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Michael L. Calder | Bloomberg Law Continental Casualty Co. v. Howard Hoffman & Associates, Nos. 1-10-0957 and 1-10-1080, 2011 IL App (1st) 100957 (Ill. App. Ct. Aug. 15, 2011) A paralegal's embezzlement of funds from eleven separate client accounts should be treated as one claim under a professional legal liability insurance policy with policy limits of $100,000 per claim and $300,000 in the aggregate, according to an Illinois appellate court.
The Embezzlement SchemeJudith Stachura, a probate paralegal with the law firm of Howard Hoffman & Associates, pled guilty to eleven separate charges of embezzlement of funds from eleven separate client estates. Stachura's scheme involved the forging of the Administrator's or Executor's name on checks made payable to herself and the destruction of bank statements in order to conceal her crimes. As a result of the embezzlement, numerous estates asserted claims against the law firm. Hoffman notified its professional legal liability insurer, Continental Casualty Company, of the claims and informed Continental that the total losses exceeded the $300,000 aggregate limit.
The Continental PolicyContinental's policy covered Hoffman's for professional liability claims made and reported to Continental during the policy period. The policy included a limit of liability of $100,000 per claim, and $300,000 in the aggregate. The significance of these policy limits is that the insurer is liable for no more than $100,000 for each claim asserted against the insured, and no more than $300,000 during the entire policy period. Thus, if Stachura's scheme were deemed to be one claim, Continental would be liable for no more than $100,000, but if the scheme were deemed to constitute separate claims for each of the embezzled estates, Continental would be liable for up to the full $300,000 aggregate limit. Significantly, the policy included a provision that aggregated "related claims": "If related claims are subsequently made against the Insured and reported to the Company, all such related claims, whenever made, shall be considered a single claim . . ." The policy defined boldfaced terms, including the phrase "related claims": "'Related claims' means all claims arising out of a single act or omission or arising out of related acts or omissions in the rendering of legal services." The policy defined "related acts of omissions" as "all acts or omissions in the rendering of legal services that are temporally, logically, or causally connected by any common fact, circumstance, situation, transaction, event, advice, or decision."
Continental Files SuitContinental filed a declaratory judgment action against Hoffman and all of the estates that had asserted claims against Hoffman, asserting that Stachura's embezzlement constituted a common scheme, involving related acts that were causally connected, and that it was, therefore, liable for only $100,000. Hoffman and the estate defendants insisted that the $300,000 limit applied because Hoffman faced multiple unrelated claims. The trial court granted Continental's motion for summary judgment, ruling that the policy was clear and unambiguous, and that all of the allegations made against Hoffman by the various estate defendants were connected to Stachura's overall scheme. As a result, the trial court ruled that the "related claims" provision applied, and that Continental was liable for only $100,000. Hoffman and the estate defendants appealed.
The Policy Is Not AmbiguousHoffman and the estate defendants argued that the trial court erred in ruling that the policy was unambiguous insisting that the policy's inclusion of the phrase "logically . . . connected" rendered the policy ambiguous on its face and as a matter of law pursuant to the court's holding in Village of Camp Point v. Continental Casualty Co., 219 Ill. App. 3d 86 (1991). Camp Point, which involved a determination of the number of "occurrences" under professional legal liability policy, questioned the use of the concept of a "logical connection" to determine if actions were related under an insurance policy such that they should constitute a single "occurrence." The Camp Point court favorably cited an Arizona court opinion holding that if the court were "compelled to equate 'related' with 'logically connected,' we would be compelled to find the policy provision ambiguous." The court held that Camp Point and the Arizona decision were distinguishable because neither case used policy language similar to the language in Continental's policy. Furthermore, the court noted that Camp Point did not hold that the use of the phrase "logically connected" rendered the policy ambiguous as a matter of law. Finally, the court noted that while no Illinois appellate court had addressed policy language similar to Continental's policy, courts in other jurisdictions had, and had held that the language was unambiguous.
Allegations Against Hoffman Constitute a Single ClaimThe court noted that, although money was taken from different accounts, Stachura used the same modus operandi in each case and then used a common scheme of destroying bank statements from each account. The thefts were also connected because she used the funds from certain accounts to pay back money she had taken from other accounts. Therefore, the court held that Stachura's embezzlement of estate funds was a common fact, in all of the allegations against Hoffman, and that all of the acts or omissions alleged against Hoffman were connected to Stachura's embezzlement under the plain and ordinary meaning of the terms of Continental's policy. The court affirmed the ruling of the trial court, holding that the "related claims" provision applied, and that Continental was liable for only the $100,000 per claim limit of liability. Finally, the court rejected a number of additional arguments raised by Hoffman, including Hoffman's argument that the court should adopt the "reasonable expectations" doctrine, noting that a several Illinois courts have specifically rejected that the doctrine. The reasonable expectations doctrine, which has been adopted in several jurisdictions across the United States, holds that the insured's reasonable expectations will be honored even though the policy language would have negated those expectations. Disclaimer This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy. ©2014 The Bureau of National Affairs, Inc. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of The Bureau of National Affairs, Inc.
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