Country Mut. Ins. Co. v. Olsak

2022 IL App (1st) 200695

216 N.E.3d 291

465 Ill.Dec. 1040

COUNTRY MUTUAL INSURANCE COMPANY, Plaintiff and Counterdefendant-Appellee and Cross-Appellant,

v.Thomas OLSAK; Joseph Pecoraro; Fremd School Hockey Club; and James W. Balkonis, Frank Biskner, William D. Degironemo, James Lapetina, Kenneth J. Nordgren, Edward J. Pudlo, and Matthew M. Sprenzel, as Members of the Board of Governors of the Fremd High School Hockey Club, Defendants

(Thomas Olsak, Individually, and as the Assignor of His Claims, Demands and Causes of Action to Joseph Pecoraro, and Joseph Pecoraro, as the Assignee under a Certain Settlement Agreement Dated June 26, 2006, Defendants and Counterplaintiffs-Appellants and Cross-Appellees).

Nos. 1-20-0695

1-20-0731 (cons.)

Appellate Court of Illinois, First District, First Division.

Filed June 27, 2022

Norman J. Lerum and Catherine E. Lerum, of Norman J. Lerum, P.C., of Chicago, and James Messineo, of James Messineo & Associates, of Inverness, for appellants Thomas Olsak and Joseph Pecoraro.

Keith G. Carlson, Jeffery A. Bier, and David M. Jenkins, of Carlson Bier Associates, LLC, of Chicago, for appellee Country Mutual Insurance Company.

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

¶ 1 In 1998, Thomas Olsak struck Joseph Pecoraro in the head, causing him to suffer a severe head injury. Pecoraro filed suit naming, inter alia , Olsak and Ed Pudlo, Olsak's stepfather, as defendants. At the time of the incident, Pudlo had two insurance policies in effect with Country Mutual Insurance Company (Country Mutual).

Country Mutual tendered a defense to Pudlo but did not defend Olsak due to the allegations of intentional conduct.

¶ 2 In 2005, Country Mutual filed the instant action, a complaint for declaratory judgment, seeking a finding that it was under no obligation to defend or indemnify Olsak in connection with Pecoraro's claim of injury. In 2006, Pecoraro and Olsak entered into a settlement agreement, whereby Olsak assigned to Pecoraro his rights under the Country Mutual policies in exchange for a release and discharge from all claims arising from the 1998 incident. In 2007, Olsak and Pecoraro filed a counterclaim, asserting, inter alia , that Country Mutual breached its duty to defend Olsak and that its failure to defend Olsak was vexatious and unreasonable under section 155 of the Illinois Insurance Code ( 215 ILCS 5/155 (West 2006) ).

¶ 3 Olsak and Pecoraro modified the 2006 agreement to include a settlement amount of $6 million in 2010. This court remanded the case for a reasonableness hearing regarding the 2010 agreement pursuant to the holding in Guillen v. Potomac Insurance Co. of Illinois , 203 Ill. 2d 141, 271 Ill.Dec. 350, 785 N.E.2d 1 (2003). See Country Mutual Insurance Co. v. Olsak , 2014 IL App (1st) 121063-U (Olsak II) . On remand, the circuit court found that the 2010 modified agreement was not the product of collusion, was supported by consideration, and was reasonable; but the circuit court also found that Country Mutual's total liability could not exceed its $3 million policy limits, and it entered judgment against Country Mutual for $3 million, instead of the $6 million settlement amount. Finally, the circuit court did not award section 155 damages, finding that Country Mutual's conduct was not vexatious or unreasonable. In this consolidated appeal, Olsak and Pecoraro and Country Mutual appealed the judgment of the circuit court. For the following reasons, we affirm.

¶ 4 I. BACKGROUND

¶ 5 On October 21, 1998, Olsak was a 17-year-old member of the Fremd High School Hockey Club (Fremd), and Pecoraro was the head coach of the team. On that date, Olsak struck Pecoraro, who fell to the floor unconscious, striking his head. Olsak was charged with and pleaded guilty to battery.

¶ 6 Pecoraro filed a complaint against Olsak on October 13, 2000. The complaint contained a single count for battery and named Pudlo, Fremd, and the individual members of the board of governors of Fremd as respondents in discovery. On July 19, 2001, the respondents in discovery were converted to defendants.

¶ 7 In count I of his second amended complaint, Pecoraro alleged assault and battery against Olsak. Pecoraro alleged that Olsak, while standing behind him, struck him in the head with a closed fist "without legal justification and with malicious intent to seriously injure." Pecoraro claimed he suffered permanent brain damage, including the loss of certain sensory and cognitive functions. He further alleged that Olsak did not act in self-defense. Count II alleged negligence on the part of Fremd and its individual board members, of which Pudlo was a member. Count III alleged negligent parental supervision against Pudlo.

¶ 8 At the time of the incident, Pudlo and Desiree Pudlo, Olsak's mother, (collectively the Pudlos) had in effect with Country Mutual a homeowners insurance policy and a personal and professional umbrella liability policy. The homeowner's policy had maximum liability limits of $1 million, and the umbrella policy had maximum liability limits of $2 million.

¶ 9 The homeowner's policy defined the "insured" to mean "you and the following residents of your household: 1. Your relatives; and 2. Persons under 21 in the care of those named above." The policy promised to "pay on behalf of an insured for damages caused by an occurrence resulting from bodily injury or property damage caused by an occurrence, if the insured is legally obligated." The policy defined an "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Additionally, the policy specifically excluded bodily injury or property damage "caused intentionally by or at the direction of an insured."

¶ 10 The umbrella policy defined "insured" as the named insured and "any relative or, if residents of the named insured's household, any other person under the age of twenty-one in the care of the named insured." The policy provided that Country Mutual "agrees to indemnify the insured for ultimate net loss in excess of the retained limit which the insured shall become legally obligated to pay *** as damages because of personal injury or property damage." It defined "personal injury" as "assault and battery not committed by or at the direction of the insured, unless committed *** for the purpose of protecting persons or property, including death resulting therefrom, sustained by any person." Coverage was excluded for "any act committed by or at the direction of the insured with intent to cause personal injury or property damage."

¶ 11 Pudlo tendered his defense to Country Mutual, and Country Mutual hired the firm of Chilton, Yambert, Porter & Young (the Chilton Yambert Law Firm) to represent Pudlo individually as to count III of Pecoraro's amended complaint. TIG Insurance(TIG), Fremd's insurer, hired an attorney to represent the board members. Pudlo also tendered the defense of Olsak to Country Mutual, but Country Mutual denied Olsak coverage due to the allegations of intentional conduct.

¶ 12 On November 8, 2000, Neal Napolitano, assistant general counsel for Country Mutual, sent a denial of coverage and denial of defense letter to Olsak at the Pudlo's home address. The letter explained that coverage was denied on the basis that the allegations of the underlying complaint did not fall under the policies’ definition of "occurrence" and that the intentional-acts exclusion applied. Following its denial of coverage to Olsak, Country Mutual neither defended Olsak under a reservation of rights, nor did it initially file a declaratory judgment action.

¶ 13 The Pudlos then independently retained the Chilton Yambert Law Firm to represent Olsak. The Chilton Yambert Law Firm advised Country Mutual that Olsak had retained the firm. Country Mutual did not approve or disapprove of the representation. The Chilton Yambert Law Firm, on behalf of Olsak, answered the second amended complaint and filed affirmative defenses.

¶ 14 The circuit court dismissed count III against Pudlo with prejudice on March 13, 2002, but Pudlo remained a defendant under the negligence count as a board member.

¶ 15 On April 18, 2003, Fremd and the individual board members filed a cross-claim against Olsak seeking contribution. The Chilton Yambert Law Firm notified the Pudlos of an estimate of fees for the balance of the case to represent Olsak. Pudlo then instructed the Chilton Yambert Law Firm not to defend the case, but to only "monitor" it and refrain from attending depositions, including medical depositions.

¶ 16 In June 2003, Olsak filed an affirmative defense alleging Pecoraro approached Olsak, who "felt threatened and perceived imminent harm."

¶ 17 On February 4, 2004, Country Mutual retained attorney Robert Shipley to represent Pudlo as a board member and to monitor the case. On May 11, Shipley filed a general appearance for Pudlo in the underlying action.

¶ 18 The Chilton Yambert Law Firm filed a motion to withdraw as Olsak's counsel on July 7, 2004, and the motion was granted on October 8, 2004. Olsak then represented himself in the underlying litigation from October 2004 until June 2006, when he reached a settlement with Pecoraro.

¶ 19 On February 9, 2005, Country Mutual filed the instant action, a complaint for declaratory judgment naming, inter alia , Olsak and Pecoraro as defendants. Country Mutual sought a declaratory judgment that it was under no obligation to defend or indemnify Olsak in connection with the underlying litigation or the counterclaim brought by Fremd and the board members. Country Mutual asserted that, due to Olsak's intentional acts, neither the homeowner's policy, nor the umbrella policy, covered the damages and that any injuries Pecoraro sustained are specifically excluded from coverage.

¶ 20 Stuart Kusper, of Katten Muchin Rosenman, LLP, appeared for Olsak in the declaratory judgment claim, and the circuit court...