Court Opinion

ID: 4202270
Source: CourtListenerOpinion
Date Created: 2017-09-08 21:09:45.550011+00
Date Added: 2024-06-11T14:14:17.823319
License: Public Domain

Digitally signed by
                                                                             Reporter of Decisions
                             Illinois Official Reports                       Reason: I attest to the
                                                                             accuracy and
                                                                             integrity of this
                                                                             document
                                    Appellate Court                          Date: 2017.08.28
                                                                             12:17:45 -05'00'

             James River Insurance Co. v. TimCal, Inc., 2017 IL App (1st) 162116

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

District & No.          First District, Second Division
                        Docket No. 1-16-2116

Filed                   June 30, 2017

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

Judgment                Affirmed.

Counsel on              Sudekum, Cassidy & Shulruff, Chtrd., of Chicago (Frederick J.
Appeal                  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

¶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.

                                                 -2-
                    *** 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 recover “an amount in
       excess of $400,000” that Fidelity paid on Swimley’s claim.
¶9         In James River’s declaratory judgment action, Fidelity filed interrogatories and document
       requests related to the drafting history of the insurance policy James River sold to Geico.
       James River filed a motion for a protective order, asking the court to bar Fidelity’s requests for
       the drafting history and James River’s proprietary business information. The circuit court
       granted James River’s request for a protective order. Fidelity never obtained documents or
       other discovery related to the drafting history of the policy.
¶ 10       James River moved for summary judgment on the complaint. It supported the motion with
       the affidavit of the claims manager assigned to TimCal’s claim. The claims manager said that
       he first received notice of Fidelity’s claim against TimCal by email on April 3, 2013. A claims
       specialist who kept the records of James River’s interactions with TimCal also asserted that
       James River received no notice regarding Fidelity’s claim before April 3, 2013.
¶ 11       James River also appended to the motion copies of the two policies it issued to Geico in
       2011 and 2012. The first policy provided:

                                                   -3-
                                            “DECLARATIONS
                   ***
                   THIS POLICY PROVIDES CLAIMS-MADE COVERAGE. CLAIMS MUST
               FIRST BE MADE AGAINST THE INSURED DURING THE POLICY PERIOD
               AND MUST BE REPORTED IN WRITING TO THE COMPANY DURING THE
               POLICY PERIOD OR THE EXTENDED REPORTING PERIOD, IF EXERCISED.
               ***
                   *** POLICY PERIOD: From: 10/01/2011 To: 10/01/2012
                                                    ***
                   *** We will pay on behalf of the ‘Insured’ those sums in excess of the deductible
               the ‘Insured’ becomes legally obligated to pay as ‘Damages’ and ‘Claims Expenses’
               because of a ‘Claim’ first made against the ‘Insured’ and reported to us in writing
               during the ‘Policy Period’ by reason of a ‘Wrongful Act’ in the performance of or
               failure to perform ‘Professional Services’ by the ‘Insured’ or by any other person or
               entity for whom the ‘Insured’ is legally liable. ***
                                                    ***
                   *** ‘Claim’ means a written demand for monetary damages arising out of or
               resulting from the performing or failure to perform ‘Professional Services’.
                                                    ***
                   *** ‘Policy Period’ means the period of time shown in the Declarations.
                                                    ***
                   *** Notice of ‘Claims’
                   As a condition precedent to our obligations under this Policy, you shall give written
               notice to us as soon as practicable, but in no event later than 60 days after the end of the
               ‘Policy Period’ of any ‘Claim’ made against you. ***
                                                    ***
                   In the event of cancellation or non renewal of this Policy, *** you shall have the
               right to an Extended Reporting Period as follows:
                   *** Coverage *** shall automatically continue for a period of sixty (60) days
               following the effective date of such cancellation or non renewal ***.
                   *** You shall have the right, upon payment of the additional premium *** to an
               extension of the coverage *** for the term set forth in the Declarations following the
               effective date of such cancellation or non renewal.”
¶ 12      The second policy closely matched the first policy, except that it covered the policy period
       from 10/01/2012 to 10/01/2013. The second policy provides:
               “This Policy does not apply to any Claim against the Insured *** [b]ased on or directly
               or indirectly arising from *** [a] professional service rendered prior to the effective
               date of the Policy if any insured knew or could have reasonably foreseen that the
               professional service could give rise to a claim.”
¶ 13      In its answer to the complaint, Fidelity said it lacked sufficient information to admit or
       deny James River’s allegation that TimCal first gave James River notice of Fidelity’s claim on
       April 3, 2013.

                                                    -4-
¶ 14       The circuit court agreed with James River’s assertion that the first policy provided no
       coverage because TimCal failed to notify James River of the claim during the October 1, 2011,
       to October 1, 2012, policy period, and the second policy, which covered October 1, 2012, to
       October 1, 2013, provided no coverage because TimCal knew of the claim by July 9, 2012,
       before the policy period began. The circuit court granted James River’s motion for summary
       judgment. Fidelity now appeals.

¶ 15                                            ANALYSIS
¶ 16       Fidelity argues on appeal that a material issue of fact remains as to when TimCal first
       reported the claim to James River and that both of James River’s policies include ambiguities
       that make summary judgment improper. Fidelity finds ambiguity (1) in the application of the
       term “Claim” to the letter it sent to TimCal in July 2012, (2) in the term “Extended Reporting
       Period” in the first policy, and (3) in the term “effective date of the Policy” in the second
       policy. Fidelity also contends that, due to the ambiguities, the circuit court should have
       permitted Fidelity to discover the drafting history of the policies. We review the order for
       summary judgment de novo. Standard Mutual Insurance Co. v. Lay, 2013 IL 114617, ¶ 15.

¶ 17                                             First Notice
¶ 18        James River supported its motion for summary judgment with two affidavits from James
       River employees, who explained their responsibilities in connection with TimCal’s claim.
       They averred that James River first received notice of Fidelity’s claim against TimCal on April
       3, 2013. Fidelity argues that this evidence leaves an unresolved issue of fact because TimCal
       might have provided timely notice to an insurance agency that might have acted as James
       River’s apparent or actual agent, and the insurance agency might have breached its duties to
       James River by failing to relay to James River the information the agent might have received
       from TimCal about Fidelity’s claim against TimCal. Fidelity presented no affidavits or other
       evidence that could support a finding that its string of possibilities actually occurred. Fidelity
       admitted in its answer to the complaint that it had no evidence to either affirm or deny James
       River’s allegation that it first received notice of Fidelity’s claim against TimCal on April 3,
       2013.
¶ 19        A party who opposes a motion for summary judgment may rely on reasonable inferences
       from the record to show that a material issue of fact remains unresolved. Gehrman v. Zajac, 34
Ill. App. 3d 164, 166 (1975). However, “the court need not strain to adduce some remote
       factual possibility that will defeat the motion.” Erasmus v. Chicago Housing Authority, 86 Ill.
       App. 3d 142, 145 (1980). Fidelity admitted that it had no evidence from which a jury could
       conclude that TimCal provided notice prior to April 3, 2013. On this barren record, we find no
       triable issue as to when TimCal first notified James River of Fidelity’s claim.

¶ 20                                               Claim
¶ 21       Fidelity argues that the term “Claim” in the James River policies applies ambiguously to
       the facts of this case, and we should construe the term to apply only to the letter Fidelity sent to
       James River on April 23, 2013, and not to the letter Fidelity sent to TimCal on July 9, 2012.
¶ 22       When courts construe insurance policies,

                                                    -5-
               “our primary objective is to ascertain and give effect to the intention of the parties, as
               expressed in the policy language. [Citation.] If the policy language is unambiguous, the
               policy will be applied as written, unless it contravenes public policy. [Citation.]
               Whether an ambiguity exists turns on whether the policy language is subject to more
               than one reasonable interpretation. *** [O]nly reasonable interpretations will be
               considered. [Citation.] Thus, we will not strain to find an ambiguity where none exists.
               [Citation.] Although policy terms that limit an insurer’s liability will be liberally
               construed in favor of coverage, this rule of construction only comes into play when the
               policy is ambiguous.” Hobbs v. Hartford Insurance Co. of the Midwest, 214 Ill. 2d 11,
               17 (2005).
¶ 23       The James River policies define a claim as “a written demand for monetary damages.”
       Fidelity argues that we should not consider the letter of July 9, 2012, a claim because Fidelity
       did not demand a specific dollar amount of compensation. James River cited several cases in
       which courts held that demands similar to the demand in Fidelity’s July 2012 letter counted as
       claims, despite the lack of a specific dollar amount claimed. See Berry v. St. Paul Fire &
       Marine Insurance Co., 70 F.3d 981 (8th Cir. 1995); Rentmeester v. Wisconsin Lawyers Mutual
       Insurance Co., 473 N.W.2d 160 (Wis. 1991); Herron v. Schutz Foss Architects, 935 P.2d 1104
       (Mont. 1997); Paradigm Insurance Co. v. P&C Insurance Systems, Inc., 747 So. 2d 1040 (Fla.
       Dist. Ct. App. 2000). Fidelity asks us not to follow the cases James River cites because the
       insurance policies at issue in all of those cases defined “claim” broadly as “a demand in which
       damages are alleged” (Berry, 70 F.3d at 981) or as “a demand for money or services”
       (Rentmeester, 473 N.W.2d at 163; Herron, 935 P.2d at 1107; Paradigm, 747 So. 2d at 1041).
¶ 24       Our research uncovered one case interpreting a policy with the language used here. In
       Precis, Inc. v. Federal Insurance Co., 184 F. App’x 439 (5th Cir. 2006), the claimant, Kirk,
       sent a letter to Precis in December 2002, demanding compensation for damages that resulted
       from Precis’s alleged misconduct. Kirk said that the damages exceeded $1.5 million. The
       policy from Federal covering Precis defined a “claim” as “a written demand for monetary
       damages.” Precis, 184 F. App’x at 441. The Precis court said, “[t]he fact that Kirk does not
       propose a specific amount for settlement does not mean that the letter is not a demand for
       money. We agree with the district court that the December 2002 letters were, as a matter of
       law, claims as defined in *** the Federal *** polic[y].” Precis, 184 F. App’x at 441.
¶ 25       In the letter of July 9, 2012, Fidelity demanded payment of monetary damages, even
       though it did not specify a settlement amount or its total damages. The term “Claim” in the
       policies James River issued to Geico applies unambiguously to the letter Fidelity sent on July
       9, 2012.

¶ 26                                         Timely Notice
¶ 27       Next, Fidelity finds ambiguity in the policies’ requirement that TimCal had an obligation
       to provide notice of the claim during the policy period in which it received the claim. Both
       policies cover damages payable for claims “first made against the ‘Insured’ and reported to us
       in writing during the ‘Policy Period.’ ” The policies expressly define “Policy Period” as “the
       period of time shown in the Declarations.” The declarations of the first policy show a policy
       period of October 1, 2011, to October 1, 2012, and the declarations of the second policy show
       a policy period of October 1, 2012, to October 1, 2013.

                                                   -6-
¶ 28       We find no ambiguity in the application of the terms of the policies to the claims here.
       Fidelity sent a written claim against TimCal to TimCal on July 9, 2012, within the policy
       period of the first policy, and TimCal did not report the claim to James River until April 3,
       2013, long after the end of the policy period. The provisions for extended reporting periods do
       not apply because the parties neither cancelled nor failed to renew the policies.
¶ 29       Fidelity argues that the policy extends the reporting period indefinitely, as long as Geico
       continued to renew the policy. The court in CheckRite Ltd. v. Illinois National Insurance Co.,
       95 F. Supp. 2d 180, 194 (S.D.N.Y. 2000), explained why renewals cannot affect the reporting
       period for claims made and reported policies like the ones James River issued to Geico:
                    “It must be remembered that the reporting period defines coverage under a
               claims-made policy. To read an ‘inherent’ extended reporting period into a renewal
               policy would ‘creat[e] a long [and unbargained-for] “tail” of liability exposure, the
               avoidance of which forms the conceptual framework for claims made coverage in the
               first instance.’ [National Union Fire Insurance Co. of Pittsburgh] v. Bauman, No. 90 C
               0340, 1992 WL 1738, at *10 (N.D. Ill. Jan. 2, 1992). This conceptual framework
               applies where a policy is renewed, as well as when it is not, since each policy year
               represents an agreement as to a specific period during which claims made and reported
               will be covered.
                    Although no New York cases have been cited on this issue, most courts that have
               confronted it have concluded that a renewal does not extend the reporting period for
               claims made during the earlier policy period. [Citations.] It has been concluded that
               such a rule is consistent with the rationale underlying claims made insurance and the
               reasonable expectations of the parties to such policies.” CheckRite, 95 F. Supp. 2d at
               194.
¶ 30       We agree and hold that TimCal unambiguously failed to report the claim to James River
       during the policy period in which Fidelity made the claim. Therefore, neither of the policies
       James River issued to Geico provides coverage for the claim. We note that, apart from the
       failure to report the claim during the policy period in which Fidelity made the claim, TimCal
       also failed to report the claim “as soon as practicable, but in no event later than 60 days after
       the end of the ‘Policy Period’ of any ‘Claim’ made against you,” as the policies required.
       TimCal received the claim in July 2012, and failed to report it for nine months. Neither TimCal
       nor Fidelity has suggested any excuse for the delay. Because TimCal failed to report the claim
       “as soon as practicable,” James River has no duty to defend or indemnify TimCal for the claim.
       See Equity General Insurance Co. v. Patis, 119 Ill. App. 3d 232, 237-38 (1983); Illinois Valley
       Minerals Corp. v. Royal-Globe Insurance Co., 70 Ill. App. 3d 296, 300 (1979).

¶ 31                                              Discovery
¶ 32        Finally, Fidelity argues that the circuit court should have ordered James River to produce
       its documents detailing the drafting history of the policies. The appellate court will not disturb
       the circuit court’s ruling on discovery motions unless the circuit court abused its discretion.
       Mutlu v. State Farm Fire & Casualty Co., 337 Ill. App. 3d 420, 434 (2003). Here, as in Mutlu,
       “The decision *** turned on the meaning of policy terms that were unambiguous, and
       therefore, the court was required to give them their plain and ordinary meaning, regardless of
       what extrinsic evidence the plaintiff’s discovery requests might have produced. Therefore, the
       failure of the circuit court to order compliance with the plaintiff’s discovery requests prior to

                                                   -7-
       ruling on the defendant’s motion for partial summary judgment was not arbitrary or
       unreasonable.” Mutlu, 337 Ill. App. 3d at 434; see also Missouri Pacific R.R. Co. v. American
       Re-Insurance Co., 286 Ill. App. 3d 129, 139 (1996).

¶ 33                                         CONCLUSION
¶ 34       The letter Fidelity sent to TimCal in July 2012 unambiguously qualifies as a claim within
       the meaning of James River’s insurance policy. Because TimCal did not notify James River of
       the claim until April 2013, neither the 2011-12 policy nor the 2012-13 policy provides
       coverage for the claim. Documents detailing the drafting history of the policies cannot affect
       the court’s interpretation of the unambiguous provisions of the policy, and therefore the circuit
       court did not abuse its discretion when it granted James River’s motion to protect it from the
       pointless discovery requests. Accordingly, we affirm the circuit court’s judgment.

¶ 35      Affirmed.

                                                   -8-