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ISBA Mutual Has No Duty To Defend Attorney In Legal Fee Dispute With Former Clients

The case is captioned Illinois State Bar Association Mutual Insurance Company v. Thomas W. Burkhart, et al., 2015 IL App (4th) 140936-U.

An attorney, Thomas Burkhart, represented Robert and Elizabeth Wilson in a real estate transaction and related litigation. That litigation ultimately resulted in a jury verdict of $30,000 for the Wilsons. Opinion ¶ 9. The proceeds were deposited with the Bank of Edwardsville.

In 2005, trouble arose when Burkhart filed a motion in the state court case seeking $35,806.85 in legal fees, apparently $5,806.85 more than the amount of the jury verdict. The Wilsons responded with a counterclaim for negligence and legal malpractice. Burkhart tendered the defense of the claims to ISBA Mutual, which agreed to pay for Burkhart’s defense.

In 2008, the circuit court granted summary judgment in favor of Burkhart on the malpractice claims. The court also awarded Burkhart 50% of the judgment. Burkhart then filed a motion to release the judgment proceeds. The Bank released the funds to Burkhart and the Wilsons. That was not the end of the story.

In February 2012, the Fifth District Appellate Court reversed the judgment, holding that the circuit court lacked jurisdiction to hear Burkhart’s request for an equitable lien on the judgment proceeds. “Thus, the order entering the equitable lien in Burkhart’s favor was void and the subsequent orders relying on the void order were likewise void.” Opinion at ¶ 9.

In 2012, the Wilsons filed two lawsuits against Burkhart. The first lawsuit sought the return of the judgment proceeds that had gone to Burkhart and interest. The second lawsuit was a request for an injunction barring Burkhart from referring to the case in his campaign for judge.

In October 2012, ISBA Mutual filed a declaratory judgment case against Burkhart seeking a declaration that it had no duty to defend either of the cases filed by the Wilsons. With respect to the first case, ISBA Mutual contended that the Wilsons did not allege negligent conduct by Burkhart. They merely alleged that he had wrongfully withheld judgment proceeds from them.

With respect to the injunction case, ISBA Mutual contended that the case contained no claim for damages, thus, there was no duty to defend.

The trial court held that ISBA Mutual had no duty to defend either case. The Appellate Court affirmed. There was no duty to defend the injunction case because that case contained no claim for damages. There was no duty to defend the case alleging that Burkhart wrongfully withheld legal fees because “Burkhart’s intentional act of withholding the judgment proceeds does not fall within the definition of ‘wrongful conduct’ because that term only applies to negligent conduct.”

The holding is consistent with well-settled law in the insurance coverage context under which an insurer does not have a duty to defend claims alleging an intentional act.

Edward X. Clinton, Jr.

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