Appeal from the Circuit Court of Jackson County. No. 99-L-80 Honorable Thomas H. Jones, Judge, presiding
The opinion of the court was delivered by: Justice Rarick
The plaintiff, the Bank of Carbondale (the Bank), filed a complaint in the circuit court of Jackson County against Leonard Bening and alleged that Bening had failed to pay certain promissory notes. Bening filed a counterclaim alleging, inter alia, that the Bank, acting through its officers and/or directors, altered the notes. The counterclaim named the Bank as a defendant but did not name any officer or director. The defendant, the Kansas Bankers Surety Company (KBS), had issued to the Bank an insurance policy entitled "Director and Officer Legal Defense and Limited Indemnity Policy." The policy provided that KBS would indemnify any director or officer of the Bank for any loss which the director or officer was legally obligated to pay by reason of any wrongful act in his or her capacity as a director or officer. The Bank notified KBS of Bening's counterclaim, but KBS refused to provide coverage. KBS relied on a policy exclusion which provides that KBS is not liable to make payment or provide any defense in connection with a claim against the Bank itself. The Bank then brought the present action against KBS. The Bank alleged a breach of contract and further alleged that KBS's failure to provide coverage was vexatious and unreasonable under the provisions of section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 1998)). KBS filed a motion to dismiss pursuant to section 2-619 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619 (West 1998)), arguing that the policy in question did not provide coverage to the Bank. The trial court granted KBS's motion and dismissed the Bank's complaint, finding that the Bank was excluded from coverage under the policy.
On appeal, the Bank argues that the provisions of the insurance policy are ambiguous, requiring the policy to be construed in favor of the Bank and obligating KBS to provide coverage. Specifically, the Bank maintains that pursuant to section III of the policy, KBS is obligated to indemnify the Bank when a claim is made against an officer or director thereof. However, under paragraph (b) of section IV, KBS is excused from indemnifying the Bank if a claim is made against it. The Bank argues that the policy includes no requirement that an officer or director be named a party rather than the Bank. Thus, the Bank contends, the provisions of section III are in conflict with and contradictory to the provisions of section IV, rendering the coverage provisions of the policy ambiguous. The Bank contends that although it is the only named defendant in Bening's counterclaim, the counterclaim alleges wrongful acts on the part of the officers and directors. The Bank maintains that if interpreted as KBS argues, the policy provides no coverage at all.
1. The Underwriter *** agrees to indemnify each and every person who was, now is[,] or may hereafter be a Director or Officer of the Bank for loss which the Director or Officer is legally obligated to pay by reason of any Wrongful Act in their capacities of Director or Officer in the Bank arising out of an occurrence Discovered by the Director or Officer during the policy period.
(b) The term 'Director or Officer' shall mean any duly elected Director or person duly elected or appointed to any position of Bank Management designated by the Board of Directors of the Bank as an Officer.
(c) Wrongful Act shall mean any actual or alleged:
1) error or misstatement; or