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James River Insurance Co. v. TimCal, Inc.

Court of Appeals of Illinois, First District, Second Division

June 30, 2017

JAMES RIVER INSURANCE COMPANY, Plaintiff-Appellee,
v.
TIMCAL, INC., Defendant, and FIDELITY NATIONAL PROPERTY & CASUALTY INSURANCE COMPANY, Defendant-Appellant.

         Appeal from the Circuit Court of Cook County, No. 13-CH-24611; the Hon. Rita M. Novak, Judge, presiding.

          Sudekum, Cassidy & Shulruff, Chtrd., of Chicago (Frederick J. Sudekum III and Florence M. Schumacher, of counsel), for appellant.

          SmithAmundsen LLC, of Chicago (Michael Resis, Timothy J. Fagan, and Britta A. Sahlstrom, of counsel), for appellee.

          Panel JUSTICE NEVILLE delivered the judgment of the court, with opinion. Justices Pierce and Mason concurred in the judgment and opinion.

          OPINION

          NEVILLE JUSTICE.

         ¶ 1 This case involves an insurer's duty to defend or indemnify an insurance agent for negligent placement of insurance coverage that allegedly caused another insurer to incur damages. In July 2012, TimCal, Inc., an insurance agent affiliated with Geico Direct Representatives, received from Fidelity National Property & Casualty Insurance Company a letter, charging TimCal with breach of its duties as an insurance agent and informing TimCal that Fidelity would seek to recover damages. TimCal did not inform its professional liability insurer, James River Insurance Company (James River), about the claim until April 2013. James River filed a complaint against TimCal and Fidelity, seeking a judgment declaring that it had no duty to defend or indemnify TimCal because TimCal failed to provide timely notice of Fidelity's claim to James River. The circuit court granted James River's motion for summary judgment.

         ¶ 2 In this appeal, Fidelity argues that the court should not have granted James River's motion for summary judgment because (1) TimCal might have timely told an insurance agent about Fidelity's claim, (2) the July 2012 letter Fidelity sent to TimCal might not count as a claim, and (3) the professional liability insurance policy might allow the April 2013 notice as timely due to the renewal of the policy. We find no ambiguity in the pertinent policy terms, and the circuit court correctly applied the policy to the facts in this case. We affirm the circuit court's judgment in favor of James River.

         ¶ 3 BACKGROUND

         ¶ 4 In 2011, James River issued a professional liability insurance policy to Geico Direct Representatives. Under the policy, James River promised to provide coverage when an insurance agent affiliated with Geico Direct made an error in selling an insurance policy, and the error harmed either the insurance purchaser or the insurance seller. Geico renewed the James River policy in 2012. In December 2011, TimCal arranged the sale to Dwayne Swimley of homeowner's insurance from Fidelity. On April 5, 2012, a fire severely damaged Swimley's home. Fidelity paid Swimley's claim.

         ¶ 5 Fidelity sent to TimCal a letter dated July 9, 2012, saying:

"The Swimley residence was constructed *** as a single family residence and was subsequently remodeled so that the second floor contained a separate apartment, complete with kitchen. *** At the time he applied for insurance through TimCal, Swimley had 4 tenants or roomers residing at the insured premises. ***
TimCal violated the terms of the 'Independent Producer Agreement' between GEICO Insurance Agency, Inc. and us *** by submitting an application containing inaccurate information for a risk that did not qualify for insurance coverage with us. Specifically, Question 26 of the application states, 'Are there any roommates or bo[a]rders in the home and/or is the home used as a rooming or boarding house?' [TimCal's employee] McGreevy answered this question, 'No.' Similarly, Questions 6 and 7 relate to whether the Dwelling was originally constructed as a Single Family residence but later converted to a Multi-Family structure and whether any unit in the structure is occupied by more than one family. McGreevy answered 'No' [to] both of these questions.
*** TimCal did not properly employ the *** website *** which was designed to ensure that the proper information was collected for the application. *** [The method] that McGreevy utilized does not address the subjects covered by questions 26, 6 and 7, which likely resulted in McGreevy providing inaccurate information on those subjects.
Had we known that the residence actually contained two separate living units and four tenants, we would not have extended coverage for the residence. As a result of McGreevy's violation of the Independent Producer Agreement *** we have been damaged in the amount it will be required to pay Swimley for his claim for damages to the residence, which is presently reserved at $576, 500.00.
This letter is intended to place you on notice that we will seek to recover these damages from you. In the event that you have errors and omissions insurance coverage which potentially covers this loss, we suggest that you forward a copy of this letter to you insurer."

         ¶ 6 On April 3, 2013, an employee of TimCal sent an email to a claims manager who worked for James River. The TimCal employee said, "my company has our E & O through you. I have a few questions ***. I was given your contact information from my insurance broker. This is a claims related question."

         ¶ 7 Fidelity sent to James River a letter dated April 23, 2013, repeating the statements from its letter to TimCal from July 2012 concerning the inaccurate information TimCal sent to Fidelity. Fidelity changed the ending of the letter to say,

"we have been damaged in the amount it will be required to pay Swimley for his claim for damages to the residence, which is presently $497, 086.52 ACV.
This letter is intended to place you on notice that we are seeking to recover these damages from TimCal Inc. under your errors and omissions insurance coverage."

         ¶ 8 In October 2013, James River filed a complaint against TimCal and Fidelity, asking the court to enter a judgment declaring that James River had no duty to defend or indemnify TimCal in the anticipated lawsuit from Fidelity, due to lack of timely notice. Fidelity filed the expected complaint against TimCal on April 2, 2014. Fidelity sought to ...


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