Appeal from the Circuit Court of Cook County, Illinois, ) County Department, No. 10 CH 10169 The Honorable Sophia H. Hall, Judge Presiding.
The opinion of the court was delivered by: Justice Fitzgerald Smith
JUSTICE FITZGERALD SMITH delivered the judgment of the court, with opinion. Presiding Justice Lavin and Justice Epstein concurred in the judgment and opinion.
¶ 1 This cause arises out of a declaratory judgment action (735 ILCS
5/2-701 (West 2002)) filed by the plaintiff-appellant, American Zurich
Insurance Co. (American Zurich), against the defendant-appellee, the
law firm of Wilcox & Christopoulos, L.L.C., (the Wilcox law firm) and
the defendant, Mark Wilcox (Wilcox), wherein American Zurich sought a
declaration that it was not obligated to defend Wilcox or the Wilcox
law firm in an underlying claim for civil conspiracy brought by
Michael Demnicki (Demnicki) against, inter alia, Wilcox and the firm.
The underlying claim alleges inter alia, that Wilcox and the Wilcox
law firm were involved in a
civil conspiracy to open and operate a restaurant/lounge
by illegal means.Because at all relevant times the Wilcox law firm had
a lawyers professional liability insurance policy with American
Zurich, it tendered the defense of the underlying claim to American
Zurich. However, American Zurich denied coverage and refused to defend
or indemnify either Wilcox or the law firm against any action by
¶ 2 After discovery, the parties filed cross-motions for summary judgment seeking a declaration regarding American Zurich's duty to defend Wilcox and the firm. The circuit court held that American Zurich had a duty to defend the Wilcox law firm but no duty to defend Wilcox individually. The court therefore granted American Zurich's motion for summary judgment as to Wilcox but denied the motion as to the Wilcox firm.
¶ 3 American Zurich now appeals that portion of the circuit court's order denying the motion for summary judgment as to the Wilcox law firm. American Zurich contends that the circuit court erred when it found that exclusion E of American Zurich's policy to the Wilcox law firm, precluding coverage for any claim arising out of "the alleged acts or omissions of any insured *** for a business enterprise *** in which any insured has a controlling interest," did not apply to the law firm, so as to oblige American Zurich to defend the firm against the Demnicki suit. For the reasons that follow, we reverse.
¶ 5 Since the record before us is voluminous, we set forth only the relevant and undisputed facts.
¶ 6A. The Underlying Complaint
¶ 7 On November 16, 2009*fn1 , Demnicki filed an action for civil conspiracy in the circuit court against numerous parties, including, relevant for this appeal, Wilcox and the Wilcox law firm.The other parties named as defendants in the complaint include: (1) Jason Hyatt and (2) Matt Stoen, owners of the now-defunct Panacea Partners, LLC (Panacea Partners), which hoped to open and operate a restaurant/lounge (De La Costa) in Chicago; (3) Anthony Frink and Mark Nora, attorneys at Holland & Knight, LLP (Holland & Knight), who, at all relevant times, served as counsel for Panacea Partners; (4) the firm of Holland & Knight, which performed legal services for Panacea Partners, including drafting agreements and documents related to the ownership of Panacea Partners; (5) Liquor License Solutions, LLC (Liquor License Solutions), an Illinois limited liability company that is owned and controlled by Wilcox and Jennifer Walsh, and which was hired by Panacea Partners to obtain a liquor license for the De La Costa restaurant/lounge from the City of Chicago and the State of Illinois; and (6) Jennifer Walsh, a member and manager of Liquor License Solutions.
¶ 8 In his complaint, Demnicki alleged that all of the defendants, including Wilcox and the Wilcox law firm were involved in a civil conspiracy to open and operate the De La Costa restaurant/lounge by illegal means, i.e., by committing perjury, making fraudulent misrepresentations, breaching their fiduciary duties, and violating the Illinois Limited Liability Company Act (805 ILCS 180/1-1 et seq. (West 2008)), the Illinois Liquor Control Act of 1934 (235 ILCS 5/1-1 et seq. (West 2002)), and the City of Chicago Liquor License Ordinance (Chicago Municipal Code §4-60 (2012)), by misrepresenting and concealing the ownership and management of Panacea Partners from the City of Chicago Liquor License Commission, the State of Illinois Liquor Control Commission and prospective investors (including Demnicki) so as to enable the restaurant/lounge to obtain a liquor license and open for business.
¶ 9 The complaint alleges that in January 2005, Holland & Knight was first hired by Panacea Partners to provide consulting services on the proposed De La Costa restaurant/lounge. In addition, in early 2006, Wilcox and Liquor License Solutions*fn2 were retained by Panacea Partners to obtain a liquor license for the De La Costa restaurant/lounge, and Stoen directed Wilcox to work together with Holland & Knight on this project. In turn, according to the complaint, Wilcox utilized Liquor License Solutions and Walsh to help him draft liquor license applications for Panacea Partners from the City of Chicago and the State of Illinois. The complaint alleges that at all relevant times Wilcox acted both individually and in the scope of his employment in the Wilcox law firm and in the scope of his employment with Liquor License Solutions.
¶ 10 According to the underlying complaint, Wilcox and Walsh advised Stoen that he would have to undergo the City of Chicago's background check as part of the liquor license application process and that if he did not pass the requirements, Panacea Partner's liquor license application, which was essential to their business plan and the viability of the De La Costa restaurant, would be denied. The complaint further alleges that Wilcox and Walsh determined that Panacea Partners would not be able to obtain a liquor license if Stoen's ownership in the restaurant/lounge was disclosed to the authorities. They therefore decided to take Stoen's name off all relevant documents, for the purpose of obtaining a liquor license.
¶ 11 The complaint alleges that in this vein all of the defendants agreed together to prepare various fraudulent corporate documents relating to Panacea Partners and its financing. Specifically, the complaint alleges that the defendants agreed: (1) to create false articles of amendment for Panacea Partners, changing Panacea Partners from a manager-managed limited liability company to a member-managed limited liability company, without member approval, naming Hyatt as its sole member; (2) to create a false operating agreement for Panacea Partners, without member approval, to conceal Stoen and the other investor/members' membership and management of Panacea Partners from the licensing authorities and any new investors; (3) to use these false documents, together with a false financial disclosure form depicting that all of Panacea's Partners' financing came from Hyatt, as part of Panacea Partners' liquor license applications to the City of Chicago and the Illinois Liquor Control Commission; (4) to use the false articles of amendment and the false operating agreement to solicit more investors; and (5) to conceal all of this illegal conduct from other investors/members and any new investors in Panacea Partners.
¶ 12 With respect to Wilcox and the Wilcox law firm, the complaint
specifically alleges taht that on April 6, 2006, Walsh of Liquor
License Solutions sent an email to Nora of Holland & Knight, stating
that the operating agreement of Panacea Partners needed to be amended
a change in members, thereby concealing Stoen's
involvement. It is further alleged that an employee of Liquor License
Solutions, Barbara Mateblweski, emailed Nora to provide him with an
outline of the steps needed to conceal Stoen's involvement in Panacea
Partners. Wilcox was copied on that email and followed up with Nora
the next day to confirm Nora's receipt and understanding of the email.
A series of emails between Walsh, Mateblweski, Stoen and Nora followed
throughout April, all discussing the steps that needed to be taken to
remove Stoen from the operating agreement and reminding of the
impending May 9 and 14 deadlines for submitting the application for a
liquor license. According to the complaint, at all times, Wilcox had
access to and reviewed these Liquor License Solutions emails. The
complaint further alleges that on May 10, 2006, Wilcox prepared an
amended operating agreement for Panacea Partners that was backdated to
April 2, 2006, and removed Stoen. Wilcox, Walsh, Liquor License
Solutions and Mateblweski then provided this false document to, inter
alia, the City of Chicago, the Illinois Liquor Control Commission and
¶ 13 In addition to the civil conspiracy claim, the complaint also alleges that Wilcox and the Wilcox law firm committed the tort of fraudulent misrepresentation by concealing the aforementioned information from Demnicki and thereby inducing him to invest additional funds into Panacea Partners, which he would not have done had he know of their misrepresentations. Accordingly, the complaint requests judgment in Demnicki's favor and against Wilcox and the Wilcox law firm, in the amount of $1 million, in addition to $3.5 million in punitive damages.
¶ 14 B. The Declaratory Judgment Action
¶ 15 At the time of the alleged civil conspiracy, the Wilcox law firm was covered by a lawyers professional liability insurance policy with American Zurich. That policy was issued by American Zurich to the Wilcox law firm for the period of February 26, 2009, to February 26, 2010. The policy contained general professional liability coverage with liability limits of $2 million per each claim and $2 million in the aggregate, in excess of a $5,000 deductible. The policy lists the Wilcox law firm as the "named insured." The application for the policy, however, includes a list of attorneys working for the firm, including, inter alia, Wilcox and Dimitrios Christopoulous.
¶ 16 After Demnicki filed his claim against Wilcox and the Wilcox law firm, the law firm attempted to tender the defense of the case to its insurer, American Zurich. However, American Zurich refused, and instead on March 11, 2010,*fn3 filed a declaratory judgment action in the circuit court, seeking that the court declare that it owed no duty to defend either Wilcox of the Wilcox law firm in the Demnicki claim.
¶ 17 In the complaint for declaratory judgment, American Zurich alleged that: (1) the claim did not come within American Zurich policy's insuring agreement; (2) that Wilcox was not an insured and that (3) several exclusions in the policy (including, inter alia, exclusions D and E) precluded coverage. In support of its contentions, American Zurich attached a copy of the insurance ...