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Old Republic Insurance Co. v. Ness, Motley, Loadholt, Richardson & Poole, P.A.

United States District Court, N.D. Illinois, Eastern Division

April 12, 2005




         Before the court is Old Republic Insurance Company's (“Old Republic”) Fed.R.Civ.P. 12(b)(6) motion to dismiss portions of the second amended counterclaim of Ness, Motley, Loadholt, Richardson & Poole, P.A., Motley Rice, L.L.C. and M.R.R.M., P.A. (collectively, “Ness Motley”). For the reasons that follow, the court grants in part and denies in part the motion to dismiss.

         I. Background

         For purposes of this order, the court will presume familiarity with its prior decisions regarding this case and will deem as true all well-pleaded allegations in the Second Amended Counterclaim.

         Briefly, the present action stems from a $36 million judgment entered against the now defunct law firm of Ness Motley. See Interclaim Holdings, Ltd. v. Ness, Motley, Loadholt, Richardson & Poole, 2001 WL 1313799 (N.D. Ill. Oct. 29, 2001) amended in Interclaim Holdings, Ltd. v. Ness, Loadholt, Richardson & Poole, 2004 WL 725287 (N.D. Ill. April 1, 2004) (hereinafter “Underlying Illinois Action”). Old Republic, which issued excess professional liability insurance policies to Ness Motley (the “Policies”), has filed the instant action seeking a declaration that it has no liability in connection with the judgment entered in the Underlying Illinois Action. The Old Republic Policies provide policy limits of $10 million each, both per claim and in the aggregate, in excess of the underlying $20 million limits of the primary insurance policies issued by Twin City Fire Insurance Company.

         On November 30, 2004, Ness Motley filed its Second Amended Affirmative Defenses[1] and Second Amended Counterclaim (“SAC”). The SAC alleges that Old Republic breached its contract by refusing to acknowledge its coverage obligations and by refusing to assist Ness Motley in placing a supersedeas bond with respect to Ness Motley's efforts to perfect an appeal in the Underlying Illinois Action. The SAC also alleges that Old Republic committed fraud because it never intended to provide coverage for punitive damages to Ness Motley despite the fact that the Policies contain language appearing to cover such damages.

         Old Republic initially moved to dismiss all counts, but subsequently withdrew its arguments relating to ripeness and its motion to dismiss Count I (breach of contract) of the SAC. Accordingly, currently pending before this court is Old Republic's Rule 12(b)(6) motion to dismiss Count II (common law fraud), Count III (violation of the Illinois Consumer Fraud Act), and Count IV (breach of contract/ breach of duty of good faith and fair dealing) of the SAC.

         II. Analysis

         A. Legal Standard

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) challenges the sufficiency of the complaint (here, the counterclaim) for failure to state a claim upon which relief may be granted. General Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir.1997). Thus, the issue is not whether counter plaintiffs ultimately will prevail, but whether they are entitled to present evidence in support of their claim. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In deciding a motion to dismiss, the court must assume all facts alleged in the complaint to be true, construe the allegations liberally and view the allegations in the light most favorable to plaintiffs. Meriwether v. Faulkner, 821 F.2d 408, 410 (7th Cir.1987), cert. denied sub nom., 484 U.S. 935 (1987). Dismissal is appropriate only if it appears beyond a doubt that the plaintiff can prove no set of facts in support of its claim that would entitle it to relief. Conley, 355 U.S. at 45-46; Kennedy v. Nat'l Juvenile Det. Ass'n, 187 F.3d 690, 695 (7th Cir.1999).

         B. Count II (Common Law Fraud) and Count III (Illinois Consumer Fraud Act)

         In Count II of the SAC, Ness Motley alleges that Old Republic's “promises to insure Ness Motley for punitive or exemplary damages were knowingly false, fraudulent, and deceptive, ” because Old Republic “never intended to provide the punitive damage coverage.” Instead, according to Ness Motley, Old Republic, in the event that a claim was made under the Policies, planned to contend that the Policies were governed by Illinois law and that coverage for punitive damages resulting from one's own behavior under Illinois law was against public policy. SAC at ¶17.

         Old Republic argues that this count must be dismissed because (1) the SAC alleges a misrepresentation regarding the legal effect of a document (i.e., the Policies) which is not grounds for fraud, and (2) the SAC alleges “promissory fraud” which Ness Motley has not properly plead.

         As to its first argument, Old Republic argues that in order to state a claim for fraud, Ness Motley must allege a misrepresentation of fact. Randazzo v. Harris Bank Palatine, N.A., 104 F.Supp.2d 949, 954 (N. D. Ill. 2000), aff'd 262 F.3d 663 (7th Cir. 2001) (“a party's interpretation of a legal document - whether correct or not - cannot be a representation of a material fact but rather is merely that party's personal opinion as to the legal effect of the document.”) (citation omitted). According to Old Republic, any representations regarding the scope of coverage under the Policies, the law applicable to the Policies or the state law regarding the insurability of punitive damages is not a misrepresentation of fact and cannot, as a matter of law, constitute a basis for fraud. Old Republic contends that it “could not have known at the time it sold the Policies that a court would find Illinois law applicable, ” so there was no misrepresentation of existing fact.

         Ness Motley, however, argues that nothing in the Counterclaim is based upon the construction or legal effect of the Policies in general, and specifically, the punitive damages coverage provision. According to Ness Motley, the language of the punitive damages provision is clear and ...

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