We’ve Moved!

After nearly ten years at 175 W. Jackson, we have relocated our offices two blocks north and one block west (little closer to the train stations for those of you who ride Metra).  Here’s our new info (email remains the same):

Teeple Leonard & Erdman
230 W. Monroe Street
Suite 2220
Chicago, Illinois 60606
(312) 422-1906 (facsimile)

My direct dial is 312.242.1585.  Ron and John are sharing 312.242.1583.

Please note that 230 W. Monroe is a “secure” building.  You’ll need to contact us before visiting so we can add you to the entry list.

Thank You!

We wanted to take a moment to thank you for your business and referrals during 2011.  We appreciate both very much!

Our new insurance coverage litigation practice (representing policyholders) has gotten off to a great start – we’ve received a number of promising referrals, and our (this) blog now features summaries of recent Illinois court decisions impacting this area of the law.  We of course also continue to handle civil and commercial litigation, as well as general business representation.

If you’re a social media type, you might also be interested in our new Facebook page and Twitter feed which complement our website and blog.

Again, thank you for your support.  We wish you a healthy and prosperous 2012.

Labeling Fresh Produce as “Locally Grown”

Last year our partner Michael Erdman had a short article published in a quarterly trade association publication relating to the use of “Locally Grown” labeling on fresh produce.

When food shopping, do you gravitate toward produce marked as locally grown?  What does the phrase mean to you?

Protection for Insureds Reaches Across State Lines

Can an Illinois court declare void a provision in an insurance policy, as being against public policy, even though the public policy so violated arises from the law of another state?  A recent decision by the Illinois Appellate Court held that it could.

The facts of the case, Country Preferred Insurance Company v. Whitehead,  2011 Ill. App. (3d) 110096, are that the insured, Whitehead, was involved in an accident in Wisconsin, and allegedly sustained injuries, that was caused by an uninsured motorist.  Her insurance policy provided that claims involving uninsured motorists must be submitted to arbitration, and a demand for arbitration must be brought by the claimant (the insured) within two years from the date of the accident.  This is the same limitations period for bringing an action for personal injuries in Illinois.  Wisconsin, however, has a three-year personal injury statute of limitations.  Under that state’s law, had the motorist at fault been insured, Whitehead would have had three years to make a claim against him.  Because he was uninsured, however, under her insurance policy she had only two years from the date of the accident to demand arbitration.

The Appellate Court, with one justice dissenting, reversed the lower court decision denying Whitehead’s motion to compel arbitration for the reason that she did not make her demand within her insurance policy’s two-year limitations period, notwithstanding that the state (Wisconsin) statute of limitations for bringing an action was three years.

In ruling that the insurance policy’s two year limitations provision was void, the Appellate Court relied upon Illinois precedents that held that where an uninsured motorist limitations provision in an insurance policy puts a policy holder in a substantially different (and disadvantageous) position than he would have been had the motorist who caused the accident had insurance, the provision is void as being against public policy.  In effect, the policy provision, if allowed to stand, would have shortened the available statutory limitations period for bringing a claim.

Holding that the two year limitation period in the insurance policy put Whitehead in a substantially different position than she would have been had the other motorist been insured (in which case she would have had three years to bring suit), the court held that the policy provision was void for violation of public policy.

In dissent, Justice McDade wrote that there was no violation of Illinois public policy because Illinois has a two year statute of limitations, the same as the arbitration demand limitations period in the insurance policy.  He opined that the Appellate Court did not have the authority to declare the provision void as being against the public policy of another state, Wisconsin, which has a different applicable statute of limitations from Illinois.

While Justice McDade’s well-argued opinion seems persuasive, the fact remains that by literally applying prior Illinois precedents to the facts of the case before it, the majority was right; because of her insurance policy’s two year demand for arbitration limitations period, Whitehead was put in a different position than if the other motorist had carried insurance.  Were Justice McDade’s opinion to become law, the result would be to limit the application of Illinois precedents to issues involving Illinois public policy framed exclusively by Illinois law and statutes.

It seems that this is a matter of first impression in which the Illinois Supreme Court might well take an interest.

Unsolicited Facsimiles Claim Triggers Advertising Injury Provision, Duty to Defend

In another interesting case involving Pekin Insurance Company from the Illinois Appellate Court for the First Division, Cook County, (Pekin Insurance Company v. XData Solutions, Inc.), the court considered the question of whether Pekin had a duty to defend its insured, XData, in a class action suit charging XData with sending numerous unsolicited fax transmissions in violation of the Telephone Consumer Protection Act (“TCPA”).

The class action suit, filed in January 2009, alleged that XData had sent thousands of unsolicited fax advertisements to various recipients, including the named plaintiff Targin Sign Systems, Inc., during the year 2005.

In February of 2009, XData tendered the defense of the suit to Pekin, which denied coverage in March of 2009.  Thereafter, XData settled the suit with Targin, with no input from Pekin, for an agreed judgment for $1,975,000. The settlement provided that the judgment was to be paid solely out of the proceeds from XData’s insurance policy with Pekin, which covered the period from December 1, 2005 through December 31, 2005.  The court order approving the settlement agreement specifically stated that XData believed that it had the recipients’ consent when it sent the faxes, and that there was no intent by XData to injure any of the recipients.

While the underlying suit was pending, Pekin filed a declaratory judgment suit against both XData and Targin claiming that it had no duty to defend XData in the underlying action.  In that declaratory suit, Targin’s motion for summery judgment was granted and the trial court found that Pekin owed XData both a duty to defend and to indemnify with respect to the class action case.

On appeal, Pekin raised a number of grounds why the lower court summary judgment order should be reversed.  The first was that there was no coverage under the “advertising injury” part of its policy with XData.  Pekin admitted that “advertising injury” could include a claim under the TCPA, but it argued that this was true only for a “natural person” and not a corporation.

After analyzing the law of insurance coverage regarding advertising injury and a recipient’s right to privacy, the Appellate Court concurred that the sending of an alleged unsolicited fax was covered under the “advertising injury” part of the policy.  Analyzing an earlier Illinois Supreme Court case, Valley Forge Insurance Co. v. Swiderski Electronics, Inc., the Court concluded, contrary to Pekin’s argument, that as far as coverage was concerned there was no difference between a natural person and a corporation.  Interestingly, the Court noted that the Supreme Court in Valley Forge had rejected and refused to follow an earlier Seventh Circuit case which had found that corporations lacked seclusion rights, and therefore there was no insurance coverage for such cases as to corporations.  Declining to follow that ruling, the Appellate Court held that the allegations in the class action complaint triggered Pekin’s duty to defend and that Pekin breached its contract (policy) with XData by declining coverage.

Second, Pekin argued that the Court should apply Indiana rather than Illinois law (XData was an Indiana corporation), and that Indiana law did not extend coverage for an “advertising injury” to TCPA claims.  The Court rejected this argument, noting that there was no Indiana law on this issue (and showing that Pekin’s argument was based on a mis-reading of Federal case law), thus there could be no conflict between Illinois law, which did speak to the coverage issue, and Indiana law, which did not.

Third, Pekin contended that under Indiana law, the class actions complaint’s claim for conversion did not fall under the policy’s coverage for “property damage” because it did not allege an “occurrence” as defined in the policy.  Again, the Court rejected this argument for the reason that it found no conflict between Indiana law and Illinois law, Indiana law being silent as to TCPA claims. Under Illinois law, as conceded by Pekin, there was both an “occurrence” and “property damage” with the definitions as set by the policy.

Fourth, the Court rejected Pekin’s argument that by entering into a settlement with Targin, XData violated the policy’s provision against “voluntary payments” of underlying claims made without the insurance company’s consent (the policy provided that no insureds will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent).  The Court noted that the settlement was made only after the defense of the underlying case had been tendered to Pekin, which defense had been refused.  As the Court stated, “Pekin [by refusing to defend] charted its own course and cannot now complain that it would have had a better finish had XData not been in charge.”

Finally, the Court concluded, although it didn’t have to, that the settlement between XData and Targin was not unreasonable given the large number of unsolicited faxes alleged and the statutory damages available as to each such offense.  Applying such damages to the case, the Court noted that XData faced potential damages far in excess of the approximate $2 million for which the case was settled.

This case represents a substantial defeat for Pekin, and for insurers generally in Illinois.  Both insurers and insureds should take heed of it, and conduct themselves accordingly.

Cities Battle Their Liability Insurers over Coverage for Wrongful Prosecution Suits

A few months ago the Chicago Tribune published an article describing insurers’ efforts to avoid covering civil suits filed against Chicago and nearby cities that allege wrongful criminal prosecutions (including wrongful arrests and convictions, as well as torture).  Such actions against municipalities have become more prevalent, in part as a result of advances in DNA evidence.

The articles notes in one case the insurer argued its policy “doesn’t cover the ‘fraudulent, criminal or dishonest conduct’ alleged in” the underlying lawsuit. A municipal attorney countered that, while denied by the city, the plaintiff’s “accusations describe ‘the specific kinds of violations expressly covered by the policy.’”

Municipalities beware, future policies may contain specific exclusions pertaining to these types of claims:

As wrongful convictions continue to come to light, insurers that cover municipalities will weigh the risk of pricey civil claims when setting premiums or writing policies, said former city of Chicago deputy corporation counsel Larry Rosenthal, now a professor at Chapman University School of Law in California.

Embezzlement Scheme: Different Victims, One (Insurance) Claim

Recently, the Illinois Appellate Court for the First District (Cook County) issued an interesting and potentially important opinion in a case involving insurance coverage.

In Continental Casualty Company v. Howard Hoffman and Associates, the facts showed that during the course of a number of years a dishonest employee, a probate paralegal, of the defendant law firm embezzled and unlawfully converted to herself hundreds of thousands of dollars from various estates that the firm was handling.  The defrauded estates then made claims against the firm, charging lax supervision and management of its paralegal, that resulted in the embezzlements.  The firm then sought coverage from its insurer.

The policy provided that for losses such as the ones suffered, coverage was limited to $100,000 per claim, with a total of $300,000 for all claims in the aggregate.  The policy also provided, however, that separate claims that were “related” would count as only one claim. Because the total of the amounts involved exceeded $100,000, and in fact exceeded the $300,000 aggregate, it was in the insurance company’s interest to argue that all of the claims with respect to the defrauded estates were “related,” hence the maximum that the insurance company would be required to pay would be $100,000 rather than the $300,000 aggregate claims limit.

On the opposite side, the law firm, and one of the defrauded estates named as a party in the litigation, argued that the $300,000 aggregate limit applied, because the incidents involved separate estates that had no relation to one another other than they were being handled by the same law firm and that they were victimized by the same dishonest employee during the course of her employment.

Justice Stuart Palmer, writing for the Appellate Court, concluded that the claims were in fact related, and therefore coverage was limited to $100,000 for all of the claims, rather than $300,000.  In reaching this decision, the Court, looking at prior case law, found that the employee’s embezzlement scheme as to all of the estates that she defrauded was a “common fact, circumstance, situation or decision under the policy” and could be viewed as an “action in general.”

As to the claim of lax management or supervision, the Court found that the allegations made by the estates against the firm were “logically and causally connected to [its employee’s] actions so as to be considered a related claim under the plain Language of the Continental policy.”

As a final note, among other arguments considered and rejected, the Court looked at what it called the “reasonable expectations” doctrine in insurance law. Under that doctrine, “[t]he objectively reasonable expectations of all applicants and intended beneficiaries regarding the terms of insurance contracts will be honored even though painstaking study of the policy provisions would have negated those expectations.”

Although the Court conceded that some cases in Illinois may have adopted such a doctrine, it refused to apply it to the facts of this case.  Indeed, it is not too difficult to read between the lines of the Court’s opinion to conclude that the “reasonable expectations” doctrine is not favored, as a literal application of it could operate to negate insurance policy language entirely.