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Illinois State Bar Association Mutual Insurance Company v. Frank M. Greenfield and Associates

November 9, 2012

ILLINOIS STATE BAR ASSOCIATION MUTUAL INSURANCE COMPANY, PLAINTIFF-APPELLANT,
v.
FRANK M. GREENFIELD AND ASSOCIATES, P.C., AN ILLINOIS PROFESSIONAL CORPORATION,
FRANK M. GREENFIELD, ORRIN ADLER, BARBARA ADLER, MICHAEL HANNA, AND FAYE R. ADLER GRAFTON, DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. No. 10 CH 12150 Honorable Mary L. Mikva, Judge Presiding.

The opinion of the court was delivered by: Justice R. Gordon

JUSTICE R. GORDON delivered the judgment of the court, with opinion. Justice Hall concurred in the judgment and opinion.

Justice Garcia specially concurred, with opinion.

OPINION

¶ 1 This appeal is essentially a case of first impression and concerns whether an admission of error in a legal malpractice claim by a policyholder without his insurance company's approval gave the company the right to deny coverage and not defend the attorney and his law firm. Attorney Frank M. Greenfield admitted to making a mistake in drafting a client's will that affected the distribution of funds from a trust established by his client. According to the letter, which was sent to all of the trust's beneficiaries, Greenfield's mistake resulted in several of the beneficiaries receiving less money than they otherwise would have received had the client's wishes been properly implemented. Those beneficiaries, defendants Orrin Adler, Barbara Adler, Michael Hanna, and Faye R. Adler Grafton (collectively, the underlying plaintiffs), filed suit against Greenfield and his firm, Frank M. Greenfield & Associates, P.C. (collectively, Greenfield), for legal malpractice.

¶ 2 Greenfield had a professional liability insurance policy through Illinois State Bar Association Mutual Insurance Company (ISBA Mutual), but did not inform ISBA Mutual prior to sending the letter to the beneficiaries. ISBA Mutual claims that, by failing to inform it of the letter prior to sending it, Greenfield violated a provision of his insurance policy and, consequently, ISBA Mutual had no duty to defend Greenfield in the subsequent legal malpractice action. ISBA Mutual filed an action for declaratory judgment, seeking an order that it had no duty to defend Greenfield. The prayer for relief in the declaratory action does not mention coverage; it only requested the trial court to find that it had no duty to defend as a result of Greenfield's admission letter to the beneficiaries of the trust. Both parties filed motions for summary judgment, and the trial court granted Greenfield's, finding that ISBA Mutual had a duty to defend since Greenfield did not admit to liability in the letter and consequently did not violate his insurance policy; the trial court also found that even if he had violated the policy, ISBA Mutual was not prejudiced by the breach. ISBA Mutual appeals, and we affirm.

¶ 3 BACKGROUND

¶ 4 The facts in the instant appeal are largely undisputed. On March 24, 2010, ISBA Mutual filed a complaint for declaratory judgment, alleging that the law firm of Frank M. Greenfield & Associates, P.C., was the named insured on a professional liability insurance policy issued by ISBA Mutual, and Greenfield individually was an insured on that policy. The firm and Greenfield were named in a lawsuit initiated by the underlying plaintiffs, who sought compensatory damages for Greenfield's omission of a provision in a client's will, which allegedly damaged the underlying plaintiffs upon the client's death. The firm and Greenfield tendered their defense of the suit and ISBA Mutual accepted that tender, subject to a reservation of rights for the reasons underlying its complaint for declaratory judgment.

¶ 5 ISBA Mutual alleges that its insurance policy contains a provision entitled "Voluntary Payments," which provides:

"The INSURED, except at its own cost, will not admit any liability, assume any obligation, incur any expense, make any payment, or settle any CLAIM, without the COMPANY'S prior written consent."

ISBA Mutual argues that it has no duty to defend the firm and Greenfield in connection with the underlying plaintiffs' complaint because Greenfield admitted liability in a letter dated June 17, 2008, and seeks a judgment finding the same.

¶ 6 Attached to the complaint was the plaintiffs' complaint in the underlying action. The complaint alleges that Greenfield represented Leonard and Muriel Perry for purposes of estate planning. Leonard executed a will that poured his assets into a trust known as the "Leonard W. Perry Declaration of Trust"; Muriel did the same, with her assets pouring into the "Muriel W. Perry Trust Agreement." From time to time, Leonard and Muriel amended their trusts, and in 1996, Leonard executed an amendment giving Muriel the power of appointment to make changes and modifications to the plan of distribution of the funds in his trust upon Leonard's death. After Leonard's death, in 2007, Greenfield amended Muriel's will to include language "that directed, pursuant to her Power of Appointment of the Leonard W. Perry Trust dated March 22, 1996, that assets in the Leonard W. Perry Trust dated March 22, 1996 were to be distributed according to the terms of the Muriel Perry Trust."

¶ 7 In 2008, Muriel again amended her will, making changes to certain bequests of the funds in her trust. However, in preparing the will, Greenfield "failed to include language that Muriel W. Perry was exercising her Power of Appointment from her deceased husband's trust." This error remained undiscovered until after Muriel's death. Approximately a month after Muriel's death, Greenfield disclosed his omission of the power of appointment in the 2008 will to the beneficiaries of the trust. The underlying plaintiffs claimed that Greenfield was negligent in failing to include the power of appointment provision and that as a result of that omission, they "have been deprived of monies for which they were the intended beneficiaries."

¶ 8 The complaint in the underlying action included as an exhibit the June 17, 2008, letter that ISBA Mutual claims relieved it of its duty to defend Greenfield and the firm. Since the language of the letter is central to the issue in the instant appeal, we relate the letter in its entirety. The letter provided:

"You are receiving this letter because you are named in the Muriel Perry Trust as a beneficiary. The purpose of this letter is to give you the facts regarding the value of Trust assets and the respective amounts of the distributions. As many of you know, for more than ten years I represented the late Leonard Perry and Muriel Perry in connection with their estate plan and during that time I came to know both of them well. I want to extend my sincere condolences to all the members of your family.

During his lifetime, Leonard Perry transferred his assets into the Leonard Perry Trust. The Leonard Perry Trust provided that upon the death of Leonard Perry the trust funds were to be used for the care, comfort and support of Muriel Perry. The Leonard Perry Trust further provided that Muriel Perry had the right to make changes or modifications to the plan of distribution by virtue of what is referred to as a 'Power of Appointment'. Accordingly, after Leonard died, Muriel had the right to 'appoint' the funds in Leonard's Trust as she wished, which is to say she had the right to make changes and modifications to the plan of distribution as she saw fit.

After the death of Leonard Perry, Muriel Perry executed a Will dated November 30, 2007, (the '2007' Will) in which she directed, pursuant to her Power of Appointment, that assets in the Leonard Perry Trust were to be distributed according to the terms of the Muriel Perry Trust. The effect of exercising the Power of Appointment in the 2007 Will was to change the distributions of trust funds as set forth in the Leonard Perry Trust to the distributions set forth in the Muriel Perry Trust.

Over a period of about a year before her death, I, along with Gary Cueno of JP Morgan Chase Bank, met several times with Muriel Perry for the purpose of discussing modifications she wanted to make to her Trust. During the course of these meetings, it was very clear that Muriel Perry had given much thought to these[] ...


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