Illinois Official Reports

Appellate Court

Hilco Trading, LLC v. Liberty Surplus Insurance Corp.,

2014 IL App (1st) 123503

Appellate Court 

Caption

HILCO TRADING, LLC; HILCO, INC.; HILCO APPRAISAL 

SERVICES, LLC; HILCO ENTERPRISE VALUATION 

SERVICES, LLC; MARK A. SMILEY; ARNOLD H. DRATT; and 

JEFFREY LINSTROM, Plaintiffs-Appellants, v. LIBERTY 

SURPLUS INSURANCE CORPORATION, ACE AMERICAN 

INSURANCE COMPANY, and CONTINENTAL CASUALTY 

COMPANY, Defendants-Appellees.

District & No. First District, First Division

Docket No. 1-12-3503

Filed March 17, 2014

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.)

In an action by several related corporations involved in appraisal and 

valuation services seeking to require their malpractice insurer to 

provide a defense in underlying actions alleging that plaintiffs 

breached their obligations relating to appraisals prepared in 

connection with asset-based loans plaintiffs made, the trial court erred 

in granting the insurer’s motion for summary judgment and dismissing 

plaintiffs’ motion for summary judgment, since the language used in 

the policies issued by defendant triggered defendant’s duty to defend, 

even though the appraisals at issue were used by corporations within 

plaintiffs’ family of related corporations to support the loans made by 

other corporations within plaintiffs’ family.

Decision Under 

Review

Appeal from the Circuit Court of Cook County, No. 12-CH-1580; the 

Hon. Mary Anne Mason, Judge, presiding.

Judgment Affirmed in part and reversed in part; cause remanded with directions.
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Counsel on

Appeal

Thompson, Coburn, LLP, of Chicago (J. David Duffy and Emily L. 

Peel, of counsel), and Kasowitz, Benson, Torres & Friedman, LLP, of 

New York, New York (Adam S. Ziffer, pro hac vice), for appellants.

Walker, Wilcox, Matousek, LLP, of Chicago (Joseph J. Borders, Neil 

E. Holmen, and James W. Kienzle, of counsel), for appellee Liberty 

Surplus Insurance Corporation.

Matthew T. Walsh and Cozen O’Connor, both of Chicago, and Angelo 

Savino and Cozen O’Connor, both of New York, New York, for other 

appellees.

Panel JUSTICE CUNNINGHAM delivered the judgment of the court, with 

opinion.

Presiding Justice Connors and Justice Hoffman concurred in the 

judgment and opinion.

OPINION

¶ 1 This appeal arises from an October 9, 2012 order entered by the circuit court of Cook 

County which granted the motion to dismiss filed by defendant-appellee Continental Casualty 

Company (Continental) and which dismissed with prejudice the complaint against 

Continental; granted the motion for summary judgment filed by defendant-appellee Liberty 

Surplus Insurance Corporation (Liberty) and dismissed with prejudice the complaint against 

Liberty; dismissed with prejudice the complaint against defendants-appellees ACE American 

Insurance Company (ACE) and Illinois Union Insurance Company (Illinois Union)1

; and 

denied the cross-motion for partial summary judgment filed by plaintiffs-appellants Hilco 

Trading, LLC (Hilco Trading); Hilco, Inc. (Hilco); Hilco Appraisal Services, LLC (Hilco 

Appraisal); Hilco Enterprise Valuation Services, LLC (Hilco Valuation); Mark A. Smiley; 

Arnold H. Dratt; and Jeffrey Linstrom (collectively, the plaintiffs). On appeal, Hilco Appraisal 

 1

In the circuit court of Cook County, the plaintiffs filed a complaint against ACE seeking coverage 

under two insurance policies the plaintiffs believed were issued by ACE. However, in its October 9, 

2012 order, the trial court noted that the plaintiffs were incorrect in that Illinois Union actually issued 

one of the policies (the Illinois Union policy), and that the plaintiffs actually intended to sue Illinois 

Union in order to seek coverage under that policy. Thus, the trial court dismissed the plaintiffs’

complaint against Illinois Union and ACE. The Illinois Union policy is at issue in this appeal and the 

policy issued by ACE is not at issue.
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and Hilco Valuation (collectively, Hilco Appraisal and Valuation)2 argue that the trial court 

erred in granting Liberty’s motion for summary judgment, dismissing the complaint against 

Liberty and Illinois Union, and denying their cross-motion for partial summary judgment. For 

the following reasons, we affirm the judgment of the circuit court of Cook County as to 

Continental and ACE, and we reverse the judgment of the circuit court as to Liberty, Illinois 

Union, and the plaintiffs. We remand the matter for further proceedings.

¶ 2 BACKGROUND

¶ 3 Hilco is a corporation organized under the laws of Illinois and has its principal place of

business in Northbrook, Illinois. Hilco Trading is a limited liability company organized under 

the laws of Delaware and has its principal place of business in Northbrook, Illinois. Hilco 

Appraisal is a limited liability company organized under the laws of Delaware and has its 

principal place of business in Northbrook, Illinois. Hilco Appraisal is a majority-owned 

subsidiary of Hilco Trading. Hilco Valuation is a limited liability company organized under 

the laws of Delaware and has its principal place of business in Northbrook, Illinois. Hilco 

Valuation is an indirect, majority-owned subsidiary of Hilco Trading. The record suggests that 

Hilco Appraisal and Valuation are in the business of providing expert professional services 

consisting of the valuation of various types of assets. The record suggests that Hilco Financial, 

LLC (Hilco Financial), was a limited liability company organized under the laws of Delaware 

and was owned and controlled by Hilco Trading. Hilco Financial was in the business of 

making loans to other companies through asset-based lending.

¶ 4 Hilco Trading purchased a primary professional liability insurance policy from Liberty 

(the Liberty policy), which covered claims against Hilco Trading, Hilco Appraisal, Hilco 

Valuation and other Hilco entities for errors in rendering professional services. The Liberty 

policy covered the period from April 23, 2008 to April 23, 2009 and provided a limit of $10 

million in excess of a $250,000 deductible. The Liberty policy stated that Liberty had the duty 

to defend any “claim” made against the “Insured.” The Liberty policy provided definitions for 

the following terms, which are at issue in this case:

“(A) ‘Claim’ means receipt of a civil action *** naming the Insured seeking 

Damages *** arising out of a Wrongful Act by the Insured or any Entity for whom 

the Insured is legally liable. 

* * *

(H) ‘Insured’ means only the following:

(1) The Named Insured [Hilco Trading] ***.

* * *

(5) Any Subsidiary

* * *

(O) ‘Professional Services’ means those services specified in Item 7 of the 

Declarations which are provided by the Insured to a third party for a monetary fee ***.

* * *

 2

Although the plaintiffs filed a notice of appeal collectively, the appellant brief was filed solely on

behalf of Hilco Appraisal and Valuation. The remaining plaintiffs are not participating in this appeal.
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(Q) ‘Subsidiary’ means any Entity in which [Hilco Trading] owns either directly 

or indirectly 50% or more of the outstanding voting stock. ***

* * *

(R) ‘Wrongful Act’ means any actual or alleged act, error, omission, 

misstatement, misleading statement, neglect, or breach of duty in the rendering of or 

failure to render Professional Services.”

Most notably, the services specified within item 7 of the declarations in the Liberty policy 

included “[v]alue opinions in support of asset-based lending.”

¶ 5 Additionally, Hilco Trading purchased an excess professional liability insurance policy 

from Illinois Union (the Illinois Union policy), which covered the period from April 23, 2008 

to April 23, 2009, extended to May 23, 2009.3 The Illinois Union policy provided a $10 

million limit in excess of the liability limit and deductible of the Liberty policy. The Illinois 

Union policy stated that “[Illinois Union] agrees to provide insurance coverage to the Insureds 

in accordance with the terms, definitions, conditions, exclusions and limitations of the [Liberty 

policy], except as otherwise provided herein.”

¶ 6 According to Hilco Appraisal and Valuation, on March 31, 2010, a company named The 

Patriot Group, LLC (Patriot), filed a complaint in the circuit court of Cook County against 

Hilco Trading, Hilco, Hilco Financial, Hilco Appraisal, and Hilco Valuation under case 

number 10 L 03914 (the Patriot action). Patriot’s complaint was superseded by an amended 

complaint filed on September 30, 2010, and a second amended complaint filed on June 20, 

2011. The second amended complaint consisted of, among other allegations, counts against 

Hilco Financial for breach of contract and fraud; counts against Hilco Trading for fraud and 

aiding and abetting fraud; and a count against Hilco Appraisal and Valuation for negligent 

misrepresentation. The following facts were alleged in Patriot’s second amended complaint.

Hilco Financial’s business involved making asset-based loans to third-party borrowers that 

were collateralized by accounts receivable, inventory, machinery and equipment, real estate, or 

other substantial assets. In order to finance the loans to its borrowers, Hilco Financial itself 

borrowed money from financial institutions such as Patriot. Hilco Financial then took the 

money it borrowed from financial institutions, and used that money to lend to its own 

borrowers.

¶ 7 Patriot alleged that in November 2005, Hilco obtained a $20 million junior secured loan 

from Patriot. The proceeds from the loan were to be used by Hilco Financial to enter into 

asset-based loans to third-party borrowers that met the criteria established in the agreement 

between Patriot and Hilco Financial. As part of the agreement, Hilco Financial was required to 

provide Patriot with written appraisal reports and audit reports showing that the loans Hilco 

Financial was making to third-party borrowers were fully secured. Hilco Appraisal and Hilco 

Valuation were the entities that appraised the assets securing the potential loans Hilco 

Financial would provide to its third-party borrowers. This included appraising assets such as 

accounts receivable, equipment, inventory, and intellectual property.

¶ 8 Patriot further alleged that Hilco Financial breached its contract with Patriot in many ways, 

including failing to make loans that conformed to the criteria of their agreement, failing to 

make payments of principal, and failing to make payments of interest. Patriot alleged that 

 3

Hilco Trading also purchased an excess professional liability policy from Continental for 2009-10 

(the Continental policy). The Continental policy is not an issue in this appeal.
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Hilco Appraisal and Valuation performed appraisals that were grossly inflated. Patriot claimed 

that Hilco Appraisal and Valuation conducted the appraisals and delivered them to Hilco 

Financial with the knowledge and understanding that they would be forwarded to Patriot.

Patriot alleged that Hilco Financial forwarded the appraisals to Patriot with the written consent 

of Hilco Appraisal and Valuation. Patriot claimed that it was induced to rely on the accuracy of 

the appraisals in entering into the agreement with Hilco Financial and advanced millions of 

dollars to Hilco Financial as a result of its reliance.

¶ 9 According to Hilco Appraisal and Valuation, on May 20, 2010, a bank named Bayerische 

Hypo-und Vereinsbank AG, New York Branch (HVB) filed a complaint in the circuit court of 

Cook County against Hilco Trading, Hilco, Hilco Financial, Hilco Appraisal, Hilco Valuation, 

and other defendants under case number 10 CH 21663 (the HVB action). HVB’s complaint 

was superseded by a first amended complaint.4 HVB’s first amended complaint consisted of, 

among other allegations, a count against Hilco Financial for breach of contract; and a count 

against Hilco Appraisal and Valuation for negligent misrepresentation. The following facts 

were alleged in HVB’s first amended complaint. On or around September 27, 2007, Hilco 

Financial entered into a loan agreement with HVB in which HVB agreed to extend credit to 

Hilco Financial in an amount not to exceed $75 million. The HVB agreement was executed for 

similar purposes as the Patriot agreement. To secure the loan, Hilco Financial granted HVB a 

first-priority security interest in substantially all of Hilco Financial’s assets. As a part of the 

agreement, all loans made by Hilco Financial to its borrowers were required to be supported by 

appraisals and audit work that showed that the loans were fully secured. Hilco Appraisal and 

Valuation were the entities that appraised the assets securing the potential loans Hilco 

Financial would provide to its borrowers.

¶ 10 HVB alleged that Hilco Financial defaulted on the loan in question, and after Hilco 

Financial’s assets were liquidated, HVB was left with a loss of at least $10,004,149.94. HVB 

alleged that the appraisals performed by Hilco Appraisal and Valuation were grossly inflated.

HVB claimed that Hilco Appraisal and Valuation prepared the appraisals for Hilco Financial 

with the understanding and intent that the appraisals would be provided to HVB and that HVB 

would rely on the appraisals. HVB claimed that it was induced by Hilco Trading to rely upon 

the accuracy of the appraisals in entering into the loan agreement and advancing millions of 

dollars as a result of its reliance.

¶ 11 Additionally, the record contains a letter from HVB to Hilco Appraisal and Valuation, 

which was sent on April 22, 2009 (the demand letter). The demand letter contained similar 

allegations against Hilco Appraisal and Valuation as to the purpose and effect of the appraisals.

The demand letter stated that HVB would not have made loans to Hilco Financial if the 

appraisals had accurately reflected the value of Hilco Financial’s loan collateral. According to 

Hilco Appraisal and Valuation, they sent a copy of the demand letter to Liberty sometime 

between April 22, 2009 and May 5, 2009.

¶ 12 In the HVB action, Hilco Appraisal and Valuation moved to dismiss HVB’s first amended 

complaint as to negligent misrepresentation. The trial court denied Hilco Appraisal and 

Valuation’s motion to dismiss and found that HVB’s complaint sufficiently alleged a cause of 

 4

Despite careful review of the record, we are unable to determine the date on which HVB’s first 

amended complaint was filed.
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action for negligent misrepresentation. The record does not disclose the status of the Patriot 

action (which was filed on March 31, 2010 and presumably was then pending).

¶ 13 On January 17, 2012, the plaintiffs filed a complaint in the circuit court of Cook County for 

declaratory relief and damages against the defendants. In their complaint, the plaintiffs sought 

a declaratory judgment that Liberty was obligated to defend the plaintiffs in the Patriot action 

and HVB action (collectively, the underlying actions). The plaintiffs alleged that the 

defendants have not accepted the coverage obligations under their insurance policies, and have 

ignored their duty to defend the plaintiffs. The plaintiffs also sought a declaratory judgment 

that the defendants were obligated to pay the claim expenses of the underlying actions and 

indemnify the plaintiffs for any judgments and/or settlements attributable to the underlying 

actions.

¶ 14 On March 28, 2012, Liberty filed a motion for summary judgment against the plaintiffs on 

the issue of Liberty’s duty to defend the plaintiffs in the underlying actions. Liberty argued that 

it did not have a duty to defend the plaintiffs because the terms of the Liberty policy state that it 

covers professional services which are provided by an insured to a third party for a fee, and 

Hilco Appraisal and Valuation provided professional services only to Hilco Financial, which is 

not a third party. On or around March 30, 2012, Continental filed a motion to dismiss pursuant 

to section 2-619 of the Illinois Code of Civil Procedure (735 ILCS 5/2-619 (West 2010)). On 

May 10, 2012, the plaintiffs filed a cross-motion for partial summary judgment against Liberty 

on the duty to defend issue. The plaintiffs pointed out that in the underlying actions, Patriot and 

HVB alleged that they were provided with the appraisals performed by Hilco Appraisal and 

Valuation. Thus, the plaintiffs argued that their professional services were provided to a third 

party. The plaintiffs also argued that Hilco Financial should be considered a third party under 

the terms of the Liberty policy because it is a separate entity from Hilco Appraisal and 

Valuation. As such, the plaintiffs argued that Liberty had a duty to defend the plaintiffs in the 

underlying actions.

¶ 15 On September 13, 2012, the trial court held a hearing on the summary judgment motions 

and Continental’s motion to dismiss. The trial court agreed with Liberty and found that Liberty 

did not have a duty to defend Hilco Appraisal and Valuation in the underlying actions. The trial 

court stated that in order to trigger Liberty’s duty to defend, Hilco Appraisal and Valuation’s 

services must have been provided to a third party for a monetary fee. The trial court reasoned 

that Patriot and HVB were not transformed into third parties that commissioned the services of 

Hilco Appraisal and Valuation simply because of the negligent misrepresentation alleged 

against Hilco Appraisal and Valuation. Rather, the trial court found that Hilco Appraisal and 

Valuation prepared the appraisals only for Hilco Financial and not for Patriot and HVB. Also, 

the trial court found that Hilco Financial cannot be considered a third party under the terms of 

the Liberty policy. Thus, the trial court concluded that as a matter of law, Hilco Appraisal and 

Valuation’s preparation of the appraisals did not constitute professional services within the 

meaning of the Liberty policy.

¶ 16 On October 9, 2012, the trial court entered an order that granted Continental’s motion to 

dismiss and dismissed with prejudice the complaint against Continental; granted Liberty’s 

motion for summary judgment and dismissed with prejudice the complaint against Liberty; 

dismissed with prejudice the complaint against ACE and Illinois Union; and denied the 

plaintiffs’ cross-motion for partial summary judgment. On November 6, 2012, the plaintiffs 

filed a timely notice of appeal. Therefore this court has jurisdiction to consider Hilco Appraisal 
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and Valuation’s arguments on appeal pursuant to Illinois Supreme Court Rule 303 (eff. May 

30, 2008).

¶ 17 ANALYSIS

¶ 18 On appeal, we determine whether the trial court erred in granting Liberty’s motion for 

summary judgment, dismissing the plaintiffs’ complaint against Liberty and Illinois Union, 

and denying the plaintiffs’ cross-motion for partial summary judgment.

¶ 19 Hilco Appraisal and Valuation argue that the trial court erred by not requiring Liberty to 

defend them in the underlying actions. Hilco Appraisal and Valuation point out that in Illinois, 

if the complaint in the underlying action alleges facts within, or even potentially within, policy 

coverage, then the insurer is obligated to defend the insured even if the allegations are 

groundless, false, or fraudulent. As such, Hilco Appraisal and Valuation argue that the “duty to 

defend” standard establishes a low threshold to trigger coverage under the Liberty policy. The 

Liberty policy covers claims against the insured for errors in rendering professional services.

The Liberty policy defines “professional services” as services under the policy which are 

provided by the insured to a third party for a monetary fee. Hilco Appraisal and Valuation 

contend that Liberty’s duty to defend is triggered by the allegations in the underlying actions 

which allege that Hilco Appraisal and Valuation rendered negligent services that harmed 

Patriot and HVB. Hilco Appraisal and Valuation assert that there is no question that the 

appraisals they prepared in the underlying actions constitute professional services under the 

Liberty policy.

¶ 20 Moreover, Hilco Appraisal and Valuation point out that the trial court’s ruling was based 

largely on its finding that Hilco Appraisal and Valuation provided their services only to Hilco 

Financial and not to Patriot and HVB, and that Hilco Financial is not a third party. However, 

Hilco Appraisal and Valuation argue that their professional services were provided to Patriot 

and HVB. Specifically, Hilco Appraisal and Valuation contend that the underlying actions 

alleged that Patriot and HVB were the intended beneficiaries of the appraisal services 

completed by Hilco Appraisal and Valuation and that Patriot and HVB were actually provided 

with those services. The underlying actions also alleged that Patriot and HVB relied on the 

appraisals in making loans to Hilco Financial and that Hilco Appraisal and Valuation knew and 

intended that Patriot and HVB would rely on the appraisals. Hilco Appraisal and Valuation 

assert that it is immaterial that the services were also provided to Hilco Financial, as long as the 

services were provided to Patriot and HVB. Hilco Appraisal and Valuation acknowledge that 

the appraisals they prepared were addressed to Hilco Financial, and the restrictions in the 

appraisals stated that the appraisals were only for use by Hilco Financial and could not be 

distributed to any third party without the written consent of Hilco Appraisal and Valuation.

However, Hilco Appraisal and Valuation argue that the restrictions in the appraisals were 

boilerplate provisions and were not absolute. Also, Hilco Appraisal and Valuation point out 

that in the underlying actions, Patriot alleged that Hilco Appraisal and Valuation provided 

written consent for Patriot to use the appraisals. Thus, Hilco Appraisal and Valuation argue 

that the trial court erred in finding that their professional services were not provided to Patriot 

and HVB.

¶ 21 Alternatively, Hilco Appraisal and Valuation argue that even if this court finds that they 

provided their services only to Hilco Financial and not to Patriot and HVB, Hilco Financial 

itself should be considered a third party under the Liberty policy. Hilco Appraisal and 
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Valuation contend that if Hilco Financial is considered a third party, then Liberty has a duty to 

defend Hilco Appraisal and Valuation in the underlying actions. Hilco Appraisal and 

Valuation assert that Hilco Financial is a third party because the plain meaning of the term 

“third party” means any party other than the party providing the professional services. Also, 

Hilco Appraisal and Valuation argue that Liberty could have used the definition of 

“professional services” to unequivocally state that the Liberty policy would not cover services 

provided by one “Insured” to another “Insured,” but Liberty chose not to do so. Specifically, 

Hilco Appraisal and Valuation assert that the Liberty policy could have stated that 

“professional services” are services provided by the “Insured” to a “non-Insured.” Rather, the 

Liberty policy states that professional services are services provided by the “Insured” to a 

“third party.”

¶ 22 Further, Hilco Appraisal and Valuation point out that the Liberty policy contains an 

exclusion that states that the policy does not cover claims if one Insured sues another Insured 

(the Insured v. Insured exclusion). Hilco Appraisal and Valuation argue that the trial court’s 

and Liberty’s construction of the term “third party” would render the Insured v. Insured 

exclusion meaningless. Hilco Appraisal and Valuation claim that if the trial court’s and 

Liberty’s construction of “third party” is correct, and an “Insured” cannot also be considered a 

“third party” under the Liberty policy, then the policy would not cover professional services 

provided by one Insured to another insured. If the policy does not cover professional services 

provided by one Insured to another Insured, then there would be no need to write an exclusion 

relating to lawsuits between insureds. Thus, Hilco Appraisal and Valuation assert that the 

Insured v. Insured exclusion would be meaningless. Hilco Appraisal and Valuation argue that 

Illinois law requires that if this court finds that both Hilco Appraisal and Valuation, and 

Liberty, present reasonable constructions of the term “third party,” the term would be deemed 

ambiguous and would have to be construed in favor of Hilco Appraisal and Valuation.

Therefore, Hilco Appraisal and Valuation argue that Hilco Financial should be considered a 

third party under the Liberty policy. Accordingly, Hilco Appraisal and Valuation argue that the 

trial court erred in finding that their services were not provided to a third party, and erred in not 

requiring Liberty to defend Hilco Appraisal and Valuation in the underlying actions.

¶ 23 In response, Liberty argues that the trial court did not err in finding that Liberty is not 

required to defend Hilco Appraisal and Valuation in the underlying actions.5 Specifically, 

Liberty contends that the trial court correctly found that Hilco Appraisal and Valuation 

provided their services only to Hilco Financial, and not to Patriot and HVB. Liberty argues that 

this court should consider the affirmative defenses that Hilco Appraisal and Valuation 

presented in the underlying actions, in which Hilco Appraisal and Valuation argued that the 

appraisals were intended for use only by Hilco Financial and not Patriot or HVB. Also, Liberty

asserts that the allegations in the underlying actions and the terms of the Liberty policy support 

the trial court’s ruling. Liberty points out that in the underlying actions, Patriot and HVB 

alleged that Hilco Appraisal and Valuation provided the appraisals to Hilco Financial, and that 

Hilco Financial provided the appraisals to Patriot and HVB. Liberty emphasizes that Hilco 

Financial was not providing professional services to Patriot and HVB. Rather, Hilco Financial 

 5

In its brief on appeal, Illinois Union adopts and incorporates the arguments of Liberty. Therefore, 

in the interest of clarity, we will only address Liberty’s arguments. Illinois Union’s additional 

arguments are minimal and do not affect our analysis or the outcome of this appeal.
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was inducing Patriot and HVB to provide loans to Hilco Financial. Liberty argues that it would 

be absurd to accept the notion that a borrower (Hilco Financial) provides professional services 

to its potential lenders (Patriot and HVB) when it distributes an assessment of the value of the 

borrower’s own collateral. Liberty points out that each of the appraisals states that the 

appraisals are only for use by Hilco Financial and cannot be used by a third party without 

written consent from Hilco Appraisal and Valuation. As such, Liberty contends that the 

language of the appraisals makes it clear that Hilco Financial was the intended beneficiary of 

the appraisals. Liberty asserts that the trial court correctly came to this conclusion when it 

stated that the allegations in the underlying actions claimed that Hilco Appraisal and Valuation 

intended for Patriot and HVB to see the appraisals. The trial court further stated that Hilco 

Appraisal and Valuation’s intention did not transform Patriot and HVB into third parties who 

commissioned the services for a fee. Thus, Liberty argues that the trial court correctly found 

that Hilco Appraisal and Valuation provided their services only to Hilco Financial, and not to 

Patriot and HVB.

¶ 24 Additionally, Liberty argues that the trial court correctly found that Hilco Financial cannot 

be considered a third party under the terms of the Liberty policy. Liberty points out that Hilco 

Appraisal and Valuation argued that Hilco Financial should be considered a third party under 

the Liberty policy because the plain meaning of “third party” is any party other than the party 

providing the professional services. Liberty argues that Hilco Appraisal and Valuation’s 

interpretation of “third party” is incorrect because it effectively negates the term “third party”

in the Liberty policy. Liberty contends that the trial court was correct in relying on the ruling of 

the United States District Court for the District of Colorado in Apartment Investment & 

Management Co. (AIMCO) v. Nutmeg Insurance Co., No. 06cv00508PSFMJW, 2007 WL 

5060416 (D. Colo. Apr. 9, 2007), in which the district court held that an insurance policyholder 

could not be considered both an “Insured” and an “other” under the policy. Also, Liberty 

argues that the trial court’s interpretation of “third party” does not negate the Insured v. Insured 

exclusion. Rather, it complements the exclusion. Liberty points out that the definition of 

“professional services” under the Liberty policy states that coverage does not extend to 

services provided by one “Insured” to another “Insured.” The Insured v. Insured exclusion 

states that the Liberty policy does not cover claims brought by one “Insured” against another 

“Insured.” Liberty contends that the common thread between the two provisions is that Liberty 

intended to avoid coverage for matters involving entanglements between multiple Hilco 

entities. Thus, Liberty argues that the trial court correctly found that Hilco Financial cannot be 

considered a third party under the Liberty policy and correctly granted its motion for summary 

judgment and dismissed the plaintiffs’ complaint with prejudice.

¶ 25 “It is the general rule that the duty of the insurer is determined by the allegations of the 

underlying complaint.” Lyons v. State Farm Fire & Casualty Co., 349 Ill. App. 3d 404, 406 

(2004) (citing Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187, 193 (1976)). In insurance law, 

the duty to defend is broader than the duty to indemnify. West Bend Mutual Insurance Co. v. 

Sundance Homes, Inc., 238 Ill. App. 3d 335, 337 (1992). “[T]he threshold for pleading duty to 

defend is minimal.” Id. at 337-38. When there is a doubt as to the duty to defend, it is to be 

resolved in favor of the insured, and the insurer can only justifiably refuse to defend when the 

allegations against the insured clearly show on their face that the claim is beyond the coverage 

of the policy. Id. at 338. If the underlying complaint against the insured alleges facts that are 

within or even potentially within the coverage of the policy, the insurer is obligated to defend 
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the insured even if the allegations are groundless, false, or fraudulent. Farmers Automobile 

Insurance Ass’n v. Danner, 2012 IL App (4th) 110461, ¶ 32. In other words, because the 

threshold requirements that the complaint must satisfy to present a claim of potential coverage 

are minimal, “the complaint need present only a possibility of recovery, not a probability of 

recovery.” Bituminous Casualty Corp. v. Gust K. Newberg Construction Co., 218 Ill. App. 3d 

956, 960 (1991).

¶ 26 Summary judgment is appropriate when the pleadings, depositions, and affidavits, 

construed in the light most favorable to the nonmoving party, present no genuine issue of 

material fact and show that judgment should be granted as a matter of law. Reynolds v. Decatur 

Memorial Hospital, 277 Ill. App. 3d 80, 84 (1996). This court reviews the trial court’s ruling 

on a motion for summary judgment under the de novo standard of review. Quality Lighting, 

Inc. v. Benjamin, 227 Ill. App. 3d 880, 884 (1992). Therefore, we review the trial court’s ruling 

de novo in this case.

¶ 27 Despite the parties’ numerous arguments, the issue in this case is fairly narrow. Plainly 

stated, it is whether Hilco Appraisal and Valuation’s professional services were provided to a 

third party within the meaning of the Liberty policy so as to trigger a duty to defend by Liberty.

There is no dispute that the appraisal services performed by Hilco Appraisal and Valuation fell 

within the definition of “professional services” under the terms of the Liberty policy. Also, 

Liberty acknowledged that it did not move for summary judgment on the issue of the services 

being provided for a monetary fee. Thus, the only aspect at issue in this case is whether Hilco 

Appraisal and Valuation’s services were provided to a third party. The trial court’s judgment in 

this case hinged on its conclusion that Hilco Appraisal and Valuation’s services were not 

provided to a third party. In reaching this conclusion, the trial court found that Hilco Appraisal 

and Valuation provided their services only to Hilco Financial and not to Patriot and HVB, and 

that Hilco Financial cannot be considered a “third party” under the terms of the Liberty policy.

We discuss the trial court’s findings in making our determination.

¶ 28 The trial court first found that Hilco Appraisal and Valuation provided their services only 

to Hilco Financial and not to Patriot and HVB. We disagree with this finding. We note that the 

duty to defend standard establishes a low threshold to trigger coverage under insurance 

policies. If the allegations in the underlying actions fall within or even potentially within

coverage, then the duty to defend is triggered. Further, we must construe the Liberty policy 

liberally and in favor of the plaintiffs. See United Services Automobile Ass’n v. Dare, 357 Ill. 

App. 3d 955, 963 (2005). Accordingly, we can look to the allegations in the underlying 

complaint to determine whether the duty to defend was triggered.

¶ 29 In the underlying actions, Patriot and HVB alleged that Hilco Appraisal and Valuation

performed appraisal services for Hilco Financial with the knowledge and intent that Patriot and 

HVB would rely on the appraisals. Specifically, in the Patriot action, Patriot alleged as follows:

“167. The appraisals were reviewed and approved by senior management at Hilco 

Appraisal and Hilco Valuation before they were delivered to Hilco Financial with the 

knowledge and understanding that they would subsequently be forwarded to Patriot.

168. Hilco Appraisal and HIlco Valuation knew that these appraisals were 

performed to allow Hilco Financial to satisfy its obligations under [the agreement] to 

provide its lenders (such as Patriot) with detailed summaries of appraisals before they 

would agree to advance money for new loans.” (Emphasis added.)

¶ 30 Similarly, in the HVB action, HVB alleged as follows:
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“105. Moreover, in order to further induce HVB into believing in and relying upon 

the asserted valuation expertise of [Hilco] Appraisal and Valuation, HVB attended, at 

[Hilco] Appraisal and Valuation’s invitation, an auction of collateral that had been 

valued by [Hilco] Appraisal and/or [Hilco] Valuation.

106. By reason of the foregoing, [Hilco] Appraisal and Valuation knew and 

intended that their appraisals of the collateral securing [Hilco] Financial’s loans to its 

borrowers would be provided to and relied upon by HVB in connection with its 

decision to enter into [the loan agreement] and make loans thereunder.” (Emphasis 

added.)

¶ 31 Hilco Appraisal and Valuation’s knowledge at the time the appraisals were performed is 

very significant. Clearly, in the underlying actions, Patriot and HVB alleged that Hilco 

Appraisal and Valuation knew how the appraisals were going to be used before the appraisals 

were delivered to Hilco Financial. This is not a situation in which Hilco Appraisal and 

Valuation simply completed the appraisals for Hilco Financial without the knowledge that 

Hilco Financial would distribute the appraisals to an unknown third party. Rather, Patriot and 

HVB alleged that Hilco Appraisal and Valuation completed the appraisals with the full 

knowledge and intent that the appraisals would be distributed to Patriot and HVB.

¶ 32 Additionally, during oral argument before this court, in response to a direct question, all 

parties agreed that Hilco Appraisal and Valuation knew that the appraisals would be used to 

induce Patriot and HVB to provide loans before the appraisals were delivered to Hilco 

Financial. We agree with Hilco Appraisal and Valuation’s argument that it is immaterial that 

the appraisal services were performed for Hilco Financial, as long as the complaints alleged 

that Patriot and HVB also received the appraisals in addition to Hilco Financial. Because it was 

alleged that Hilco Appraisal and Valuation were fully aware of the purpose and intended use of 

the appraisals before the appraisals were delivered to Hilco Financial, Liberty cannot argue 

that Hilco Appraisal and Valuation provided the appraisals only to Hilco Financial. Further, 

even though the appraisals stated that they were for Hilco Financial’s use only and could only 

be distributed with Hilco Appraisal and Valuation’s consent, Patriot alleged that Hilco 

Appraisal and Valuation did provide their written consent for Patriot to use the appraisals.

Construing the Liberty policy liberally and in the light most favorable to Hilco Appraisal and 

Valuation, we find that it is certainly arguable that Hilco Appraisal and Valuation provided the 

appraisal services and the accompanying reports to Patriot and HVB. Thus, Liberty’s duty 

under the Liberty policy to defend Hilco Appraisal and Valuation in the underlying actions, 

was triggered. Accordingly, we hold that the trial court erred in granting Liberty’s motion for 

summary judgment, dismissing the plaintiffs’ complaint against Liberty and Illinois Union, 

and denying their cross-motion for partial summary judgment.6 Therefore, those trial court 

rulings are reversed.

¶ 33 Although we reverse the trial court’s judgment which granted Liberty’s motion for 

summary judgment, dismissed the plaintiffs’ complaint against Liberty and Illinois Union, and 

denied the plaintiffs’ cross-motion for partial summary judgment, we must discuss the 

remainder of the trial court’s judgment. In its judgment, the trial court also dismissed with 

 6

We note that Hilco Appraisal and Valuation also argued that the trial court erred in finding that 

Hilco Financial cannot be considered a third party under the terms of the Liberty policy. However, due 

to our findings above, we need not address this argument.
- 12 -

prejudice the complaints against Continental and ACE because the underlying actions did not 

arise under the insurance policies issued by Continental and ACE. Accordingly, the trial 

court’s judgment that dismissed with prejudice the complaints against Continental and ACE 

was not erroneous.

¶ 34 We must also clarify the effect of reversing the trial court’s denial of the plaintiffs’

cross-motion for partial summary judgment. We note that in the plaintiffs’ motion, they argue 

that Liberty has a duty to defend them in the underlying actions because Patriot and HVB were 

provided with the appraisals performed by Hilco Appraisal and Valuation, and because of the 

“third party” argument. The plaintiffs also present other arguments not at issue in this appeal.

As previously discussed, the trial court erred in finding that Liberty did not have a duty to 

defend the plaintiffs only because Hilco Appraisal and Valuation arguably provided the 

appraisals to Patriot and HVB. All of the parties to the appraisal allegedly knew of this and 

there was allegedly written consent to do so as required by the terms of the appraisal reports.

Thus, the trial court must enter an order granting the plaintiffs’ cross-motion for partial 

summary judgment on this issue only.

¶ 35 For the foregoing reasons, we affirm the judgment of the circuit court of Cook County 

which dismissed with prejudice the complaints against Continental and ACE. We reverse the 

circuit court’s judgment which granted Liberty’s motion for summary judgment, dismissed the 

plaintiffs’ complaint against Liberty and Illinois Union, and denied the plaintiffs’ cross-motion 

for partial summary judgment. The circuit court is directed to enter an order granting the 

plaintiffs’ cross-motion for partial summary judgment solely on the duty to defend issue for the 

reasons discussed in this opinion. The matter is remanded for further proceedings consistent 

with this opinion.

¶ 36 Affirmed in part and reversed in part; cause remanded with directions.