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11/26/97 ALBERTO BEDOYA v. ILLINOIS FOUNDERS

November 26, 1997

ALBERTO BEDOYA, INDIVIDUALLY, AND D/B/A CASANOVA'S, INC., PLAINTIFF--APPELLEE,
v.
ILLINOIS FOUNDERS INSURANCE COMPANY, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Cook County. Honorable Albert Green, Judge Presiding.

Rehearing Denied November 18, 1997. Released for Publication January 22, 1998.

The Honorable Justice Burke delivered the opinion of the court. Wolfson, P.j., and Cerda, J., concur.

The opinion of the court was delivered by: Burke

The Honorable Justice BURKE delivered the opinion of the court:

Defendant Illinois Founders Insurance Company (Illinois Founders) appeals from an order of the circuit court granting summary judgment in favor of plaintiff Alberto Bedoya, d/b/a Casanova's, Inc. (Alberto), based on its determination that Illinois Founders owed Alberto a duty to defend him in an underlying action pursuant to an insurance policy issued by it to Alberto which provided coverage for claims brought under the Illinois Dram Shop Act (235 ILCS 5/6--21 (West 1993)). The trial court also found that Illinois Founders was estopped from asserting defenses to coverage and that it should pay George Bedoya's *fn1 (George) and Alberto's attorney fees and costs in the underlying action, penalties pursuant to section 155 of the Illinois Insurance Code (Insurance Code) (215 ILCS 5/155 (West 1993)), attorney fees for Alberto's declaratory judgment action pursuant to Supreme Court Rule 137 (134 Ill. 2d R. 137) and prejudgment interest pursuant to section 2 of the Illinois Interest Act (815 ILCS 205/2 (West 1993)). On appeal, Illinois Founders argues that the trial court erred in ruling that: (1) Illinois Founders had a duty to defend counts II and IV of the underlying action; (2) Illinois Founders had a duty to defend any counts of the underlying action under the insurance policy; (3) Illinois Founders had a duty to indemnify Alberto with respect to noncovered claims under counts II and IV of the underlying lawsuit; (4) Illinois Founders' conduct with respect to providing a defense in the underlying action was vexatious and unreasonable pursuant to section 155 of the Insurance Code; (5) Alberto was entitled to sanctions pursuant to Supreme Court Rule 137; (6) Illinois Founders had a duty to defend George in the underlying action; and (7) Alberto was entitled to an award of prejudgment interest pursuant to section 2 of the Interest Act. For the reasons set forth below, we affirm in part and reverse in part.

On September 20, 1989, Illinois Founders issued an insurance policy listing as the licensee, Casanova's, Inc. (Casanova's) and Alberto, doing business as Casanova's Cafe. The policy provided that Illinois Founders would "pay on behalf of the insured all sums which the insured shall become legally obligated to pay by reason of the liability imposed upon him by *** the 'Dram Shop Act' and all laws amendatory thereof, for damages."

On January 2, 1991, Claire Elizabeth MacMahon (MacMahon) filed a complaint against "Albert [sic] Bedoya, d/b/a Casonova's Lounge, Ltd. [sic], an Illinois corp., a/k/a Casanovas, Inc., George Bedoya, *** [and] John Doe." Count I of the complaint alleged that, while at Casanova's, George and John Doe, an unknown party, had imbibed alcoholic liquor and assaulted MacMahon and that John Doe raped MacMahon. MacMahon requested judgment against Alberto and Casanova's under the Dram Shop Act. Count II alleged a claim for negligence against Alberto and Casanova's under the same facts. Count IV *fn2 requested actual and punitive damages against John Doe. While George is named as a defendant in MacMahon's complaint, no specific count of the complaint requested judgment against him.

On April 1, 1991, Reda & Hennessy, P.C. (Reda), in behalf of Alberto and Casanova's, sent MacMahon's complaint to Illinois Founders and requested coverage for Alberto and Casanova's and that Illinois Founders investigate the claim and defend the action under the policy. On April 3, 1991, George retained Robert B. Morton (Morton) as his attorney. Their agreement listed Alberto as the guarantor of the agreement.

On April 9 and 10, 1991, Sherwin Greenberg, an attorney for Illinois Founders, and Illinois Founders, sent separate letters to Reda, stating that Illinois Founders would defend Casanova's and Alberto only as to count I of the MacMahon lawsuit. On October 1, 1991, Alberto retained Morton and Reda as attorneys for himself and Casanova's.

Illinois Founders subsequently settled count I of MacMahon's complaint for $500, but declined to defend the other counts. MacMahon settled the remainder of the case with Alberto, George and Casanova's for $7,500. The lawsuit was dismissed in its entirety with prejudice in an agreed order entered on May 8, 1995.

On July 24, 1995, Alberto filed a complaint for declaratory judgment and other relief against Illinois Founders and, on September 11, amended his complaint. The amended complaint alleged that Illinois Founders breached its duty to defend under the policy, Alberto was damaged by the breach and that Illinois Founders' refusal to defend was vexatious and unreasonable. Alberto requested that the trial court assess actual damages against Illinois Founders and award him attorney fees, sanctions and prejudgment interest.

In its answer to Alberto's amended complaint, Illinois Founders admitted that count I of MacMahon's complaint had stated a claim potentially within the provisions of the insurance policy and that it declined to defend on the other counts. However, Illinois Founders denied that: it had a duty to defend the entire lawsuit; it breached its duty; Alberto and Casanova's were damaged by its failure to defend; and that its conduct was vexatious or unreasonable. Illinois Founders sought a determination by the court to find that it had no duty to defend, pay attorney fees or indemnify for costs arising out of the remainder of MacMahon's complaint and that it acted in good faith. In its affirmative defense, Illinois Founders denied that Alberto or Casanova's had any right to the relief requested in the amended complaint.

The parties subsequently entered into an agreed protective order for all documents produced and entered into an agreed scheduling order which stated that if confidential materials were filed in the briefs, they should be filed under seal.

Thereafter, Alberto filed a motion for summary judgment, arguing that Illinois law requires an insurer to defend an entire lawsuit even if only one count falls within the policy, and that the court should award attorney fees and costs, the settlement amount, prejudgment interest, penalties and sanctions. Illinois Founders filed a response and its own motion for summary judgment, arguing that: it had no duty to defend under the terms of the policy; it had no duty to defend the entire lawsuit under the case law; it had no duty to indemnify Alberto as to count II; and the relief requested by Alberto was either improper or presented issues of material fact and, as such, was not ripe for summary judgment.

Alberto filed a motion to strike Illinois Founders' response and for additional sanctions for Illinois Founders' violation of the protective order, which he alleged occurred when Illinois Founders failed to file its response and motion for summary judgment under seal.

The trial court granted Alberto's motion for summary judgment, awarding the relief requested in the motion, including sanctions pursuant to section 155, denied Illinois Founders' motion for summary judgment, expressly found that Illinois Founders' conduct was vexatious and unreasonable, and set a briefing schedule and a date for a hearing on attorney fees and other costs. Alberto filed a summary of damages and affidavits setting out fees and prejudgment interest, totaling $58,488.23. Illinois Founders filed a memorandum in opposition to Alberto's damages, challenging the legal fees, the settlement amount for count II, prejudgment interest and section 155 penalties. Alberto filed a reply and rebuttal affidavit in support of the fees.

At the hearing on the fees and other costs, the trial court entered judgment for Alberto in the amount of $58,488.23: $25,798.05 for attorney fees; $7,500 for settlement cost of counts II and IV; a 25% penalty pursuant to section 155 for Illinois Founders' vexatious and unreasonable conduct; prejudgment interest pursuant to section 2 of the Interest Act; and attorney fees as a sanction pursuant to Rule 137 *fn3 for defending the declaratory judgment action. This appeal followed.

The standard of review of a summary judgment is de novo. Outboard Marine Corp. v. Liberty Mutual Insurance, 154 Ill. 2d 90, 102, 607 N.E.2d 1204, 180 Ill. Dec. 691 (1992). "Although our supreme court has encouraged the use of the summary judgment procedure as an aid to the expeditious disposition of a lawsuit ***, it has also emphasized that the device is a drastic means of disposing of litigation and should be used only when the right of the moving party is clear and free of doubt." Sears, Roebuck & Co. v. Seneca Insurance Co., 254 Ill. App. 3d 686, 690, 627 N.E.2d 173, 194 Ill. Dec. 57 (1993).

Illinois Founders first argues that the trial court erred in holding that it had a duty to defend Alberto, Casanova's and George as to counts II and IV of MacMahon's complaint because the policy provided coverage solely for damages recoverable under the Dram Shop Act, and count II was based on negligence and count IV on actual and punitive damages against John Doe. It argues that defense costs between the covered claim under count I and the noncovered claims under counts II and IV should have been separately allocated. Alberto argues that the law is well settled that "where an insured is covered as to one count in a multi-count lawsuit, the insurer must defend as to the entirety of the lawsuit." Therefore, since it is undisputed that Illinois Founders had a duty to defend as to count I of the underlying complaint, it had a duty to defend as to counts II and IV. Alberto further argues that Illinois Founders was specifically aware of this law because it had been involved in litigation very similar to this case in Illinois Founders v. Smith, 231 Ill. App. 3d 269, 596 N.E.2d 59, 172 Ill. Dec. 780 (1992).

Illinois courts have consistently held that "the duty to defend extends to cases where the complaint alleges several causes of action or theories of recovery against an insured, one of which is within the coverage of a policy while the others may not be." Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187, 194, 355 N.E.2d 24 (1976). *fn4 Notwithstanding the fact that other jurisdictions have found that the duty to defend may be allocated between the insurer ...


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