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                                   Appellate Court                         Date: 2018.07.10
                                                                           11:24:05 -05'00'




        Illinois State Bar Ass’n Mutual Insurance Co. v. Leighton Legal Group, LLC,
                                  2018 IL App (4th) 170548



Appellate Court        ILLINOIS STATE BAR ASSOCIATION MUTUAL INSURANCE
Caption                COMPANY, Plaintiff-Appellant, v. LEIGHTON LEGAL GROUP,
                       LLC, an Illinois Limited Liability Company; G. TIMOTHY
                       LEIGHTON; CAROL M. McCLURE; and CYNTHIA S. McCLURE,
                       Defendants-Appellees.



District & No.         Fourth District
                       Docket No. 4-17-0548



Filed                  May 22, 2018



Decision Under         Appeal from the Circuit Court of Sangamon County, No. 16-MR-843;
Review                 the Hon. Brian T. Otwell, Judge, presiding.



Judgment               Reversed; judgment entered for ISBA.


Counsel on             Pretzel & Stouffer, Chtrd., of Chicago (Robert Marc Chemers, Peter
Appeal                 G. Syregelas, and Philip G. Brandt, of counsel), for appellant.

                       Amelia S. Buragas, of Kelly Law Offices, P.C., of Bloomington, for
                       appellees Leighton Legal Group, LLC, and G. Timothy Leighton.

                       Russell L. Reed, of Hinshaw & Culbertson, LLP, of Springfield, for
                       other appellees.
     Panel                     JUSTICE STEIGMANN delivered the judgment of the court, with
                               opinion.
                               Justices Holder White and DeArmond concurred in the judgment and
                               opinion.


                                                 OPINION

¶1         In August 2016, plaintiffs, Carol M. McClure and Cynthia S. McClure, filed a complaint
       against G. Timothy Leighton and the Leighton Legal Group, LLC (collectively, the insured);
       Daniel Sanchuk; DPS Consulting, LLC; and other nominal defendants in the Superior Court
       for the District of Columbia. The insured was an attorney and cotrustee for a trust of which
       plaintiffs were the remainder beneficiaries.
¶2         The complaint (1) sought a declaratory judgment as to the ownership of the trust property,
       (2) sought restoration of trust property, (3) sought a constructive trust, (4) requested
       termination of the trust, (5) alleged self-dealing by the insured, (6) alleged breach of good faith
       and fair dealing, (7) alleged breach of trust for failure to administer the trust, (8) requested the
       removal of the trustees, and (9) sought the appointment of a special fiduciary to perform an
       accounting of trust property. Throughout the complaint, plaintiffs alleged willful conduct by
       the insured.
¶3         In September 2016, the Illinois State Bar Association Mutual Insurance Company
       (hereinafter, ISBA) filed a complaint for declaratory judgment, contending it had no duty to
       defend the insured against the aforementioned complaint. ISBA asserted that the insured’s
       actions constituted intentional conduct and was excluded from coverage.
¶4         In March 2017, the insured filed a motion for a judgment on the pleadings, arguing that the
       underlying complaint’s allegations fall within, or potentially within, the policy’s coverage. In
       May 2017, ISBA filed a motion for judgment on the pleadings, asserting again it did not owe a
       duty to defend the insured because his actions as alleged in the underlying complaint were
       intentional. In June 2017, the trial court concluded that ISBA had a duty to defend under the
       terms of the policy.
¶5         ISBA appeals, arguing that the trial court erred by granting judgment in favor of the
       insured because “the underlying [c]omplaint clearly alleged intentional conduct which is
       expressly excluded from coverage under the ISBA Mutual policy.” We conclude that the
       insured’s conduct, as alleged in the underlying complaint, is excluded from coverage.

¶6                                         I. BACKGROUND
¶7                                   A. The Underlying Complaint
¶8                                    1. The Joseph McClure Trust
¶9        In August 2016, plaintiffs filed the underlying complaint against the insured in the
       Superior Court for the District of Columbia. The underlying complaint stated that nearly 40
       years earlier, Joseph McClure and James Lundberg formed a variety of business entities to
       co-own real property and conduct business. The complaint noted that Joseph and James
       acquired valuable real estate within the District of Columbia. In 1992, James died. On July 7,
       1995, Joseph executed his last will and testament. On July 11, 1995, Joseph died.

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¶ 10       Joseph’s will directed that after satisfying specific bequests, the remainder of his property
       would be sold to establish an irrevocable trust (hereinafter, the Joseph McClure Trust). The
       Joseph McClure Trust had specific provisions for nomination of trustees, designation of
       beneficiaries, use of a qualified financial institution to comanage the trust, and instructions for
       distribution of the trust corpus to the remainder beneficiaries. The will provided that Joseph’s
       brother, Cecil McClure, would be the income beneficiary of the trust. Upon Cecil’s death, the
       trust corpus was to be distributed to the Lundberg Family Education Fund and to Cecil’s
       children. Plaintiffs are Cecil’s children.

¶ 11                            2. The Cecil Q. McClure Irrevocable Trust
¶ 12       The underlying complaint alleged that, in October 1998, Joseph’s estate closed without a
       complete liquidation of his property. The complaint then alleged that the insured drafted the
       Cecil O. McClure Irrevocable Trust (hereinafter, the Cecil McClure Trust). The complaint
       further alleged that in December 1998, the insured attempted to unlawfully “decant” the
       Joseph McClure Trust by transferring Joseph’s property to the Cecil McClure Trust. (Trust
       decanting refers to the act of “pouring” the principal of an irrevocable trust into a new trust
       with different terms. See Ferri v. Powell-Ferri, 72 N.E.3d 541, 546 (Mass. 2017); see also
       William R. Kuehn et al., Survey of Illinois Law: Trusts and Estates, 39 S. Ill. U. L.J. 647,
       657-60 (2015).)
¶ 13       Similar to the Joseph McClure Trust, the Cecil McClure Trust made Cecil the income
       beneficiary with the Lundberg Family Education Fund and Cecil’s children as the remainder
       beneficiaries. Nevertheless, the Cecil McClure Trust contained key differences such as (1)
       including an in terrorem clause, (2) eliminating the requirement to use a qualified financial
       institution as a cotrustee, (3) appointing the insured as a cotrustee, and (4) eliminating the
       requirement to sell Joseph’s property. (An in terrorem clause is a provision in a trust document
       or a will that invalidates a gift to a beneficiary who unsuccessfully challenges the validity of
       the testamentary document. See In re Estate of Lanterman, 122 Ill. App. 3d 982, 985, 462
       N.E.2d 46, 47-48 (1984); see also Gerry W. Beyer et al., The Fine Art of Intimidating
       Disgruntled Beneficiaries With In Terrorem Clauses, 51 SMU L. Rev. 225, 226-27 (1998).)

¶ 14                                 3. The Allegations of Wrongdoing
¶ 15       In September 2010, Cecil McClure died. The underlying complaint alleged that the insured
       told the plaintiffs that the remainder beneficiaries would receive quarterly income
       distributions. Plaintiffs requested the trust corpus be liquidated and the proceeds distributed to
       the remainder beneficiaries. The complaint asserted that the insured denied this request
       because the real estate market was poor and because plaintiffs were not entitled to any
       distribution of trust corpus. Instead, the insured continued to administer the Cecil McClure
       Trust and give quarterly income distributions.
¶ 16       The underlying complaint alleged that the insured created a self-compensation scheme
       because the insured (1) included an in terrorem clause, (2) eliminated the requirement to use a
       qualified financial institution as a cotrustee, and (3) appointed himself as a cotrustee. The
       underlying complaint further asserted that the insured and others collected excessive fees
       while managing the trust.
¶ 17       Throughout the underlying complaint, plaintiffs alleged willful conduct by the insured. For
       example, count IV alleged that the insured “willfully refused to distribute the remaining trust

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       assets.” (Emphasis added.) Count V alleged self-dealing by the insured, arguing that he refused
       to liquidate the trust corpus “in order to perpetuate [his] self-compensation scheme.”
       (Emphasis added.) Count VI alleged that the insured willfully misinformed the plaintiffs in bad
       faith that they were not entitled to distribution of the trust corpus. Count VII alleged breach of
       trust, asserting that the insured “committed breach of trust by willfully disregarding the
       termination provision of the trust and refusing to distribute the trust assets.” (Emphasis added.)
       Count VIII requested removal of the insured as trustee, arguing that he “willfully committed [a]
       serious breach of trust in failing to fulfill [his] fiduciary duties.” (Emphasis added.)

¶ 18                       B. ISBA’s Complaint for Declaratory Judgment
¶ 19      In September 2016, ISBA filed a complaint for declaratory judgment against the insured.
       ISBA conceded that the insured was covered under its professional liability insurance policy
       but alleged it had no duty to defend him based upon the allegations of the underlying
       complaint.

¶ 20                         1. The Provisions of the ISBA Insurance Policy
¶ 21       ISBA’s insurance policy provides coverage for damages and claim expenses arising out of
       a “wrongful act,” which the policy defines as “any actual or alleged negligent act, error, or
       omission in the rendering of or failure to render professional services.” The policy notes that
       “professional services” includes working “as an administrator, *** trustee, or any other similar
       fiduciary activity.” However, the policy explicitly excludes from coverage any claim “arising
       out of any criminal, dishonest, fraudulent or intentional act or omission.”

¶ 22                           2. ISBA’s Claim and the Insured’s Answer
¶ 23       ISBA alleged it had no duty to defend because the insured’s actions were dishonest,
       intentional, and fraudulent and therefore excluded from coverage. In November 2016, the
       insured filed an answer to ISBA’s complaint, contending that ISBA had a duty to defend.

¶ 24                          C. The Motions for Judgment on the Pleadings
¶ 25       In March 2017, the insured filed a motion for a judgment on the pleadings, noting that an
       insurer has a duty to defend against an underlying complaint if the “allegations fall within, or
       potentially within, the policy’s coverage.” (Emphasis in original.) The insured conceded that
       this dispute “could be the result of intentional conduct.” However, the insured contended that
       “to the extent that the allegations have any merit, they are much more likely to be the result of
       mere negligence.” Thus, the insured contended ISBA had a duty to defend. In May 2017, ISBA
       filed a cross-motion for judgment on the pleadings, contending that the insured’s actions as
       alleged in the underlying complaint constituted intentional conduct that was excluded from
       coverage.

¶ 26                                     D. The Trial Court’s Ruling
¶ 27       In June 2017, the trial court concluded that “read as a whole, the complaint herein in certain
       counts sounds in negligence such that [ISBA] has a duty to defend.” The court therefore
       granted the insured’s motion for judgment on the pleadings, denied ISBA’s cross-motion, and
       entered judgment in favor of the insured.

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¶ 28      This appeal followed.

¶ 29                                         II. ANALYSIS
¶ 30       ISBA appeals, asserting that the trial court erred in granting judgment in favor of the
       insured because “the underlying [c]omplaint clearly alleged intentional conduct which is
       expressly excluded from coverage under the ISBA Mutual policy.” We conclude that the
       insured’s conduct, as alleged in the underlying complaint, is excluded from coverage.

¶ 31                                     A. The Applicable Law
¶ 32                                  1. Judgment on the Pleadings
¶ 33       Any party may move for judgment on the pleadings pursuant to section 2-615(e) of the
       Code of Civil Procedure. 735 ILCS 5/2-615(e) (West 2016). Judgment on the pleadings is
       proper when the pleadings disclose no genuine issue of material fact and the moving party is
       entitled to judgment as a matter of law. Allstate Property & Casualty Insurance Co. v. Trujillo,
       2014 IL App (1st) 123419, ¶ 15, 7 N.E.3d 110. In ruling on a motion for judgment on the
       pleadings, the trial court can only consider the facts apparent from the face of the pleadings,
       attachments to the pleadings, judicial admissions in the record, and matters subject to judicial
       notice. Fagel v. Department of Transportation, 2013 IL App (1st) 121841, ¶ 26, 991 N.E.2d
       365; 735 ILCS 5/2-606 (West 2016).

¶ 34                                 2. An Insurer’s Duty to Defend
¶ 35       In a declaratory judgment action in which the issue is whether the insurer has a duty to
       defend, courts first look to the allegations in the underlying complaint and compare those
       allegations to the relevant provisions of the insurance contract. Pekin Insurance Co. v.
       Precision Dose, Inc., 2012 IL App (2d) 110195, ¶ 30, 968 N.E.2d 664. If the facts alleged in
       the underlying complaint fall within, or potentially within, the policy’s coverage, the insurer
       has a duty to defend. Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446, 455, 930 N.E.2d 1011,
       1017 (2010). The insurer may refuse to defend only if it is clear from the face of the underlying
       complaint that the allegations fail to state facts that bring the cause within, or potentially
       within, coverage. Illinois State Bar Ass’n Mutual Insurance Co. v. Cavenagh, 2012 IL App
       (1st) 111810, ¶ 14, 983 N.E.2d 468.

¶ 36                         3. Exclusionary Clauses for Intentional Conduct
¶ 37       If an insurer relies on an exclusionary clause to deny coverage, it must be clear and free
       from doubt that the exclusionary clause applies. American Zurich Insurance Co. v. Wilcox &
       Christopoulos, L.L.C., 2013 IL App (1st) 120402, ¶ 34, 984 N.E.2d 86; Atlantic Mutual
       Insurance Co. v. American Academy of Orthopaedic Surgeons, 315 Ill. App. 3d 552, 560, 734
       N.E.2d 50, 56 (2000). The construction afforded to intentional act exclusions is to deny
       coverage when the insured has (1) intended to act and (2) specifically intended to harm a third
       party. State Farm Fire & Casualty Co. v. Leverton, 314 Ill. App. 3d 1080, 1085, 732 N.E.2d
       1094, 1098 (2000). The burden is on the insurer to prove that an exclusionary clause applies.
       Country Mutual Insurance Co. v. Bible Pork, Inc., 2015 IL App (5th) 140211, ¶ 38, 42 N.E.3d
       958.



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¶ 38       An exclusionary clause for intentional conduct will not apply when a claim arises, or could
       potentially arise, from a negligent act or omission. Lincoln Logan Mutual Insurance Co. v.
       Fornshell, 309 Ill. App. 3d 479, 484, 722 N.E.2d 239, 242 (1999). However, phrases in the
       underlying complaint such as mislead, conceal, scheme, deceive, intentionally, or willfully are
       the “ ‘paradigm of intentional conduct and the antithesis of negligent actions.’ ” Steadfast
       Insurance Co. v. Caremark Rx, Inc., 359 Ill. App. 3d 749, 760, 835 N.E.2d 890, 899 (2005)
       (quoting Connecticut Indemnity Co. v. DER Travel Service, Inc., 328 F.3d 347, 351 (7th Cir.
       2003)).

¶ 39                     4. Construction of the Policy and the Standard of Review
¶ 40        The primary objective when construing the language of an insurance policy is to ascertain
       and enforce the intentions of the parties as expressed in their agreement. Pekin Insurance Co.,
       2012 IL App (2d) 110195, ¶ 31. Terms that are clear and unambiguous will be given their plain
       and ordinary meaning. Id. Ambiguous provisions that limit or exclude coverage will be
       interpreted liberally in favor of the insured. Id. If the terms of an insurance policy are
       susceptible to more than one reasonable meaning, a court should strictly construe those terms
       against the insurer and in favor of the insured. Id. Courts will construe the policy as a whole
       and consider the type of insurance purchased, the nature of the risks involved, and the overall
       purpose of the contract. Wilson, 237 Ill. 2d at 456. The construction of an insurance policy is a
       question of law reviewed de novo. Cavenagh, 2012 IL App (1st) 111810, ¶ 12. Likewise, a
       trial court’s granting of a motion for judgment on the pleadings is reviewed de novo. Trujillo,
       2014 IL App (1st) 123419, ¶ 16.

¶ 41                                            B. This Case
¶ 42       On appeal, ISBA argues that the underlying complaint clearly alleged intentional conduct
       that is excluded from its policy. The insured counters that “to the extent that the allegations ***
       have any merit[,] they are just as likely, if not more likely, to be the result of professional
       negligence.” Thus, the insured contends that as long as plaintiff’s complaint could be based in
       negligence, ISBA has a duty to defend because the allegations could potentially fall within
       coverage. We conclude that the insured’s conduct, as alleged in the underlying complaint, is
       excluded from coverage. See American Zurich Insurance, 2013 IL App (1st) 120402, ¶ 34.

¶ 43                                       1. Intentional Conduct
¶ 44       The underlying complaint alleged that the insured “willfully refused” to distribute the trust
       corpus “in order to perpetuate their self-compensation scheme.” (Emphasis added.) The
       complaint further alleged that the insured “[w]ilfully” misinformed the plaintiffs that they were
       not entitled to the trust corpus upon the death of Cecil McClure. (Emphasis added.) Likewise,
       the complaint alleged that the insured “willfully” committed a serious breach of trust by failing
       to fulfill his fiduciary duty. (Emphasis added.) The complaint also included allegations of bad
       faith.
¶ 45       Phrases in the underlying complaint such as mislead, conceal, scheme, deceive,
       intentionally, or willfully are the “paradigm of intentional conduct and the antithesis of
       negligent actions.” (Internal quotation marks omitted.) Caremark Rx, Inc., 359 Ill. App. 3d at
       760. Accordingly, the allegations in the underlying complaint could not be the result of mere
       professional negligence. Rather, these allegations denote intentional conduct, which is

                                                    -6-
       excluded from coverage. See id.

¶ 46                                      2. Intentional Misconduct
¶ 47       As mentioned earlier, ISBA’s insurance policy provides coverage for damages and claim
       expenses arising from “any actual or alleged negligent act, error, or omission in the rendering
       of or failure to render professional services.” The policy explicitly excludes from coverage any
       claim “arising out of any criminal, dishonest, fraudulent or intentional act or omission.” This
       court has previously discussed intentional act exclusions, as follows:
                    “The construction generally afforded to intentional act exclusions is to deny
                coverage where the insured has (1) intended to act and (2) specifically intended to harm
                a third party. This construction is the most logical interpretation and best represents the
                parties’ intentions.” Leverton, 314 Ill. App. 3d at 1085.
¶ 48       The First District has explained that “[t]he word ‘intent’ for purposes of exclusionary
       clauses in insurance policies denotes that the actor desires to cause the consequences of his
       action or believes that the consequences are substantially certain to result from it.” Aetna
       Casualty & Surety Co. v. Freyer, 89 Ill. App. 3d 617, 620, 411 N.E.2d 1157, 1159 (1980). This
       court has likewise concluded that “intentional act or omission” means (1) the insured intended
       to cause the consequence of his act or omission or (2) believed that the consequence of his act
       or omission was substantially certain to result. See Leverton, 314 Ill. App. 3d at 1086; see also
       Freyer, 89 Ill. App. 3d at 620. Essentially, exclusionary clauses for intentional conduct apply
       to intentional misconduct. See Freyer, 89 Ill. App. 3d at 620. However, an exclusionary clause
       for intentional conduct does not apply merely because an insured intended to act. Leverton,
       314 Ill. App. 3d at 1086.
¶ 49       Construing “intentional act or omission” to mean “intentional misconduct” is also
       supported by the doctrine of noscitur a sociis. See People v. Qualls, 365 Ill. App. 3d 1015,
       1020, 851 N.E.2d 767, 771 (2006). This doctrine holds that a court may determine the meaning
       of a word by examining the meaning and context of the surrounding words. Warren v. Lemay,
       144 Ill. App. 3d 107, 113, 494 N.E.2d 206, 209 (1986); see Stephen J. Safranek, Scalia’s
       Lament, 8 Tex. Rev. L. & Pol. 315, 340-42 (2004). In this case, the policy states that it does not
       apply to a claim “arising out of any criminal, dishonest, fraudulent or intentional act or
       omission” committed by the insured. Thus, the phrase “intentional act or omission” is within
       the broader context of an exclusionary clause seeking to deny coverage for criminal and
       dishonest acts.
¶ 50       Finally, the policy sought to provide coverage for negligent errors that arise during the
       practice of law while denying coverage for criminal, dishonest, and fraudulent conduct. As
       such, construing “intentional act or omission” to mean “intentional misconduct” is consistent
       with the type of insurance purchased, the nature of the risks involved, and the overall purpose
       of the contract. Wilson, 237 Ill. 2d at 456.
¶ 51       In this case, the underlying complaint alleged that the insured unlawfully and without
       authority decanted the Joseph McClure Trust by transferring trust property to the newly
       created Cecil McClure Trust. Though mostly identical, the Cecil McClure Trust had materially
       different terms such as (1) an in terrorem clause, (2) no requirement to use a qualified financial
       institution as cotrustee, and (3) including the insured as a cotrustee. Plaintiffs alleged that the
       insured intentionally made these changes to establish a self-compensation scheme. These


                                                    -7-
       allegations clearly allege intentional misconduct, which is excluded from coverage. Further,
       this allegation of intentional misconduct could not be the result of mere negligence.
¶ 52       Accordingly, we conclude that the insured’s conduct, as alleged in the underlying
       complaint, is excluded from coverage. See American Zurich Insurance, 2013 IL App (1st)
       120402, ¶ 34; see also Illinois State Bar Ass’n Mutual Insurance Co. v. Mondo, 392 Ill. App.
       3d 1032, 1039, 911 N.E.2d 1144, 1151 (2009). Therefore, ISBA had no duty to defend the
       insured in the underlying action.

¶ 53                                      III. CONCLUSION
¶ 54      For the reasons stated, we reverse the trial court’s judgment and enter judgment in favor of
       ISBA on its motion for judgment on the pleadings.

¶ 55      Reversed; judgment entered for ISBA.




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