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FOURTH DIVISION
December 16, 2004

JUSTICE QUINN delivered the opinion of the court:

Plaintiffs Munday & Nathan, an Illinois law firm, and theirprofessional malpractice insurer, Illinois Bar Association MutualInsurance Company (ISBA Insurance), appeal from the judgment of thecircuit court, which granted summary judgment for defendant CoregisInsurance Company (Coregis). On appeal, plaintiffs argue that thecircuit court erred in finding that an insurance policy issued byCoregis was void ab initio due to a material misrepresentation madeby its insured in applying for the policy. For the followingreasons, we find that, while the policy was not void ab initio,but, instead, merely voidable, Coregis did not waive its right tovoid the policy based upon the insured's materialmisrepresentation. Therefore, we affirm the judgment of thecircuit court.

BACKGROUND

In 1994, attorneys Brian Hubka and Thomas Nathan, a namedpartner in the law firm of Munday & Nathan (Munday), entered intoan agreement to jointly represent Cherry Maxwell in a personalinjury lawsuit that arose out of an automobile accident in 1991. In April 1994, Hubka and Nathan reached a settlement agreement onbehalf of Ms. Maxwell in the amount of $225,000. Instead ofdisbursing the settlement proceeds to Ms. Maxwell, Hubkaconverted them for his own use. On February 22, 1995, theIllinois Attorney Registration and Disciplinary Commission (ARDC)filed a complaint against Hubka alleging, inter alia, that heconverted client funds. On May 4, 1995, Hubka admitted, in hisanswer to the ARDC complaint, that he never disbursed thesettlement funds to Ms. Maxwell.

Five months after answering the ARDC complaint, Hubkasubmitted an application to renew his lawyers professionalliability insurance policy with Coregis Insurance Company(Coregis), with whom he had been insured since 1993. In hisapplication, despite answering the pending ARDC charges againsthim by admitting his failure to disburse the settlement funds toMs. Maxwell, Hubka stated that he was not aware of any"circumstance, act, error, omission or personal injury which mayresult in a claim" against him. After receiving his application,Coregis renewed the policy for the period of November 7, 1995, toNovember 7, 1996.

On January 20, 1996, Maxwell filed suit against Hubka,Nathan, and Munday for conversion, legal malpractice, breach offiduciary duty, and breach of contract. Nathan and Mundaytendered their defense to ISBA Insurance, their professionalliability insurer.

On August 8, 1996, the Illinois Supreme Court entered anorder suspending Hubka from the practice of law.⁽¹⁾ On September4, 1996, after learning of his suspension, Coregis informed Hubkathat it would not renew the policy, which was to expire onNovember 7, 1996.

On September 30, 1996, Hubka tendered his defense againstMs. Maxwell's lawsuit to Coregis. Three days later, Coregis senta letter to Hubka stating that it had received notice of histender and informing him that it had assigned Michael Bruck(Bruck) of Quinlan & Crisham to defend him. In the letter,Coregis also highlighted certain exclusions contained in thepolicy that it felt were or may become relevant to the issue ofwhether it would provide a defense for Hubka, and reserved itsright to refuse to defend or indemnify him if it determined thatany of those exclusions were applicable. Specifically, theletter stated, in pertinent part:

"Also, please refer to the EXCLUSIONS section of thePolicy, which states, in pertinent part:

This policy does not apply to:

***

J. any CLAIM arising out of conversion, misappropriation or improper commingling of client funds.

***

Count I of Ms. Maxwell's Complaint allegesconversion of approximately $200,000 of settlementproceeds. Count II of the Complaint sets forth a causeof action based in legal malpractice. Count IIIalleges breach of fiduciary duty. Finally, count IValleges breach of contract. All four counts of Ms.Maxwell's Complaint revolve around the same allegationsof conversion. While we do not place any credence inMs. Maxwell's allegations, we must reserve our rightswith respect to same. Therefore, based on theaforementioned exclusions, if it is determined that anyof your acts gave rise to conversion of settlementfunds, please be advised that we will neither defendnor indemnify you for those acts, errors, or omissions.

In addition, I call your attention to theEXCLUSIONS section of the Policy which states that thefollowing is also excluded:

A. any CLAIM that results in a final adjudicationagainst any INSURED that an INSURED has committedany criminal, dishonest, fraudulent or maliciousacts, errors, omissions or PERSONAL INJURIES.

This exclusion does not apply to any INSURED who is not so adjudged;

Once again, all four counts of Ms. Maxwell'sComplaint are based upon the same set of allegationsthat you converted her settlement funds. We do notbelieve that there is any credibility to Ms. Maxwell'sassertions, but we must reserve our rights with respectto the assertions. Therefore, if it is adjudged thatyou committed any criminal, dishonest, fraudulent ormalicious acts, errors or omissions, including, but notlimited to conversion, be advised that we will notindemnify you with respect to same.

Finally, I again call your attention to theEXCLUSIONS section of the Policy which states that thefollowing is excluded from coverage:

B. any CLAIM arising out of any act, error,omission or PERSONAL INJURY occurring prior to theeffective date of this policy if any INSURED knewor could have reasonably foreseen that such act,error, omission or PERSONAL INJURY might beexpected to be the basis of a CLAIM or suit;

Ms. Maxwell's Complaint alleges that Ms. Maxwell'spersonal injury case was settled in April, 1994, forthe amount of $225,000. The effective date of thePolicy is November 7, 1995. Therefore, if it isdetermined that on or prior to November 7, 1995, youeither knew or could have reasonably foreseen that Ms.Maxwell would bring a claim based upon your own acts,errors, or omissions concerning her personal injurycase, please be advised that we will not defend orindemnify you with respect to same.

In order to protect your interests, we shalldefend this claim on your behalf, pursuant to thisReservation of Rights. If it should develop that youare not covered by the Policy, you understand that byagreeing to defend you under this Reservation ofRights, the Company does not waive any right ordefenses it may have available, nor does it waive itsright to deny coverage at a later date. We alsoreserve the right to withdraw from the defense of thismatter should our investigation determine that there isno coverage." (Emphasis in original.)

Though it had previously informed Hubka that it would notrenew the policy, on November 4, 1996, Coregis offered Hubka theoption to purchase an "Extended Reporting Endorsement," whichextended for one year the time period in which Hubka could reporta claim to Coregis based upon any act, error, or omission thatoccurred before the policy expired.

On February 10, 1997, Bruck drafted a letter to Hubkaexplaining that there was a potential conflict between Hubka'sand Coregis's interests in the resolution of Ms. Maxwell'slawsuit against Hubka. After explaining this potential conflict,the letter detailed Hubka's right to independent counsel andsuggested that he "consult with an attorney of [his] own choosingin connection with the matters" in the letter. The letter alsogave Hubka the option of waiving any potential conflict and fullyconsenting to Bruck's continued representation. Though there isno signed letter in the record, Bruck stated in an affidavit thathe "specifically discussed" with Hubka "a potential conflict ofinterest due to the fact that we had been retained by CoregisInsurance Company and advised Mr. Hubka that he may have theright to obtain independent counsel to represent him in theMaxwell matter." Bruck also averred that "before and after theletter was sent, Brian Hubka indicated that he understood theissues, waived any potential conflict and consented to" hisrepresentation. Hubka stated in his own affidavit that he neverreceived this letter, discussed any potential conflict withBruck, or waived any potential conflict.

On April 16, 1997, Ms. Maxwell moved for summary judgmentagainst Hubka on count II (legal malpractice) of her amendedcomplaint. On August 14, 1997, Coregis filed a complaint fordeclaratory judgment against Hubka and Ms. Maxwell. In itscomplaint, Coregis sought a declaration that it owed no duty todefend or indemnify Hubka in Ms. Maxwell's lawsuit based upon twopolicy exclusions: (1) exclusion J, which excluded coverage for"any claim arising out of conversion, misappropriation orimproper commingling of client funds" and (2) exclusion B, whichdenied coverage for claims arising out of acts, errors, oromissions that occurred prior to the policy's inception datewhich the insured knew or could reasonably have foreseen wouldbecome the basis of a claim or lawsuit. Neither Nathan norMunday was named as a defendant in Coregis's declaratory judgmentcomplaint.

On August 15, 1997, the day after Coregis filed itsdeclaratory judgment complaint, the trial court granted Ms.Maxwell's motion for summary judgment and entered judgmentagainst Hubka in the amount of $213,414.75. On January 2, 1998,Ms. Maxwell moved for summary judgment against Nathan and Mundaybased upon a theory of joint venture liability. On January 12,1998, Coregis sought leave to amend its complaint for declaratoryjudgment to add three more potential claimants and a count ofrescission.

On June 30, 1998, the trial court granted Ms. Maxwell'smotion for summary judgment against Nathan and Munday. ISBAInsurance, as both Nathan's and Munday's insurer, paid Ms.Maxwell's judgment against them in its entirety.

On December 6, 1998, Nathan and Munday filed a counterclaimagainst Hubka alleging breach of contract, breach of fiduciaryduty, and conversion. In September 1999, Coregis filed a motionfor summary judgment on its complaint for declaratory judgment. On April 18, 2000, the trial court granted Nathan and Munday'smotion for summary judgment against Hubka as to count II (breachof fiduciary duty). Meanwhile, in either June or July 2000, thetrial court granted Coregis's motion for summary judgment on itscomplaint for declaratory judgment against Hubka, Maxwell, andnumerous other claimants.⁽²⁾ In September 2000, the circuit courtdenied Nathan's and Munday's attempt to intervene in Coregis'sdeclaratory judgment action against Hubka, Maxwell, and the otherclaimants.

On October 31, 2000, ISBA Insurance and Munday filed acomplaint for declaratory judgment against Coregis. In theircomplaint, plaintiffs sought the following declarations: (1)Coregis waived its right to rescind Hubka's policy; (2) Coregisis estopped from raising any policy defense because it failed toinform Hubka that a conflict of interest existed in itsrepresentation of Hubka during Ms. Maxwell's lawsuit; and (3)Coregis had a duty to indemnify Hubka for Ms. Maxwell's judgmentagainst him. On December 21, 2000, Coregis sought to have bothits and plaintiffs' complaints for declaratory judgmentconsolidated, but its motion was denied.

Both plaintiffs and Coregis filed cross-motions for summaryjudgment on plaintiffs' complaint for declaratory judgment. Thecircuit court granted Coregis's motion, finding that, becauseHubka had made a material misstatement on his application forrenewal in October 1995, the policy was void ab initio. Thecourt further stated:

"Since the policy was void, there is no need for thisCourt to consider the parties' arguments regarding anyalleged conflict of interest, Coregis'[s] reservationof rights, Coregis'[s[ attempt to rescind the policy,or whether the exclusions within the policy precludecoverage."

Plaintiffs filed a timely notice of appeal.⁽³⁾

ANALYSIS

Plaintiffs argue that the circuit court erred in grantingCoregis's motion for summary judgment. Initially, plaintiffscontend that the court erred in finding that the policy was voidab initio and that Coregis waived its right to rescind the policywhen it did not do so promptly upon its discovery of Hubka'smaterial misstatement in his policy renewal application. Plaintiffs also argue that Coregis should be estopped fromasserting any policy defenses because it failed to inform Hubkaor obtain a waiver of a potential conflict of interest in itsrepresentation of him in the lawsuit filed by Ms. Maxwell.

Coregis argues that the circuit court properly granted itsmotion for summary judgment because Hubka's materialmisrepresentation rendered the policy void ab initio. Coregiscontends that because the policy was void, whether it informedHubka or obtained a waiver of any potential conflict isirrelevant. Coregis further argues that, even if the policy wasnot void ab initio, it did not waive its right to rescind thepolicy.

Summary judgement is appropriate when "the pleadings,depositions, and admissions on file, together with theaffidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgmentas a matter of law." 735 ILCS 5/2-1005(c) (West 2000). Thepurpose of summary judgment is not to try a question of fact, butto determine if one exists. Golden Rule Insurance Co. v.Schwartz, 203 Ill. 2d 456, 462, 786 N.E.2d 1010 (2003). Thestandard of review of an order granting summary judgment is denovo. Morris v. Margulis, 197 Ill. 2d 28, 35, 754 N.E.2d 314 (2001). Because we review the grant of summary judgment de novo,we may affirm the circuit court's decision on any ground in therecord, regardless of whether the court relied on that ground orwhether the court's reasoning was correct. See PepperConstruction Co. v. Transcontinental Insurance Co., 285 Ill. App.3d 573, 576, 673 N.E.2d 1128 (1996).

I. EFFECT OF HUBKA'S MISREPRESENTATION ON INSURANCE POLICY

Section 154 of the Illinois Insurance Code sets forthcriteria that must be met before an insurer can rescind a policybased upon a misrepresentation by an insured:

"No misrepresentation or false warranty made bythe insured or in his behalf in the negotiation for apolicy of insurance *** shall defeat or avoid thepolicy or prevent its attaching unless suchmisrepresentation, false warranty or condition shallhave been stated in the policy or endorsement or riderattached thereto, or in the written applicationtherefor. No such misrepresentation or false warrantyshall defeat or avoid the policy unless it shall havebeen made with actual intent to deceive or materiallyaffects either the acceptance of the risk or the hazardassumed by the company." 215 ILCS 5/154 (West 1998).

Both parties agree that, in his application to renew his policywith Coregis in 1995, Hubka made a material misrepresentationwhich qualified as a basis to "avoid or defeat the policy" undersection 154. The first question is what effect thismisrepresentation had upon the policy.

Whether a defect in the formation of a contract renders thatcontract void ab initio or merely voidable depends upon thenature of that defect. For instance, if the subject matter of acontract is illegal, that contract is void ab initio. See Tomm'sRedemption, Inc. v. Park, 333 Ill. App. 3d 1003, 1009, 777 N.E.2d522 (2002); Hall v. Montaleone, 38 Ill. App. 3d 591, 592, 348N.E.2d 196 (1976) (stating that gambling contracts are absolutelyvoid and unenforceable by reason of public policy). So too arecontracts where one of the contracting parties exceeded itsauthority in entering into the pact. See Grassini v. Du PageTownship, 279 Ill. App. 3d 614, 620, 655 N.E.2d 860 (1996)(stating that where a township exceeds its statutory authority inentering into a contract, the township's act is ultra vires andthe resulting contract is void ab initio).

Other defects, however, simply render the contract voidable. See e.g., Cain v. Cross, 293 Ill. App. 3d 255, 258, 687 N.E.2d1141 (1997) (stating that a "contract alleged to be invalid onthe basis of the statute of frauds is merely voidable, not void,"and that the "contract may be enforced unless the defendant setsup the statute as a defense"); Fletcher v. Marshall, 260 Ill.App. 3d 673, 675, 632 N.E.2d 1105 (1994) (recognizing that a"contract of a minor is not void ab initio, but merely voidableat the election of the minor upon his attaining majority"); Lyonsv. Christ Episcopal Church, 71 Ill. App. 3d 257, 260, 389 N.E.2d623 (1979) (stating that, generally, "fraudulent misrepresenta-tion in the sale of real estate is that the contract is merelyvoidable, not void, at the option of the injured party").

The difference between a contract that is void ab initio andone that is merely voidable is that "a voidable contract can beratified and enforced by the obligor, although not by thewrongdoer, while the void contract cannot be." Kedzie & 103rdCurrency Exchange, Inc. v. Hodge, 234 Ill. App. 3d 1017, 1023,601 N.E.2d 803 (1992), citing Restatement of Contracts