Intentional Acts Exclusion

1. American Family Mut. Ins. Co. v. Guzik

In American Family Mut. Ins. Co. v. Guzik, 406 Ill. App. 3d 245, 941 N.E.2d 936, 347 Ill. Dec. 67 (3d Dist. 2010), the insured was covered by a liability insurance within a homeowners policy that excluded:

[b]odily injury or property damage caused intentionally by or at the direction of any insured even if the actual bodily injury or property damage is different than that which was expected or intended from the standpoint of any insured.

(Emphasis in original.)

American Family, 406 Ill. App. 3d at 247.

After the insured lost his job and had attempted to sell his home, he set fire to his house. The fire caused the insured’s home to explode, and the explosion damaged the homes of the insureds’ neighbors. The neighbors submitted claims against the insured’s policy. After the insurer denied the claim, it filed a complaint for declaratory judgment. During the declaratory judgment action, the Illinois Appellate Court found that the intentional acts exclusion within the insured’s policy excluded his neighbors’ claims. The Court reasoned that the insured

“intentionally caused the explosion and fire on his premises,” and “[t]he fire spreading to the neighbors’ properties was ‘expected’ in that it was a rational and probable consequence of the explosion and fire.” Consequently, “the damage to the neighboring homes falls within the parameters of the exclusionary clause even if it was different than that which [the insured]

expected or intended.” Id. at 249.

2. West Bend Mut. Ins. Co. v. State

In West Bend Mut. Ins. Co. v. State, 401 Ill. App. 3d 857, 929 N.E.2d 606, 340 Ill. Dec. 955 (1st Dist.

2010), a general contractor was insured under a CGL policy that contained an exclusion for

“intended or expected injury.” The contractor was sued for fraud in a number of lawsuits alleging that the contractor defrauded its customers. The insurer filed for declaratory judgment asserting that no coverage existed under the Policy, and the Illinois Appellate Court concurred on various

grounds, including the fact that the policy’s intentional acts exclusion applied to this case.

According to the Appellate Court,

The four underlying complaints that are the subject of this declaratory judgment action similarly allege intentional misconduct designed to defraud customers of [the contractor]. The four underlying plaintiffs’ complaints do not allege that [the contractor] acted negligently. Instead, the four plaintiffs’ complaints allege that [the contractor] knowingly performed improper home repair and remodeling.

Thus, the exclusion for expected or intended injury bars coverage for the acts alleged in all four of the underlying complaints.

West Bend, 401 Ill. App. 3d at 938.

3. Pekin Ins. Co. v. Wilson

In Pekin Ins. Co. v. Wilson, 237 Ill. 2d 446, 930 N.E.2d 1011, 341 Ill. Dec. 497 (2010), an insurer issued a policy with an intentional acts exclusion precluding coverage for “‘Bodily injury’ or

‘property damage’ expected or intended from the stand point of the insured.” The intentional acts exclusion contained an exception, however, stating that the intentional acts exclusion did

“not apply to ‘bodily injury’ resulting from the use of reasonable force to protect persons or property.” A plaintiff filed a personal injury lawsuit against the insured, alleging that the insured assaulted him. The insured responded to the complaint by asserting that he acted in self-defense.

In the following complaint for declaratory judgment, the trial court found that the insurer had no duty to defend because the plaintiff’s complaint fell within the scope of the policy’s intentional acts exclusion. On appeal, the Illinois Appellate Court reversed, stating that the self-defense exception created a duty to defend. The Illinois Supreme Court then affirmed the Illinois Appellate Court’s reversal of the trial court, concurring with the Appellate Court’s analysis and permitting the consideration of insured’s counter-claim to trigger the duty to defend. According to the Supreme Court,

[C]onsideration of a third-party complaint in determining a duty to defend is in line with the general rule that a trial court may consider evidence beyond the underlying complaint if in doing so the trial court does not determine an issue critical to the underlying action. The trial court should be able to consider all the relevant facts contained in the pleadings, including a third-party complaint, to determine whether there is a duty to defend. (Emphasis in original.)

Pekin Ins. Co., 237 Ill. 2d at 460.

The Supreme Court also determined that, “in light of the broad scope of [insurer’s] policy, and the clear language of the self-defense exception, the policy requires the defense of the insured

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where a genuine issue of material fact exists as to whether the intentional acts of the insured were committed in self-defense.” Id. at 466.

C. Reasonable Belief Exclusion: Founders Ins. Co. v. Munoz

In Founders Ins. Co. v. Munoz, 237 Ill. 2d 424, 930 N.E.2d 999, 341 Ill. Dec. 485 (2010), the insurer issued personal auto policies including as “persons insured” the “named insured” and “any other person using such automobile with the permission of the named insured, provided the actual use thereof is within the scope of such permission.” The personal auto policies also excluded coverage for “bodily injury or property damage arising out of the use by any person of a vehicle without a reasonable belief that the person is entitled to do so.” Founders Ins., 237 Ill. 2d at 428.

A number of claims were submitted to the insurer alleging that permissive users of vehicles belonging to one of the insurer’s named insureds injured an underlying plaintiff. These permissive users, however, did not have a valid driver’s license – they either never had one or the license had been suspended. The insurer denied the claims on the basis of the above-referenced exclusion stating that the permissive users without a valid license did not have a

“reasonable belief” that they were entitled to operate the named insured’s vehicle. In the ensuing coverage litigation, the Illinois Supreme Court concurred. The Illinois Supreme Court interpreted the word “entitle” to mean “to give a right or legal title to: qualify (one) for something: furnish with proper grounds for seeking or claiming something.” Founders Ins., 237 Ill. 2d at 436. According to the Supreme Court, “[w]ithout a valid license, a person has not been given the ‘right’ to drive; has not been ‘qualified’ to drive; has not been ‘furnished with proper grounds’ for doing so.” Id. at 439. As such, a permissive user without a valid driver’s license does not have a reasonable belief that he is “entitled” to operate a motor vehicle.

IV. GENERAL PROVISIONS OF THE POLICY

A. Choice of Law: Liberty Mut. Fire Ins. Co. v. Woodfield Mall, LLC

In Liberty Mut. Fire Ins. Co. v. Woodfield Mall, LLC, ___ Ill. App. 3d ___, 941 N.E.2d 209, 346 Ill. Dec.

651 (1st Dist. 2010), the named insureds included a New York parent corporation and at least 33 subsidiary corporations. One of these subsidiary corporations was located in Ohio and was headquartered in Ohio. The insurer, a Massachusetts corporation, issued a CGL policy for the named insureds. The CGL policy was negotiated by a broker located in New York and representatives of the named insureds located in Ohio. The policy was delivered to the named insureds in Ohio. The named insured that was located in Ohio operated “an extensive, nationwide chain of hundreds of retail eyeglass stores.” The CGL policy provided coverage for the named insureds, including the Ohio subsidiary, on a nationwide basis. The CGL did not contain a choice of law provision.

The Ohio subsidiary corporation operated a retail chain store at a mall located in Northern Illinois. Pursuant to its lease agreement, it was required to name the mall owners and managers

as additional insureds to its CGL policy. The mall owners and managers were not specifically named in the CGL policy as additional insureds but the CGL policy had a general endorsement that automatically added entities as additional insureds if certain requirements were met. The mall owners and managers were sued when a personal injury occurred at the Ohio subsidiary corporation’s location in Illinois. After litigation was initiated over the application of the CGL policy to the claim, a dispute arose over the applicable state law. This dispute was eventually addressed by the Illinois Appellate Court.

According to the Appellate Court, when a policy does not contain an express choice of law provision, the policy’s “provisions are governed by the substantive law of (1) the location of the subject matter, (2) the domicile of the insured or of the insurer, (3) the place of the last act to give rise to an enforceable contract, (4) the place of performance, or (5) any other place bearing a rational relationship to the contract.” The Court noted that “[t]hese factors do not have equal significance and are to be weighed according to the issue involved,” but that “[a] choice-of-law analysis should consider the contracting parties’ justified expectations, yield certain, predictable, and uniform results, and avoid inconsistent interpretations of the same insurance contract.”

Liberty Mut., 941 N.E.2d 215.

After considering these principles, the Illinois Appellate Court determined that Ohio law applied to this dispute. First, the Court ruled that the location of the insured risk was not an important factor in this case because the CGL policy covered the named insureds’ risks on a nationwide basis and the location of the accident and injuries in Illinois had little bearing on the analysis. On the other hand, the subsidiary named insured involved was headquartered in Ohio, the CGL policy was negotiated by representatives of the named insureds located in Ohio, and the policy was delivered to the named insureds in Ohio.