Illinois Official Reports 

Supreme Court

Illinois State Bar Ass’n Mutual Insurance Co. v. Law Office of Tuzzolino & Terpinas, 

2015 IL 117096

Caption in Supreme

Court:

ILLINOIS STATE BAR ASSOCIATION MUTUAL INSURANCE 

COMPANY, Appellant, v. LAW OFFICE OF TUZZOLINO AND 

TERPINAS et al., Appellees.

Docket No. 117096

Filed February 20, 2015

Held

(Note: This syllabus 

constitutes no part of the 

opinion of the court but 

has been prepared by the 

Reporter of Decisions 

for the convenience of 

the reader.)

The common law doctrine of “innocent insured” could not preserve 

legal malpractice coverage as to a member of a two-man law firm 

whose policy was properly rescinded under the Insurance Code for the 

other attorney’s misrepresentation in applying for renewal of the 

firm’s coverage.

Decision Under 

Review

Appeal from the Appellate Court for the First District; heard in that 

court on appeal from the Circuit Court of Cook County, the Hon. Rita 

M. Novak, Judge, presiding.

Judgment Appellate court judgment reversed.

Circuit court judgment affirmed.
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Counsel on

Appeal

J. Timothy Eaton, of Taft Stettinius & Hollister LLP, and Robert Marc 

Chemers and Scott L. Howie, of Pretzel & Stouffer, Chtrd., all of 

Chicago, for appellant.

C. Jeffrey Thut, of Roach, Johnston & Thut, and Christopher M. Cano, 

of Franco & Moroney, LLC, all of Libertyville, for appellees.

David S. Osborne, of Lindsay, Rappaport & Postel, LLC, of Chicago, 

for amicus curiae Property Casualty Insurers Association of America.

Justices JUSTICE FREEMAN delivered the judgment of the court, with 

opinion.

Chief Justice Garman and Justices Thomas, Karmeier, Burke, and 

Theis concurred in the judgment and opinion.

Justice Kilbride dissented, with opinion.

OPINION 

¶ 1 Plaintiff Illinois State Bar Association Mutual Insurance Company (ISBA Mutual) filed a 

complaint for rescission and other relief against the Law Office of Tuzzolino & Terpinas 

(firm); Sam Tuzzolino and Will Terpinas, Jr., partners in the firm; and Anthony “Antonio” 

Coletta, the plaintiff in an underlying legal malpractice action against Tuzzolino, Terpinas and 

the firm. In its complaint, ISBA Mutual sought rescission of the legal malpractice insurance 

policy it had issued to the firm, alleging that Tuzzolino’s material misrepresentation on an 

ISBA Mutual renewal application induced ISBA Mutual to issue the policy. Ruling on motions 

for summary judgment, the circuit court of Cook County granted ISBA Mutual’s motion and 

rescinded the policy. Terpinas and Coletta appealed that judgment, arguing the rescission 

should not apply to Terpinas. The appellate court agreed and reversed the judgment of 

rescission as to Terpinas. 2013 IL App (1st) 122660, ¶¶ 38, 46. This court allowed ISBA 

Mutual’s petition for leave to appeal. Ill. S. Ct. R. 303 (eff. June 4, 2008); R. 315 (eff. July 1, 

2013). We now reverse the judgment of the appellate court and affirm the judgment of the 

circuit court. 

¶ 2 I. BACKGROUND 

¶ 3 In the underlying legal malpractice action, Coletta alleged that Tuzzolino and the firm 

represented either Coletta or his home construction business in various legal matters from 2002 

to 2008, and that Tuzzolino mishandled some of those matters, including the “Baja litigation.” 

According to Coletta’s amended complaint, beginning in 1998 he invested more than $500,000 

through his construction company in a limited liability company known as Baja Chicago LLC, 

which operated a Chicago nightclub. By the time Baja Chicago LLC ceased operations in 
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2002, Coletta had lost more than $1 million, prompting him to file suit in Lake County against 

other venturers in the LLC. Tuzzolino, through the law firm he shared with Terpinas, initiated 

the lawsuit on Coletta’s behalf in 2003. However, Tuzzolino allegedly failed to timely disclose 

expert witnesses that were expected to testify as to valuation issues, which resulted in an order 

in limine barring that testimony. Tuzzolino also allegedly failed to retain an expert witness 

specializing in forensic accounting to help determine the amount of money allegedly taken or 

siphoned from the LLC by other venturers. After his valuation witnesses were barred, 

Tuzzolino allegedly advised Coletta to settle the suit for less than $30,000, an amount far less 

than Coletta’s losses on the Baja investment. The Baja litigation was dismissed with prejudice 

in November 2005. However, even after that dismissal, Tuzzolino allegedly told Coletta that 

settlement negotiations were continuing. Tuzzolino allegedly signed settlement documents on 

behalf of Coletta and his construction company without informing Coletta. 

¶ 4 Tuzzolino also allegedly suggested that Coletta try to recover his losses by suing the 

lawyer who handled a Baja bankruptcy in 1999. Tuzzolino filed a legal malpractice action 

against the bankruptcy lawyer at the end of 2005, but the case was dismissed six months later 

(June 22, 2006) on the ground that it was barred by the statute of repose for legal malpractice 

claims. Coletta alleged Tuzzolino failed to inform him that the suit had been dismissed, 

allowing Coletta to believe it was proceeding toward trial. Coletta alleged that in February 

2008, after he learned the case had been dismissed, he confronted Tuzzolino with that 

knowledge. According to Coletta, Tuzzolino offered to pay him $670,000 to settle any 

potential claim for legal malpractice arising out of Tuzzolino’s work on the suits against the 

Baja coventurers and the bankruptcy attorney. Coletta alleges this sum was never paid. 

¶ 5 Less than three months later, shortly before the April 30, 2008, expiration of the firm’s 

2007-08 legal malpractice policy with ISBA Mutual, Tuzzolino completed a Renewal Quote 

Invoice and Acceptance Form for the purchase of a policy meant to cover the firm during the 

2008-09 policy year. Question No. 4 on the form asked: “Has any member of the firm become 

aware of a past or present circumstance(s), act(s), error(s) or omission(s), which may give rise 

to a claim that has not been reported?” Tuzzolino checked the “no” box corresponding to this 

question. He signed his name as “owner/partner” and dated the form April 29, 2008, beneath 

the following statement: 

“I/We affirm that after an inquiry of all the members of the applicant firm that all the 

information contained herein is true and complete to the best of my/our knowledge and 

that it shall be the basis of the policy of insurance and deemed incorporated therein 

upon acceptance of this application by issuance of a policy.”

The form is stamped “received” by ISBA Mutual on May 2, 2008. ISBA Mutual issued the 

firm a Lawyers Professional Liability Insurance Policy (No. IL 111168 6), to be effective 

May 1, 2008, through May 1, 2009. 

¶ 6 Terpinas allegedly learned of Tuzzolino’s malfeasance about a month later, on June 10, 

2008, when he received a lien letter from an attorney representing Coletta. Terpinas 

immediately reported the claim to ISBA Mutual. 

¶ 7 In March 2009, ISBA Mutual brought suit seeking rescission and other relief against 

Tuzzolino, Terpinas, the firm, and Coletta. Count I of the complaint, as finally amended, 

sought rescission of the entire policy (IL 111168 6) on the ground that Tuzzolino’s material 

misrepresentation voided the contract. ISBA Mutual alleged it “relied to its detriment on the 
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continuing misrepresentations of material fact made by Tuzzolino, with the knowledge that 

those misrepresentations were, in fact, untrue as to his knowledge of any circumstance, act, 

error or omission that could result in a claim.” In count II, ISBA Mutual contended, in the 

alternative, that it had no duty or obligation to defend Tuzzolino or the firm in connection with 

the claims made by Coletta against them. 

¶ 8 In January 2010 ISBA Mutual moved for summary judgment on all counts of its amended 

complaint. In June 2010 the circuit court entered summary judgment against Tuzzolino as to 

count II of the complaint, after Tuzzolino agreed to the entry of judgment against him. The 

court found that ISBA Mutual had no duty or obligation to defend Tuzzolino against Coletta’s 

claims.1

¶ 9 In July 2012, following a hearing on pending summary judgment motions, the circuit court 

granted ISBA Mutual’s motion, denied defendants’ motions, and rescinded the policy. The 

court also found ISBA Mutual had no duty to defend Terpinas or the firm against Coletta’s 

action. 

¶ 10 Terpinas and Coletta, but not the firm, appealed that judgment, arguing that Terpinas was 

an “innocent insured” who was not to blame for Tuzzolino’s misrepresentation and the policy 

should not have been rescinded as to him. The appellate court agreed with that argument and 

reversed the judgment of rescission as to Terpinas. 2013 IL App (1st) 122660, ¶¶ 38, 46. 

Though the court held that the policy’s own innocent insured clause could not be the basis for 

avoiding rescission, it nonetheless concluded that a common law “innocent insured doctrine” 

applied to misrepresentations made on the renewal application. Id. ¶¶ 22-25, 38. The court held 

that this doctrine preserved Terpinas’s coverage even as Tuzzolino’s was properly rescinded. 

Id. ¶ 38. 

¶ 11 ISBA Mutual appeals to this court. Additional pertinent background will be discussed in 

the context of our analysis. 

¶ 12 II. ANALYSIS 

¶ 13 The question presented is whether Illinois law allows rescission of an insurance policy in 

its entirety for a material misrepresentation on the written application. Plaintiff ISBA Mutual 

answers this question in the affirmative, arguing that section 154 of the Illinois Insurance Code 

(215 ILCS 5/154 (West 2008)) allows complete rescission where, as here, the 

misrepresentation materially affects the acceptance of the risk by the insurer, and thus goes to 

the formation of the contract. Defendants disagree, arguing that while rescission might be 

appropriate for Tuzzolino, it is unfair and against public policy to rescind insurance coverage 

for Terpinas, an innocent insured who had no knowledge of Tuzzolino’s misdeeds and the 

alleged misrepresentation. 

¶ 14 Summary judgment is appropriate when “the pleadings, depositions, and admissions on 

file, together with the affidavits, if any, show that there is no genuine issue as to any material 

fact and that the moving party is entitled to a judgment as a matter of law.” 735 ILCS 

5/2-1005(c) (West 2010). The purpose of summary judgment is not to try a question of fact, but 

to determine whether a genuine issue of material fact exists. Adams v. Northern Illinois Gas 

 

1 Tuzzolino was disbarred “on consent” on November 12, 2010. In re Sam Tuzzolino, 

No. 09-CH-0076. 
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Co., 211 Ill. 2d 32, 42-43 (2004). A circuit court’s entry of summary judgment is reviewed 

de novo. Standard Mutual Insurance Co. v. Lay, 2013 IL 114617, ¶ 15; Rich v. Principal Life 

Insurance Co., 226 Ill. 2d 359, 370 (2007). 

¶ 15 Section 154 of the Insurance Code provides: 

“No misrepresentation or false warranty made by the insured or in his behalf in the 

negotiation for a policy of insurance, or breach of a condition of such policy shall 

defeat or avoid the policy or prevent its attaching unless such misrepresentation, false 

warranty or condition shall have been stated in the policy or endorsement or rider 

attached thereto, or in the written application therefor. No such misrepresentation or 

false warranty shall defeat or avoid the policy unless it shall have been made with 

actual intent to deceive or materially affects either the acceptance of the risk or the 

hazard assumed by the company.” 215 ILCS 5/154 (West 2008).

¶ 16 We note, initially, that section 154 expressly refers to misrepresentations “made by the 

insured or in his behalf”—that is, not necessarily by the insured personally. 

¶ 17 The section also sets forth a two-prong test for determining if the policy may be rescinded. 

First, the statement must be false, and second, it either must have been made with an actual 

intent to deceive or must “materially affect the acceptance of the risk or hazard assumed by the 

insurer.” Golden Rule Insurance Co. v. Schwartz, 203 Ill. 2d 456, 464 (2003). “The statute’s 

provisions are to be read in the disjunctive, so that either an actual intent to deceive or a 

material misrepresentation which affects either the acceptance of the risk or the hazard to be 

assumed can defeat or avoid the policy.” (Emphasis in original.) National Boulevard Bank v. 

Georgetown Life Insurance Co., 129 Ill. App. 3d 73, 81 (1984). This court has recognized that 

section 154 permits rescission for an innocent misrepresentation. “Under the statute, therefore, 

a misrepresentation, even if innocently made, can serve as the basis to void a policy.” Golden 

Rule, 203 Ill. 2d at 464. If the misrepresentation materially affects the insurer’s acceptance of 

the risk, it does not matter that one of the parties, or an insured, might not have been to blame 

for the misrepresentation. “In other words, it is unnecessary for the insurer to prove that a 

misrepresentation was made with the intent to deceive if it was material to the risk assumed.” 

Ratcliffe v. International Surplus Lines Insurance Co., 194 Ill. App. 3d 18, 25 (1990). 

¶ 18 ISBA Mutual asserts that the misrepresentation in the case at bar meets the section 154 

requirements: “Even if the misrepresentation had not been made with the intent to deceive, it 

materially affected the insurer’s acceptance of the risk, as ISBA Mutual would not have 

renewed the policy had Tuzzolino truthfully answered the question and disclosed his 

knowledge of a potential claim.” According to ISBA Mutual, because the misrepresentation 

materially affected its acceptance of the risk, it is grounds for rescission under the statute. 

¶ 19 Defendants disagree. They do not dispute that the misrepresentation here materially 

affected the acceptance of the risk. Instead, defendants focus on the impact that rescission 

would have on Terpinas, an innocent insured who did not cooperate or contribute to a loss. 

According to defendants, it would be “patently unfair in this case to rescind insurance coverage 

to Terpinas, when he had absolutely no knowledge of his partner’s misdeeds and the alleged 

misrepresentation on the insurance renewal invoice.” Defendants invoke public policy, 

asserting that ISBA Mutual’s contention that section 154 permits the rescission of the policy 

here “is contrary to the well-established public policy of the State of Illinois.” According to 
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defendants, section 154 “is not a sword to be utilized to vitiate insurance coverage; rather it is a 

shield that must be utilized to protect insureds and the public.”2

¶ 20 In keeping with their emphasis on public policy, defendants assert the appellate court 

below correctly applied the common law innocent insured doctrine in this case. The appellate 

court, which also cited policy concerns (e.g., 2013 IL App (1st) 122660, ¶¶ 35-36), concluded 

the innocent insured doctrine preserved coverage for Terpinas (id. ¶ 38). The common law 

innocent insured doctrine operates in cases where there are two or more insureds on a policy, 

and it allows an insured who is innocent of wrongdoing to recover despite the wrongdoing of 

other insureds. See Vasques v. Mercury Casualty Co., 947 So. 2d 1265, 1268 (Fla. Dist. Ct. 

App. 2007). Illinois cases applying the “innocent insured” doctrine typically involve arson or 

vandalism where an innocent insured seeks recovery under a policy that includes an exclusion 

for intentional acts. E.g., Wasik v. Allstate Insurance Co., 351 Ill. App. 3d 260, 267 (2004) 

(plaintiff, an innocent insured, was entitled to recover losses he sustained because of fire 

started by his stepson). Defendants here argue that the reasoning of these cases is nevertheless 

equally applicable to Terpinas under the circumstances in this case. 

¶ 21 In analyzing the innocent insured doctrine, the appellate court below relied principally on 

Economy Fire & Casualty Co. v. Warren, 71 Ill. App. 3d 625 (1979), which defendants here 

also cite. 

¶ 22 The insurer in Warren had paid a property settlement for fire damage to a home jointly 

owned by its insureds, a married couple, only to learn later that the wife had claimed to have set 

the fire deliberately. The insurer sought to rescind the settlement and recover the settlement 

proceeds it had paid to both insureds. Id. at 626. Amid claims that the wife suffered from 

mental illness, there were factual disputes as to whether she really had set the fire and even 

whether she had claimed to have done so. But it was undisputed that her husband was not to 

blame for the fire, making him an “innocent” insured. Id. at 629. Warren held that the arson of 

the wife should not be imputed to the innocent husband so as to bar his recovery of one-half the 

proceeds of the settlement. 

¶ 23 Because the dispute in Warren arose after the settlement had been paid, the case involved 

rescission of the settlement agreement. But, as ISBA Mutual correctly notes, Warren is not 

therefore a rescission case that would apply to the case at bar. Warren is not about the 

rescission of an insurance policy, and consequently does not invoke section 154 of the 

Insurance Code. The insurer in Warren sought rescission of the settlement agreement on the 

ground that there was no coverage for the damages it had compensated—specifically, that one 

insured’s intentional act precluded coverage for another insured who was innocent of that act.

¶ 24 Such coverage cases usually involve the enforcement of policy exclusions, typically 

exclusions for intentional acts allegedly committed by an insured other than the one 

challenging the exclusion. The innocent insured doctrine makes sense in that context because 

 

2Defendants appear to suggest a tension between section 154 and public policy. However, as this 

court has noted, statutes themselves form an important part of Illinois’s public policy. “The public 

policy of the state is found in its constitution, its statutes, and its judicial decisions. [Citations.] In 

relation to the judicial branch, the General Assembly, which speaks through the passage of legislation, 

occupies a superior position in determining public policy.” Reed v. Farmers Insurance Group, 188 Ill. 

2d 168, 174-75 (1999). In ISBA Mutual’s view, “[s]ection 154 itself refutes the notion that the 

rescission of the ISBA Mutual policy is against public policy.”
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the insured’s innocence is relevant to whether an intentional act invokes an exclusion to 

coverage. But the innocent insured doctrine appears irrelevant to rescission, a recognized 

remedy for even innocent misrepresentations. 

¶ 25 ISBA Mutual points to Home Insurance Co. v. Dunn, 963 F.2d 1023 (7th Cir. 1992), which 

observed that rescission of an insurance policy because of a misrepresentation on the 

application is distinctly different from the denial of insurance coverage because of excluded 

wrongdoing. This is a “subtle, but important” distinction, the court observed, in that excluded 

conduct might bar coverage for a claim arising from that conduct, but a misrepresentation in 

the application broadly affects the validity of the policy as a whole. Id. at 1026. 

¶ 26 Rather than the innocent insured doctrine, Dunn concerned a “waiver of exclusion” clause 

in the policy that the insurer sought to rescind. That clause mirrored the innocent insured 

doctrine in that it reflected the insurer’s agreement not to enforce the policy’s “wrongful acts” 

exclusions as to any insured “ ‘who did not personally commit or personally participate in 

committing one or more of the acts, errors, omissions or personal injuries described in any such 

exclusion or condition.’ ” Id. at 1025 (quoting the insurer’s waiver-of-exclusion clause). Like 

the innocent insured doctrine, the waiver-of-exclusion clause preserved coverage for those 

insureds who were innocent of the wrongdoing. 

¶ 27 Dunn involved a “crooked attorney” who obtained a legal malpractice policy for himself 

and the other attorneys associated with his firm, but “understandably” failed to disclose his 

own criminal activities on the policy application. One of the other attorneys in the firm, who 

had no involvement in the policy application or his colleague’s misrepresentation, was sued for 

legal malpractice unrelated to his colleague’s criminal activities. The insurer sought rescission 

of the policy due to the material misrepresentation on the application. The insured who was not 

involved in the misrepresentation, as well as the underlying malpractice plaintiffs, objected to 

the rescission of the policy as to that attorney, relying on the waiver-of-exclusion provision. Id. 

¶ 28 But the Seventh Circuit found it irrelevant that no other attorney in the firm took part in the 

crooked attorney’s fraud, or even knew of it. “Though the other attorneys did not intend to 

deceive, the falsehood on the application is fatal. [The crooked attorney’s] misrepresentation 

caused [the insurer] to issue a policy to all the attorneys that otherwise would not have been 

forthcoming.” Id. at 1026. The version of section 154 then in effect allowed rescission of the 

policy. Id. 

¶ 29 ISBA Mutual argues that the reasoning of Dunn applies to the case at bar. Though Terpinas 

might have been innocent of the misrepresentation on the renewal application, that is irrelevant 

to rescission, which focuses on the effects of the misrepresentation, rather than on the 

innocence or guilt of the individual. The important thing, ISBA Mutual asserts, is that, as a 

result of the misrepresentation, ISBA Mutual issued the policy under a false impression about 

its exposure to risk. 

¶ 30 We agree with ISBA Mutual that the rationale for applying the innocent insured doctrine to 

questions of policy exclusions and insurance coverage is absent from the rescission context. 

Unlike in rescission cases, the innocence of an insured matters a great deal when another 

insured’s wrongdoing triggers a policy exclusion, and a dispute arises over whether the insurer 

has a duty to defend the innocent insured under a policy that undisputedly was in effect. That is 

the setting in which the innocent insured doctrine is relevant. 
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¶ 31 But issues of insurance coverage, governed by common-law rules concerning the 

interpretation of policy language, are significantly different from the question of whether an 

insurance policy should be enforced in the first place—an issue that is governed by statute, and 

is not concerned with whether an insured is innocent of a misrepresentation that prejudices the 

insurer. In the case of a misrepresentation that materially affects the acceptance of the risk, the 

issue is the effect of that misrepresentation on the validity of the policy as a whole. A 

misrepresentation on the policy application goes to the formation of the contract. The innocent 

insured doctrine, on the other hand, has a narrower focus, typically dealing with situations 

where an insured’s wrongdoing triggers a policy exclusion, and the question is whether the 

insurer has a duty to defend the innocent insured under a policy that is still in effect. 

¶ 32 We agree with ISBA Mutual that the appellate court erred in applying the innocent insured 

doctrine in this case. As ISBA Mutual correctly notes, that doctrine is relevant to issues of 

policy exclusions and insurance coverage, but it is unsuited to the case at bar, which deals with 

rescission and contract formation. 

¶ 33 We also agree with ISBA Mutual that the appellate court erred in partially severing the 

policy to facilitate the application of the innocent insured doctrine. 

¶ 34 The policy’s severability clause states:

“The APPLICATION, and any addendum or supplements, and the Declarations, are 

the basis of this Policy. The particulars and statements contained in the 

APPLICATION will be construed as a separate agreement with and binding on each 

INSURED. Nothing in this provision will be construed to increase the COMPANY’S 

Limit of Liability.”

¶ 35 As ISBA Mutual notes, while the severability clause creates a separate agreement with 

each insured, it states that each separate agreement is made up of the “particulars and 

statements contained in the APPLICATION,” binding on each insured. The statements 

contained in the application include the false statement that no member of the firm was aware 

of the potential for a then-unreported claim. Even if the policy is treated as a separate contract 

with each insured, there is nothing to permit the application—or the misrepresentation it 

contains—to be split off from any individual contract. 

¶ 36 Defendants also argue that it is impossible to return Terpinas to his status quo existing at 

the time the contract for insurance was made. Defendants cite International Insurance Co. v. 

Sargent & Lundy, 242 Ill. App. 3d 614, 629 (1993), for the proposition that rescission of a 

contract generally requires that the parties be placed in their positions existing when the 

contract was made. Defendants assert that the status quo at the time the contract was made was 

that Terpinas was covered by a policy of professional liability insurance. In defendants’ view, 

returning Terpinas to his status quo would mean he should actually have coverage by ISBA 

Mutual. 

¶ 37 ISBA Mutual disagrees, arguing that the requirement of restoring the parties to their 

pre-contract status has consistently been interpreted as requiring only that the party seeking 

rescission must return any benefits it has received. ISBA Mutual asserts that, as part of its 

claim for rescission, ISBA Mutual refunded the premium it had received for the policy, 

“restoring the status quo ante in the only respect that law or equity requires.”

¶ 38 ISBA Mutual adds that, even if it were not possible to return the parties to the status quo

ante in some relevant respect, “defendants’ own authority refutes their contention that this 
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would preclude rescission of the ISBA Mutual policy.” ISBA Mutual quotes Sargent & Lundy, 

which states: 

“Where such restoration is impossible, *** it does not necessarily preclude granting of 

rescission. Restoration of the status quo ante will not be required when restoration has 

been rendered impossible by circumstances not the fault of the party seeking rescission, 

and the party opposing the rescission has obtained a benefit from the contract.” Id. 

¶ 39 ISBA Mutual asserts that defendants do not suggest that ISBA Mutual “ ‘created an 

impediment’ to the court’s ability to restore the status quo ante.” Id. at 629-30 (quoting 

Klucznik v. Nikitopoulos, 152 Ill. App. 3d 323, 328 (1987)). ISBA Mutual adds that Terpinas 

benefitted from the policy by being able to practice as a member of a limited liability company 

for several months. According to ISBA Mutual, Terpinas acknowledges in his brief that this is 

something he could do only because his firm could claim to be covered under the ISBA Mutual 

policy. 

¶ 40 Finally, defendants argue that the renewal form containing the material misrepresentation 

was not an “application” under section 154. ISBA Mutual responds, initially, that defendants 

themselves, in their brief, refer to the renewal form as a “renewal application.” Moreover, the 

form refers to itself as an “application,” and it requires an attestation to the validity of answers 

on behalf of the “applicant firm.” Further proving that the form is an application, it states that

ISBA Mutual “reserves the right to withdraw or amend the quoted terms at any time prior to 

the proposed effective date of coverage.”

¶ 41 In sum, we agree with ISBA Mutual that section 154, which establishes public policy on 

this issue, allows rescission when the relevant requirements are met, and here those 

requirements were satisfied. The circuit court correctly rescinded the ISBA Mutual policy in 

its entirety, and the appellate court erred in applying the innocent insured doctrine and partially 

severing the policy to preserve coverage for Terpinas. 

¶ 42 III. CONCLUSION 

¶ 43 We reverse the judgment of the appellate court and affirm the circuit court’s judgment 

rescinding the ISBA Mutual policy in its entirety. 

¶ 44 Appellate court judgment reversed. 

¶ 45 Circuit court judgment affirmed. 

¶ 46 JUSTICE KILBRIDE, dissenting: 

¶ 47 The majority finds the innocent insured doctrine does not apply, because “that doctrine is 

relevant to issues of policy exclusions and insurance coverage, but it is unsuited to the case at 

bar, which deals with rescission and contract formation.” Supra ¶ 32. I would apply the 

innocent insured doctrine here. Terpinas had a reasonable expectation that he maintained 

professional liability insurance based on his history with ISBA Mutual and his lack of 

culpability in the misrepresentation. Terpinas further reasonably relied on Illinois Supreme 

Court Rules 721 and 722, because the firm was organized as a limited liability entity. Public 

policy considerations also support applying the innocent insured doctrine here. Therefore I 

respectfully dissent. 
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¶ 48 The common law innocent insured doctrine applies when multiple insureds have an 

insurance policy and one of the insureds commits an act that would normally void the insurer’s 

contractual obligations. See Economy Fire & Casualty Co. v. Warren, 71 Ill. App. 3d 625, 629 

(1979). The doctrine operates to preserve insurance coverage if a reasonable person would not 

have understood that the wrongdoing of a coinsured would be imputed to him. State Farm Fire 

& Casualty Insurance Co. v. Miceli, 164 Ill. App. 3d 874, 881 (1987). 

¶ 49 When determining if insurance coverage is appropriate, “this court can also consider a 

policyholder’s reasonable expectations and the coverage intended by the insurance policy.” 

Cummins v. Country Mutual Insurance Co., 178 Ill. 2d 474, 485 (1997). Terpinas first 

purchased professional liability insurance from ISBA Mutual in 2005. He renewed the policy 

every year through 2008, when the misrepresentation was made on the renewal application. 

ISBA Mutual does not claim Terpinas was aware of Tuzzolino’s actions, and it is undisputed 

that Terpinas informed ISBA Mutual of the potential claim on June 10, 2008, when he first 

became aware of it. Nothing in the policy explicitly stated each insured would face rescission 

of their professional liability coverage due to a misrepresentation by another member of the 

firm. 

¶ 50 The policy coverage was uninterrupted until ISBA Mutual sought to rescind the contract. 

Without personal knowledge of Tuzzolino’s misrepresentation, Terpinas had a reasonable 

expectation since 2005 that he was insured and that his policy would remain in effect. Nothing 

Terpinas did, or did not do, created a reasonable expectation that his insurance policy would be 

rescinded. Had ISBA Mutual intended to impute the wrongdoing of Tuzzolino onto Terpinas, 

it should have expressly stated so in the terms of the policy. See Warren, 71 Ill. App. 3d at 629. 

Accordingly, rescission is an equitable remedy left to the discretion of the court (Springfield & 

Northeastern Traction Co. v. Warrick, 249 Ill. 470, 476 (1911)), and here the equities do not 

favor rescission. 

¶ 51 The policies underlying limited liability corporations are implicated in this case. 

Recognizing a public policy concern, this court adopted Illinois Supreme Court Rules 721 (Ill. 

S. Ct. R. 721 (eff. July 1, 2003)) and 722 (Ill. S. Ct. R. 722 (eff. Mar. 15, 2004)), requiring 

attorneys in limited liability entities to maintain at least a minimum level of professional 

liability insurance coverage or face joint and several liability. These rules were intended to 

protect consumers of legal services. Forming a limited liability entity benefits owners of a firm 

by restricting their personal liability as “determined by the provisions of the statute under 

which the limited liability entity is organized.” Ill. S. Ct. R. 722(b) (eff. Mar. 15, 2004). In the 

absence of malpractice insurance, the public faces potential harm if malpractice occurs and the 

actor does not have sufficient assets to fulfill a judgment. Thus, the availability of malpractice 

coverage benefits both individual attorneys and their clients. 

¶ 52 The reasoning in First American Title Insurance Co. v. Lawson, 827 A.2d 230 (N.J. 2003), 

is persuasive. In Lawson, a limited liability law firm had three partners. Two partners were 

involved in a kiting scheme, while the third was neither involved in nor aware of the scheme. 

Lawson, 827 A.2d at 233-35. The insurance carrier sought to void the malpractice coverage 

because the firm’s application materially misrepresented its knowledge of any acts, errors, or 

omission in professional services that could have reasonably been expected to result in a 

professional liability claim. Lawson, 827 A.2d at 233-35. The court found that because the firm 

was organized as a limited liability partnership, the innocent partner had every reason to expect 
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his exposure to liability would be limited in accordance with applicable law. Lawson, 827 A.2d 

at 240. The court further found that by voiding the innocent partner’s policy, he would no 

longer retain coverage for any act in unrelated matters, such as simple malpractice, during the 

period of expected coverage. Lawson, 827 A.2d at 240. The court held rescission was 

inappropriate as to the innocent partner, concluding “that harsh and sweeping result would be 

contrary to the public interest,” and “it would be inconsistent with the policies underlying our 

Rules of Court that seek to protect consumers of legal services by requiring attorneys to 

maintain adequate insurance in this setting.” Lawson, 827 A.2d at 240-41. 

¶ 53 Similarly, because Terpinas’s law firm was organized as a limited liability entity, he 

reasonably expected his liability to be limited within Rules 721 and 722 and reasonably relied 

on the professional liability insurance coverage provided by ISBA Mutual to limit his personal 

liability. When attorneys do not have professional liability insurance, the public faces an 

increased risk of harm as consumers of legal services. Rescission of Terpinas’s professional 

liability insurance would expose his other clients unnecessarily under any form of malpractice. 

That result is inconsistent with the policies underlying Rules 721 and 722 that seek to protect 

consumers of legal services from financial harm. 

¶ 54 In addition, I am troubled by the scope of the consequences resulting from the majority’s 

holding on other law firms and especially midsize and large firms. Under the majority’s view, 

a material misrepresentation on an insurance application could cause rescission of the policy as 

to each and every attorney, despite their reasonable expectations of continued professional 

liability insurance coverage. Furthermore, as the size of the affected firm increases, so does the 

potential harm to the public. 

¶ 55 For these reasons, I respectfully dissent.