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Illinois State Bar Association Mutual Insurance Co. v. Coregis Insurance Co.12/16/2004
d as finding that a material misrepresentation renders a policy void ab initio, we disagree with the holding.
It seems quite clear that, based upon the nature of the right to rescind a contract, the cases under the common law which have found that the right to rescind a contract is a waivable one (see Dickerson, 200 Ill. at 277; Bollnow, 184 Ill. at 471; O'Donnell & Duer Bavarian Brewing, 163 Ill. at 475-76; Mollihan, 35 Ill. App. 3d at 104; American Sanitary Rag Co., 320 Ill. App. at 560; Phenix Milling Co., 78 Ill. App. 253), and the supreme court's interpretation of section 154 (see Golden Rule, 203 Ill. 2d at 464), a material misrepresentation in an insurance policy merely renders that policy voidable, granting an insurer the option to ratify the policy despite the misrepresentation if it so chooses, but also imposing a duty upon an insurer that chooses instead to void the policy to do so promptly, or risk waiving that right.
II. WAIVER OF RIGHT TO RESCISSION
Having found that the policy in this case was merely voidable, the next issue is whether Coregis waived its right to rescind the policy.
Waiver is defined as "the voluntary relinquishment of a known right." Lake County Grading Co. of Libertyville, Inc. v. Advance Mechanical Contractors, Inc., 275 Ill. App. 3d 452, 463, 654 N.E.2d 1109 (1995). As stated above, the "right of rescission must be exercised promptly." Vincent, 208 Ill. App. 3d at 7. An unreasonable delay in taking the necessary steps to set aside a fraudulent contract will have the effect of affirming it. See White Brass Castings Co., 135 Ill. App. 32.
In the context of policy defenses, an insurer waives its right to enforce a provision of the contract when its words or conduct are inconsistent with its intention to rely on the requirements of the policy. Twin City Fire Insurance Co. v. Old World Trading Co., 266 Ill. App. 3d 1, 11, 639 N.E.2d 584 (1993). For a court to find waiver of a policy defense requires the establishment of those facts that would show that it would be unjust, inequitable, or unconscionable to allow the insurer to assert the defense. Thompson v. Green Garden Mutual Insurance Co., 261 Ill. App. 3d 286, 290, 633 N.E.2d 1327 (1994).
Plaintiffs make much of the fact that Coregis knew in the fall of 1996 that Hubka made a material misrepresentation in his policy renewal application, yet waited over a year before seeking to rescind the policy based upon that material misrepresentation. There is nothing that Coregis did, however, that could reasonably lead Hubka or anyone else to believe that it was waiving its right to rescind the policy.
First, less than a month after Hubka was suspended from the practice of law, Coregis informed him that it would no longer renew the policy.
Second, three days after Hubka notified Coregis of Ms. Maxwell's lawsuit, Coregis sent a letter to Hubka in which it agreed to defend Hubka, but reserved its right to withdraw its defense should it later determine that there was no coverage. In that letter, though the word "rescission" does not appear, Coregis specifically highlighted certain exclusions that it believed could be applicable based upon the allegations contained in Ms. Maxwell's complaint, including "Exclusion B," which denies coverage for "any CLAIM arising out of any act, error, omission or PERSONAL INJURY occurring prior to the effective date of this policy if any INSURED knew or could have reasonably foreseen that such act, error, omission or PERSONAL INJURY might be expected to be the basis of a CLAIM or suit." Coregis's reservation-of-rights letter also explicitly and unequivocally stated:
"If it should develop that
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