August 6, 1990, Defendant, Edwin Josephson, was an agent and/or employee of Chuhak & Tecson.
 
44. That no lawsuit was filed by Edwin Josephson on behalf of the Plaintiff at any time prior to the expiration of the applicable statute of limitations. *fn5"

 So much, then, for the background against which the parties dispute. How does that impact on Old Republic's duty, or lack of duty, to defend Josephson against Kearns' new 1995 lawsuit? In that respect there are several potentially relevant provisions in the Policy. Chuhak Firm and Josephson point to its Section 3(e) definition of "INSURED," which reads in relevant part:

 
(1) the NAMED INSURED [Chuhak Firm] and any PREDECESSOR FIRM;
 
(2) any person or professional corporation who is or becomes a partner, officer, director or employee of the NAMED INSURED but solely while performing PROFESSIONAL SERVICES in connection with the NAMED INSURED'S practice of law.

 For its part, Old Republic seeks to invoke Policy Sections 4(e) and (f), which exclude from coverage:

 
(e) any CLAIM made by, against or arising out of the conduct of any organization (other than the NAMED INSURED or a PREDECESSOR FIRM) which is owned, controlled, managed or operated by an ...

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