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Catalina London, Ltd. v. Johnson & Bell, Ltd.

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

September 23, 2014




Plaintiff, Catalina London, Ltd. f/k/a Alea London Ltd. ("Alea"), filed a complaint alleging legal malpractice against defendants, Johnson & Bell, Ltd., and three of its attorneys, Glenn Fencl, Richard R. Gordon, and Mary Cryar (collectively "J&B"). The parties have filed cross-motions for summary judgment [105, 107], which the Court denies for the reasons set forth below.


While the basic facts are largely undisputed, the parties disagree as to the inferences to be drawn therefrom, much of which rests with the credibility of a host of witnesses and experts. Alea is a foreign corporation offering insurance services.[1] Johnson & Bell Ltd. is an Illinois corporation offering legal services. Cannon Cochran Management Services ("CCMSI") was Alea's third-party claims administrator. Michael Jackson was a senior claims adjuster with CCMSI and Brian Poust was his supervisor in 2005. CCMSI held themselves out as experts in handling Illinois claims.

The underlying claim in Weber v. Tri-K Development, 06-L-537 (the "Weber Case") involved a man, Weber who was injured on his motorcycle in the vicinity of where one of Alea's insured's (Tri-K Development ("Tri-K")) was working as a general contractor. Jackson received notice of the Weber claim on September 13, 2006, from Susan Zeilke of CRC. CRC was Alea's U.S. claims broker. CCMSI began investigating the claim to determine whether coverage should be afforded to Tri-K under the Alea policy. Prior to the accident in the Weber claim, Tri-K applied to Alea for a general liability policy. The general liability policy was issued to "paper general contractors, " which is a general contractor that has no obligation at the job site and has contracted out all of the obligations for construction.

Jackson testified that after investigating the Weber claim, he determined that there was no coverage to Tri-K. Jackson identified the subcontractor's warranty under the Earth Movement Exclusion as a potential defense based on his review of the policy language and his investigation. Jackson testified that he did not review the Weber complaint before reaching that conclusion. Jackson testified that he did not review Tri-K's application for the policy with Alea. On December 19, 2006, Jackson sent Mike Raynor, the underwriter at Alea who Jackson would report to on claim coverage issues, his initial case analysis stating that there was potentially no coverage for Tri-K. Jackson requested authority to deny coverage and sent a draft denial of coverage letter. The draft denial referenced the subcontractors warranty and the earth movement exclusion. At the time Jackson wrote the coverage letter, he did not consider rescission a viable defense to the insurance policy. Prior to 2006, Jackson had never denied coverage based on rescission. Jackson sent the denial of coverage letter to the insured. Tri-K did not refute their position and a default motion was filed in the Weber law suit.

On March 22, 2007, nearly three months after Jackson denied Tri-K coverage, Jackson sent an email to Raynor informing him that Tri-K defaulted. Based on that development and the potential exposure to Tri-K, Jackson recommended that they file a declaratory judgment action to confirm the coverage and to protect Alea from potentially having exposure to Tri-K, Jackson recommended that they file a declaratory judgment action to confirm the coverage and to protect Alea from potentially having exposure for a claim for not handling the coverage denial appropriately. Jackson recommended retaining J&B for Alea to confirm that there was no coverage afforded under the policy.

Prior to the retention of J&B, CCMSI had their own coverage position. Alea was aware that CCMSI believed that the subcontractor's warranty and the earth movement exclusion should be pursued and Alea agreed with that position. Alea retained J&B on April 3, 2007. Glenn Fencl of J&B was the primary attorney handling the case and was responsible for the file along with Richard Gordon, an associate. J&B was aware of CCMSI's coverage opinion. Gordon testified that he would have reviewed the matter to determine whether there was any defense to coverage, not just the position asserted by the client. J&B sent CCMSI their coverage opinion letter on May 18, 2007. The letter concluded that J&B believed the endorsement precluded coverage. The letter also included a detailed analysis of J&B's interpretation of the viability of the earth movement exclusion. Ultimately, based on those two considerations, defendants agreed with CCMSI's request to file a declaratory judgment action. J&B did not guarantee with 100% certainty that either the subcontractor's warranty or the earth movement exclusion would ultimately prevail in the declaratory judgment. Sub-point B of the opinion letter addressed the earth movement exclusion, stating the no Illinois court had examined a provision similar to the earth movement exclusion provision in this policy.

J&B sent a draft complaint to be filed in the declaratory action to Alea and Jackson. Neither Jackson nor Alea had any revisions to the draft complaint and Alea consented to the filing of the complaint. J&B filed the complaint on August 1, 2007, in the Circuit Court of Cook County, Chancery Division, where it was assigned to the Honorable Rita Novak, and the parties began discovery. Meanwhile, the Weber law suit was proceeding. J&B filed a motion to deem facts admitted, which Judge Novak denied without prejudice because it was premature since certain parties had not yet filed appearances.

Jackson spoke to Stephanie Horton at Gordon Agency who informed him that Evlyn Springs and Tri-K were owned by the same person. That information concerned Jackson because it did not seem right that Evlyn Springs could be the same entity since he had a certificate of insurance showing the Evlyn Springs was covered under a Scottsdale Insurance policy. Jackson asked Gordon to investigate whether Evlyn Springs was owed a defense. Jackson did not ask Gordon to explore rescission as a defense.

The Best Vanderlaan law firm represented one of the municipal entities in the Weber lawsuit. On January 2, 2008, Best tendered the municipal entities defense based on an annexation agreement. In response to the tender of defense by Best Vanderlaan on behalf of certain municipal entities, defendants sent CCMSI a letter on January 21, 2008, recommending that the tender be denied. J&B also suggested that the declaratory judgment action be amended to seek clarification of whether a defense was owed to the municipal entities.

At some point, Kim Kappos took over from Jackson handling the matter with Jim Dunn also assigned to the claim. On April 29, 2009, Gordon sent a letter to Kappos explaining that the Webers had filed a fourth amended complaint in the underlying case that impacted the declaratory judgment action. Gordon suggested, based on the changes in Weber's allegations, the declaratory judgment action be withdrawn. Gordon subsequently left J&B and associate Mary Cryar took over the file.

In October 2009, Alea's new third party administrator, Jackson Riley, Inc. ("JRI"), who replaced CCMSI, instructed Alea to transfer a number of files, including the declaratory judgment at issue here, to the Novak Law Firm ("Novak"). Attorney Neal Novak substituted as counsel for Alea on November 6, 2009. At the time if the substitution there were three fully briefed cross-motions for summary judgment pending with a hearing scheduled for December 15, 2009. Less than two weeks before the hearing date on the motions for summary judgment, Attorney Novak made the decision to supplement the briefing that was previously filed by J&B. The basis for the proposed supplemental brief was that Novak wanted to supplement the record on the subcontractor's warranty in light of the representations of the insured. Attorney Novak testified that the pleadings and motions on file limited what he could raise in supplemental briefing and this was the only way he could insert the rescission issue into the case. The motion for leave to supplement the briefing was filed on November 30, 2009, and was subsequently granted by Judge Novak. The relevant insurance application was an exhibit to the supplemental brief and identified as rescission as a potential alternative remedy because it was not alleged in the complaint.

On December 3, 2009, Novak emailed his associate Patricia Caracci and Jay Hulstine at JRI, stating that if Judge Novak denies the motion for summary judgment, then he will seek rescission of the contract for material misrepresentation and nondisclosure. On February 26, 2010, Judge Novak denied in part Alea's motion for summary judgment against Tri-K, finding that Alea had a duty to defend Tri-K for allegations ...

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