Spiegel v. Zurich Insurance Co.

SIXTH DIVISION
November 7, 1997


No. 1-97-0842

MARSHALL SPIEGEL, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County
)
v. )
)
ZURICH INSURANCE COMPANY, )
STATE FARM INSURANCE COMPANY, )
CONTINENTAL CASUALTY COMPANY, and )
EMPLOYERS MUTUAL CASUALTY COMPANY, ) Honorable
) Sheldon Gardner,
Defendants-Appellees. ) Judge Presiding.

PRESIDING JUSTICE GREIMAN delivered the opinion of the
court:
Plaintiff Marshall C. Spiegel appeals the trial court's
entry of summary judgment against him, finding that coverage in
insurance policies for malicious prosecution claims does not
include coverage for sanctions imposed by a court. We affirm.
In an unrelated federal case, the seventh circuit imposed
$34,000 in sanctions against plaintiff pursuant to Rule 38 of the
Federal Rules of Appellate Procedure (Fed. R. App. P. 38) for
filing a frivolous appeal. Spiegel v. Continental Illinois
National Bank, 790 F.2d 638 (7th Cir. 1986). Plaintiff, the
beneficiary of a trust established by his father, Oscar Spiegel,
filed two lawsuits in federal district court against the trustee,
Continental Illinois National Bank, and certain employees of the
trustee, disputing the propriety of the trustee's management of
the trust. The first lawsuit concluded when the district court
granted summary judgment to the defendants and plaintiff did not
appeal. The second lawsuit concluded when the district court
dismissed the complaint based partially on res judicata from the
first lawsuit and partially on the failure of the complaint to
set forth a claim for mail fraud, as a matter of law. Plaintiff
appealed the dismissal of his second lawsuit. The seventh
circuit affirmed the dismissal of plaintiff's complaint and
imposed sanctions against plaintiff under Rule 38 of the Federal
Rules of Appellate Procedure (Fed. R. App. P. 38) for filing a
frivolous appeal. Spiegel, 790 F.2d 638.
Plaintiff then tendered claims for the Rule 38 sanctions to
the four defendant insurance carriers, i.e., Zurich Insurance
Company (Zurich), State Farm Insurance Company (State Farm),
Continental Casualty Company (Continental), and Employers Mutual
Casualty Company, based on the policies' coverage for malicious
prosecution claims. There is no dispute that the insurance
policies at issue afford coverage for "malicious prosecution"
under their coverage for "personal injury."
When the insurance carriers declined to cover the claims
predicated upon the Rule 38 sanctions, plaintiff filed a four-
count complaint alleging breach of contract against each
insurance carrier. Plaintiff voluntarily dismissed, without
prejudice, defendant Employers Mutual Casualty Company and,
therefore, it is not a party in this appeal.
On November 14, 1996, State Farm filed a motion for summary
judgment. In its motion, State Farm asserted that plaintiff's
claim for breach of contract could be resolved as a matter of law
because a cause of action for malicious prosecution was not filed
against plaintiff and the insurance policies did not provide
coverage to plaintiff for these judicially imposed punitive
damages.
On February 5, 1997, the trial court granted summary
judgment in favor of State Farm. The order also noted that the
other defendants (Zurich and Continental) "made oral joinders to
State Farm's motion." Accordingly, the trial court also entered
summary judgment in favor of the other two defendants.
On appeal, plaintiff asserts that the trial court erred in
entering summary judgment because, as a matter of law, the
offense of malicious prosecution is equivalent to the conduct of
frivolous litigation for which sanctions were imposed and,
therefore, falls within the coverage afforded by the subject
insurance policies. We disagree.
Our review of a summary judgment ruling is de novo. McNamee
v. State of Illinois, 173 Ill. 2d 433, 438 (1996); Outboard
Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102
(1992). Summary judgment is proper where there are no genuine
issues of material fact and the moving party is entitled to
judgment as a matter of law. Outboard Marine, 154 Ill. 2d at
102. Where no factual issues are raised on appeal, the sole
question on review is whether the trial court's entry of summary
judgment is proper as a matter of law. McNamee, 173 Ill. 2d at
438.
To establish malicious prosecution, the plaintiff must (1)
show that the defendant brought the underlying suit maliciously;
(2) show that the defendant brought the underlying suit without
probable cause; (3) establish that the former action was
terminated in his or her favor; and (4) plead and prove some
"special injury" or special damage beyond the usual expense, time
or annoyance in defending a lawsuit. Cult Awareness Network v.
Church of Scientology International, No. 80868, slip. op. at 4
(September 18, 1997).
At the time the federal court imposed sanctions against
plaintiff, Rule 38 of the Federal Rules of Appellate Procedure
provided: "If a court of appeals shall determine that an appeal
is frivolous, it may award just damages and single and double
costs to the appellee." Fed. R. App. P. 38, printed in 28 U.S.C.
R. 38 (1988) (amended 1994).
To apply Rule 38, the federal courts make two
determinations. First, to establish that the appeal was
frivolous, the court must determine whether the result of the
appeal was obvious or the appellant's argument is wholly without
merit. Spiegel, 790 F.2d at 650. Second, the court must
determine whether sanctions are appropriate by looking for "an
'indication of the appellant's bad faith suggesting that the
appeal was prosecuted with no reasonable expectation of altering
the district court's judgment and for purposes of delay or
harassment or out of sheer obstinacy.'" Spiegel, 790 F.2d at
650, quoting Reid v. United States, 715 F.2d 1148, 1155 (7th Cir.
1983).
To exemplify the elements of Rule 38, plaintiff directs
attention to several federal decisions: Munoz v. Strahm Farms,
Inc., 69 F.3d 501 (Fed. Cir. 1995) (sanctions imposed because the
appeal was frivolous as filed and as argued); Leahy v. Board of
Trustees of Community College District No. 508, 912 F.2d 917 (7th
Cir. 1990) (sanctions imposed where the appeal had absolutely no
chance of success and was prosecuted out of sheer obstinacy);
Ruderer v. Fines, 614 F.2d 1128 (7th Cir. 1980) (the court
imposed sanctions sua sponte in light of the appellant's entire
course of conduct over the years and his litigious proclivities);
Ratcliff v. Texas, 714 F.2d 24 (5th Cir. 1983) (Rule 38 sanctions
were imposed where the appeal was prosecuted for the purpose of
harassment or out of sheer obstinacy); Depoister v. Mary M.
Holloway Foundation, 36 F.3d 582 (7th Cir. 1994) (no sanctions
were imposed where the court found that there was no bad faith in
pursuing the appeal). None of these cases, however, address or
compare the tort of malicious prosecution and Rule 38 sanctions.
Applying the law of other states, three federal decisions
have compared malicious prosecution with other causes of actions,
not with Rule 38 sanctions. A claim under a Pennsylvania statute
for wrongful use of civil proceedings was covered in an insurance
policy that included claims for malicious prosecution in
Northwestern National Casualty Co. v. Century III Chevrolet,
Inc., 863 F. Supp. 247 (W.D. Pa. 1994). The district court in
Northwestern National Casualty held that an insurance policy's
coverage for claims of malicious prosecution included claims
under a Pennsylvania statute for wrongful use of civil
proceedings because the statute replaced the common law cause of
action for malicious prosecution. Northwestern National
Casualty, 863 F. Supp. at 248. In addition, the court reasoned
that any ambiguity in the policy language regarding the scope of
coverage should be construed against the insurance company.
Northwestern National Casualty, 863 F. Supp. at 248. In
comparing the common law tort of malicious prosecution with the
statute for wrongful use of civil proceedings, the court
acknowledged that the two causes of action contained some
different elements but the difference was "superficial" and
ignored the purpose and effect of the statute. Northwestern
National Casualty, 863 F. Supp. at 249-50. Unlike the
Pennsylvania law applied in Northwestern National Casualty,
Illinois has not replaced the common law tort of malicious
prosecution with a statute.
Applying Wisconsin and Mississippi law, a district court in
Wisconsin held that the term "malicious prosecution" in an
insurance policy included "abuse of process" in Koehring Co. v.
American Mutual Liability Insurance Co., 564 F. Supp. 303 (E.D.
Wis. 1983). However, the same Wisconsin court subsequently
applied Wisconsin law and held that a claim for abuse of process
did not come within the coverage of a personal liability policy
that specifically covered "malicious prosecution" in Heil Co. v.
Hartford Accident & Indemnity Co., 937 F. Supp. 1355 (E.D. Wis.
1996).
Moreover, the seventh circuit has recognized a distinction
between the two causes of action in Smart v. Board of Trustees of
University of Illinois, 34 F.3d 432 (7th Cir. 1994). "Malicious
prosecution" is the bringing of a suit known to be groundless;
"abuse of process" is the bringing of a suit that may have solid
grounding in law but that the plaintiff has filed not in order to
vindicate his legal rights and obtain judgment but in order to
harass defendant. Smart, 34 F.3d at 434.
Illinois law also recognizes and upholds the distinction
between the torts of malicious prosecution and abuse of process.
Arora v. Chui, 279 Ill. App. 3d 321 (1996). In Arora, the court
enunciated the distinct elements of each tort and separately
addressed each tort. The Arora court held that the plaintiffs
failed to establish a prima facie case for malicious prosecution
based on their failure to prove that the underlying suit was
terminated in their favor (Arora, 279 Ill. App. 3d at 330) and
failed to assert a cause of action for abuse of process because
the filing of a lis pendens notice did not involve the misuse of
the process of the court (Arora, 279 Ill. App. 3d at 332).
In addition, Illinois law recognizes and upholds the
distinction between the tort of malicious prosecution and the
remedy of pleading-related sanctions available under Illinois
Supreme Court Rule 137 (134 Ill. 2d R. 137). Levin v. King, 271
Ill. App. 3d 728, 737 (1995). The underlying facts in Levin
reveal that the plaintiff initially threatened to pursue
litigation to protest a proposed development project in which the
defendant land developer had sought financing. In turn, the
defendant then filed an action against the plaintiff for tortious
interference with advantageous business relationship. After a
trial, the circuit court directed a verdict against the
defendant. Next, the plaintiff filed a malicious prosecution
action against the defendant based on the defendant's tortious
interference suit. The trial court granted judgment on the
pleadings for the defendant, finding that, as a matter of law,
the plaintiff failed to allege the element of special injury
necessary to establish a malicious prosecution case. In
affirming the trial court's decision, the appellate court
specifically declined to depart from the special injury rule in a
malicious prosecution action and reasoned, in pertinent part,
that Rule 137 was created by our supreme court as a remedy for
suits that are not well grounded in fact or law. Levin, 271 Ill.
App. 3d at 737.
The federal and state courts have clearly adhered to the
distinctions between the torts of malicious prosecution and abuse
of process. No cases have been advanced by the parties or found
in research that equate malicious prosecution and court-imposed
sanctions. Moreover, plaintiff does not argue, or even suggest,
that the term "malicious prosecution" as stated and used in the
insurance policies is ambiguous. Instead, plaintiff seeks to
expand the term to graft Rule 38 sanctions onto insurance
policies to fit an event that is not mentioned or considered in
the policies.
We find that judicially imposed sanctions are not within the
ambit of the term "malicious prosecution" in the subject
insurance policies. The common law tort of malicious prosecution
contains significant strictures and rules. The most recent
pronouncement on this tort by the Illinois Supreme Court in Cult
Awareness Network does not change the cause of action or its
elements. Cult Awareness Network, No. 80868 (September 18,
1997).
For the foregoing reasons, we find that a claim of malicious
prosecution is not equivalent to sanctions imposed by a court for
purposes of insurance coverage, as a matter of law. Accordingly,
we affirm the trial court's order of summary judgment in favor of
defendants.
Affirmed.
ZWICK and QUINN, JJ., concur.