No Misrepresentation or False Warranty made by Insured in Negotiating Insurance Policy shall Defeat or Avoid Policy unless Made with Actual Intent to Deceive or Materially Affect Acceptance of Risk or Hazard Assumed by Company
In Illinois State Bar Ass’n. Mutual Insur. Co. v. Brooks, Tango Music, LLC (“Tango”) hired attorney Douglas Tibble (“Tibble”), a partner in McBride, Baker and Coles (“MBC”), to sue Deadquick Music, Inc. (“Deadquick”) for breach of contract and fraud. When Tango learned of the dismissal of its complaint, it contacted Tibble and told him it would seek redress from him for his negligence in handling the lawsuit against Deadquick. Tango eventually filed its lawsuit against Tibble and MBC for legal malpractice in March of 2005.
Tibble left MBC and started his own practice, which was affiliated with the firm of Brooks, Adams and Tarulis (“BAT”), in 2003. Three of Tibble’s clients complained to the Attorney Registration and Disciplinary Commission (“ARDC”) that Tibble neglected their files. On May 31, 2005, the ARDC filed a charge against Tibble, alleging that he neglected client files and failed to communicate with clients. Tibble reached an agreement with the ARDC whereby he accepted a 30-day suspension of his license in 2006 and agreed to take other measures to correct the effects of his neglect.
Two years later, BAT sought to change its malpractice insurance. In 2007, Tarulis obtained an application form from the Illinois State Bar Association Mutual Insurance Company (“ISBA”). In the application, Tarulis informed the ISBA about the ARDC proceedings concerning Tibble and the agreement they had come to. However, Tarulis neither knew of, nor mentioned, Tango’s lawsuit against Tibble. The ISBA issued a malpractice insurance policy to BAT, providing coverage for claims made and reported between December 30, 2007, and December 30, 2008. On December 10, 2008, BAT submitted an application to the ISBA for renewal of the policy. The ISBA issued a second malpractice insurance policy to BAT to cover claims made and reported between December 30, 2008, and December 30, 2009.
On August 21, 2009, the ISBA sought rescission of the policies it issued to BAT for both 2008 and 2009, based on BAT’s response to question 21 in the application BAT sent to the ISBA in 2007. The trial court held that BAT answered question 21 falsely because BAT did not inform the ISBA about the lawsuit Tango filed against Tibble in 2005. The trial court found that BAT’s failure to mention Tango’s suit against Tibble materially affected the acceptance of the risk of the hazard the ISBA assumed. The trial court entered a judgment granting the ISBA rescission of both the 2008 and 2009 policies.
On Appeal, BAT argued that the trial court erred when it rescinded the 2008 and 2009 policies, since the ISBA presented no evidence of any misrepresentation in the applications for those policies.
The court reviewed whether the trial court properly rescinded ISBA’s 2008 and 2009 policies. The court held that because the ISBA presented no evidence of any misrepresentations in the application for the 2009 insurance policy, the trial court erred when it rescinded the 2009 policy. The evidence showed that Tango made its claim against Tibble more than five years before BAT applied for the 2008 policy. Therefore, the ISBA did not prove that BAT made any misrepresentations in its application for the 2008 policy.
Illinois Insurance Law: No misrepresentation or false warranty made by the insured, or in his behalf, in the negotiation for a policy of insurance shall defeat or avoid the policy or prevent its attaching unless such misrepresentation, false warranty, or condition shall have been stated in the policy or endorsement or rider attached thereto, or in the written application therefor. No such misrepresentation or false warranty shall defeat or avoid the policy unless it shall have been made with actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed by the company.
Illinois State Bar Ass’n Mutual Insur. Co. v. Brooks, Adams & Tarluis, 2014 IL App (1st) 132608.
