2025 IL App (1st) 232353 No. 1-23-2353 Opinion filed March 5, 2025 Third Division ______________________________________________________________________________
IN THE APPELLATE COURT OF ILLINOIS FIRST DISTRICT ______________________________________________________________________________ CHICAGO RESTAURANT MANAGEMENT GROUP, ) Appeal from the LLC, DAVID FLOM, and MATTHEW MOORE, ) Circuit Court of ) Cook County. Plaintiffs-Appellees, ) ) v. ) No. 20 L 13791 ) GREAT AMERICAN INSURANCE COMPANY and ) AON RISK SERVICES CENTRAL, INC., ) ) Defendants ) ) (Great American Insurance Company, Defendant- ) Honorable Appellant, and Aon Risk Services Central, Inc., ) Catherine A. Schneider, Defendant-Appellee). ) Judge, presiding.
PRESIDING JUSTICE LAMPKIN delivered the judgment of the court, with opinion. Justices Reyes and Martin concurred in the judgment and opinion.
OPINION
¶1 Defendant Great American Insurance Company (Great American) denied a claim for
coverage filed by the insureds—plaintiffs Chicago Restaurant Management Group, LLC (Chicago
Group), David Flom, and Matthew Moore—which claim was based on an underlying arbitration
demand against them. Plaintiffs sued Great American, seeking a declaration that they were entitled No. 1-23-2353
to coverage and alleging, inter alia, a claim of breach of contract. Plaintiffs also sued their
insurance broker, defendant Aon Risk Services Central, Inc. (Aon), alleging claims of professional
negligence and negligent misrepresentation.
¶2 Great American filed a counterclaim against plaintiffs, seeking a declaration that it had no
duty to defend or indemnify them regarding either an earlier underlying lawsuit, for which
plaintiffs never gave notice to Great American and never sought coverage, or the arbitration
demand that was the basis of plaintiffs’ coverage claim.
¶3 Great American moved for summary judgment, and plaintiffs filed a cross-motion for
partial summary judgment. Relevant to this appeal, the circuit court granted summary judgment in
favor of plaintiffs and against Great American on plaintiffs’ declaratory relief and breach of
contract claims. The court also granted summary judgment in favor of plaintiffs and against Great
American on Great American’s counterclaim regarding the arbitration demand.
¶4 On appeal, Great American argues that it is entitled to summary judgment because
plaintiffs’ claim based on the arbitration demand is a “Related Wrongful Act” under the terms of
the policy and shares a “common nexus” or “causal connection” with the earlier underlying
lawsuit, of which plaintiffs never gave Great American timely notice.
¶5 For the reasons that follow, we affirm the judgment of the circuit court. 1
1 In adherence with the requirements of Illinois Supreme Court Rule 352(a) (eff. July 1, 2018), this appeal had been resolved without oral argument upon the entry of a separate written order.
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¶6 I. BACKGROUND
¶7 Plaintiffs Flom and Moore were owners of Chicago Cut Steakhouse, LLC (Chicago Cut)
and members of plaintiff Chicago Group, which develops and manages restaurants. This case
arises from plaintiffs’ attempt to gain insurance coverage, based on an underlying 2019 arbitration
demand against them, under a policy issued by defendant Great American. Defendant Aon was
plaintiffs’ insurance broker at all relevant times.
¶8 Great American issued two separate but substantively identical policies to Chicago Group
for two successive policy periods. Specifically, in July 2017, Great American issued a “claims
made” management liability solutions insurance policy to Chicago Group effective for the period
July 14, 2017, to July 14, 2018 (2017-2018 policy). In July 2018, Great American issued another
management liability solutions insurance policy to Chicago Group, effective for the period July
14, 2018, to July 14, 2019, renewing the 2017-2018 policy terms (2018-2019 policy).
¶9 In April 2018, during the 2017-2018 policy period, four Chicago Cut investors (Michael
Forde, Mark Defife, John Koutoupis, and Frank Phillips), acting individually and derivatively on
behalf of Chicago Cut, filed a lawsuit against plaintiffs in the Cook County Chancery Division,
seeking declaratory relief for access to Chicago Cut’s corporate books and records (the 2018
lawsuit). The 2018 lawsuit described the nature of action as “an action by members of [Chicago
Cut] to enforce their basic and undisputed statutory right to inspect the books and records of
[Chicago Cut] in which they invested and are members.” The investors explained that the 2018
lawsuit was based on their “desire to know the true financial situation of the restaurant and [limited
liability company].”
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¶ 10 The investors based their demand for corporate records on (1) a private placement
memorandum prepared by plaintiffs, (2) Chicago Cut’s operating agreement, and (3) the Limited
Liability Company Act (805 ILCS 180/1-1 et seq. (West 2016)). The 2018 lawsuit set forth two
causes of action seeking only injunctive relief. In count I, the investors sought an injunction
requiring that Chicago Cut’s records be produced and alleged that plaintiffs failed “to produce
these materials *** in violation of their statutory duties.” In count II, the investors brought a
derivative claim seeking an injunction preventing Chicago Cut from paying plaintiffs’ attorney
fees in defending the 2018 lawsuit and alleging that plaintiffs’ failure to provide corporate records
was a “violation of their fiduciary and statutory duties.” The 2018 lawsuit relied on plaintiffs’
alleged practice of providing “very little information about [Chicago Cut’s] finances.” Plaintiffs
did not submit a claim to Great American seeking coverage for the 2018 lawsuit during the 2017-
2018 policy period. Ultimately, plaintiffs produced the books and records that were the subject of
the 2018 lawsuit, so the injunctive relief sought in that lawsuit was not pursued thereafter.
¶ 11 In February 2019, five Chicago Cut investors (John Koutoupis, Noel “Skip” Dunn,
Brendan Gilligan, Mark Defife, and Frank Phillips) individually, derivatively, and as class action
representatives, filed a private arbitration demand against plaintiffs, alleging various tort and
breach of contract claims. The arbitration demand sought over $8 million in damages from
plaintiffs, alleging they had misappropriated at least that amount of Chicago Cut’s corporate funds.
The arbitration demand described the nature of action as:
“[A] derivative action *** to end [plaintiffs’] ongoing breaches of their fiduciary,
contractual and statutory duties, terminate [Chicago Group’s management of Chicago Cut],
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terminate the [Chicago Cut] membership interests of Flom and Moore, recoup millions of
dollars that [plaintiffs] have misappropriated from [Chicago Cut], and prevent [plaintiffs’]
ongoing efforts to pilfer millions of dollars per year from [Chicago Cut].”
¶ 12 As background, the arbitration demand restated, verbatim, certain of the 2018 lawsuit
allegations concerning plaintiffs’ failure to produce records pursuant to the Chicago Cut private
placement memorandum and operating agreement. However, plaintiffs’ failure to produce those
corporate records bore no relationship to any of the relief sought in the arbitration demand. The
arbitration demand rested upon plaintiffs’ alleged conduct with respect to Chicago Cut’s assets
and alleged (1) improper loans from Chicago Cut to Flom and Moore totaling over $1 million,
(2) improper licensing fees charged by Chicago Group to Chicago Cut for use of the Chicago Cut
name totaling over $3 million, (3) improper (“double-dipping”) salary payments over the
management fee paid by Chicago Cut to Chicago Group totaling over $3 million, (4) improper and
“exorbitant” personal expense reimbursements, and (5) improper loans by Chicago Cut to another
restaurant. The investors alleged that these various forms of misappropriation stemmed back to at
least 2015, approximately three years before the 2018 lawsuit.
¶ 13 The arbitration demand set forth seven derivative and class causes of action seeking
termination of plaintiffs’ management agreement, expulsion of plaintiffs as members of Chicago
Cut, appointment of a receiver, an accounting, and compensatory and punitive damages. The
arbitration demand did not include any cause of action seeking access to books and records, nor
did it otherwise request any relief relating to Chicago Cut’s books and records. Ultimately,
plaintiffs entered into a confidential settlement agreement to resolve the arbitration demand, which
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included monetary payments by plaintiffs to Chicago Cut. Plaintiffs also incurred substantial
attorney fees and costs in defending the arbitration. The settlement agreement recognized that there
was no admission by plaintiffs of the wrongdoing alleged in the arbitration demand.
¶ 14 In March 2019, Aon provided, on behalf of plaintiffs, notice to Great American of the
arbitration demand during the 2018-2019 policy period. In May 2019, Great American denied
plaintiffs’ claim for coverage of losses from the arbitration demand on the basis that their notice
of the claim was untimely. According to Great American, the 2018 lawsuit’s declaratory relief
claims and the arbitration demand’s tort and breach of contract claims constituted “Related
Wrongful Acts” under the insurance policy’s terms. Thus, Great American asserted that the 2018
lawsuit and the arbitration demand were a “Single Claim,” requiring that plaintiffs provide notice
during the preceding policy period. Great American also denied the claim because plaintiffs’ losses
from the arbitration demand stemmed from their misappropriation of funds and thus were not
covered under the insurance policy.
¶ 15 As a result of Great American’s denial, plaintiffs sued Great American in the case at issue
here, seeking a declaration that they were entitled to coverage for the monetary payments and
losses identified in the settlement of the arbitration demand. Plaintiff also alleged, inter alia, a
claim of breach of contract against Great American. Furthermore, plaintiffs sued Aon, alleging
claims of professional negligence and negligent misrepresentation.
¶ 16 Great American moved for summary judgment, requesting, in pertinent part, that the court
find that the 2018 lawsuit and the arbitration demand were a “Single Claim” under the “Related
Wrongful Acts” provision of the insurance policy, thereby precluding coverage for the arbitration
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demand under the 2018-2019 policy. Plaintiffs filed a cross-motion for partial summary judgment,
opposing Great American’s arguments on the “Related Wrongful Acts” issue. Aon filed a response
in opposition to Great American’s summary judgment motion, arguing that Great American’s
determination on the “Related Wrongful Acts” issue was incorrect as a matter of law. 2
¶ 17 In September 2023, the circuit court issued an order rejecting Great American’s position
and agreeing with plaintiffs and Aon. The circuit court found that the 2018 lawsuit and the
arbitration demand were not “Related Wrongful Acts” because they “[did] not share a common
nexus nor [were] they causally connected.” It reasoned that the 2018 lawsuit “involve[d] the books
and record request from certain Chicago Cut investors,” while the arbitration demand separately
brought “claims that [were] unrelated to Chicago Cut turning over the books and records.” The
circuit court further explained that, while the arbitration demand “reference[d] the [2018] lawsuit,”
it did so “only so far as it provide[d] background for the arbitration demand.” Finally, the circuit
court held that the 2018 lawsuit was “not causally connected to the arbitration demand” because
“even if the [2018] lawsuit had not occurred because the books and records were turned over, the
arbitration demand would have still been filed.” Later, the circuit entered an agreed order finding,
pursuant to Illinois Supreme Court Rule 304(a) (eff. Mar. 8, 2016), that there was no just reason
for delaying appeal of the September 2023 order.
¶ 18 Great American timely appealed.
2 Aon, however, agrees with Great American that the 2018-2019 policy ultimately does not provide coverage to plaintiffs for the arbitration demand because their losses from that proceeding resulted from the misappropriation of Chicago Cut’s funds and, thus, those losses are uninsurable pursuant to the 2018- 2019 policy’s terms and as a matter of law. The circuit court has not ruled on that issue and it is not part of this appeal.
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¶ 19 II. ANALYSIS
¶ 20 Great American moves this court to strike Aon’s appellee brief or, alternatively, to allow
additional pages for Great American’s reply brief. Great American states that the September 2023
order on appeal addressed only plaintiffs’ counts against Great American and the two counts of
Great American’s counterclaim against plaintiffs. Without citation to any relevant authority, Great
American argues that this court should strike Aon’s appellee brief because Aon has designated
itself as a defendant-appellee but did not seek leave to file a response brief on appeal from the
September 2023 order that did not address any count or cause of action by or against Aon.
¶ 21 We deny Great American’s motion. It is well established that
“ ‘[r]eviewing courts are entitled to have the issues clearly defined, to be cited pertinent
authorities and are not a depository in which an appellant is to dump *** argument and
research as it were, upon the court’ [citation] and failure to cite to authority may result in
forfeiture of the issue on appeal. [Citation.]” Northwestern Memorial Hospital v. Sharif,
2014 IL App (1st) 133008, ¶ 20.
Furthermore, Aon is a party to this case, and Illinois Supreme Court Rule 341(i) (eff. Oct. 1, 2020)
contemplates the filing of briefs by “the appellee and other parties.” In addition, the sole issue
raised in this appeal—i.e., whether the “Related Wrongful Acts” provision of the policy applies to
plaintiffs’ insurance claim to Great American—fundamentally impacts Aon’s potential liability.
Finally, Aon, which had filed a response to Great American’s summary judgment motion before
the circuit court, does not inject any new or improper arguments into this appeal.
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¶ 22 A trial court’s ruling on a motion for summary judgment is reviewed de novo on appeal.
Acuity v. M/I Homes of Chicago, LLC, 2023 IL 129087, ¶ 20. Questions of law relating to the
construction of language in an insurance policy are also reviewed de novo. Id.; Sproull v. State
Farm Fire & Casualty Co., 2021 IL 126446, ¶ 19. Summary judgment is appropriate only where
there is no genuine issue as to any material fact and the moving party is entitled to a judgment as
a matter of law. 735 ILCS 5/2-1005(c) (West 2016); Acuity, 2023 IL 129087, ¶ 20.
¶ 23 Great American argues that the circuit court erred when it found that the 2018 lawsuit and
the arbitration demand are not “Related Wrongful Acts.” Great American argues that the two
actions share a “common nexus” or “causal connection” because they arise from alleged breaches
of plaintiffs’ fiduciary duties, they allege overlapping or similar claims, and the Chicago Cut
investors filed the arbitration demand after receiving the books and records sought in the 2018
lawsuit.
¶ 24 Only the 2018-2019 policy is relevant to the issue on appeal here. With respect to the
directors’ and officers’ (D & O) coverage at issue here, section II.A of the 2018-2019 policy
defined a “Claim,” in pertinent part, as:
“(1) a written demand, other than a Shareholder Derivative Demand, for monetary
or [nonmonetary] relief;
(2) a civil proceeding commenced by the service of a complaint or similar pleading;
***
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(5) an arbitration *** proceeding if the Insured is obligated to participate in such
proceeding or if the Insured agrees to participate in such proceeding with the Insurer’s
written consent;”
The policy’s general terms and conditions also contained a definition in section II.O addressing
when multiple claims were to be treated as a “Single Claim” for the purpose of reporting a “Claim”
to Great American:
“O. Single Claim shall mean all Claim(s) involving the same Wrongful Act or
Related Wrongful Acts”
Section II.N of the D & O coverage provisions of the policy defined “Wrongful Act(s)” as:
“N. Wrongful Act(s) shall mean:
(1) any actual or alleged act, omission, error, misstatement, misleading
statement, neglect, breach of duty by any Insured Persons in their capacity as such
*** or any matter claimed against any Insured Persons by reason of their status as
Insured Persons;
(2) with respect only to Insuring Agreement I.C., any actual or alleged act,
omission, error, misstatement, misleading statement, neglect or breach of duty by
the Company;”
Finally, the policy’s general terms and conditions in section II.N defined “Related Wrongful Acts”
as:
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“N. Related Wrongful Acts shall mean all Wrongful Acts that have as a common
nexus, or are causally connected by reason of any fact, circumstance, situation, event or
decision.” (Emphases added.)
¶ 25 Based on these definitions, the policy’s general conditions in section VIII.A.(3) set forth
the following provision for calculating the “claims made” date where a “Single Claim” was
involved.
“(3) All Claims constituting a Single Claim shall be deemed to have been made on
the earlier of the following dates: (1) the earliest date on which any such Claim was first
made; or (2) the earliest date on which any such Wrongful Act or Related Wrongful Act
was reported under this Policy or any other policy providing similar coverage.”
¶ 26 The unambiguous, plain language of the definition of the “Related Wrongful Acts”
provision supports the circuit court’s ruling that the 2018 lawsuit and the arbitration demand do
not fall within that definition because they do not share any “common nexus.” The 2018 lawsuit
sought an injunction for plaintiffs’ failure to produce corporate records whereas the arbitration
demand sought millions of dollars in damages for plaintiffs’ alleged misappropriation of corporate
funds. Nor are the two actions “causally connected.” Plaintiffs’ alleged failure to produce corporate
records did not cause plaintiffs’ misappropriation of funds.
¶ 27 The policy defines “Related Wrongful Acts” as those that have “a common nexus or are
causally connected by means of any fact, circumstance, situation, event or decision.” Courts
construe unambiguous terms by their plain and ordinary meaning. The Hanover Insurance Co. v.
MRC Polymers, Inc., 2020 IL App (1st) 192337, ¶ 38. The term “nexus” means a connection or
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link, also a causal link. See Merriam-Webster’s Collegiate Dictionary 836 (11th ed. 2020); Black’s
Law Dictionary 1066 (7th ed. 1999). The term “causal” means of, relating to, or constituting a
cause; involving causation or a cause; and arising from a cause. See Merriam-Webster’s Collegiate
Dictionary 196 (11th ed. 2020); Black’s Law Dictionary 212 (7th ed. 1999). “Causation” means
“the act or process of causing,” “the act or agency which produces an effect.” Merriam-Webster’s
Collegiate Dictionary 196 (11th ed. 2020); see Black’s Law Dictionary 212 (7th ed. 1999) (“[t]he
causing or producing of an effect”).
¶ 28 The 2018 lawsuit and the arbitration demand neither share a “common nexus” nor are they
“causally connected” per the plain meaning of those terms. First, there is no “nexus” between the
2018 lawsuit and the arbitration demand. The 2018 lawsuit is premised on plaintiffs’ breach of a
specific contractual and statutory obligation to provide access to corporate documents. The
arbitration demand is premised on an entirely different breach of the duty to refrain from self-
dealing in corporate assets. These obligations, duties, and breaches are separate and distinct; there
is no connection or link between the separate breaches, nor is plaintiffs’ breach relating to self-
dealing part of any “connected group or series” involving the earlier breach of plaintiffs’
contractual and statutory obligation to provide corporate records.
¶ 29 Furthermore, plaintiffs’ failure to share corporate records is not “causally connected” to
their alleged misappropriation of funds. There is no allegation in the 2018 lawsuit or the arbitration
demand suggesting plaintiffs’ breach of their contractual and statutory obligation to provide
Chicago Cut’s investors with access to books and records caused their misappropriation of funds.
There is no evidence that the Chicago Cut investors would have refrained from filing the arbitration
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demand if plaintiffs had not breached their contractual and statutory obligation to provide books
and records. The opposite is true; if plaintiffs had immediately turned over the requested books
and records, that compliance would not have stopped the investors from filing the arbitration
demand for misappropriation of corporate funds. The 2018 lawsuit and the events underlying it
had no causal effect on the arbitration demand.
¶ 30 A comparison of the 2018 lawsuit and the arbitration demand confirms that they share no
common nexus and are not causally connected. The 2018 lawsuit sought to enforce the investors’
“statutory right” to inspect corporate records, and the investors’ same right under Chicago Cut’s
operating agreement. Unlike the arbitration demand, the 2018 lawsuit did not allege
misappropriations, improper loans, inappropriate licensing fees, double-dipping salary payments,
or exorbitant personal expenses. The arbitration demand brought various tort and breach of
contract claims against plaintiffs, due to their “efforts to pilfer millions of dollars per year” from
Chicago Cut. The arbitration demand does not connect plaintiffs’ efforts to “pilfer” the corporate
coffers with plaintiffs’ failure to fulfill their contractual and statutory obligation to provide investor
access to corporate records.
¶ 31 Great American emphasizes that the investors repeated some allegations from the 2018
lawsuit in the arbitration demand when describing the history of the parties’ relationship. As the
circuit court correctly observed, the arbitration demand did so “only so far as it provide[d]
background for the arbitration demand.” That the arbitration demand repeats these allegations does
not render the causes of action, breaches of duty, relevant underlying facts, or relief sought in the
two actions the same (or even similar). We recognize that separate lawsuits need not involve
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precisely the same parties, legal theories, wrongful acts, and requests for relief to constitute
“Related Wrongful Acts.” See Cushman & Wakefield, Inc. v. Illinois National Insurance Co., No.
14 C 8725, 2018 WL 1898339, at *17 (N.D. Ill. Apr. 20, 2018). Nevertheless, we conclude that
the circuit court here ruled correctly because the two actions contained entirely different causes of
action, legal theories and requested relief.
¶ 32 Great American cites an unpublished order filed under Illinois Supreme Court Rule 23 (eff.
Feb. 1, 2023), Steadfast Insurance Co. v. State Parkway Condominium Ass’n, 2023 IL App (1st)
220888-U, to support its argument that the circuit court erred in finding that the “Related Wrongful
Acts” provision does not apply here. However, the various claims underlying the insurance
coverage litigation in Steadfast are distinguishable from the facts of this case. Critically, the
Steadfast court found that those claims constituted “Related Wrongful Acts” because they “all
repeated similar allegations of Wrongful Acts,” consisting of alleged “numerous incidents of
retaliatory, harassing, and discriminatory conduct” against Novak, the condominium owner
involved in multiple actions against State Parkway Condominium Association (the Association).
Id. ¶ 75. While one of the many claims Novak brought against the Association did involve an
alleged breach of duty for failing to respond to a books and records request, the Steadfast court did
not mention that claim once in explaining why the string of underlying litigation constituted
“Related Wrongful Acts.” 3 See id. ¶¶ 7, 75, 79. Rather, the court found that the claims in Novak’s
lawsuits “all arose out of [the Association’s] alleged continuous harassing and discriminatory
3 Great American implies that the Steadfast court focused on the books and records-related claim in its holding. However, the portions of Steadfast that Great American cites—and the only portions of the opinion referencing that claim whatsoever—are from the court’s background description of Novak’s various lawsuits. Steadfast, 2023 IL App (1st) 220888-U, ¶¶ 6-7.
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conduct and retaliation for” the initial lawsuit Novak had filed in 2007, which alleged the
Association failed to make reasonable accommodations for his disability. Id. ¶¶ 5, 75.
¶ 33 A closer examination of the various claims brought by Novak in Steadfast shows why the
reasoning of that order’s holding does not apply to the facts here.
(1) In January 2007, Novak filed his first claim against the Association with the
Illinois Department of Human Rights (“IDHR”), alleging the Association “failed to make
reasonable accommodations for his hearing impairment at a January 2006 [condominium
association] board meeting” Id. ¶ 5.
(2) In March 2008, the Association filed a lawsuit against Novak, alleging
violations of Association rules and regulations and harassment by Novak. Id. ¶ 6.
(3) In January 2009, Novak filed a counterclaim in that same lawsuit, alleging
“discriminatory and harassing conduct by [the Association]” and individuals and entities
affiliated with the Association. Id. Novak alleged that this discriminatory and harassing
conduct was in retaliation for his attempts to obtain books and records, attempts to bring
to light accounting discrepancies, and due to his disability. Id.
(4) Novak later amended his counterclaims twice. In his second amended
counterclaim, Novak “added additional allegations of conduct through July 2009 that had
occurred” since his first counterclaim. Id. ¶ 7. In total, Novak’s claims involved allegations
that the Association targeted him with additional rules, fees, and penalties; failed to comply
with books and records inspection laws; failed to respond to requests for documents; and
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discriminated against him by failing to make various accommodations for his disability.
Id.
(5) In November 2010, Novak filed another housing discrimination complaint
against the Association with the IDHR, alleging, inter alia, that the Association had
engaged in numerous forms of disability discrimination. Id. ¶ 8.
(6) In November 2013, Novak filed a federal lawsuit against the Association and
other related individuals and entities, alleging violations of fair housing laws and negligent
infliction of emotional distress. Id. ¶ 9.
The “common nexus” and “causal connection” between these lawsuits is the core allegation that
the Association engaged in a pattern of similar illegal conduct against Novak. Specifically, and as
the Steadfast court emphasized as the central aspect of its opinion, all the above-listed claims
“arose out of [the Association’s] alleged continuous harassing and discriminatory conduct and
retaliation for Novak’s 2007 IDHR Claim.” Id. ¶ 75. To the extent the books and records aspect of
Novak’s various complaints fell under the “Related Wrongful Acts” in Steadfast, it did so only
because the Association allegedly retaliated against him in part because of his efforts to obtain
documents. See id.
¶ 34 The Steadfast order supported its holding by citing to other Illinois cases finding “Related
Wrongful Acts” based on the same string of similar, repeated bad acts. Id. ¶¶ 77-78. For example,
the court cited Continental Casualty Co. v. Howard Hoffman & Associates, 2011 IL App (1st)
100957, ¶¶ 67-68 (describing multiple acts of embezzlement by a law firm employee); Twin City
Fire Insurance Co. v. Permatron Corp., No. 15 C 10252, 2018 WL 1565599, at *5 (N.D. Ill. Mar.
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30, 2018) (finding separate claims all stemmed from an employee’s firing); and Cushman &
Wakefield, Inc., 2018 WL 1898339, at *5, 18-19 (claims bore sufficient factual nexus because they
involved overlapping properties and a common scheme).
¶ 35 In contrast to Steadfast and all the authorities cited therein, here the arbitration demand did
not allege any string of related, wrongful conduct stemming back to the 2018 lawsuit and
underlying the investors’ claims. The arbitration demand did not arise out of any conduct or pattern
of conduct by plaintiffs relating to the 2018 lawsuit. The Chicago Cut investors did not allege that
they filed the arbitration demand because of plaintiffs’ breach of their contractual and statutory
obligation to provide access to corporate books and records. Nor did the investors allege that
plaintiffs misappropriated corporate funds because of the 2018 lawsuit or as an aftereffect of it—
unlike Novak’s allegations of the Association’s discrimination and retaliation for his earlier
lawsuit. We conclude that Steadfast is not persuasive authority in the instant case because the facts
are different.
¶ 36 We find support for our conclusion that the 2018 lawsuit and the arbitration demand do not
share a common nexus or causal connection in two Illinois cases that made findings of “Related
Wrongful Acts” only where the underlying facts established the kind of pattern of conduct absent
in this case.
¶ 37 First, in Freeburg Community Consolidated School District No. 70 v. Country Mutual
Insurance Co., 2021 IL App (5th) 190098, the court examined whether a federal sexual abuse
lawsuit (known as “Doe 4”) against the Freeburg, Illinois School District was covered pursuant to
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a “claims made” policy issued by RSUI Indemnity Company for the period 2013-2014. The RSUI
policy included a limitation of liability provision defining a “single Claim” as
“[a]ll Claims based on, arising out of, directly or indirectly resulting from, in consequence
of, or in any way involving the same or related facts, circumstances, situations, transaction
or events, or the same or related series of facts, circumstances, situations, transactions or
events shall be deemed to be a single Claim for all purposes under this policy, *** and
shall be deemed first made when the earliest of such Claims is first made, regardless of
whether such date is before or during the Policy Period.” (Emphases in original and internal
quotation marks omitted.) Id. ¶ 21.
A “prior acts” exclusion in the RSUI policy precluded coverage for any claim:
“[a]lleging, arising out of, based upon or attributable to, in whole or in part, any litigation
involving any Insured that was commenced or initiated prior to or was pending at the
inception date of this policy, or arising out of or based upon, in whole or in part, any facts
or circumstances underlying or alleged in any such prior or pending litigation.” (Internal
quotation marks omitted.) Id. ¶ 19.
¶ 38 The court held that three federal sexual abuse lawsuits filed before 2013 and Doe 4 were a
single claim first made prior to the RSUI policy period because they “directly *** resulted from
*** the same or related series of facts circumstances, situations, transactions or events.” (Internal
quotation marks omitted.) Id. ¶ 100. The court determined that the pre-2013 sexual abuse cases
and Doe 4 alleged the same wrongdoing and the same harm and sought the same monetary
damages. Id. ¶¶ 101-02. It also noted that “the overriding common event among the *** actions is
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the causal connection of the alleged misconduct of Freeburg school district officials *** in failing
to take action to protect students from a reported sexual predator employed by Freeburg school
district.” Id. ¶ 101.
¶ 39 Freeburg’s holding counsels against Great American’s position here. Unlike the sexual
abuse lawsuits in Freeburg, the 2018 lawsuit and the arbitration demand (1) were not premised on
an “overriding common event,” (2) did not allege the same wrongdoing or harm, and (3) did not
seek the same relief. The 2018 lawsuit was based on a breach of plaintiff’s contractual and statutory
obligation for failure to provide corporate records and sought an injunction requiring production
of those records. The arbitration demand, on the other hand (1) was brought on a derivative and
class action basis, (2) was based on an alleged breach of duty arising from self-dealing, (3) sought
wide-ranging injunctive relief related not to Chicago Cut’s corporate records but, rather, to the
termination of Moore and Flom as managers of Chicago Cut, and (4) demanded compensatory and
punitive damages exceeding $8 million.
¶ 40 Similarly, in the federal case Permatron Corp., 2018 WL 1565599, at *2, the Northern
District of Illinois considered a “common nexus” and “causally connected” definition in
consecutive, “claims made” policies issued by Twin City Fire Insurance (Twin City) for the 2014-
2015 and 2015-2016 periods. The policies defined “Interrelated Wrongful Acts” as “Wrongful
Acts that have as a common nexus any fact, circumstance, situation, event, transaction, goal,
motive, methodology, or cause or series of causally connected facts, circumstances, situations,
events, transactions, goals, motives, methodologies, or causes.” (Internal quotation marks
omitted.) Id.
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¶ 41 During the first policy period, Permatron terminated an employee who subsequently filed
initial and amended discrimination actions with the Equal Employment Opportunity Commission
(EEOC) and the IDHR. Id. at *1. Permatron did not submit a claim to Twin City during the first
policy period. Id. at *1, *4. During the second policy period, the same employee filed a direct
lawsuit for discrimination, a second lawsuit for retaliatory discharge, and a third action with the
EEOC and IDHR. Id. at *1-2, *4. Permatron submitted a claim to Twin City for the lawsuit and
actions filed during the second policy period. Id. at *4. Twin City denied coverage on the grounds
that the claims filed in the second policy period were “interrelated” with the initial EEOC and
IDHR matters and, therefore, the claim was untimely. Id. at *1-2, *4.
¶ 42 Twin City filed a declaratory judgment action and moved for summary judgment, arguing
the matters were “interrelated.” Id. at *3. The district court granted Twin City’s motion and held
that the employee’s actions “[arose] from a single event: the termination of [the employee’s]
employment with Permatron in August 2014.” Id. at *5. While the district court noted the definition
of “Interrelated Wrongful Acts” was “quite broad,” it based its decision on a conclusion that the
actions “have a common nexus in that they all arise from” the employee’s termination. Id. at *6.
¶ 43 The district court’s analysis of the “common nexus” and “causally connected” definitions
supports the circuit court’s ruling here. The 2018 lawsuit and the arbitration demand did not arise
from a “single event.” The 2018 lawsuit arose from plaintiffs’ failure to provide corporate records,
while the arbitration demand arose from a breach of duty for misappropriation of corporate assets.
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¶ 44 Other jurisdictions have considered the definitions of “common nexus” and “causally
connected” in similar insurance policies and issued opinions contradicting Great American’s
position.
¶ 45 In Pfizer Inc. v. Arch Insurance Co., No. N18C-01- 310, 2019 WL 3306043, at *10 (Del.
Super. Ct. July 23, 2019), the Delaware Superior Court applied Delaware law to conclude that two
securities class actions were not “Interrelated Wrongful Acts.” The events underlying Pfizer began
in 2003, when a securities class action known as the “Garber Action” was filed against Pharmacia
(a Pfizer subsidiary), alleging false representations about the gastrointestinal side-effects of
Pfizer’s medication Celebrex. Id. at *3.
¶ 46 In April 2004, Arch Insurance Company (“Arch”) issued an excess D & O liability policy
to Pfizer. Id. at *2. The Arch policy contained an exclusion that precluded coverage for any
“Interrelated Wrongful Acts” alleged in, or arising from, the “Garber Action.” Id. at *5. The Arch
policy defined “Interrelated Wrongful Acts” as “a common nexus any fact, circumstance, situation,
event, transaction, cause or series of causally connected facts, circumstances, situations, events,
transactions or causes.” Id.
¶ 47 Later in 2004, a second securities class action known as the “Morabito Action” was filed
against Pfizer, alleging that it made false representations concerning the cardiovascular side-
effects of Celebrex—the same drug at the center of the “Garber Action.” Id. at *3. In 2016, Pfizer
agreed to a $486 million settlement of the “Morabito Action” and sought coverage from Arch. Id
Arch denied coverage for the “Morabito Action” on the grounds that it was an “Interrelated
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Wrongful Act” with respect to the “Garber Action.” Id. Pfizer filed suit against Arch and the parties
filed cross-motions for summary judgment.
¶ 48 The Delaware Superior Court ruled in Pfizer’s favor and held that the “Morabito Action”
and the “Garber Action” were not “Interrelated Wrongful Acts.” Id. at *10. The court held that the
“Morabito Action” and the “Garber Action” were not “Interrelated” because the “Morabito
Action” focused on false statements regarding Celebrex’s cardiovascular risk, while the “Garber
Action” focused on false statements regarding Celebrex’s gastrointestinal risk. Id. The court
rejected Arch’s argument that the “Interrelated Wrongful Acts” provision should be read broadly
to preclude coverage for claims that “share[d] ‘any’ commonality” with the “Garber Action.” Id.
at *9. The court concluded that Arch’s interpretation was “strained” and “uncharacteristically
broad” and held that only claims that were “fundamentally identical” were “Interrelated Wrongful
Acts.” Id.
¶ 49 In First Solar, Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA, 274 A.3d 1006,
1012-13 (Del. 2022), the Delaware Supreme Court abrogated Pfizer to the extent it evoked a
“fundamentally identical” standard for relatedness. First Solar explained that the issue of whether
a claim relates back to an earlier claim under a claims-made policy “is decided by the language of
the policy, not a generic ‘fundamentally identical’ standard.” Id. at 1013. Nevertheless, First Solar
agreed with Pfizer’s holding that the “Morabito Action” and “Garber Action” were not Interrelated
Wrongful Acts, noting that Pfizer “addressed two claims about different side effects, with different
omissions and misrepresentations. The claims overlapped in that they involved the same drug. But
the Wrongful Acts [in Pfizer]—the misrepresentations made about gastrointestinal and
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cardiovascular health risks, respectively—were substantively different, relying on different
concepts, pharmaceutical trials, and statements.” Id. at 1016.
¶ 50 The analysis in Pfizer and First Solar supports our conclusion here. The 2018 lawsuit and
the arbitration demand are substantively different. The 2018 lawsuit was based on plaintiffs’
failure to share corporate records, whereas the arbitration demand was based on plaintiffs’ alleged
misappropriation of corporate assets.
¶ 51 Similarly, in South Dakota Network, LLC v. Twin City Fire Insurance Co., No. 4:16-CV-
04031-KES, 2017 WL 4233019 (D.S.D. Sept. 22, 2017), the District of South Dakota applied
South Dakota law to distinguish between (1) a 2013 demand letter and draft complaint from the
plaintiff’s supplier concerning a billing dispute, and (2) a 2015 lawsuit by the same supplier..
Based on key differences between those two events, the court held they were not “Interrelated
Wrongful Acts.” Id. at *8.
¶ 52 In 2013 and 2014, Twin City issued consecutive D&O liability policies to the plaintiff, a
telecommunications company. Id. at *1. The policies defined “Interrelated Wrongful Acts” as
“wrongful acts ‘that have as a common nexus any fact, circumstance, situation, event, transaction,
goal, motive, methodology, or cause or series of causally connected facts, circumstances,
situations, events, transactions, goals, motives methodologies or causes.’ ” Id. at *7.
¶ 53 During the 2013 policy period, the plaintiff’s supplier sent a demand letter and draft
complaint to the plaintiff, alleging that the plaintiff committed anticipatory breaches of its
operating agreement and of express and implied contracts with the supplier. Id. at *3. The plaintiff
did not report these events to Twin City within the specified period for the 2013 policy. Id. at *4.
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¶ 54 During the 2014 policy period, the same supplier sent a cease-and-desist letter to the
plaintiff. Id. In March of 2015, the supplier filed a lawsuit alleging that the plaintiff had entered
into an agreement with AT&T regarding transmission costs that would negatively impact the
supplier. Id. The plaintiff then submitted a claim for insurance coverage to Twin City. Id. Twin
City denied coverage on grounds that the second lawsuit was related to the supplier’s prior letter
and draft complaint pursuant to the “Interrelated Wrongful Acts” definition, and thus, the
plaintiff’s claim was untimely. Id. The plaintiff filed suit seeking a declaration that it was entitled
to coverage for the second lawsuit. Id. at *5.
¶ 55 The district court agreed with the plaintiff and held that the letter and draft complaint were
not related to the second lawsuit. Id. at *7-8. The district court held that “common nexus” required
a “causal connection or a link between the two ‘wrongful acts.’ ” Id. at *7. The district court further
held that “[i]t is not enough for the actions to be similar in nature or to have parallel facts.” Id.
¶ 56 The South Dakota Network court’s interpretation of the “common nexus” and “causally
connected” definitions further support our conclusion here. The alleged breach of plaintiffs’
obligation and the wrongful acts in the 2018 lawsuit do not bear any “causal connection” to the
alleged breach of duty and wrongful acts in the arbitration demand. While the arbitration demand
may set forth “similar” or “parallel facts” repeated from the 2018 lawsuit to explain the background
of the parties’ relationship, the arbitration demand does not allege that plaintiffs’ misappropriation
of funds was caused by plaintiffs’ failure to disclose corporate records.
¶ 57 In ACE American Insurance Co. v. Ascend One Corp., 570 F. Supp. 2d 789, 800-01 (D.
Md. 2008), the United States District Court for the District of Maryland applied Maryland law to
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hold that a 2004 class action against Amerix (an Ascend subsidiary) seeking monetary damages
was not related to either (1) a 2006 Maryland attorney general subpoena seeking information
concerning Amerix’s business practices or (2) a 2007 Texas attorney general civil demand
regarding Amerix’s credit counseling services. The court based this holding on the definition of
“Interrelated Wrongful Acts” in a “prior acts” exclusion to a D&O liability policy issued by ACE
American Insurance Company (ACE). Id.
¶ 58 In 2004, four private citizens filed a class action lawsuit against Amerix, alleging it had
engaged in “unfair, deceptive and misleading debt management, credit counseling, budget
planning and debt collection activities.” (Internal quotation marks omitted.) Id. at 799.
¶ 59 In 2006, ACE issued the policy in question to Ascend. Id. at 791. The policy included an
“Interrelated Wrongful Acts” provision, defined as “all Wrongful Acts that have as a common
nexus any fact, circumstance, situation, event, transaction, cause or series of related facts,
circumstances, situations, events, transactions or causes.” Id. at 793. In 2006, the Maryland
attorney general served a subpoena on Amerix, seeking documents and information concerning
Amerix’s organizational structure and business practices. Id. at 791. Ascend submitted a claim for
coverage to ACE. Id. In 2007, the Texas attorney general initiated a civil demand regarding
Amerix’s marketing of credit counselling services in violation of the Texas Deceptive Trade
Practices and Consumer Protection Act. Id. at 792. Ascend then submitted a second claim for
coverage to ACE. Id.
¶ 60 ACE denied coverage for the Maryland and Texas attorney general matters on the grounds
that a 2004 class action brought against Amerix was an “Interrelated Wrongful Act” that preceded
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the policy period, thereby precluding coverage under the “prior acts” exclusion. Id. ACE then filed
a declaratory judgment action seeking confirmation of its position. Id.
¶ 61 The district court disagreed with ACE and held that the Maryland and Texas attorney
general matters were not related to the 2004 class action. Id. at 794. The court reviewed the ACE
policy’s definition of “Interrelated Wrongful Acts” and framed the issue as whether the attorney
general matters and the 2004 class action “arose out of the same occurrence of wrongful acts.” Id.
at 798. The district court concluded that the attorney general matters and the 2004 class action
were “different in scope and time.” Id. at 800. It also rejected ACE’s argument that the class action
allegations and the conduct investigated by the state attorneys general were “the same or
interrelated” in terms of the “overall context” of the alleged bad acts. Id. at 798. The district court
further emphasized that the class action was a private action seeking monetary damages, while the
attorney general matters were governmental proceedings seeking injunctive relief and penalties.
Id. at 801.
¶ 62 The District Court for the District of Maryland’s interpretation of the “Interrelated
Wrongful Acts” definition in the ACE policy supports our conclusion here. The 2018 lawsuit was
a Chancery Division proceeding in the Cook County Circuit Court, seeking only injunctive relief.
The arbitration demand was a private proceeding in which the claimants sought substantial
compensatory and punitive damages. The 2018 lawsuit and the arbitration demand also do not
arise out of “the same occurrence or wrongful acts.” The “occurrence and wrongful act” giving
rise to the 2018 lawsuit was plaintiffs’ failure to provide books and records, whereas the
“occurrence and wrongful act” giving rise to the arbitration demand was plaintiffs’ alleged
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improper loans, expense reimbursements, salaries, and other forms of misappropriation of
corporate funds.
¶ 63 Finally, Great American provides no authority supporting its argument that a separate, later
proceeding in a different forum that includes no overlapping claims can plausibly be considered
an “amended complaint” with respect to a separate, earlier proceeding. Instead, Great American
relies on Hanover Insurance Co. v. R.W. Dunteman Co., 446 F. Supp. 3d 336 (N.D. Ill. 2020).
R.W. Dunteman stands for the unremarkable proposition that a pleading that amends the original
complaint in the same proceeding in the same forum—even where it adds numerous new causes
of action—constitutes the same “claim” as the original complaint. Id. at 344 (“The [second
amended complaint] is part of a single proceeding initiated by the filing of the Original
Complaint.”). Great American admits that the circumstances in R.W. Dunteman were not the same
as those in this case.
¶ 64 In R.W. Dunteman, the original complaint brought a single count for declaratory judgment
in relation to the rights of the estate of an ex-wife following divorce proceedings, including rights
related to the estate’s ownership of stock and the alleged transfer of stock interests to her sons. Id.
at 338-39. As discovery proceeded, the plaintiff filed an amended complaint and second amended
complaint. Id. at 339. The second amended complaint added multiple new defendants, including
the sons and the company in which the ex-wife’s estate held stock. Id. It also added multiple new
causes of action to the original count for declaratory relief. Id. Analyzing a similar “Related
Wrongful Acts” provision to the one in the 2018-2019 policy here, the court held that “the Estate
lawsuit is a single proceeding and thus a single Claim.” Id. at 344. It further held that the original
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and amended complaints generally “alleged shortchanging of Jane and then her estate” and
“allege[d] common damages.” Id. at 346. The court concluded that the “additional allegations in
the [second amended complaint] are consistent with the Original Complaint’s allegations that
Jane’s ownership interest has been wrongfully reduced” (id.); thus, those two pleadings were
“clearly Related Claims” (id. at 347).
¶ 65 Neither R.W. Dunteman nor any other authority supports the argument that the arbitration
demand—a new pleading, in a new proceeding, with no overlapping causes of action—can be
considered an “amended complaint” with respect to the 2018 lawsuit. Nor does Great American
present any authority supporting a finding that the two separate actions can fall under its “amended
complaint” theory where they are not otherwise deemed “Related Wrongful Acts.”
¶ 66 III. CONCLUSION
¶ 67 For the foregoing reasons, we affirm the judgment of the circuit court.
¶ 68 Affirmed.
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Chicago Restaurant Management Group, LLC v. Great American Insurance Co., 2025 IL App (1st) 232353
Decision Under Review: Appeal from the Circuit Court of Cook County, No. 20-L- 13791; the Hon. Catherine A. Schneider, Judge, presiding.
Attorneys James H. Kallianis Jr. and Andrew J. Candela, of Skarzynski for Marick & Black LLP, of Chicago, for appellant. Appellant:
Attorneys James R. Figliulo and William J. Sullivan, of Smith Gambrell & for Russell, of Chicago, for appellees Chicago Restaurant Appellee: Management Group, LLC, David Flom, and Matthew Moore.
Jeffrey A. Soble and Mason D. Roberts, of Foley & Lardner LLP, of Chicago, for other appellee.
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