No Duty to Defend if there is no Occurrence
Defendants, McKeown Classic Homes, Inc. and Jerome McKeown (collectively McKeown), appealed the trial court’s entry of summary judgment in favor of plaintiff, Pekin Insurance Company (Pekin), finding Pekin had no duty to defend McKeown in the underlying action. Additionally, McKeown appeals the trial court’s denial of its motion to reconsider the grant of summary judgment to Pekin.
In Pekin Insurance Company v. McKeown Classic Homes, Inc., an Illinois corporation, Jerome McKeown, Janet H. Hula, Michelle Hula-Miller, and Eric B. Miller, (McKeown Classic Homes, Inc. and Jerome McKeown), 2020 IL App (2d) 190631-U, No. 2-19-0631, Appellate Court Of Illinois Second District (June 16, 2020) the Illinois Appellate Court was asked to determine the existence of a duty to defend.
Janet Hula, Michelle Hula-Miller, and Eric Miller (collectively claimants) sued McKeown alleging breach of contract and conversion stemming from McKeown’s work on claimants’ property pursuant to a construction agreement. Count II (conversion) alleged that McKeown, “without authority and knowledge of the [claimants], took hundreds of planks of knotty pine wood, a Dutch door, a hand sink, four windows and glass door knowingly belonging to the [claimants] without [claimants’] consent.” Count II alleged that claimants demanded McKeown return the above items, but he refused to do so. Count II stated that, as a proximate result of McKewon’s conversion, claimants suffered $25,000 in damages. Claimants further alleged that McKeown’s acts were “willful, wanton, malicious, and oppressive and were undertaken with the intent to defraud and justify the awarding of punitive damages.”
After refusing to accept McKeown’s tendered defense to claimants’ complaint, Pekin filed a complaint for declaratory judgment seeking a declaration that it had no duty to defend McKeown in the underlying action. Pekin stated that its Commercial General Liability Insurance Policy (the policy) issued to McKeown contained certain exclusions applicable to the conversion claim asserted by claimants in the underlying action.
Pekin filed a motion for summary judgment stating that it had not duty to defend McKeown against claimants’ underlying complaint for conversion. Pekin argued in its motion that the conversion claim did not allege an “occurrence” as defined in the policy, but rather an intentional act to deprive claimants of their own property.
McKeown alleged the converted items were taken by “mistake” and would therefore be an “occurrence” under the terms of the policy, triggering Pekin’s duty to defend. The trial court found that claimants’ claim for conversion “[A]llege intentional conduct, and they allege that once that conduct was brought to McKeown’s attention, [he] refused to return them. And there is nothing in here that tells me that there is negligence or an accident. What I have got to go on are the allegations of the complaint. *** There is a refusal to return [items] once they are known. And I go back to the duty to defend in this case is what you are asking the Court to rule on. It rests upon the allegations of the complaint.”
The trial court granted Pekin’s motion for summary judgment and found there was no duty to defend McKeown under the terms of the policy.
Summary judgment is proper where, when viewed in the light most favorable to the nonmoving party, the pleadings, depositions, admissions, and affidavits on file reveal that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. A genuine issue of material fact exists when the material facts are disputed or when the material facts are undisputed but reasonable persons might draw different inferences from those undisputed facts.
In a declaratory judgment action where the issue is whether the insurer has a duty to defend, a court looks first to the allegations in the underlying complaint and compares those allegations to the relevant provision of the insurance policy. An insurer’s duty to defend arises when (1) the complaint is brought against an insured and (2) the facts as alleged in the complaint fall, or potentially fall, within the policy’s coverage.
When construing an insurance policy, a court’s primary objective is to ascertain and give effect to the intentions of the parties as expressed in their insurance contract. If the words of the policy are clear and unambiguous, the court must afford them their plain and ordinary meaning. If the underlying complaint alleges facts within or potentially within policy coverage, the insurer is obligated to defend its insured even if the allegations are groundless, false, or fraudulent. A trial court may look beyond the underlying complaint in order to determine an insurer’s duty to defend.
An insurer must defend only if the complaint alleges facts within or potentially within the coverage of the policy, unless the insurer possesses knowledge of true but unpleaded facts that, when taken together with the allegations in the complaint, indicate that the claim is within or potentially within the policy coverage.
McKeown’s explanation that the alleged converted items were “mistakenly removed by a subcontractor” was not known to Pekin until it was included in its counterclaim for declaratory judgment. McKeown never provided an affidavit or other communication to inform Pekin of the identity of the purported subcontractor responsible for taking the items from claimants’ property, further hindering any prospect of investigating the validity of McKeown’s claim for coverage under the policy. Where the insurer is unaware of the purported true but unpleaded fact, that fact may not be considered in determining the duty to defend.
The complaint must be read as a whole to assess its true nature. The facts alleged in the complaint reveal whether the insurer has a duty to defend, not arguments as to the semantics of those facts. Here, the underlying complaint alleged that McKeown’s refusal to return the items was “willful, wanton, malicious, and oppressive and undertaken with the intent to defraud.” Reading the complaint as a whole, the facts alleged do not lead to a reasonable interpretation that McKeown’s alleged conversion was a mistake. Claimants unambiguously alleged an intentional tort of conversion.
As the underlying complaint clearly alleged an intentional act on the part of McKeown, the “property damage” was not caused by an “occurrence” as defined in the policy. Based on the clear and unambiguous allegations of intentional conduct by McKeown in claimants’ underlying claim for conversion, no accident or “occurrence” as defined by the policy triggered Pekin’s duty to defend. The trial court did not err in granting summary judgment to Pekin as there is no other reasonable interpretation of claimants’ allegations than one of intentional conversion against McKeown.
Since there was no occurrence as defined in the language of the insurance policy there was no duty to defend.
Liability insurance, by definition, requires the existence of a fortuitous act that is either unknown or unintended by the insured. When the only tortious charge against the insured is the intentional tort of conversion, it is an event that is both known and intended and thus not an occurrence. Pekin, therefore, had no obligation to defend or indemnify McKeown.
© 2020 – Barry Zalma
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 also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Over the last 52 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
Read posts from Barry Zalma at https://parler.com/profile/Zalma/posts
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