Intentional Act Exclusion Defeats Claim for Defense & Indemnity

Customer Complaint Coverage Doesn’t Apply to Claim of Consumer Fraud

Plaintiff, Owners Insurance Co. (insurer), appealed from the judgment of the circuit court of Du Page County ruling that an intentional-acts exclusion in an insurance policy did not exclude coverage for the expenses incurred by defendant, Don McCue Chevrolet, Inc. (insured) in defending an underlying consumer-fraud complaint brought by a former customer, Julio Salas. In Owners Insurance Company v. DonMcCue Chevrolet, Inc., 2022 IL App (2d) 210634-U, No. 2-21-0634, Court of Appeals of Illinois, Second District (June 17, 2022) the Court of Appeals resolved the dispute.

BACKGROUND

Salas’s one-count complaint against the insured in the underlying lawsuit alleged a violation of the Consumer Fraud and Deceptive Business Practices Act (Act) (815 ILCS 505/1 et seq. (West 2020)). Salas alleged as follows:

The parties entered into a written retail installment contract for Salas to purchase a new 2020 Chevrolet truck from the insured. Per the sales contract, Salas provided $5000 cash and his 2018 Chevrolet vehicle as a down payment. The parties agreed that the sales contract would be assigned to a finance company or bank. If the insured was unable to assign the contract, the transaction would not be completed, Salas would return the new truck, and the insured would return to Salas the $5000 and the 2018 vehicle. The insured was unable to obtain financing for the purchase. Per the insured’s demand, Salas returned the new truck. However, the insured “refused and continues to refuse” to return either the $5000 or the 2018 vehicle.

The insured submitted a claim under the policy for expenses incurred in the defense of the underlying lawsuit. The insured based its claim on a policy provision entitled “Customer Complaint Defense Reimbursement Coverage” (defense-reimbursement provision). That provision stated in relevant part that the insurer would reimburse the insured for reasonable costs and expenses incurred in defending a “customer complaint suit.” Coverage was excluded for any suit resulting from “[a]ctual or alleged criminal, malicious or intentional acts” committed by the insured (intentional-acts exclusion).

The insurer declined the insured’s claim for coverage of defense expenses relying on the intentional-acts exclusion.

The insurer alleged that it was not responsible for reimbursing the insured for any expenses related to the insured’s defense of Salas’s lawsuit. The insurer alleged that there was no coverage because “[t]he decisions by [the insured] to not refund Salas the $5000 down payment or to return the 2018 Chevrolet Traverse [were] intentional acts” that fell within the intentional-acts exclusion.

The trial court denied the insurer’s motion and granted the insured’s motion, ruling that the insurer had a duty under the defense-reimbursement provision to provide coverage for the insured’s expenses in defending the underlying suit.

ANALYSIS

Where cross-motions for summary judgment are filed in an insurance coverage case, the parties acknowledge that there exist no questions of material fact but only questions of law regarding the construction of the policy.

The insurer may refuse to defend only if it is clear from the face of the complaint that the allegations fail to state facts that bring the cause within, or potentially within, coverage. If an insurer relies on an exclusionary clause to deny coverage, it must be free and clear from doubt that the clause applies. An exclusion for intentional acts is construed to exclude coverage when the insured has:

  1. intended to act and
  2. specifically intended to harm a third party.

The burden is on the insurer to prove that an exclusionary clause applies. An exclusionary clause for intentional conduct will not apply when a claim arises, or could potentially arise, from a merely negligent act or omission. Phrases in the underlying complaint such as “mislead,” “conceal,” “scheme,” “deceive,” “intentionally,” or “willfully” are the “paradigm of intentional conduct and the antithesis of negligent actions.” [Leighton Legal Group, LLC, 2018 IL App (4th) 170548, ¶ 38.]

Since a “customer complaint” is defined as a customer’s claim that he sustained loss or damage resulting from the insured’s “[a]cts” or “[failures to act” relative to the sale of a vehicle. However, the parties disagree as to whether the intentional-acts exclusion applies to any intentional acts or strictly to intentional misconduct.

The word “intent” for purposes of an exclusionary clause in an insurance policy denotes that the actor desires to cause the consequences of his action or believes that the consequences are substantially certain to result. The allegations of the underlying complaint fell within the policy exclusion. The underlying complaint alleged exclusively intentional misconduct, not negligence. When read as a whole, the underlying complaint exclusively alleged an intentional violation of the Act, as opposed to a negligent one.

CONCLUSION

The trial court erred in granting summary judgment for the car dealership on the question of whether its conduct as alleged in a former customer’s consumer-fraud suit fell within the scope of insurance coverage for expenses incurred in defending lawsuits based on customer complaints. Because the underlying suit alleged strictly intentional misconduct by the dealership, the policy’s exclusion for intentional acts applied.

The appellate court, therefore, remanded the case to the trial court with directions to enter summary judgment in the insurer’s favor on the complaint.

ZALMA OPINION

The facts alleging an intentional breach of the consumer protection act, breaching the agreement between the customer and the dealership, were obviously intentional – they kept the down payment and refused to return it and the trade-in vehicle. How the trial court found the action was not intentional is amazing and the Court of Appeal brought reason to the dispute.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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