Find Legal Information

SECOND DIVISION
August 15, 2000

No. 1-99-3104

Plaintiffs William J. Templeman Company and William J.Templeman (collectively "Templeman" or "plaintiffs") appeal froman order of the circuit court of Cook County granting summaryjudgement in favor of defendant Liberty Mutual Insurance Company(Liberty). The circuit court found that two insurance policies(collectively the "policy") issued by Liberty to Templeman whichcovered claims against Templeman for malicious prosecution didnot cover liability incurred by Templeman due to sanctionsimposed by the circuit court pursuant to Illinois Supreme CourtRule 137. On appeal Templeman argues that the trial court erredbecause the malicious prosecution language in the policy providescoverage for its conduct which was found to be sanctionable;because its conduct potentially raised liability under the policyand thus gave rise to a duty on the part of Liberty to defendTempleman; and because the term "malicious prosecution" in theinsurance policies is ambiguous and should thus be construed infavor to Templeman. For the reasons discussed below, we affirm.

There is no dispute as to the underlying facts in this case. This litigation arose out of a construction dispute surroundingthe building of an Embassy Suites hotel in Rosemont, Illinois. The hotel in question was owned by E.S. O'Hare Associates(O'Hare) and the general contractor for the project was W.E.O'Neil Construction Company (O'Neil). O'Neil entered into asubcontract with Templeman's predecessor in interest PremierElectric Company (Premier) whereby Premier would install firealarm and detection equipment in the hotel. Premier later suedO'Hare and O'Neil seeking to recover for extra work performed onthe Embassy Suites project and for interference and delays in itsperformance of the subcontract which it alleged were caused byO'Neil and O'Hare. The trial court granted partial summaryjudgement in favor of O'Neil. O'Neil then moved for sanctionspursuant to Illinois Supreme Court Rule 137 (155 Ill. 2d R. 137)against Templeman and its attorney, Walter J. Trittipo(Trittipo).

On December 13, 1995, the trial court found that Templemanand Trittipo had engaged in sanctionable conduct, a decisionwhich was ultimately upheld on appeal. William J. Templeman Co.et al., v. W.E. O'Neil Construction Co. et al., Nos. 1-96-3434 &1-96-3557 (cons.) (1998) (unpublished order under Supreme CourtRule 23). On January 8, 1996, Templeman gave written notice toLiberty of its claim for coverage and requested that Libertydefend it against the sanctions proceedings which were stillongoing, as the court had not yet decided the amount of thesanctions. Templeman's insurance policy provided for coverage ofclaims against Templeman for malicious prosecution. Libertynever responded to Templeman's notice of its claims. Templemanthereupon filed a declaratory judgement action against Libertyseeking coverage. The trial court granted summary judgement infavor of Liberty. This appeal followed.

The plaintiffs first argue that the malicious prosecutionlanguage in the policy is sufficient to provide coverage for theliability which plaintiffs incurred as a result of conduct whichthe trial court found sanctionable pursuant to Rule 137. Wedisagree.

The relevant policy language is as follows:

"1. Insuring Agreement

a. We will pay those sums that the insuredbecomes legally obligated to pay as damagesbecause of 'personal injury' *** to whichthis coverage part applies. We will have theright and duty to defend any 'suit' seekingthose damages.

* * *

b. This insurance applies to:

(1) 'Personal injury' caused by an offensearising out of your business, excludingadvertising, publishing, broadcasting ortelecasting done by or for you;

* * *

10. 'Personal injury' means injury, other than 'bodilyinjury,' arising out of one or more of the followingoffenses:

* * *

b. Malicious prosecution;"

As is evident from the forgoing language the policy providescoverage for malicious prosecution, a specific common law tort."The common law tort of malicious prosecution containssignificant strictures and rules." Spiegel v. Zurich Ins. Co.,293 Ill. App. 3d 129, 135, 687 N.E.2d 1099, 1102 (1997). Although the conduct which would support a finding of sanctionsunder Rule 137 may well overlap with the elements necessary tosupport a finding of malicious prosecution, the two categoriesare nevertheless discrete and distinct and under the prevailingprecedent coverage for malicious prosecution does notautomatically extend coverage for conduct sanctionable under Rule137.

The case of Spiegel v. Zurich Ins. Co., 293 Ill. App. 3d129, 687 N.E.2d 1099, is on point. The plaintiff in Spiegel wassanctioned by the U.S. Court of Appeals for the Seventh Circuitunder Rule 38 of the Federal Rules of Appellate Procedure (Fed.R. App. P. 38) for filing a frivolous appeal. The plaintiff thenclaimed coverage (which the defendant insurance company denied)under his insurance policy issued by the defendant which providedcoverage for "malicious prosecution." The Spiegel court heldthat where an insurance policy provided coverage for claims ofmalicious prosecution against the insured, the coverage did notextend to liability incurred as a result of sanctions imposed bya federal court for the filing of a frivolous appeal.

The Spiegel court reasoned that, "Illinois law recognizesand upholds the distinction between the tort of maliciousprosecution and the remedy of pleading-related sanctionsavailable under Illinois Supreme Court Rule 137." Spiegel, 293Ill. App. 3d at 134, 687 N.E.2d at 1102 (citing Levin v. King,271 Ill. App. 3d 728, 737, 648 N.E.2d 1108, 1114 (1995)). "Thecommon law tort of malicious prosecution contains significantstrictures and rules." Spiegel, 293 Ill. App. 3d at 135, 687N.E.2d at 1102. Specifically, to prevail on a maliciousprosecution claim the plaintiff must prove a special injury, anelement that is absent from Rule 137 sanctions. The Spiegelcourt further stated that no "cases have been advanced by theparties or found in research that equate malicious prosecutionand court-imposed sanctions." Spiegel, 293 Ill. App. 3d at 134-35, 687 N.E.2d at 1102. The court therefore concluded that"judicially imposed sanctions are not within the ambit of theterm 'malicious prosecution' in the subject insurance policies"and that "a claim of malicious prosecution is not equivalent tosanctions imposed by a court for purposes of insurance coverageas a matter of law." Spiegel, 293 Ill. App. 3d at 135, 687N.E.2d at 1102.

We are not persuaded by the plaintiffs' insinuations thatthe Spiegel court was "plainly wrong" in stating that no Illinoiscases equate malicious prosecution with court imposed sanctionspursuant to Rule 137, as the authorities cited by the plaintiffsare readily distinguished. In Sanelli v. Glenview State Bank,126 Ill. App. 3d 411, 416, 466 N.E.2d 1119, 1123 (1984) the courtstated that "[s]ection 2-611 [the predecessor to Rule 137]permits sanctions against a party for conduct in the nature ofmalicious prosecution accomplished by false pleadings or abuse ofjudicial process which goes to the merits of the proceedings." See also Tabor & Co. v. Gorenz, 43 Ill. App. 3d 124, 132, 356N.E.2d 1150, 1156 (1976) (construing section 41 of the CivilPractice Act, an earlier predecessor to Rule 137). Sanelli andTabor do not equate Rule 137 sanctions and claims for maliciousprosecution. Rather, the cases provide that Rule 137 sanctions"conduct in the nature of malicious prosecution." (Emphasisadded.) Clearly, the teaching of Sanelli and Tabor on this pointis that the conduct which is sanctionable pursuant to Rule 137overlaps with that which is actionable through the tort ofmalicious prosecution. The overlap in the conduct proscribeddoes not equate these two distinct proceedings themselves, anddoes not contravene the holding of the Spiegel court that thecoverage provided for the one does not extend to the other.

The plaintiff nevertheless contends that even thoughcoverage for malicious prosecution and coverage for Rule 137sanctions are not interchangeable, they should be, when as herethe specific conduct found to be sanctionable pursuant to Rule137 is equivalent to the elements required to prove a claim formalicious prosecution. Here too we disagree.⁽¹⁾

While we are aware that the range of conduct which issanctionable pursuant to Rule 137 may overlap with conduct whichis actionable under the law of malicious prosecution, the conductneed not so overlap. Thus even in a specific case where theconduct alleged is actionable under either theory, coverage forone does not by itself extend coverage to the other sincegenerically malicious prosecution and sanctions under Rule 137present different risks.

The different risks associated with Rule 137 sanctions andmalicious prosecution are illustrated by several criticaldifferences between the two actions. For example, maliciousprosecution is a common law tort action (Kent v. Muscarello, 9Ill. App. 3d 738, 740, 293 N.E.2d 6, 7 (1973) (a "suit formalicious prosecution is a common law tort action")) which may betried to a jury (Mack v. First Security Bank of Chicago, 158 Ill.App. 3d 497, 500-1, 511 N.E.2d 714, 716 (1987) (maliciousprosecution action below tried to a jury)) while Rule 137sanctions are a creation of our Supreme Court (177 Ill. 2d R. 3)and are determined by the trial judge (155 Ill. 2d R. 137). There is also a fundamental difference in the nature of the awardwhich may be recovered. Damages for malicious prosecution arecompensatory and not intended to punish the defendant, althoughthey may have a punitive aspect in that punitive damages may beawarded. See AAA Employment, Inc. v. Weed, 457 So.2d 428, 432(Ala. Civ. App. 1984) (award of punitive damages requires ahigher degree of malice than is necessary merely to provemalicious prosecution); Thieme v. MacArthur, 285 Ill. App. 242,253, 1 N.E.2d 514, 518 (1936) (in a malicious prosecution case in"the absence of proof of malice, appellee would only be entitledto recover compensatory damages"); see generally, 25 I.L.P.