… HOLDING IS NOT PRECEDENT IN ILLINOIS, COURT SAYS.
In an opinion released but not published, Illinois’ First District Court of Appeal has held that an advance retainer required by a law firm for costs and expenses was not covered malpractice under the firm’s E&O insurance policy: Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, 2014 Ill. App. (1st) 133518-U, 2014 WL 7446203 (Ill. 1st DCA December 29, 2014)(stated “UNPUBLISHED OPINION”).
Here is how the case was presented to the appellate court in Illinois. “Inside directors” of a bank signed an “’advanced payment retainer agreement’” with the insured law firm. The retainer agreement was stated to be “in connection with legal matters arising out of [the directors’] capacity as inside directors of the Bank.” The agreement called for an advance retainer of $150,000.00 to be paid by the Bank to the law firm “for reasonable costs and expenses incurred in connection with the matters for which the [Bank’s inside directors] had retained Coleman Law”. Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, ¶ 4, 2014 Ill. App. (1st) 133518-U, ¶ 4, 2014 WL 7446203, at *1 (Ill. 1st DCA December 29, 2014)(stated “UNPUBLISHED OPINION”).
The bank in question went into receivership and the FDIC was appointed receiver. The FDIC sent a demand letter for the return of the $150,000.00 paid by the bank to the law firm. The law firm refused to return the retainer. Ultimately, the FDIC filed suit to have the money returned, and the law firm ultimately tendered defense of the FDIC matter to its professional liability insurance carrier.
In an action for declaratory relief as to whether there was coverage under the malpractice insurance policy, the Circuit Court in and for Cook County granted the carrier’s motion for summary judgment. On appeal, the First District affirmed in the unpublished opinion in question.
The trial court did not err in holding that there was no duty to defend here, said the appellate court. Under Illinois law, as under the law of most jurisdictions, the Courts are required to compare the allegations of the underlying complaint against the insured, with the provisions of the insurance policy at issue. Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, ¶ 24, 2014 Ill. App. (1st) 133518-U, ¶ 24, 2014 WL 7446203, at *5 (Ill. 1st DCA December 29, 2014)(stated “UNPUBLISHED OPINION”). Both the Illinois trial court and the Illinois appellate court did that in this case. “Comparing the allegations of the FDIC complaint in the underlying action to the provisions of the insurance policy at hand, the factual allegations in the underlying complaint did not allege acts of negligence, but rather acts which could only be classified as intentional and, thus, excluded from policy coverage.” Illinois State Bar Ass’n Mut. Ins. Co. v. Coleman Law Firm, ¶ 36, 2014 Ill. App. (1st) 133518-U, ¶ 36, 2014 WL 7446203, at *9 (Ill. 1st DCA December 29, 2014). [Emphasis added.]
The underscored language immediately above, reveals what the Illinois appellate court did not come out and say, but that their duty-to-defend analysis followed the same path which many Courts follow in the duty-to-defend context even when they do not say that is what they are doing: The Illinois appellate court compared the factual allegations, not simply the claims alleged in the underlying complaint, to the provisions of the insurance policy at hand in order to determine whether the policy provided a duty to defend.
To Be Continued .... There are other issues presented by this decision which will be examined here.
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