ROBERT W. GETTLEMAN, District Judge.
Plaintiff Wesco Insurance Company ("Wesco") filed a two-count complaint against defendants Suzanne Regas ("Regas"), Diane Goldring Nesbitt ("Goldring"), and Continental Casualty Company ("Continental"), seeking a declaratory judgment that it has no duty to defend or indemnify Regas against a lawsuit filed by Goldring in the Northern District of Illinois entitled
On September 16, 2010, Regas was named as a defendant in a lawsuit filed in the Circuit Court of Cook County, Illinois, entitled
On November 15, 2013, Regas was sued in the Underlying Action. In response, Regas filed a claim with Wesco, asking the company to defend and indemnify her pursuant to the lawyers professional liability insurance policy issued to Regas on October 13, 2013. Wesco subsequently initiated the instant action, seeking a declaration of rights under the policy.
The Moser Action and the Underlying Action share similar facts and allegations. Both lawsuits allege a widespread and long-lasting conspiracy, in which Regas' father, James Regas, and Christian Nesbitt engaged in a scheme to defraud Western Springs National Bank and Trust ("Western Springs Bank") through the issuance of improper loans. The scheme relied on inflated appraisals of properties and the creation of numerous corporate entities to act as loan recipients. The Moser plaintiffs were Western Springs Bank shareholders who sought to recover losses associated with the scheme. The Moser Action alleged that Regas, Frezados, & Dallas, LLP ("RFD"), of which Regas was associated,
A movant is entitled to summary judgment pursuant to Fed. R. Civ. P. 56 when the moving papers and affidavits show that there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a);
Wesco argues that it does not have a duty to defend or indemnify Regas in the Underlying Action because the Underlying Action does not fall within Regas' insuring agreement. As an initial matter, in determining whether Wesco has a duty to defend or indemnify, the court must apply the substantive law of the forum state.
The construction of an insurance policy and any determination of the rights and obligations under it are questions of law for the court and are appropriate for disposition on summary judgment.
Goldring first argues that Wesco's motion as to its duty to defend should be denied, or at least continued under Fed. R. Civ. P. 56(d), because Goldring has not taken extensive discovery in the Underlying Action.
Turning to the merits of Wesco's motion, as discussed above, whether the insurer has the duty to defend, requires a comparison between the allegations of the underlying complaint and the relevant coverage provisions of the insurance policy.
Wesco presents two arguments why the Underlying Action does not fall within Regas' insurance policy. First, Wesco contends that the Underlying Action does not arise out of legal services as defined by the policy. The policy states that Wesco will "pay on behalf of the Insured" claims that arise "out of an act or omission in the performance of legal services by the Insured." "Legal services" are defined in the policy as "those services performed by an Insured for others as a lawyer . . . but only if such services are performed for a fee that inures to the benefit of the Named Insured. . . ." Wesco argues that because "the acts or omissions for which Suzzane Regas is being sued [in the Underlying Action] took place while Suzanne Regas was an Associate in the RFD law firm . . . . any `benefit' from any fees charged by RFD for the services performed by its lawyers would have inured to the benefit of RFD, and not" Regas. As such, Wesco argues that the Underlying Action does not arise out of legal services as the term is defined in the policy, thereby placing the Underlying Action outside of the policy coverage.
Wesco's argument fails for several reasons. First, the factual allegations in the underlying complaint, not the legal theories, determine whether a duty to defend arises.
Even if Regas was employed by RFD at the time she rendered legal services, Wesco's proposed reading of the policy is nonsensical. It is not surprising that Wesco does not support its argument with any legal authority. Wesco rests its argument on the fact that RFD is a partnership, and that partnerships are distinct legal entities from their members. But it does not logically follow that an associate does not benefit from legal fees paid to her employer. Law firms pay associates out of earned legal fees, and associates benefit from working at a firm that collects the fees generated by its associates' legal services.
Moreover, had Wesco wanted to substantially limit the scope of the coverage it provided, it could have drafted the policy language to define legal services as only those that result in direct payments to the named insured. Instead, of using the word "payment," the policy language requires that the "fee inure[] to the benefit of the named insured." (Emphasis added.) Use of the word "benefit" instead of "payment" seems to expand, rather than contract, the scope of the policy. Where, as here, the words in the policy are susceptible to more than one reasonable interpretation, they are ambiguous and are to be construed strictly against the drafter of the policy and in favor of coverage.
Wesco next argues that the Underlying Action does not fall within Regas' insuring agreement because Regas gave notice to another insurer (Continental) of an action that alleges the same or related acts as the Underlying Action, prior to the inception date of the present policy. The Wesco policy, section I(A)(1), states that coverage is available only if, "prior to the inception date of the policy period, the Insured did not give notice under any other insurance policy of such claim or related claim or such act or omission or related act or omission." The policy defines "related claim" as "all claims arising out of a single act or omission or arising out of related acts or omissions in the rendering of legal services." "Related act or omission" is defined as "all acts or omissions in the rendering of legal services that are temporally, logically or casually connected by any common fact, circumstance, situation, transaction, event, advice or decision." Wesco contends that because the Underlying and Moser Actions allege the same scheme and facts, they are related claims under the insurance policy.
It is undisputed that Regas gave notice of the Moser Action to Continental, requesting that the company defend and indemnify her pursuant to the professional liability policy Regas entered into with Continental, prior to the inception date of the Wesco policy. Thus, the only question is whether the Moser Action is "related" to the Underlying Action. Goldring argues that the two lawsuits are not related because the Moser claims did not arise out of the rendering of legal services, but instead concerned Regas' role as a shareholder. To support this contention, Goldring points to the fact that the Moser allegations against Regas were dismissed after Regas submitted an affidavit stating that she had not provided legal services to any of the Moser plaintiffs. The court disagrees.
Both the Underlying complaint and the Moser complaint lodge allegations against Regas as an attorney and shareholder, thereby making Goldring's distinction artificial. In addition to fraud and conspiracy claims, the Moser complaint also asserted claims against RFD, including Regas, for professional negligence and breach of fiduciary duty arising out of legal services rendered by RFD. Moreover, the state court's order dismissing Regas from the Moser Action does not specify the grounds upon which the action was dismissed, and therefore this court cannot conclude that it was dismissed because Regas did not perform legal services for the Moser plaintiffs. Even assuming that the state court dismissed the Moser Action's allegations against Regas because she did not render legal services to the Moser plaintiffs, Regas' denial demonstrates that the Moser plaintiffs' claims were that Regas acted as a lawyer. More importantly, because the duty to defend is based on a review of the complaint, and not the outcome of the action, the state court's finding concerning whether Regas acted as a lawyer for the Moser plaintiffs is irrelevant.
The policy language at issue here is sweeping. As discussed above, Wesco's policy defines "related act or omission" as "all acts or omissions in the rendering of legal services that are temporally, logically or casually connected by any common fact, circumstance, situation, transaction, event, advice or decision." The Moser and Underlying Actions are nearly indistinguishable: the cases share six of the same defendants and both allege that the defendants, including Regas, engaged in a conspiracy to defraud financial institutions and obtain unlawful loans. The Moser Action, filed in state court, alleges a "civil conspiracy," while the Underlying Action, initiated in federal court, frames the conspiracy as a RICO violation. Both lawsuits also include allegations of fraud against Regas and the other defendants, and both lawsuits allege that Regas is an attorney associated with RFD. In describing the Underlying Action to Wesco, Regas stated that "Nesbitt basically copied a lawsuit filed against the same defendants in Moser." While the Moser Action may have pursued distinct legal claims against Regas, under the policy language the two actions are clearly related. Consequently, Wesco has no duty to defend Regas in the Underlying Action, because Regas gave notice of the Moser claim to another insurer prior to the effective date of the Wesco policy.
Goldring argues that Wesco's motion as to the insurer's duty to indemnify should be denied as premature. Citing
In addition to
Moreover, the Seventh Circuit has since ruled in line with
In
For the reasons discussed above, the court concludes that in the context of the instant case, where there is no duty to defend, and the claims do not even potentially fall within the policy, there is no duty to indemnify.
A party may move for a judgment on the pleadings at any time after the pleadings are closed, so long as the motion is made early enough not to delay trial. Fed. R. Civ. P. 12(c). Judgment pursuant to Rule 12(c) is appropriate when "`it appears beyond doubt that the plaintiff cannot prove any facts that would support his claim for relief.'"
Continental first argues that the facts of the complaint establish that it has no duty to defend or indemnify Regas in the Underlying Action because the acts or omissions alleged as pertain to Regas occurred prior to the beginning of the policy period. Regas' Continental policy, section I(A), provides that Continental "agrees to pay on behalf of the Insured all sums in excess of the deductible that the Insured shall become legally obligated to pay as damages and claim expenses," provided that "the act or omission occurred on or after 10/01/2009." In support of this argument, Continental relies on Goldring's answer to its cross-claim, stating that Goldring "admits that her Complaint does not describe a particular action by Regas on or after October 1, 2009." Based on this, Continental contends that the undisputed facts establish that "there is no coverage for the Underlying Action under the Policy and judgment in favor of Continental is appropriate."
Goldring argues that her full answer to Continental's cross-claim — that the complaint alleges a lengthy conspiracy — creates a factual dispute. She further contends that the nature of her complaint, "participation in a conspiracy," prevents her from pleading dates with specificity, because such information "is within the knowledge and control of the defendant," and has not been the subject of discovery. Goldring argues that the complaint's allegations that Regas acted as an agent to several of the entities created by her co-conspirators, that through these entities James Regas and Christian Nesbitt siphoned illegally obtained funds, and that both the legal work performed to create the entities and defraud the banks was done by RFD attorneys, one of whom was Regas, are sufficient to trigger Continental's duty to defend. The court disagrees.
The court must determine whether Continental has a duty to defend based on the allegations of the Underlying complaint as they are currently pled, not based on the possibility of future discovery and/or amendments to the complaint.
The court agrees with Goldring that, as was held in
In its reply brief, Continental raises, for the first time, that it has no duty to defend or indemnify Regas in the Underlying Action because the complaint does not allege "mistakes or errors inherent in the practice of law and therefore do not implicate the insuring agreement of the Policy." Because Goldring has not had the opportunity to respond to this argument, and the court has already found that Continental has no duty to defend based on other grounds, the court will not address this argument.
Consistent with the court's discussion above, because Continental does not have a duty to defend Regas in the Underlying Action, and the facts alleged do not even potentially fall within the insurance coverage, nor does Continental have a duty to indemnify Regas in the Underlying Action. As such, Continental's motion for judgment on the pleadings is granted as to its duty to indemnify.
For the reasons set forth above, Wesco's motion for summary judgment is granted, declaring that it has no duty to defend or indemnify Regas in the Underlying Action. Likewise, Continental's motion for judgment on the pleadings is also granted, declaring that it has no duty to defend or indemnify Regas in the Underlying Action.