                                      2015 IL 117096



                                 IN THE
                            SUPREME COURT
                                   OF
                          THE STATE OF ILLINOIS



                                    (Docket No. 117096)

        ILLINOIS STATE BAR ASSOCIATION MUTUAL INSURANCE COMPANY,
      Appellant, v. LAW OFFICE OF TUZZOLINO AND TERPINAS et al., Appellees.



                              Opinion filed February 20, 2015.



        JUSTICE FREEMAN delivered the judgment of the court, with opinion.

         Chief Justice Garman and Justices Thomas, Karmeier, Burke, and Theis concurred
     in the judgment and opinion.

        Justice Kilbride dissented, with opinion.



                                         OPINION

¶1       Plaintiff Illinois State Bar Association Mutual Insurance Company (ISBA Mutual)
     filed a complaint for rescission and other relief against the Law Office of Tuzzolino &
     Terpinas (firm); Sam Tuzzolino and Will Terpinas, Jr., partners in the firm; and
     Anthony (“Antonio”) Coletta, the plaintiff in an underlying legal malpractice action
     against Tuzzolino, Terpinas and the firm. In its complaint, ISBA Mutual sought
     rescission of the legal malpractice insurance policy it had issued to the firm, alleging
     that Tuzzolino’s material misrepresentation on an ISBA Mutual renewal application
     induced ISBA Mutual to issue the policy. Ruling on motions for summary judgment,
     the circuit court of Cook County granted ISBA Mutual’s motion and rescinded the
     policy. Terpinas and Coletta appealed that judgment, arguing the rescission should not
     apply to Terpinas. The appellate court agreed and reversed the judgment of rescission
     as to Terpinas. 2013 IL App (1st) 122660, ¶¶ 38, 46. This court allowed ISBA Mutual’s
     petition for leave to appeal. Ill. S. Ct. R. 303 (eff. June 4, 2008); R. 315 (eff. July 1,
     2013). We now reverse the judgment of the appellate court and affirm the judgment of
     the circuit court.



¶2                                   I. BACKGROUND

¶3        In the underlying legal malpractice action, Coletta alleged that Tuzzolino and the
     firm represented either Coletta or his home construction business in various legal
     matters from 2002 to 2008, and that Tuzzolino mishandled some of those matters,
     including the “Baja litigation.” According to Coletta’s amended complaint, beginning
     in 1998 he invested more than $500,000 through his construction company in a limited
     liability company known as Baja Chicago LLC, which operated a Chicago nightclub.
     By the time Baja Chicago LLC ceased operations in 2002, Coletta had lost more than
     $1 million, prompting him to file suit in Lake County against other venturers in the
     LLC. Tuzzolino, through the law firm he shared with Terpinas, initiated the lawsuit on
     Coletta’s behalf in 2003. However, Tuzzolino allegedly failed to timely disclose expert
     witnesses that were expected to testify as to valuation issues, which resulted in an order
     in limine barring that testimony. Tuzzolino also allegedly failed to retain an expert
     witness specializing in forensic accounting to help determine the amount of money
     allegedly taken or siphoned from the LLC by other venturers. After his valuation
     witnesses were barred, Tuzzolino allegedly advised Coletta to settle the suit for less
     than $30,000, an amount far less than Coletta’s losses on the Baja investment. The Baja
     litigation was dismissed with prejudice in November 2005. However, even after that
     dismissal, Tuzzolino allegedly told Coletta that settlement negotiations were
     continuing. Tuzzolino allegedly signed settlement documents on behalf of Coletta and
     his construction company without informing Coletta.

¶4       Tuzzolino also allegedly suggested that Coletta try to recover his losses by suing
     the lawyer who handled a Baja bankruptcy in 1999. Tuzzolino filed a legal malpractice
     action against the bankruptcy lawyer at the end of 2005, but the case was dismissed six
     months later (June 22, 2006) on the ground that it was barred by the statute of repose
     for legal malpractice claims. Coletta alleged Tuzzolino failed to inform him that the
     suit had been dismissed, allowing Coletta to believe it was proceeding toward trial.
     Coletta alleged that in February 2008, after he learned the case had been dismissed, he
     confronted Tuzzolino with that knowledge. According to Coletta, Tuzzolino offered to

                                             -2-
     pay him $670,000 to settle any potential claim for legal malpractice arising out of
     Tuzzolino’s work on the suits against the Baja coventurers and the bankruptcy
     attorney. Coletta alleges this sum was never paid.

¶5       Less than three months later, shortly before the April 30, 2008, expiration of the
     firm’s 2007-08 legal malpractice policy with ISBA Mutual, Tuzzolino completed a
     Renewal Quote Invoice and Acceptance Form for the purchase of a policy meant to
     cover the firm during the 2008-09 policy year. Question No. 4 on the form asked: “Has
     any member of the firm become aware of a past or present circumstance(s), act(s),
     error(s) or omission(s), which may give rise to a claim that has not been reported?”
     Tuzzolino checked the “no” box corresponding to this question. He signed his name as
     “owner/partner” and dated the form April 29, 2008, beneath the following statement:

            “I/We affirm that after an inquiry of all the members of the applicant firm that
            all the information contained herein is true and complete to the best of my/our
            knowledge and that it shall be the basis of the policy of insurance and deemed
            incorporated therein upon acceptance of this application by issuance of a
            policy.”

     The form is stamped “received” by ISBA Mutual on May 2, 2008. ISBA Mutual issued
     the firm a Lawyers Professional Liability Insurance Policy (No. IL 111168 6), to be
     effective May 1, 2008, through May 1, 2009.

¶6       Terpinas allegedly learned of Tuzzolino’s malfeasance about a month later, on June
     10, 2008, when he received a lien letter from an attorney representing Coletta. Terpinas
     immediately reported the claim to ISBA Mutual.

¶7       In May 2009 ISBA Mutual brought suit seeking rescission and other relief against
     Tuzzolino, Terpinas, the firm, and Coletta. Count I of the complaint, as finally
     amended, sought rescission of the entire policy (IL 111168 6) on the ground that
     Tuzzolino’s material misrepresentation voided the contract. ISBA Mutual alleged it
     “relied to its detriment on the continuing misrepresentations of material fact made by
     Tuzzolino, with the knowledge that those misrepresentations were, in fact, untrue as to
     his knowledge of any circumstance, act, error or omission that could result in a claim.”
     In count II, ISBA Mutual contended, in the alternative, that it had no duty or obligation
     to defend Tuzzolino or the firm in connection with the claims made by Coletta against
     them.



                                             -3-
¶8         In January 2010 ISBA Mutual moved for summary judgment on all counts of its
       amended complaint. In June 2010 the circuit court entered summary judgment against
       Tuzzolino as to count II of the complaint, after Tuzzolino agreed to the entry of
       judgment against him. The court found that ISBA Mutual had no duty or obligation to
       defend Tuzzolino against Coletta’s claims. 1

¶9         In July 2012, following a hearing on pending summary judgment motions, the
       circuit court granted ISBA Mutual’s motion, denied defendants’ motions, and
       rescinded the policy. The court also found ISBA Mutual had no duty to defend
       Terpinas or the firm against Coletta’s action.

¶ 10       Terpinas and Coletta, but not the firm, appealed that judgment, arguing that
       Terpinas was an “innocent insured” who was not to blame for Tuzzolino’s
       misrepresentation and the policy should not have been rescinded as to him. The
       appellate court agreed with that argument and reversed the judgment of rescission as to
       Terpinas. 2013 IL App (1st) 122660, ¶¶ 38, 46. Though the court held that the policy’s
       own innocent insured clause could not be the basis for avoiding rescission, it
       nonetheless concluded that a common law “innocent insured doctrine” applied to
       misrepresentations made on the renewal application. Id. ¶¶ 22-25, 38. The court held
       that this doctrine preserved Terpinas’s coverage even as Tuzzolino’s was properly
       rescinded. Id. ¶ 38.

¶ 11       ISBA Mutual appeals to this court. Additional pertinent background will be
       discussed in the context of our analysis.



¶ 12                                     II. ANALYSIS

¶ 13       The question presented is whether Illinois law allows rescission of an insurance
       policy in its entirety for a material misrepresentation on the written application.
       Plaintiff ISBA Mutual answers this question in the affirmative, arguing that section 154
       of the Illinois Insurance Code (215 ILCS 5/154 (West 2008)) allows complete
       rescission where, as here, the misrepresentation materially affects the acceptance of the
       risk by the insurer, and thus goes to the formation of the contract. Defendants disagree,
       arguing that while rescission might be appropriate for Tuzzolino, it is unfair and


          1
           Tuzzolino was disbarred “on consent” on November 12, 2010. In re Sam Tuzzolino, No.
       09-CH-0076.
                                               -4-
       against public policy to rescind insurance coverage for Terpinas, an innocent insured
       who had no knowledge of Tuzzolino’s misdeeds and the alleged misrepresentation.

¶ 14       Summary judgment is appropriate when “the pleadings, depositions, and
       admissions on file, together with the affidavits, if any, show that there is no genuine
       issue as to any material fact and that the moving party is entitled to a judgment as a
       matter of law.” 735 ILCS 5/2-1005(c) (West 2010). The purpose of summary judgment
       is not to try a question of fact, but to determine whether a genuine issue of material fact
       exists. Adams v. Northern Illinois Gas Co., 211 Ill. 2d 32, 42-43 (2004). A circuit
       court’s entry of summary judgment is reviewed de novo. Standard Mutual Insurance
       Co. v. Lay, 2013 IL 114617, ¶ 15; Rich v. Principal Life Insurance Co., 226 Ill. 2d 359,
       370 (2007).

¶ 15      Section 154 of the Insurance Code provides:

                  “No misrepresentation or false warranty made by the insured or in his
              behalf in the negotiation for a policy of insurance, or breach of a condition of
              such policy 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.”
              215 ILCS 5/154 (West 2008).

¶ 16       We note, initially, that section 154 expressly refers to misrepresentations “made by
       the insured or in his behalf”—that is, not necessarily by the insured personally.

¶ 17       The section also sets forth a two-prong test for determining if the policy may be
       rescinded. First, the statement must be false, and second, it either must have been made
       with an actual intent to deceive or must “materially affect the acceptance of the risk or
       hazard assumed by the insurer.” Golden Rule Insurance Co. v. Schwartz, 203 Ill. 2d
       456, 464 (2003). “The statute’s provisions are to be read in the disjunctive, so that
       either an actual intent to deceive or a material misrepresentation which affects either
       the acceptance of the risk or the hazard to be assumed can defeat or avoid the policy.”
       (Emphasis in original.) National Boulevard Bank v. Georgetown Life Insurance Co.,
       129 Ill. App. 3d 73, 81 (1984). This court has recognized that section 154 permits
       rescission for an innocent misrepresentation. “Under the statute, therefore, a
       misrepresentation, even if innocently made, can serve as the basis to void a policy.”
                                                -5-
       Golden Rule, 203 Ill. 2d at 464. If the misrepresentation materially affects the insurer’s
       acceptance of the risk, it does not matter that one of the parties, or an insured, might not
       have been to blame for the misrepresentation. “In other words, it is unnecessary for the
       insurer to prove that a misrepresentation was made with the intent to deceive if it was
       material to the risk assumed.” Ratcliffe v. International Surplus Lines Insurance Co.,
       194 Ill. App. 3d 18, 25 (1990).

¶ 18       ISBA Mutual asserts that the misrepresentation in the case at bar meets the section
       154 requirements: “Even if the misrepresentation had not been made with the intent to
       deceive, it materially affected the insurer’s acceptance of the risk, as ISBA Mutual
       would not have renewed the policy had Tuzzolino truthfully answered the question and
       disclosed his knowledge of a potential claim.” According to ISBA Mutual, because the
       misrepresentation materially affected its acceptance of the risk, it is grounds for
       rescission under the statute.

¶ 19       Defendants disagree. They do not dispute that the misrepresentation here materially
       affected the acceptance of the risk. Instead, defendants focus on the impact that
       rescission would have on Terpinas, an innocent insured who did not cooperate or
       contribute to a loss. According to defendants, it would be “patently unfair in this case to
       rescind insurance coverage to Terpinas, when he had absolutely no knowledge of his
       partner’s misdeeds and the alleged misrepresentation on the insurance renewal
       invoice.” Defendants invoke public policy, asserting that ISBA Mutual’s contention
       that section 154 permits the rescission of the policy here “is contrary to the
       well-established public policy of the State of Illinois.” According to defendants,
       section 154 “is not a sword to be utilized to vitiate insurance coverage; rather it is a
       shield that must be utilized to protect insureds and the public.” 2

¶ 20        In keeping with their emphasis on public policy, defendants assert the appellate
       court below correctly applied the common law innocent insured doctrine in this case.
       The appellate court, which also cited policy concerns (e.g., 2013 IL App (1st) 122660,
       ¶¶ 35-36), concluded the innocent insured doctrine preserved coverage for Terpinas
       (id. ¶ 38). The common law innocent insured doctrine operates in cases where there are

            2
             Defendants appear to suggest a tension between section 154 and public policy. However, as this
       court has noted, statutes themselves form an important part of Illinois public policy. “The public policy
       of the state is found in its constitution, its statutes, and its judicial decisions. [Citations.] In relation to the
       judicial branch, the General Assembly, which speaks through the passage of legislation, occupies a
       superior position in determining public policy.” Reed v. Farmers Insurance Group, 188 Ill. 2d 168,
       174-75 (1999). In ISBA Mutual’s view, “[s]ection 154 itself refutes the notion that the rescission of the
       ISBA Mutual policy is against public policy.”
                                                           -6-
       two or more insureds on a policy, and it allows an insured who is innocent of
       wrongdoing to recover despite the wrongdoing of other insureds. See Vasques v.
       Mercury Casualty Co., 947 So. 2d 1265, 1268 (Fla. Dist. Ct. App. 2007). Illinois cases
       applying the “innocent insured” doctrine typically involve arson or vandalism where an
       innocent insured seeks recovery under a policy that includes an exclusion for
       intentional acts. E.g., Wasik v. Allstate Insurance Co., 351 Ill. App. 3d 260, 267 (2004)
       (plaintiff, an innocent insured, was entitled to recover losses he sustained because of
       fire started by his stepson). Defendants here argue that the reasoning of these cases is
       nevertheless equally applicable to Terpinas under the circumstances in this case.

¶ 21       In analyzing the innocent insured doctrine, the appellate court below relied
       principally on Economy Fire & Casualty Co. v. Warren, 71 Ill. App. 3d 625 (1979),
       which defendants here also cite.

¶ 22       The insurer in Warren had paid a property settlement for fire damage to a home
       jointly owned by its insureds, a married couple, only to learn later that the wife had
       claimed to have set the fire deliberately. The insurer sought to rescind the settlement
       and recover the settlement proceeds it had paid to both insureds. Id. at 626. Amid
       claims that the wife suffered from mental illness, there were factual disputes as to
       whether she really had set the fire and even whether she had claimed to have done so.
       But it was undisputed that her husband was not to blame for the fire, making him an
       “innocent” insured. Id. at 629. Warren held that the arson of the wife should not be
       imputed to the innocent husband so as to bar his recovery of one-half the proceeds of
       the settlement.

¶ 23       Because the dispute in Warren arose after the settlement had been paid, the case
       involved rescission of the settlement agreement. But, as ISBA Mutual correctly notes,
       Warren is not therefore a rescission case that would apply to the case at bar. Warren is
       not about the rescission of an insurance policy, and consequently does not invoke
       section 154 of the Insurance Code. The insurer in Warren sought rescission of the
       settlement agreement on the ground that there was no coverage for the damages it had
       compensated—specifically, that one insured’s intentional act precluded coverage for
       another insured who was innocent of that act.

¶ 24       Such coverage cases usually involve the enforcement of policy exclusions,
       typically exclusions for intentional acts allegedly committed by an insured other than
       the one challenging the exclusion. The innocent insured doctrine makes sense in that
       context because the insured’s innocence is relevant to whether an intentional act

                                               -7-
       invokes an exclusion to coverage. But the innocent insured doctrine appears irrelevant
       to rescission, a recognized remedy for even innocent misrepresentations.

¶ 25       ISBA Mutual points to Home Insurance Co. v. Dunn, 963 F.2d 1023 (7th Cir.
       1992), which observed that rescission of an insurance policy because of a
       misrepresentation on the application is distinctly different from the denial of insurance
       coverage because of excluded wrongdoing. This is a “subtle, but important”
       distinction, the court observed, in that excluded conduct might bar coverage for a claim
       arising from that conduct, but a misrepresentation in the application broadly affects the
       validity of the policy as a whole. Id. at 1026.

¶ 26       Rather than the innocent insured doctrine, Dunn concerned a “waiver of exclusion”
       clause in the policy that the insurer sought to rescind. That clause mirrored the innocent
       insured doctrine in that it reflected the insurer’s agreement not to enforce the policy’s
       “wrongful acts” exclusions as to any insured “ ‘who did not personally commit or
       personally participate in committing one or more of the acts, errors, omissions or
       personal injuries described in any such exclusion or condition.’ ” Id. at 1025 (quoting
       the insurer’s waiver-of-exclusion clause). Like the innocent insured doctrine, the
       waiver-of-exclusion clause preserved coverage for those insureds who were innocent
       of the wrongdoing.

¶ 27       Dunn involved a “crooked attorney” who obtained a legal malpractice policy for
       himself and the other attorneys associated with his firm, but “understandably” failed to
       disclose his own criminal activities on the policy application. One of the other
       attorneys in the firm, who had no involvement in the policy application or his
       colleague’s misrepresentation, was sued for legal malpractice unrelated to his
       colleague’s criminal activities. The insurer sought rescission of the policy due to the
       material misrepresentation on the application. The insured who was not involved in the
       misrepresentation, as well as the underlying malpractice plaintiffs, objected to the
       rescission of the policy as to that attorney, relying on the waiver-of-exclusion
       provision. Id.

¶ 28       But the Seventh Circuit found it irrelevant that no other attorney in the firm took
       part in the crooked attorney’s fraud, or even knew of it. “Though the other attorneys did
       not intend to deceive, the falsehood on the application is fatal. [The crooked attorney’s]
       misrepresentation caused [the insurer] to issue a policy to all the attorneys that
       otherwise would not have been forthcoming.” Id. at 1026. The version of section 154
       then in effect allowed rescission of the policy. Id.

                                               -8-
¶ 29       ISBA Mutual argues that the reasoning of Dunn applies to the case at bar. Though
       Terpinas might have been innocent of the misrepresentation on the renewal application,
       that is irrelevant to rescission, which focuses on the effects of the misrepresentation,
       rather than on the innocence or guilt of the individual. The important thing, ISBA
       Mutual asserts, is that, as a result of the misrepresentation, ISBA Mutual issued the
       policy under a false impression about its exposure to risk.

¶ 30       We agree with ISBA Mutual that the rationale for applying the innocent insured
       doctrine to questions of policy exclusions and insurance coverage is absent from the
       rescission context. Unlike in rescission cases, the innocence of an insured matters a
       great deal when another insured’s wrongdoing triggers a policy exclusion, and a
       dispute arises over whether the insurer has a duty to defend the innocent insured under
       a policy that undisputedly was in effect. That is the setting in which the innocent
       insured doctrine is relevant.

¶ 31       But issues of insurance coverage, governed by common-law rules concerning the
       interpretation of policy language, are significantly different from the question of
       whether an insurance policy should be enforced in the first place—an issue that is
       governed by statute, and is not concerned with whether an insured is innocent of a
       misrepresentation that prejudices the insurer. In the case of a misrepresentation that
       materially affects the acceptance of the risk, the issue is the effect of that
       misrepresentation on the validity of the policy as a whole. A misrepresentation on the
       policy application goes to the formation of the contract. The innocent insured doctrine,
       on the other hand, has a narrower focus, typically dealing with situations where an
       insured’s wrongdoing triggers a policy exclusion, and the question is whether the
       insurer has a duty to defend the innocent insured under a policy that is still in effect.

¶ 32       We agree with ISBA Mutual that the appellate court erred in applying the innocent
       insured doctrine in this case. As ISBA Mutual correctly notes, that doctrine is relevant
       to issues of policy exclusions and insurance coverage, but it is unsuited to the case at
       bar, which deals with rescission and contract formation.

¶ 33       We also agree with ISBA Mutual that the appellate court erred in partially severing
       the policy to facilitate the application of the innocent insured doctrine.

¶ 34      The policy’s severability clause states:

              “The APPLICATION, and any addendum or supplements, and the
              Declarations, are the basis of this Policy. The particulars and statements

                                               -9-
              contained in the APPLICATION will be construed as a separate agreement
              with and binding on each INSURED. Nothing in this provision will be
              construed to increase the COMPANY’S Limit of Liability.”

¶ 35       As ISBA Mutual notes, while the severability clause creates a separate agreement
       with each insured, it states that each separate agreement is made up of the “particulars
       and statements contained in the APPLICATION,” binding on each insured. The
       statements contained in the application include the false statement that no member of
       the firm was aware of the potential for a then-unreported claim. Even if the policy is
       treated as a separate contract with each insured, there is nothing to permit the
       application—or the misrepresentation it contains—to be split off from any individual
       contract.

¶ 36       Defendants also argue that it is impossible to return Terpinas to his status quo
       existing at the time the contract for insurance was made. Defendants cite International
       Insurance Co. v. Sargent & Lundy, 242 Ill. App. 3d 614, 629 (1993), for the proposition
       that rescission of a contract generally requires that the parties be placed in their
       positions existing when the contract was made. Defendants assert that the status quo at
       the time the contract was made was that Terpinas was covered by a policy of
       professional liability insurance. In defendants’ view, returning Terpinas to his status
       quo would mean he should actually have coverage by ISBA Mutual.

¶ 37       ISBA Mutual disagrees, arguing that the requirement of restoring the parties to
       their pre-contract status has consistently been interpreted as requiring only that the
       party seeking rescission must return any benefits it has received. ISBA Mutual asserts
       that, as part of its claim for rescission, ISBA Mutual refunded the premium it had
       received for the policy, “restoring the status quo ante in the only respect that law or
       equity requires.”

¶ 38       ISBA Mutual adds that, even if it were not possible to return the parties to the status
       quo ante in some relevant respect, “defendants’ own authority refutes their contention
       that this would preclude rescission of the ISBA Mutual policy.” ISBA Mutual quotes
       Sargent & Lundy, which states:

              “Where such restoration is impossible, *** it does not necessarily preclude
              granting of rescission. Restoration of the status quo ante will not be required
              when restoration has been rendered impossible by circumstances not the fault
              of the party seeking rescission, and the party opposing the rescission has
              obtained a benefit from the contract.” Id.
                                               - 10 -
¶ 39       ISBA Mutual asserts that defendants do not suggest that ISBA Mutual “ ‘created an
       impediment’ to the court’s ability to to restore the status quo ante.” Id. at 629-30
       (quoting Klucznik v. Nikitopoulos, 152 Ill. App. 3d 323, 328 (1987)). ISBA Mutual
       adds that Terpinas benefitted from the policy by being able to practice as a member of a
       limited liability company for several months. According to ISBA Mutual, Terpinas
       acknowledges in his brief that this is something he could do only because his firm could
       claim to be covered under the ISBA Mutual policy.

¶ 40        Finally, defendants argue that the renewal form containing the material
       misrepresentation was not an “application” under section 154. ISBA Mutual responds,
       initially, that defendants themselves, in their brief, refer to the renewal form as a
       “renewal application.” Moreover, the form refers to itself as an “application,” and it
       requires an attestation to the validity of answers on behalf of the “applicant firm.”
       Further proving that the form is an application, it states that ISBA Mutual “reserves the
       right to withdraw or amend the quoted terms at any time prior to the proposed effective
       date of coverage.”

¶ 41       In sum, we agree with ISBA Mutual that section 154, which establishes public
       policy on this issue, allows rescission when the relevant requirements are met, and here
       those requirements were satisfied. The circuit court correctly rescinded the ISBA
       Mutual policy in its entirety, and the appellate court erred in applying the innocent
       insured doctrine and partially severing the policy to preserve coverage for Terpinas.



¶ 42                                   III. CONCLUSION

¶ 43      We reverse the judgment of the appellate court and affirm the circuit court’s
       judgment rescinding the ISBA Mutual policy in its entirety.



¶ 44      Appellate court judgment reversed.

¶ 45      Circuit court judgment affirmed.




                                              - 11 -
¶ 46      JUSTICE KILBRIDE, dissenting:

¶ 47       The majority finds the innocent insured doctrine does not apply, because “that
       doctrine is relevant to issues of policy exclusions and insurance coverage, but it is
       unsuited to the case at bar, which deals with rescission and contract formation.” Supra
       ¶ 33. I would apply the innocent insured doctrine here. Terpinas had a reasonable
       expectation that he maintained professional liability insurance based on his history
       with ISBA Mutual and his lack of culpability in the misrepresentation. Terpinas further
       reasonably relied on Illinois Supreme Court Rules 721 and 722, because the firm was
       organized as a limited liability entity. Public policy considerations also support
       applying the innocent insured doctrine here. Therefore I respectfully dissent.

¶ 48       The common law innocent insured doctrine applies when multiple insureds have an
       insurance policy and one of the insureds commits an act that would normally void the
       insurer’s contractual obligations. See Economy Fire & Casualty Co. v. Warren, 71 Ill.
       App. 3d 625, 629 (1979). The doctrine operates to preserve insurance coverage if a
       reasonable person would not have understood that the wrongdoing of a coinsured
       would be imputed to him. State Farm Fire & Casualty Insurance Co. v. Miceli, 164 Ill.
       App. 3d 874, 881 (1987).

¶ 49       When determining if insurance coverage is appropriate, “this court can also
       consider a policyholder’s reasonable expectations and the coverage intended by the
       insurance policy.” Cummins v. Country Mutual Insurance Co., 178 Ill. 2d 474, 485
       (1997). Terpinas first purchased professional liability insurance from ISBA Mutual in
       2005. He renewed the policy every year through 2008, when the misrepresentation was
       made on the renewal application. ISBA Mutual does not claim Terpinas was aware of
       Tuzzolino’s actions, and it is undisputed that Terpinas informed ISBA Mutual of the
       potential claim on June 10, 2008, when he first became aware of it. Nothing in the
       policy explicitly stated each insured would face rescission of their professional liability
       coverage due to a misrepresentation by another member of the firm.

¶ 50       The policy coverage was uninterrupted until ISBA Mutual sought to rescind the
       contract. Without personal knowledge of Tuzzolino’s misrepresentation, Terpinas had
       a reasonable expectation since 2005 that he was insured and that his policy would
       remain in effect. Nothing Terpinas did, or did not do, created a reasonable expectation
       that his insurance policy would be rescinded. Had ISBA Mutual intended to impute the
       wrongdoing of Tuzzolino onto Terpinas, it should have expressly stated so in the terms
       of the policy. See Warren, 71 Ill. App. 3d at 629. Accordingly, rescission is an

                                               - 12 -
       equitable remedy left to the discretion of the court, (Springfield & Northeastern
       Traction Co. v. Warrick, 249 Ill. 470, 476 (1911)), and here the equities do not favor
       rescission.

¶ 51       The policies underlying limited liability corporations are implicated in this case.
       Recognizing a public policy concern, this court enacted Illinois Supreme Court Rules
       721 (Ill. S. Ct. R. 721 (eff. July 1, 2003)) and 722 (Ill. S. Ct. R. 722 (eff. Mar. 15,
       2004)), requiring attorneys in limited liability entities to maintain at least a minimum
       level of professional liability insurance coverage or face joint and several liability.
       These rules were intended to protect consumers of legal services. Forming a limited
       liability entity benefits owners of a firm by restricting their personal liability as
       “determined by the provisions of the statute under which the limited liability entity is
       organized.” Ill. S. Ct. R. 722(b) (eff. Mar. 15, 2004). In the absence of malpractice
       insurance, the public faces potential harm if malpractice occurs and the actor does not
       have sufficient assets to fulfill a judgment. Thus, the availability of malpractice
       coverage benefits both individual attorneys and their clients.

¶ 52       The reasoning in First American Title Insurance Co. v. Lawson, 827 A.2d 230 (N.J.
       2003), is persuasive. In Lawson, a limited liability law firm had three partners. Two
       partners were involved in a kiting scheme, while the third was neither involved in nor
       aware of the scheme. Lawson, 827 A.2d at 233-35. The insurance carrier sought to void
       the malpractice coverage because the firm’s application materially misrepresented its
       knowledge of any acts, errors, or omission in professional services that could have
       reasonably been expected to result in a professional liability claim. Lawson, 827 A.2d
       at 233-35. The court found that because the firm was organized as a limited liability
       partnership, the innocent partner had every reason to expect his exposure to liability
       would be limited in accordance with applicable law. Lawson, 827 A.2d at 240. The
       court further found that by voiding the innocent partner’s policy, he would no longer
       retain coverage for any act in unrelated matters, such as simple malpractice, during the
       period of expected coverage. Lawson, 827 A.2d at 240. The court held rescission was
       inappropriate as to the innocent partner, concluding “that harsh and sweeping result
       would be contrary to the public interest,” and “it would be inconsistent with the policies
       underlying our Rules of Court that seek to protect consumers of legal services by
       requiring attorneys to maintain adequate insurance in this setting.” Lawson, 827 A.2d
       at 240-41.

¶ 53      Similarly, because Terpinas’s law firm was organized as a limited liability entity,
       he reasonably expected his liability to be limited within Rules 721 and 722 and
                                               - 13 -
       reasonably relied on the professional liability insurance coverage provided by ISBA
       Mutual to limit his personal liability. When attorneys do not have professional liability
       insurance, the public faces an increased risk of harm as consumers of legal services.
       Rescission of Terpinas’s professional liability insurance would expose his other clients
       unnecessarily under any form of malpractice. That result is inconsistent with the
       policies underlying Rules 721 and 722 that seek to protect consumers of legal services
       from financial harm.

¶ 54       In addition, I am troubled by the scope of the consequences resulting from the
       majority’s holding on other law firms and especially midsize and large firms. Under the
       majority’s view, a material misrepresentation on an insurance application could cause
       rescission of the policy as to each and every attorney, despite their reasonable
       expectations of continued professional liability insurance coverage. Furthermore, as
       the size of the affected firm increases, so does the potential harm to the public.

¶ 55      For these reasons, I respectfully dissent.




                                              - 14 -
