Illinois Appellate Court Confirms Facts Alleged Control Application of Insurance, Not Legal Label Used To Characterize Those Facts
Insurance is generally intended to protect against contingent risk that may or may not occur. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 607 N.E.2d 1204, 1210, 180 Ill.Dec. 691 (1992). Insurance generally does not cover injury or damage that is certain to occur. Accordingly, subject to exclusions and conditions, most commercial general liability policies extend coverage to bodily injury or property damage caused by an “occurrence,” which is usually defined as an “accident.” Illinois caselaw defines an “accident” as “an unforseen occurrence, usually of an untoward or disastrous character or an undesigned sudden or unexpected event of an inflictive or unfortunate character.” Aetna Casualty & Surety Co. v. Freyer, 89 Ill.App.3d 617, 411 N.E.2d 1157, 1159, 44 Ill.Dec. 791 (1st Dist. 1980). In the context of determining whether a claim is potentially covered, an allegation that the insured acted “negligently” will often satisfy the requirement that the injury or damage must be caused by an “occurrence,” i.e., an “accident.”
However, Illinois courts “have not been blind to the fact that plaintiffs may have an incentive to draft pleadings in a way that triggers the defendant’s insurance coverage.” Country Mutual Insurance Co. v. Dahms, 2016 IL App (1st) 141392, ¶47, 58 N.E.3d 118, 405 Ill.Dec. 311. Accordingly, “[e]ven where a complaint alleges an act is ‘negligent,’ if the allegations show that what is truly alleged can only be characterized as an intentional act, the substance will control over the moniker placed on it by a plaintiff.” Id.
For example, in Allstate Insurance Co. v. Carioto, 194 Ill.App.3d 767, 551 N.E.2d 382, 384, 141 Ill.Dec. 389 (1st Dist. 1990), the insured stabbed a victim 17 times in the course of committing a robbery, and the court held that the insured’s guilty plea for attempted murder was conclusive evidence of intentional conduct despite allegations in the civil lawsuit that the insured “carelessly and negligently struck and/or came into contact with” the victim.
Other Illinois decisions are in accord. See Farmers Automobile Insurance Ass’n v. Danner, 2012 IL App (4th) 110461, ¶40, 967 N.E.2d 836, 359 Ill.Dec. 806 (allegations of negligence were “transparent attempt to trigger insurance coverage” in which one insured intentionally rammed victim with his vehicle and beat him with golf club, and other insured intentionally kicked and punched wounded victim); State Farm Fire & Casualty Co. v. Martin, 186 Ill.2d 367, 710 N.E.2d 1228, 1233, 238 Ill.Dec. 1228 (1999) (insured that intentionally caused fire that killed two firefighters acted willfully and maliciously despite allegations of “negligence”); West American Insurance Co. v. Vago, 197 Ill.App.3d 131, 553 N.E.2d 1181, 1185, 143 Ill.Dec. 195 (2d Dist. 1990) (emotional injuries caused by sexual assault were “practically certain” and “expected” even though sexual assault was alleged to have been caused by “negligence”).
In all of these cases, the facts alleged controlled the application of the insurance policy, not the legal label of “negligence” put on those facts in a pleading. See Dahms, supra, 2016 IL App (1st) 141392 at ¶47 (appellate court gave “little weight to the legal label that characterizes the underlying allegations” (quoting Farmers Automobile Insurance Ass’n v. Danner, 2012 IL App (4th) 110461, ¶39, 967 N.E.2d 836, 359 Ill.Dec. 806)).
These issues were addressed last month by the First District of the Appellate Court of Illinois in an unpublished decision in County Mutual Insurance Co. v. Jones, 2018 IL App (1st) 173154-U. In Jones, the insurer issued homeowner’s insurance to a property owner for a residential property. The homeowner’s policy covered bodily injury caused by an “occurrence” (defined as an “accident”) and excluded coverage for bodily injury caused by fungus. 2018 IL App (1st) 173154-U at ¶¶7 – 8.
The insured allegedly knew that the insured residence had a hazardous mold problem and knew of structural problems (specifically, leaks in the roofs and walls) that contributed to the mold problem. 2018 IL App (1st) 173154-U at ¶4. Instead of addressing the problem, the insured allegedly painted over the mold and leased the property. Id. Unfortunately, an infant tenant of the building allegedly died from the mold. Id.
The infant’s mother sued the insured, alleging, among other things, that the insured was “negligent and breached the duty it owed to all of its tenants” by failing to remedy the hazards, failing to fix structural issues, failing to warn her, and concealing the hazards. 2018 IL App (1st) 173154-U at ¶16. The insurer filed a declaratory judgment action seeking a ruling that it owed no duty to defend or indemnify the insured. The trial court granted summary judgment in favor of the insurer because the homeowner’s policy contained an exclusion barring coverage for bodily injury caused by fungus, and the trial court found that the underlying claim alleged that the plaintiff’s decedent death was caused by mold. 2018 IL App (1st) 173154-U at ¶¶6 – 11. The infant’s mother appealed. 2018 IL App (1st) 173154-U at ¶11.
The appellate court affirmed the trial court’s ruling, holding that the underlying claim alleged that the infant’s death was caused by mold and that the homeowner’s policy barred coverage for that harm under the fungus exclusion. 2018 IL App (1st) 173154-U at ¶18.
However, the appellate court went on to explain that it would also affirm that trial court’s ruling on an alternative ground: the underlying claim failed to allege an “occurrence,” i.e., an “accident,” as was required to trigger coverage under the homeowner’s policy. 2018 IL App (1st) 173154-U at ¶19. The appellate court ruled that insured’s failure to repair structural defects, the insured’s concealment of the defects, the insured’s concealment of the mold, and the insured’s failure to inform the infant’s mother of the mold were all deliberate acts and could not be properly characterized as careless or negligent. 2018 IL App (1st) 173154-U at ¶24.
The appellate court also ruled that the underlying allegation that the insured was “negligent” did not change the result because the mere recitation of the word “negligent” did not actually allege an “occurrence.” The appellate court explained that the underlying claim alleged that the insured had actual knowledge of structural defects and mold infestation but concealed the defects and the mold. Under these alleged facts, the appellate court found no potential of anything less than intentional behavior by the insured. 2018 IL App (1st) 173154-U at ¶25. Accordingly, for this alternative reason, the appellate court affirmed the trial court’s summary judgment ruling that the insured was not entitled to a defense or indemnity. 2018 IL App (1st) 173154-U at ¶26.
For more information about insurance law, see ILLINOIS INSURANCE LAW — 2015 EDITION. Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.