The opinion of the court was delivered by: Justice Hoffman
Appeal from the Circuit Court of Cook County. Honorable Dorothy Kinnaird, Judge Presiding.
JUSTICE HOFFMAN delivered the opinion of the court:
In this declaratory judgment action, the plaintiffs, Harold R. Abrams (Abrams), Harold R. Abrams, P.C. (Abrams P.C.), and Ron D. Abrams, appeal from the trial court's entry of summary judgment against them and in favor of the defendants, State Farm Fire & Casualty Company (State Farm Fire) and State Farm General Insurance Company (State Farm General) (referred to collectively as State Farm). The trial court found that State Farm had no duty to defend and indemnify the plaintiffs in an action pending against them in Federal court. For the reasons which follow, we affirm.
Harold R. Abrams (Abrams) and Ron D. Abrams are both licensed attorneys practicing with the law firm of Harold R. Abrams P.C. (Abrams P.C.). On October 1, 1996, State Farm Mutual Automobile Insurance Company (State Farm Auto) filed a four count complaint in the United States District Court for the Northern District of Illinois against Abrams and Abrams P.C., among others, alleging that, since at least the 1980s, they had been involved in a scheme to make fraudulent insurance claims. Counts I and II of the complaint alleged violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act (18 U.S.C. §1962, §1964 (West 1984 and Supp. 1999)). Counts III and IV asserted causes of action for common law fraud and conspiracy to commit common law fraud, respectively.
Abrams and Abrams, P.C. tendered their defense of the Federal action to State Farm *fn1 under business liability and personal liability umbrella insurance policies issued to Abrams in 1992 and renewed annually thereafter. State Farm Auto then filed an amended complaint in the Federal action. The amended complaint contained 24 counts, 6 of which were directed against Abrams, Abrams, P.C., and Ron Abrams (collectively the plaintiffs). Counts I, II, and V of the amended complaint asserted RICO Act violations. Counts III and VI asserted causes of action for common law fraud, and count IV asserted a cause of action for conspiracy to commit common law fraud. The amended complaint asserted that the plaintiffs had participated in a "Sudden Stop Accident Scheme", in which "street-level organizers" recruited participants to stage accidents by intentionally slamming on their brakes to cause "sudden stop" rear-end collisions. According to the amended complaint, the street-level organizers then referred the participants to health care providers that provided false diagnoses and billed for unnecessary or nonexistent tests and treatment and to attorneys that pursued fraudulent insurance claims. The complaint asserted that, "[t]o enhance their ability to obtain recoveries against the unsuspecting drivers' insurance companies in connection with the Sudden Stop Accidents, the attorneys" involved "offer and/or agree to settle the fraudulent bodily injury claims at substantial discounts to normal claims values" and "threaten to, and do, file lawsuits to recover for the fraudulent bodily injury claims if they are not settled." The amended complaint alleged that State Farm Auto had paid out over $3 million in connection with the fraudulent claims arising from the accident scheme and had also incurred substantial investigative and litigation expenses.
Abrams and Abrams P.C. provided State Farm with a copy of the amended complaint, and Ron Abrams, who had not been named in the original complaint, tendered defense of the amended complaint to State Farm under Abrams' business liability and personal liability umbrella policies. Subsequently, State Farm notified all the plaintiffs that it was accepting defense of the Federal action on their behalf under a reservation of rights.
On January 16, 1998, State Farm notified Abrams and Abrams, P.C. that it was declining their tender of defense and request for coverage under the relevant policies. On January 23, 1998, Abrams and Abrams, P.C. filed a three count complaint for declaratory relief, seeking a finding that State Farm had an obligation to defend and indemnify them with regard to the Federal action. Subsequently, State Farm Auto notified Ron Abrams that it was declining his tender of defense and request for coverage. Abrams and Abrams, P.C. then obtained leave to amend their complaint to add Ron Abrams as a plaintiff. In counts I and II of the amended complaint, the plaintiffs sought declarations that State Farm was obligated to defend and indemnify them under the property damage and personal injury provisions of the relevant policies. Count III sought a declaration that State Farm was liable for attorney's fees and costs under section 155 of the Insurance Code (215 ILCS 5/155 (West 1996)) due to its unreasonable and vexatious misconduct in refusing to defend the plaintiffs.
On May 7, 1998, the plaintiffs moved for summary judgment "on the issue of whether State Farm owe[d] a duty to defend the underlying suit." In their memorandum in support of the motion, the plaintiffs specified that they sought a declaration only with respect to State Farm's duty to defend under the personal injury coverage provisions of the relevant policies, the substance of count II of the complaint. State Farm responded to the plaintiffs' motion for summary judgment as to count II and filed its own motion for summary judgment as to all three counts of the plaintiffs' complaint.
After conducting a hearing on the cross-motions, the trial court denied the plaintiffs' motion for summary judgment as to count II of their complaint and granted State Farm's motion for summary judgment as to all three counts. The plaintiffs appeal only from the portion of the trial court's order denying their motion for summary judgment as to count II and granting State Farm's motion for summary judgment on that count.
Summary judgment is appropriate where the pleadings, depositions, admissions, and affidavits, when taken together and in the light most favorable to the non-movant, show that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 1996)); Majca v. Beekil, 183 Ill. 2d 407, 416, 701 N.E.2d 1084 (1998). We review the trial court's granting of a summary judgment de novo. In re Estate of Rennick, 181 Ill. 2d 395, 401, 692 N.E.2d 1150 (1998).
An insurer's duty to defend, which is much broader than its duty to indemnify, is generally determined by comparing the allegations of the underlying complaint against the insured to the language of the insurance policy. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 125, 607 N.E.2d 1204 (1992). If the facts alleged in the underlying complaint fall even potentially within the policy's coverage, the insurer is obligated to defend its insured. American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 479, 687 N.E.2d 72 (1997); Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 393, 620 N.E.2d 1073 (1993). This is true even if the allegations are groundless, false, or fraudulent. United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 73, 578 N.E.2d 926 (1991). In determining the insurer's duty to defend, "[t]he allegations in the underlying complaint must be liberally construed in favor of the insured." Outboard Marine, 154 Ill. 2d at 125. Additionally, if a provision of the insurance policy can reasonably be said to be ambiguous, that provision will be construed in favor of the insured. United States Fire Insurance Co. v. Schnackenberg, 88 Ill. 2d 1, 4, 429 N.E.2d 1203 (1981). We will not, however, distort the language of a policy to create an ambiguity where one does not exist. Smith v. Neumann, 289 Ill. App. 3d 1056, 1064, 682 N.E.2d 1245 (1997).
If the duty to defend exists, the insurer's duty to indemnify cannot be determined until the underlying action has been adjudicated. Outboard Marine, 154 Ill. 2d at 127-28. If, however, a court determines that the insurer has no duty to defend, it may simultaneously determine that the insurer has no duty to indemnify. State Farm Fire & Casualty Co. v. Hatherley, 250 Ill. App. 3d 333, 336, 621 N.E.2d 39 (1993).
The allegations contained in the underlying Federal action have been summarized above. We must now compare those allegations to the relevant portions of the business ...