What Does your Insurance Policy Actually Cover?

New York Ends the Year with Onerous New Insurance Coverage Disclosure Rules for Defendants in Product Liability Litigation | Product Liability Advocate

Insurance is a key part of managing risk and protecting against unexpected financial losses. Individuals and businesses alike can benefit from the right coverage, whether it be your personal auto policy, commercial general liability policy, or property damage coverage. But don’t assume that just because you have a policy you are fully covered. Insurance policies are often full of exclusions and fine print. Even with the most reputable insurers, policies are rarely “one size fits all.”

A recent Illinois appellate court decision is a prime example. In Farmers Insurance Exchange v. Cheekati, et al., 2022 IL App (4th) 210023, the insureds were homeowners who, while unable to sell their property, rented it to a tenant. That tenant was injured when a defective staircase at the home collapsed. The insureds made a claim under their homeowner’s policy with Farmers, undoubtedly expecting they would be covered for the injury occurring in their home. They were not—Farmers denied coverage based on two policy exclusions: the first preluded coverage for bodily injury to any insured or any “resident of the residence premises;” the second precluded coverage for bodily injury “in connection with the rental or holding for rental” of the premises. Based on those exclusions, the appellate court affirmed the trial court’s judgment in favor of Farmers, declaring that it had no duty to defend or provide coverage to its insureds.

The lesson here: review your policy documents carefully and make sure you are getting the coverage you think you are paying for. For more information regarding these or similar issues, please contact Mark L. Evans at mevans@lgattorneys.com or (312) 368-0100.

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Employee Owes Fiduciary Duty to Employer and Cannot Misappropriate a Corporate Opportunity

The Illinois Appellate Court has reiterated what the Illinois Supreme Court said a few years ago: Employees of a corporation owe a duty of loyalty to the company by which they are employed.  And that it is a breach of their fiduciary obligation to appropriate for their own gain an opportunity that rightfully belongs to the company.  Advantage Marketing Group, Inc. v. Keane, 2019 IL App (1st) 181126.

In this instance it was clear that the employee was far more than an ordinary employee and that it was not clear whether the company had considered the opportunity but had decided to take a pass on it.

Keane was one of the founders of Advantage Marketing Group (AMG) and, even at the time of his purported misconduct, owned 35% of AMG’s stock.  He had served AMG as an officer and director, but was simply an employee when he seized a potential corporate opportunity and made good use of it through another corporation, Keane, Inc. d/b/a The Mail House.

In addition to owning 35% of AMG, Keane performed or had performed the following for AMG:

  • Hired and fired employees
  • Had access to all of AMG’s books and records including client lists, employee records, tax documents, vendor information and billing data
  • Had a bonus equal to AMG’s majority stockholder
  • Had developed and maintained AMG’s financial records
  • Had explored potential strategic acquisitions in the letter-shop business

In the summer of 2013 Keane and AMG’s majority stockholder, Patty Herman, discussed the potential acquisition of The Mail House, a competitor of AMG.

Keane resigned from AMG on September 4, 2015.  Prior to his resignation he began making preparations for the acquisition of The Mail House.  He organized a new corporation named Keane, Inc. d/b/a The Mail House.   He told AMG’s clients and vendors AMG was in financial distress, and solicited his son, an AMG employee, to join him at the new corporation.  He also obtained samples of confidential client information and delayed in returning them after being demanded to do so by AMG’s counsel.  He registered an internet domain name “mailhousedm.com”.  After Keane left AMG, The Mail House was in direct competition with AMG.

AMG sued Keane charging breach of fiduciary duty and improperly appropriating a potential business opportunity (the acquisition of The Mail House) for himself.

Keane defended saying that as an employee he had no fiduciary duty to AMG and, furthermore, that he had discussed the potential acquisition with AMG’s majority stockholder but AMG had not moved forward with it.  The court ruled against Keane on both points.

The court said that it was settled Illinois law that an employee owes a duty of loyalty to his employer and prohibits an employee from taking advantage of a business opportunity that belongs to his employer, while still employed.

The court did say that an employee may plan, form and outfit a competing company while still working for his employer.  But that was as far as he can go.  He cannot commence competing with his employer.

What’s the point?  This was an easy decision for the court especially in view of the fact that Keane remained a 35% stockholder in AMG.  But the critical point was that an employee must be loyal to his employer while employed and not seize opportunities that would normally flow to his employer.  He can make preparations to leave, but cannot actively compete before doing so.

For more information and to raise any questions, please contact any of our business attorneys.

Michael Weissman

mweissman@lgattorneys.com

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