Court Opinion

ID: 4636272
Source: CourtListenerOpinion
Date Created: 2020-11-24 22:34:15.119754+00
Date Added: 2024-06-11T07:58:30.903593
License: Public Domain

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                                      Appellate Court                            Date: 2020.08.18
                                                                                 10:18:03 -05'00'

                  Illinois State Bar Ass’n Mutual Insurance Co. v. Canulli,
                                   2020 IL App (1st) 190142

Appellate Court           ILLINOIS STATE BAR ASSOCIATION MUTUAL INSURANCE
Caption                   COMPANY, Plaintiff-Appellee, v. MICHAEL D. CANULLI,
                          Defendant-Appellant.

District & No.            First District, Sixth Division
                          No. 1-19-0142

Filed                     March 13, 2020
Rehearing denied          May 13, 2020

Decision Under            Appeal from the Circuit Court of Cook County, Nos. 11-CH-5420, 12-
Review                    CH-12834; the Hon. Peter Flynn, Judge, presiding.

Judgment                  Reversed and remanded.

Counsel on                Michael D. Canulli, of Naperville, appellant pro se.
Appeal
                          Robert Marc Chemers and Scott L. Howie, of Pretzel & Stouffer,
                          Chtrd., of Chicago, for appellee.

Panel                     JUSTICE CUNNINGHAM delivered the judgment of the court, with
                          opinion.
                          Justices Connors and Harris concurred in the judgment and opinion.
                                             OPINION

¶1       Defendant-appellant Michael D. Canulli challenges the circuit court of Cook County’s
     entry of summary judgment in favor of plaintiff-appellee Illinois State Bar Association Mutual
     Insurance Company (ISBA Mutual) in its declaratory judgment action. Finding that ISBA
     Mutual owed Canulli a duty to defend, we reverse the entry of summary judgment in its favor
     and remand for further proceedings.

¶2                                         BACKGROUND
¶3       ISBA Mutual issued a policy of professional liability insurance to Canulli, an attorney,
     beginning in June 2009. At some point thereafter, Canulli began representing Maria Freda in
     her divorce from her husband, Michael Maude. During the course of that litigation, Canulli, on
     Freda’s behalf, filed a third-party complaint against a number of individuals and entities
     referred to collectively as “Prairie State.”
¶4       On May 12, 2010, Prairie State moved for sanctions against Canulli and Freda (the
     sanctions motion), alleging that the suit against it was not well grounded in fact or law and was
     instead intended solely to harass Prairie State. Canulli requested ISBA Mutual to defend him
     against the sanctions motion, but ISBA Mutual rejected his tender. In February 2011, ISBA
     Mutual filed a complaint (case No. 11 CH 5420), seeking a declaratory judgment that it did
     not owe Canulli a duty to defend.
¶5       Three months later, in May 2011, Freda sued Canulli for malpractice, alleging that Canulli
     acted negligently in seeking injunctive and other relief against Prairie State in connection with
     her divorce. She further alleged that, as a result of Canulli’s acts and omissions, she was
     “damaged in an amount in excess of the minimal jurisdictional limits of the [court].” This time,
     ISBA Mutual accepted the tender of defense and retained counsel to defend Canulli.
¶6       Less than one year later, on February 16, 2012, Freda amended her complaint, alleging
     again that Canulli was negligent in suing Prairie State but clarifying that she was damaged in
     an amount in excess of $100,000 “in that she has incurred attorney’s fees and costs for useless
     and unnecessary legal proceedings initiated by [Canulli].” Her amended complaint also added
     a count alleging breach of contract, stating that Canulli breached his agreement to provide legal
     services to Freda by “inflating bills” and “performing actions which were neither necessary
     nor reasonable to the prosecution and ultimate resolution of the *** divorce.” Again, Freda
     repeated that her damages were in excess of $100,000 “in attorney’s fees and costs.”
¶7       One month later, on March 15, 2012, Gummerson Rausch, the firm ISBA Mutual had
     retained to represent Canulli, moved to dismiss Freda’s amended complaint on the grounds
     that there had already been a judicial determination that Canulli’s fees for representing Freda
     were reasonably and necessarily incurred.
¶8       Notwithstanding this motion, on April 9, 2012, ISBA Mutual filed a declaratory judgment
     action seeking a finding that it was not obligated to defend Canulli against Freda’s amended
     complaint. One month later, on May 18, 2012, Gummerson Rausch moved to withdraw as
     Canulli’s attorney.
¶9       Canulli, now representing himself, moved to consolidate the two declaratory judgment
     actions. Over ISBA Mutual’s objection, the motion was granted.

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¶ 10        Canulli filed an amended answer and countercomplaint to ISBA Mutual’s declaratory
       judgment complaint in the Freda malpractice action in March 2013. His countercomplaint
       contained four counts: (1) declaratory judgment, seeking a finding that Freda’s amended
       malpractice complaint presented a covered claim; (2) breach of contract to provide insurance
       based on ISBA Mutual’s failure to defend him in the malpractice action; (3) “breach of special
       fiduciary relationship,” alleging that ISBA Mutual had a conflict of interest when it withdrew
       its defense of him in response to Freda’s amended malpractice complaint; and (4) violation of
       section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 2012)) for unreasonable and
       vexatious conduct.
¶ 11        ISBA Mutual moved to dismiss Canulli’s countercomplaint. On October 11, 2013, the
       circuit court denied the motion with prejudice but stayed the charges “unrelated to the basic
       coverage issue” until it had ruled on ISBA Mutual’s duty to defend.
¶ 12        In April 2014, the circuit court ruled on the parties’ cross motions for summary judgment
       in both declaratory judgment actions. With respect to the action regarding the amended
       malpractice complaint, the court found that ISBA Mutual had no duty to defend Canulli against
       the complaint but declined to enter summary judgment in ISBA Mutual’s favor in order to
       allow additional briefing on the issue of whether ISBA Mutual had waived, or was estopped
       from, denying its duty to defend.
¶ 13        Four years later, on April 24, 2018, the circuit court, having been fully briefed, concluded
       that ISBA Mutual had neither waived nor was estopped from denying its duty to defend. The
       court nevertheless declined to enter summary judgment in favor of ISBA Mutual because the
       malpractice action was still ongoing and it was possible Freda would again amend her
       complaint to put it back in the ambit of ISBA Mutual’s duty to defend. 1
¶ 14        Freda and Canulli ultimately settled the malpractice complaint in an agreed order dated
       July 26, 2018. Under the terms of the settlement, Freda paid Canulli $67,500 for his fees and
       dismissed with prejudice both counts of her amended complaint. On December 17, 2018, the
       circuit court of Cook County entered summary judgment in favor of ISBA Mutual regarding
       its duty to defend the amended malpractice complaint. Canulli appealed on January 16, 2019.

¶ 15                                            ANALYSIS
¶ 16       Before turning to the merits of the parties’ arguments, we initially address the question of
       this court’s jurisdiction. Whether we have jurisdiction is a question of law that we review
       de novo. Stasko v. City of Chicago, 2013 IL App (1st) 120265, ¶ 27. Following briefing in this
       case, we asked the parties to submit a report on the status of Canulli’s counterclaims in the
       circuit court and were informed that the counterclaims are still pending. Canulli argues that the
       pendency of his counterclaims deprives us of jurisdiction over this matter. We disagree.
¶ 17       Pursuant to Illinois Supreme Court Rule 304(a) (eff. Mar. 8, 2016), “[i]f multiple parties
       or multiple claims for relief are involved in an action, an appeal may be taken from a final
       judgment as to one or more but fewer than all of the parties or claims only if the trial court has
       made an express written finding that there is no just reason for delaying either enforcement or
       appeal or both.” Illinois appellate court decisions are split on whether “Rule 304(a) language”

          1
             The court did, however, grant ISBA Mutual’s motion for summary judgment in its declaratory
       judgment action regarding the sanctions motion. Canulli’s appeal from that order was disposed of in
       Illinois State Bar Ass’n Mutual Insurance Co. v. Canulli, 2019 IL App (1st) 190141.

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       is required in order to appeal from a final judgment that resolves a complaint but leaves a
       counterclaim pending. Compare Stasko, 2013 IL App (1st) 120265, ¶ 28, and Rohr Burg
       Motors, Inc. v. Kulbarsh, 2014 IL App (1st) 131664, ¶ 35, with American Country Insurance
       Co. v. Chicago Carriage Cab Corp., 2012 IL App (1st) 110761, ¶¶ 21-22, and 1350 Lake Shore
       Associates v. Casalino, 352 Ill. App. 3d 1027, 1034 (2004).
¶ 18       We believe the instant case is more closely analogous to American Country Insurance and
       Lake Shore Associates. In Lake Shore Associates, we held that, where a circuit court’s order
       granting a motion for summary judgment “necessarily entailed the disposition” of issues raised
       in a counterclaim, a Rule 304(a) finding was not necessary to make the summary judgment
       order appealable. Lake Shore Associates, 352 Ill. App. 3d at 1034-35 (citing Lynch Imports,
       Ltd. v. Frey, 200 Ill. App. 3d 781 (1990)); see also American Country Insurance, 2012 IL App
       (1st) 110761, ¶ 22. Contra Stasko, 2013 IL App (1st) 120265, ¶ 28 (court’s order denying
       plaintiffs’ motion for summary judgment but leaving defendants’ counterclaim pending was
       not final and appealable absent Rule 304(a) language).
¶ 19       Here, just as in Lake Shore Associates, the court’s entry of summary judgment in favor of
       ISBA Mutual was premised on its finding that ISBA Mutual did not owe Canulli a duty to
       defend. This necessarily disposed of the counts in Canulli’s counterclaim, as they all arose
       from the proposition that ISBA Mutual did owe Canulli a duty to defend. Specifically, the
       countercomplaint sought a finding that Freda’s amended malpractice complaint presented a
       covered claim and went on to allege breach of contract, breach of special fiduciary duty, and
       unreasonable and vexatious conduct. All of these allegations are premised on the conclusion
       that ISBA Mutual had a duty to defend Canulli. When the circuit court found that ISBA Mutual
       had no such duty, it rendered the claims in Canulli’s countercomplaint moot. Accordingly, we
       conclude that the order entering summary judgment in favor of ISBA Mutual was final
       notwithstanding the pendency of the countercomplaint and we have jurisdiction to decide this
       appeal. A contrary finding would serve only to elevate form over substance.
¶ 20       Turning to the merits of the dispute, on appeal, Canulli challenges the entry of summary
       judgment in favor of ISBA Mutual, arguing that it had a duty to defend him against the
       allegations in the malpractice complaint. Summary judgment is appropriate only 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.’ ” 1010 Lake Shore Ass’n v. Deutsche Bank National Trust Co.,
       2015 IL 118372, ¶ 20 (quoting 735 ILCS 5/2-1005(c) (West 2008)). Where, as here, the parties
       have filed cross motions for summary judgment, they concede that there is no (material) issue
       of fact and invite the court to decide the case as a matter of law. Pielet v. Pielet, 2012 IL
       112064, ¶ 28. We review de novo an order granting summary judgment. Nationwide Financial,
       LP v. Pobuda, 2014 IL 116717, ¶ 24.
¶ 21       Initially, Canulli argues that Freda’s amended complaint presented a covered claim under
       the policy. In considering whether an insurer owes a duty to defend, we must compare the
       allegations of the underlying complaint with the policy language. Economy Fire & Casualty
       Co. v. Brumfield, 384 Ill. App. 3d 726, 730 (2008). When undertaking this comparison, we
       must liberally construe both the language of the complaint and the policy language in favor of
       coverage. Erie Insurance Exchange v. Imperial Marble Corp., 2011 IL App (3d) 100380, ¶ 16.
       The duty to defend is very broad (much more so than the duty to indemnify), and an insurer
       must assume this duty even if the facts in the underlying complaint only potentially fall within

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       the policy’s coverage. Pekin Insurance Co. v. Centex Homes, 2017 IL App (1st) 153601, ¶ 52
       (citing Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 398
       (1993)). Where the policy language is clear and unambiguous, it must be applied as written.
       Hobbs v. Hartford Insurance Co. of the Midwest, 214 Ill. 2d 11, 17 (2005). However, where
       the language is ambiguous, it should be construed against the insurer, which drafted the policy.
       In re Estate of Striplin, 347 Ill. App. 3d 700, 702 (2004).
¶ 22        With these principles in mind, we turn to an examination of the relevant policy provisions
       in this case. Pursuant to the coverage agreement, ISBA Mutual has “the right and duty to defend
       any suit or arbitration proceeding against the INSURED that seeks DAMAGES arising out of
       a WRONGFUL ACT even if any of the allegations of the suit or arbitration proceeding are
       groundless, false or fraudulent.”
¶ 23        Both “claim” and “damages” are defined in the policy. A “claim” is defined, in relevant
       part as “the service of a suit or the initiation of an arbitration proceeding against the INSURED
       that seeks DAMAGES arising out of a WRONGFUL ACT.” And “damages,” in turn, are
       defined as “all sums which an INSURED is legally obligated to pay for any CLAIM to which
       this policy applies, including judgments, settlements, [and] final arbitration awards.”
       Importantly, damages do not include “legal fees, costs or expenses paid or incurred by the
       claimant, or retained or possessed by the INSURED whether claimed by way of restitution of
       specific funds, forfeiture, financial loss or otherwise, and injuries which are, in whole or part,
       a consequence of those fees.”
¶ 24        Freda’s amended complaint alleged that, “as a direct and proximate result” of Canulli’s
       (1) professional negligence and (2) breach of contract, she had been damaged “in an amount
       in excess of $100,000 in that she has incurred attorney’s fees and costs for useless and
       unnecessary legal proceedings initiated by *** Canulli.”
¶ 25        In its most basic terms, the parties dispute whether the damages Freda is seeking are “legal
       fees” excluded from the policy’s definition of damages. The parties rely heavily on two cases
       that inform our resolution of this question. See Continental Casualty Co. v. Law Offices of
       Melvin James Kaplan, 345 Ill. App. 3d 34 (2003); Continental Casualty Co. v. Donald T.
       Bertucci, Ltd., 399 Ill. App. 3d 775 (2010). In Kaplan, relied on by Canulli, the insurer sought
       a declaration that it had no duty to defend its insured against a legal malpractice complaint.
       345 Ill. App. 3d at 36. The underlying complaint alleged, inter alia, that the insured represented
       the claimant in bankruptcy proceedings but negligently failed to obtain a discharge in
       bankruptcy for the claimant’s legal fees that he owed the insured. Id. at 37. The insurance
       policy defined damages much the same way as the policy in this case: damages included
       “judgments, awards, and settlements,” but did not include “legal fees, costs and expenses paid
       or incurred or charged by [the insured], no matter whether claimed as restitution of specific
       funds, forfeiture, financial loss, set-off or otherwise, and injuries that are a consequence of any
       of the foregoing.” (Internal quotation marks omitted.) Id. at 36.
¶ 26        On appeal from a circuit court order granting summary judgment in favor of the insurer,
       the insurer argued that the claimant sought recovery for an injury that was a consequence of
       legal fees and, as such, was excluded from the policy definition of damages. Id. at 39. We
       disagreed, explaining that “[a]n event is a consequence of another when the former follows the
       latter as a natural or necessary result.” Id. We held that, while the damages sought by the
       claimant may be measured by the money he paid to the insurer following the bankruptcy
       proceedings for services incurred during those proceedings, it “does not mean that the injury

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       suffered is a consequence of the fees charged.” Id. at 39-40. Rather, “the injury suffered is a
       consequence of [the insured’s] negligent failure to secure a discharge of [the claimant’s]
       obligation to pay those fees.” Id. at 40.
¶ 27        Bertucci (relied on by ISBA Mutual) likewise concerns an insurance coverage dispute. In
       that case, the underlying complaint alleged that the insured attorney “retained an excessive
       amount of attorney fees” from the settlement of a medical malpractice action. Bertucci, 399
       Ill. App. 3d at 776. The complaint did not allege that the insured improperly handled the lawsuit
       but instead stated claims for breach of contract, unjust enrichment, conversion, breach of
       fiduciary duty, fraud, and violation of section 2-1114 of the Code of Civil Procedure (735 ILCS
       5/2-1114 (West 1996)), limiting contingent legal fees in medical malpractice actions. Bertucci,
       399 Ill. App. 3d at 777-78. The circuit court granted the insurer’s motion for summary
       judgment on its declaratory judgment complaint, finding that there was no duty to defend
       because the suit did not seek “damages” within the meaning of the policy. Id. at 779. Just as in
       Kaplan and the instant case, damages were defined as “ ‘judgments, awards and settlements’ ”
       and did not include “ ‘legal fees, costs and expenses *** charged by the Insured *** and
       injuries that are consequence of any of the foregoing.’ ” Id. at 777.
¶ 28        On appeal, we affirmed, relying on a pair of out-of-state cases that also dealt with coverage
       disputes arising out of underlying lawsuits alleging that the attorney-insured improperly
       withheld a too-large share of settlement proceeds. Id. at 781-82, 783-84 (citing Tana v.
       Professionals Prototype I Insurance Co., 55 Cal. Rptr. 2d 160 (Ct. App. 1996), and Continental
       Casualty Co. v. Brady, 907 P.2d 807 (Idaho 1995)). In both cases, the appellate courts upheld
       the denial of coverage based on policy provisions that excluded legal fees from the definition
       of damages. Id. Specifically, in Tana, the court described the complaint as a “fee dispute, not
       a malpractice claim,” noting that the claimant did not complain of the attorney’s performance.
       Tana, 55 Cal. Rptr. 2d at 163. And in Brady, the court noted, “[i]f the party is requesting a
       ‘return of fees,’ it is immaterial what the actual theory of recovery is” because the policy
       excluded all claims for a return of fees. Brady, 907 P.2d at 810. We likewise held that, because
       the claimant’s suit only alleged impropriety as to the insured’s “excessive” retention of a
       portion of the settlement proceeds, the suit was excluded from coverage under the policy.
       Bertucci, 399 Ill. App. 3d at 784.
¶ 29        Significantly, we also distinguished Kaplan, stating
               “the alleged negligence in Kaplan arose during the core representation of the client
               ***. *** In that case, counsel was retained to do a job and was sued for failing to do
               it properly. In contrast, it is alleged in Rodriguez v. Bertucci, No. 07-L-06247, that
               Bertucci was retained to file and litigate a case on Rodriguez’s behalf and that he
               effectively performed those services. Rodriguez has not made any accusations about
               the legal services Bertucci rendered: she has not criticized his preparation or timely
               filing of the medical malpractice pleading, she has not questioned his discovery efforts,
               she has not challenged his choice of experts, she has not taken issue with his case
               management, and she has not disputed the negotiation efforts that ultimately brought
               the case to a successful conclusion. While in Kaplan the claim arose because the lawyer
               incorrectly performed the task he was hired to perform in the bankruptcy court, the
               claim in the lawsuit at issue arose only after the lawyer correctly completed the task he
               was hired to perform.” (Emphases added.) Id. at 787-88.

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¶ 30       We find this case more closely analogous to Kaplan than Bertucci. Just as in Kaplan, the
       fees sought by Freda in her amended complaint measured her damages for Canulli’s allegedly
       unnecessary work. That is, the injury Freda allegedly suffered was not a consequence of
       Canulli’s fees but a consequence of his alleged failure to handle her divorce proceedings
       expeditiously and appropriately—i.e., his negligence and breach of contract in representing her
       in the divorce. Just as this court noted in Bertucci, discussing Kaplan, Canulli was retained to
       do a job, and his former client sued him for his alleged failure to do it properly. In contrast, the
       claimant in Bertucci claimed injury solely from the insured attorney’s retention of an excessive
       amount of fees from the settlement. The injury in that case was necessarily a consequence of
       the fees imposed by the insured. Not so here. This was a legal malpractice claim, not a fee
       dispute. Contra Tana, 55 Cal. Rptr. 2d at 163. Freda’s complaint stems from the allegedly
       negligent way Canulli represented her in the divorce, and it is that negligent representation that
       caused her to expend more money than necessary. This is clearly a dispute about
       representation. Therefore, we conclude that the damages Freda sought in her amended
       complaint were not excluded by the policy and so ISBA Mutual had a duty to defend Canulli
       against her complaint.
¶ 31       We note that ISBA Mutual’s decision to cut off Canulli’s defense upon receipt of Freda’s
       amended complaint was a drastic measure. Given the broadness of an insurer’s duty to defend,
       discussed above (supra ¶ 21), we struggle to understand why ISBA Mutual did not take a more
       circumspect approach. It could, for example, have continued to defend Canulli under a
       reservation of rights while ascertaining its obligation. Its failure to do so is incomprehensible.
¶ 32       As a final matter, we address ISBA Mutual’s contention that this case is moot given that
       the Freda malpractice complaint has been settled in Canulli’s favor and its duty to defend is
       extinguished. Canulli admits that ISBA Mutual has no continuing duty to defend but argues
       that it should still be required to reimburse him for the expenses he incurred in defending
       himself. Whatever the merits of this argument, it is for the circuit court to decide in the first
       instance. Because the court (erroneously) found that ISBA Mutual had no duty to defend, it
       did not reach the claims in Canulli’s countercomplaint (see supra ¶ 16), which included an
       allegation that Canulli was entitled to be reimbursed for his expenses in defending himself. On
       remand, the circuit court can resolve this and the remaining claims in the countercomplaint.
       Simply stated, pendency of the countercomplaint precludes us from finding that our decision
       in this case is moot notwithstanding the resolution of Freda’s malpractice action.

¶ 33                                       CONCLUSION
¶ 34      For the foregoing reasons, we reverse the circuit court of Cook County’s entry of summary
       judgment in favor of ISBA Mutual and remand the case for further proceedings in accordance
       with this opinion.

¶ 35      Reversed and remanded.

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