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Gould & Ratner v. Vigilant Insurance Company

December 4, 2002

GOULD & RATNER, PLAINTIFF-APPELLANT,
v.
VIGILANT INSURANCE COMPANY, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County. Honorable Allen S. Goldberg, Judge Presiding.

The opinion of the court was delivered by: Justice Wolfson

UNPUBLISHED

This dispute is about the extent of coverage provided to a law firm in a general liability policy.

Gould & Ratner, a law firm, purchased the insurance policy from Vigilant Insurance Company doing business as Chubb Group of Insurance Companies (Vigilant). Gould & Ratner was sued by David Carmell for defamation and breach of fiduciary duty (the underlying suit). Gould & Ratner notified Vigilant of the suit. Vigilant said it had no duty to defend or indemnify Gould & Ratner in the underlying suit because Carmell's claims were excluded from coverage. Gould & Ratner defended itself and eventually settled the underlying suit.

Gould & Ratner then sued Vigilant for breach of the insurance contract. Vigilant filed a countercomplaint for a declaratory judgment. Vigilant also filed an answer and affirmative defenses. On Vigilant's motion, the trial court granted summary judgment in Vigilant's favor on both Gould & Ratner's suit and Vigilant's countersuit.

Gould & Ratner appeals, contending: (1) Vigilant breached its duty to defend by neither defending Gould & Ratner under a reservation of rights nor filing a timely declaratory judgment action; and (2) Vigilant's countercomplaint was untimely as a matter of law and an improper basis for summary judgment. We affirm.

FACTS

The Insurance Policy

Gould & Ratner purchased a commercial insurance policy from Vigilant for the term July 15, 1996, to July 15, 1997. The policy included coverage for "personal injury *** if caused by an offense committed during the policy period." "Personal injury" was defined in the policy as

"injury, other than bodily injury, arising out of one or more of the following offenses committed in the course of your business, other than your advertising activities:

***

4. oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services ***."

The insurance policy contained a "Professional Exclusion." This exclusion provided:

"With respect to bodily injury, property damage, personal injury or advertising injury or any obligations assumed by contract: This insurance does not apply to any claim or suit against the Insured for:

a. rendering or failing to render written or oral professional legal services or advice; or

b. rendering or failing to render any other written or oral services or advice that are not ordinary to the practice of law; whether or not the Insured is acting in the capacity of a lawyer." (Emphasis in original.)

The insurance policy also contained an exclusion for: "Personal injury or advertising injury:

1. arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity; ***." (Emphasis in original.)

The Underlying Suit

On February 13, 1997, Carmell filed a six-count complaint against Gould & Ratner and Jonathan Backman, a partner at Gould & Ratner, for defamation and breach of fiduciary duty.

According to the complaint, Carmell was a client of Gould & Ratner. In 1996, Apex Automotive Warehouse, L.P. (Apex) filed bankruptcy. During the bankruptcy proceedings, Gould & Ratner also represented Apex.

In the complaint, Carmell alleged that on August 14, 1996, Backman faxed to several people a letter containing unfavorable statements about Carmell. Carmell alleged the statements were untrue. On August 27, 1996, Backman called Carmell as an adverse witness in the Apex bankruptcy proceedings and cross-examined Carmell utilizing information that was protected by the attorney-client privilege. On November 5, 1996, Backman faxed to various people another letter containing unfavorable statements about Carmell. Carmell alleged those statements were not true.

Gould & Ratner promptly tendered the complaint to Vigilant requesting confirmation of coverage. On March 18, 1997, Vigilant refused to defend or indemnify Gould & Ratner. Vigilant said the insurance policy did not cover the breach of fiduciary claims. The defamation claims, Vigilant said, fell within the scope of both the Professional Exclusion and the Intentional Falsehood Exclusion.

Gould & Ratner subsequently settled the suit with Carmell; the Carmell suit was dismissed with prejudice on July 27, 2000.

On January 8, 2001, Gould & Ratner filed suit against Vigilant for breach of contract. On February 26, 2001, Vigilant filed a countercomplaint for declaratory judgment seeking a declaration of noncoverage and no duty to defend.

Gould & Ratner filed a motion to dismiss. Gould & Ratner contended Vigilant's countercomplaint was untimely as a matter of law, citing Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 708 N.E.2d 1122 (1999), and Clemmons v. Travelers Insurance Company, 88 Ill. 2d 469, 430 N.E.2d 1104 (1981) in support of its contention.

On August 10, 2001, the court granted Gould & Ratner's motion to dismiss Vigilant's countercomplaint, holding the countercomplaint ...


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