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Pekin Insurance Company v. Phelan

October 29, 2003


Appeal from the Circuit Court of the 10th Judicial Circuit Peoria County, Illinois No. 02-MR-68 Honorable John A. Barra, Judge, Presiding

The opinion of the court was delivered by: Justice Lytton


Plaintiff, Pekin Insurance Company (Pekin), appeals the circuit court's judgment that it had a duty to defend a suit against its insured, Ann Phelan, and her business, R. Rootz Salon. The underlying suit, initiated by Imaginations on Hair, Inc., alleges that Phelan and others made statements intended to lure customers away from Imaginations. Phelan claimed coverage from the suit under her business insurance policy underwritten by Pekin. Pekin argues that the underlying complaint does not allege conduct covered by the insurance policy because Phelan's statements did not disparage Imaginations. We affirm, finding that the statements disparaged Imaginations and hold that the policy language obligates Pekin to defend the suit.

Ann Phelan and R. Rootz Salon (together, Phelan), are also defendants in a separate, underlying lawsuit pending in the circuit court. Prior to opening R. Rootz Salon, Phelan was employed by Imaginations on Hair, Inc. The underlying complaint, initiated by Imaginations, alleges that near the end of Phelan's employment, she engaged in activities designed to lure clients away from Imaginations and bring them to R. Rootz Salon. The complaint alleges that Phelan told customers that Imaginations was moving to a new location, and then gave the customers the address of R. Rootz Salon. The complaint further claims that Phelan made appointments for Imaginations' customers at her new salon, telling customers that Imaginations was closing, and that she engaged in other activities to lure customers away from Imaginations.

Phelan made a claim under the liability insurance policy that she purchased from Pekin to cover her and R. Rootz Salon. In the claim, Phelan requested that Pekin defend her in the lawsuit brought by Imaginations. Pekin denied the claim and filed a complaint for declaratory judgment, asking the circuit court to rule that the insurance policy did not cover the allegations in Imaginations' complaint and that Pekin was not obligated to defend the suit.

The policy provides that Pekin must reimburse Phelan for sums she is legally obligated to pay as a result of various injuries, including "advertising injury." Pekin also assumed a duty to defend any suit seeking damages from advertising injury. The policy covers offenses by the insured committed in the course of advertising its goods, products and services. Furthermore, the policy limits advertising injuries, in part, to oral or written statements that disparage an organization's goods, products or services.

Pekin moved for summary judgment, arguing that the underlying complaint did not state allegations resembling those which Pekin was obligated to defend. Phelan also moved for summary judgment, claiming that since the complaint alleges disparagement of Imaginations' services, Pekin has a duty to defend Phelan in the underlying suit. The circuit court ruled for Phelan.

The circuit court issued its order on November 12, 2002. Pekin filed its notice of appeal on November 26, 2002, but on December 9, Phelan filed a motion for leave to file a counterclaim. The counterclaim alleged that if Phelan was found liable in the underlying suit, Pekin was obligated to reimburse her under the policy. The trial court denied the motion, prompting Phelan to file a motion to reconsider. That motion is pending in the circuit court.

I. Jurisdiction

Subject to certain exceptions, appeals can only be taken from final orders disposing of all claims against all parties; thus, this court cannot exercise jurisdiction until all claims are resolved in the trial court. Unless a trial court order includes an express finding that no just reason exists for delaying the appeal, it must resolve all claims; otherwise, an order is not appealable. Marsh v. Evangelical Covenant Church, 138 Ill. 2d 458, 465 (1990).

A motion for sanctions, filed after judgment and notice of appeal but within thirty days of judgment, nullifies the notice of appeal and corresponding appellate court jurisdiction. John G. Phillips and Associates v. Brown, 197 Ill. 2d 337 (2001). Motions for sanctions under Supreme Court Rule 137 are "claims" in the cause of action with which they are connected. Brown, 197 Ill. 2d at 340. Specifically, Rule 137 defines proceedings for sanctions as "a claim within the same civil action." S. Ct. Rule 137.

Phelan agrees that this court was vested with jurisdiction when Pekin filed its notice of appeal. However, relying on Brown, Phelan argues that the motion for leave to file a counterclaim, filed within thirty days of the circuit court's judgment, nullified the notice of appeal and divested the appellate court of its jurisdiction. We disagree.

In Brown, our supreme court determined that the appellate court lost jurisdiction because motions for sanctions are "inextricably interwoven with the case in which they arise," and because those motions are defined as claims by Supreme Court Rules. Brown, 197 Ill. 2d at 344-45. Motions for sanctions are unique because they often necessarily depend on the course taken and conduct exhibited by counsel and the parties. Brown, 197 Ill. 2d at 344. A counterclaim filed after judgment and after the filing of a notice of appeal does not share these distinct characteristics. The counterclaim is not, as the court in Brown said, "inextricably interwoven" with the case. 197 Ill. 2d at ...

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