Illinois Supreme Court Finds Legal Malpractice Plaintiffs May Recover Punitive Damages Paid in Underlying Case

In Midwest Sanitary Service, Inc. v. Sandberg, Phoenix & Von Gontard, P.C., 2022 IL 127327, the Supreme Court addressed the certified question whether 735 ILCS 5/2-1115 or the public policy of Illinois bars a plaintiff, in a legal malpractice action, from recovering punitive damages incurred in an underlying action because of the defendant attorneys’ alleged negligence in the underlying action.

In the underlying case, Crane v. Midwest Sanitary Service, Inc., 2017 IL App (5th) 160107-U, the jury awarded a former employee of Midwest compensatory damages as well as $625,000 in punitive damages for retaliatory discharge.

Subsequently, Midwest filed the legal malpractice case seeking recovery of $1.67 million in damages and costs. The trial court denied the attorneys’ motion to dismiss, finding that the request to recover punitive damages did not violate 735 ILCS 5/2-1115 nor Illinois’ public policy.

Pursuant to Supreme Court Rule 308, the circuit court certified the question of punitive damages recovery for immediate appeal. The appellate court answered in the negative, holding that punitive damages Midwest paid in the underlying action constituted compensatory damages in the legal malpractice action as the actual “out-of-pocket” losses sustained as a result of the attorneys’ alleged negligence.

The Supreme Court also answered in the negative. Regarding section 2-1115 of the Code, the Court found that the punitive damages paid in the underlying action do not seek to punish the attorneys but to replace the loss caused by the attorneys’ alleged negligence. Therefore, they constitute compensatory rather than punitive damages in the legal malpractice action.

In its analysis of public policy, the Court distinguished cases where plaintiffs sought lost compensatory damages because Midwest was not speculating as to the amount of punitive damages in the underlying case; the damages here were in fact paid by Midwest. Additionally, the Court reviewed similar cases from other jurisdictions which also found punitive damages in the underlying actions to constitute compensatory damages in the legal malpractice actions.

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