Impact | Business Risk Management Blog

Increasingly, the Illinois Appellate Courts are placing restrictive covenants under greater scrutiny. This heightened scrutiny was reflected again in Critical Care Systems, Inc. v. Dennis Heuer, a recent decision from the Illinois Appellate Court for the Second District.

A recent decision from the Illinois Appellate Court for the First District should be a reminder to business owners, executives and advisors of the importance of following corporate formalities and the dire consequences of failing to do so. As most business owners know, the primary purpose of organizing a corporation is to insulate the business’ shareholders, directors and officers in the corporation from liability to third parties. Traditionally, it is only when shareholders, directors and officers fail to treat the corporation as a separate and distinct entity and fail to follow corporate formalities, that courts may ignore the corporate entity and “pierce the corporate veil” to hold the shareholders, directors and officers personally liable. However, in Buckley v. Abuzir, 2014 IL App (1st) 130469, the appellate court held that under certain circumstances, a court may “pierce the corporate veil” and hold someone that not a shareholder, director or officer personally liable for the acts of the corporation.

In the face of rising litigation costs, the most valuable benefit of a company’s insurance policy may be its insurer’s duty to defend claims. Often, claims asserted in litigation may include a mixture of covered and uncovered claims with some claims potentially excluded from the coverage provided by an insurance policy. Alternatively, the claims asserted may potentially exceed the coverage afforded under the policy. In these circumstances (and others), an insurer’s first move in response to a claim under an insurance policy is likely to be a lengthy “reservation of rights” letter. The insurer’s response will track the language of your policy identifying the reasons the insurer contends that there may not be coverage for your claim or portions of the claim. But confess: the language used in the policy was so mind-numbing that you may not have read it when you purchased it or were uncertain as to what was actually covered by the policy. So what does a reservation of rights letter mean to you as an insured?