No. 3-05-0158
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
A.D., 2006
L.A. CONNECTION, ) Appeal from the Circuit Court
) of the 10th Judicial Circuit
Plaintiff-Appellant, ) Peoria County, Illinois
)
v. )
)
PENN-AMERICA INSURANCE CO., )
)
Defendant-Appellee, )) No. 02-MR-236
))
and ))
))
MARVIN E. WHITE, Administrator of the )
Estate of MARVIN E. WHITE, JR.,
Deceased, Honorable
John A. Barra,
Defendant. Judge, Presiding.
JUSTICE SLATER delivered the opinion of the court:
Marvin E. White, Jr., was shot and killed on the dance floor of plaintiff L.A.
Connection, a Peoria bar, on November 11, 2001. White's estate filed a wrongful death
action against plaintiff, which tendered defense of the claim to defendant Penn-
America Insurance Company ("Penn"). Penn declined to defend or indemnify
plaintiff, primarily on the basis of an "assault and battery" exclusion contained in
the commercial general liability policy issued to plaintiff. Plaintiff thereafter
filed a declaratory judgment action to determine Penn's
obligations under the policy. The trial court granted summary
judgment to Penn and this appeal followed. We affirm.
Facts
Plaintiff was served with a complaint by White's estate on May
28, 2002. The complaint alleged that Edward Jackson entered
plaintiff's premises on November 11, 2001, armed with a handgun and
thereafter shot and killed Marvin White. The complaint asserted
that plaintiff was negligent in allowing Jackson to enter while
armed, in failing to provide security, and in failing to search
patrons for weapons.
Plaintiff tendered defense of the suit to Penn on or about June
5, 2002, and Penn denied coverage by letter on June 11. Plaintiff
filed the instant declaratory judgment action on August 13, 2002,
and Penn filed its answer and cross-claim for declaratory relief
on October 3. Plaintiff filed an answer to defendant's cross-claim on
November 4, 2002. The next filing contained in the record is Penn's April 1, 2003,
motion for a default judgment against plaintiff due to its alleged failure to respond
to Penn's cross-claim. It is unclear whether Penn did not receive the November 4
answer filed by plaintiff or if it simply made a mistake. In any event, the filing of the
default motion is significant, for reasons which will be explained below. On August 24,
2004, plaintiff filed a motion for summary judgment, to which Penn responded by
filing its own summary judgment motion on November 18, 2004.
Citing Korte Construction Co. v. American States Insurance, 322 Ill. App. 3d 451,
458, 750 N.E.2d 764, 769-70 (2001), for the proposition that "there need not be a race
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to the courthouse and the insured should not be able to estop the insurer" by being the
first to file a declaratory judgment action, the trial court ruled in favor of Penn:
"The [c]ourt finds that the defendant insurance company, by filing its
answer and cross-claim when it did, took action within a reasonable time
of the demand by the insured. The [c]ourt can therefore look beyond the
four corners of the original complaint to determine whether it had a duty to
defend. Under the uncontested facts presented, the [c]ourt finds that the
injuries were caused as a result of a 'battery'. The incident therefore was
excluded by the insurance contract and was not covered by it."
Analysis
Plaintiff contends that the trial court should have found that
Penn was estopped from relying on the assault and battery
exclusion contained in the insurance policy due to its breach of
the duty to defend. We disagree.
The Estoppel Doctrine
The estoppel doctrine provides that an insurer presented with a claim may not
simply refuse the defend its insured under a belief that no coverage exists; it must either
defend the lawsuit under a reservation of rights or seek a declaratory judgment that
there is no coverage. If the insurer fails to take either of those steps and is found to
have wrongfully denied coverage, the insurer is estopped from raising policy defenses,
even those that might have otherwise been successful. Employers Insurance v. Ehlco
Liquidating Trust, 186 Ill. 2d 127, 708 N.E.2d 1122 (1999); Clemmons v. Travelers
Insurance Co., 88 Ill. 2d 469, 430 N.E.2d 1104 (1981).
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Duty to Defend
The initial step in an estoppel analysis is determining whether a duty to defend
exists. See Ehlco, 186 Ill. 2d at 151, 708 N.E.2d at 1135. The duty to defend is
determined solely from the language of the underlying complaint and the insurance
policy. Clemmons, 88 Ill. 2d 469, 430 N.E.2d 1104; Thornton v. Paul, 74 Ill. 2d 132, 384
N.E.2d 335 (1978), overruled on other grounds, American Family Mutual Insurance Co.
v. Savickas, 193 Ill. 2d 378, 739 N.E.2d 445 (2000). If the complaint alleges facts within
or potentially within policy coverage, the insurer is obliged to defend its insured even if
the allegations are groundless, false, or fraudulent (United States Fidelity and Guaranty
Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 578 N.E.2d 926 (1991)), and even if the
insurer knows that the allegations are untrue (Thornton, 74 Ill. 2d 132, 384 N.E.2d 335).
The complaint and insurance policy must be liberally construed in favor of the insured,
and an insurer may not justifiably refuse to defend unless it is clear from the face of the
complaint that it fails to state facts which bring the case within, or potentially within, the
policy's coverage. Ehlco, 186 Ill. 2d 127, 708 N.E.2d 1122; Wilkin Insulation, 144 Ill. 2d
64, 578 N.E.2d 926.
In this case, the complaint alleged that plaintiff was negligent in allowing
Edward Jackson to enter the bar while armed with a handgun and in failing to provide
security. Thereafter, according to the complaint, Jackson "shot and killed" Marvin
White. The general liability policy issued by Penn contained an exclusion for injury or
damages "resulting from assault and battery or physical altercations that occur in, on,
near, or away from" the insured premises, including damages arising out of the
insured's failure to properly supervise or keep the premises in a safe condition. Plaintiff
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argues that the exclusion does not necessarily apply because the complaint does not
allege an intentional shooting and could describe an accidental discharge of the firearm.
We agree that, construed most liberally in favor of the plaintiff, the allegations of
the complaint are not, on their face, clearly encompassed by the assault and battery
exclusion and therefore are potentially within the policy's coverage. Accordingly, Penn
had a duty to defend its insured which required it to either defend under a reservation of
rights or seek a declaratory judgment of no coverage. Ehlco, 186 Ill. 2d 127, 708 N.E.2d
1122. The trial court ruled that this duty was discharged when Penn filed its answer and
cross-claim in response to plaintiff's declaratory judgment action, and
we agree.
Effect of Declaratory Judgment Action by the Insured
Although our supreme court has never addressed the issue,
the appellate courts of this state have repeatedly held that the
initiation of a declaratory judgment action by the insured, rather
than the insurer, is sufficient to avoid estoppel. As this court noted nearly 25 years ago,
"[i]t is the fact of the proceeding itself, and not the identity of the party initiating the
proceeding, that is of legal import." Ayers v. Bituminous Insurance Co., 100 Ill. App. 3d
33, 35 n.1, 424 N.E.2d 1316, 1318 n.1 (1981); see Pekin Insurance Co. v. Allstate
Insurance Co., 329 Ill. App. 3d 46, 768 N.E.2d 211 (2002) (identity of party initiating
declaratory judgment action is irrelevant); Waitzman v. Classic Syndicate, Inc., 271 Ill.
App. 3d 246, 648 N.E.2d 104 (1995) (same); Sears, Roebuck & Co. v. Seneca
Insurance Co., 254 Ill. App. 3d 686, 627 N.E.2d 173 (1993) (same); Village of Melrose
5
Park v. Nautilus Insurance Co., 214 Ill. App. 3d 864, 574 N.E.2d 198 (1991) (same);
Louis Marsch, Inc. v. Pekin Insurance Co., 140 Ill. App. 3d 1079, 491 N.E.2d 432 (1985)
(same); see also Farmers Automobile Insurance Ass'n v. Country Mutual Insurance Co.,
309 Ill. App. 3d 694, 722 N.E.2d 1228 (2000) (no estoppel where insurer filed
counterclaim prior to judgment in underlying suit); SportMart, Inc. v. Daisy
Manufacturing Co., 268 Ill. App. 3d 974, 645 N.E.2d 360 (1994) (no estoppel where
insured did not allege it was prejudiced by fact that it initiated declaratory judgment
action). Although this position has been widely adopted, contrary authority exists. See
Korte Construction, 322 Ill. App. 3d 451, 750 N.E.2d 764 (holding insurer was estopped
where insured filed declaratory judgment actions 12 months after underlying suit was
filed); Shell Oil Co. v. AC&S, Inc., 271 Ill. App. 3d 898, 649 N.E.2d 946 (1995) (insurer
was estopped for failing to take legal action prior to insured filing declaratory judgment
action); Consolidated Rail Corp. v. Liberty Mutual Insurance Co., 92 Ill. App. 3d 1066,
416 N.E.2d 758 (1981) (insurer was estopped despite declaratory judgment action filed
by insured); see also County of Massac v. United States Fidelity & Guaranty Co., 113 Ill.
App. 3d 35, 446 N.E.2d 584 (1983) (finding insurer estopped where it responded to
insured's declaratory judgment action by filing motion to dismiss, thereby contesting
insured's efforts to construe policy). We continue to adhere to our decision in Ayers, not
only because it is supported by the weight of authority, but also because of the potential
consequences of a contrary rule. If an insured could prevent an insurer from raising
valid policy defenses by simply filing a declaratory judgment action immediately upon
denial of coverage, we would indeed be sponsoring a race to the courthouse. We
decline to do so, and we find that the trial court properly ruled that Penn had fulfilled its
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obligations by filing its answer and cross-claim to plaintiff's declaratory
action.
Timing Issues
The final step in the estoppel analysis, after finding the
existence of a duty to defend and that a declaratory judgment
action has been filed, is determining whether the insurer acted
"promptly" (see Household International, Inc. v. Liberty Mutual
Insurance Co., 321 Ill. App. 3d 859, 869, 749 N.E.2d 1, 9 (2001)
(describing Ehlco as requiring insured to "promptly" litigate)) or
in a "timely manner" (see Aetna Casualty & Surety Co. v. O'Rourke Brothers, Inc., 333
Ill. App. 3d 871, 880, 776 N.E.2d 588, 596 (2002) (insurer must seek declaratory
judgment in a "timely manner," citing Ehlco)) in filing or responding to the declaratory
action. The issue of what constitutes "promptness" or "timeliness" in this context has
not been definitively resolved, although two supreme court decisions help define the
outer boundaries. In Ehlco, the court held that a declaratory judgment action filed after
the underlying lawsuit has been resolved by judgment or settlement is untimely as a
matter of law, resulting in estoppel. Ehlco, 186 Ill. 2d at 157, 708 N.E.2d at 1138. Less
than three months later, the court ruled that "[a]n insurer will not be estopped from
denying coverage merely because the underlying case proceeds to judgment before the
declaratory judgment action is resolved." State Farm Fire & Casualty Co. v. Martin, 186
Ill. 2d 367, 374, 710 N.E.2d 1228, 1232 (1999). Thus it is clear that, to avoid estoppel,
a declaratory judgment action must commence before the underlying suit has been
7
resolved, but the declaratory action need not outrace the lawsuit to the judgment "finish
line."
Faced with these rather vague contours of timeliness, the courts of this state
have generally applied one of three standards to measure an insurer's promptness.
See S. Nardoni & J. Vishneski, The Illinois Estoppel Doctrine Revisited: How Promptly
must an Insurer Act?, 24 N. Ill. U. L. Rev. 211, 220-24 (2004). Some cases have
deemed a declaratory judgment action timely as long as it was filed before the
underlying lawsuit ends. See Pekin Insurance, 329 Ill. App. 3d 46, 768 N.E.2d 211;
Farmers Automobile Insurance Ass'n, 309 Ill. App. 3d 694, 722 N.E.2d 1228; 24 N. Ill.
U. L. Rev. at 221-22. Other cases have focused, not on the "raw chronological delay,"
but on whether the insured "waited until trial or settlement was imminent." O'Rourke,
333 Ill. App. 3d at 880, 776 N.E.2d at 596; see also Westchester Fire Insurance Co. v.
G. Heileman Brewing Co., 321 Ill. App. 3d 622, 634, 747 N.E.2d 955, 965 (2001); 24 N.
Ill. U. L. Rev. at 220-23 (describing the "imminent resolution" test). Still others have
required an insurer to seek declaratory relief within a "reasonable time" of learning of
the underlying lawsuit. See, e.g., West American Insurance Co. v. J.R. Construction
Co., 334 Ill. App. 3d 75, 777 N.E.2d 610 (2002) (insurer was estopped when it filed
declaratory judgment action 21 months after defense was tendered); Employers
Reinsurance Corp. v. E. Miller Insurance Agency, Inc., 332 Ill. App. 3d 326, 341-42, 773
N.E.2d 707, 719-20 (2002) (rejecting "anytime before resolution of underlying lawsuit
test" in favor of "reasonable time from date of notice to insurer" test); see also 24 N. Ill.
U. L. Rev. at 223-230 (advocating adoption of reasonable time test).
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In O'Rourke, this court stated that the "most important factor" in determining
whether an insurer had breached its duty to defend was not the mere chronological
delay in filing for declaratory relief, "but whether the insurer waited until trial or
settlement was imminent." O'Rourke, 333 Ill. App. 3d at 880, 776 N.E.2d at 596. That
statement must be viewed in the factual context of the case, rather than as a blanket
adoption of the so-called "imminent resolution" test. See 24 N. Ill. U. L. Rev. at 223
(citing O'Rourke as following that test). By the time the insurer in O'Rourke filed for
declaratory relief, four of the underlying suits had been settled and many others were
nearing settlement. 333 Ill. App. 3d at 880, 776 N.E.2d at 596. Under those
circumstances, emphasizing the looming termination of litigation over the mere passage
of time was appropriate. However, each case must be decided on its own facts, and for
that reason we favor the more flexible "reasonable time" test. We agree with the
commentators cited above that the reasonable time test promotes quick action by
insurers and best serves the goal of the estoppel doctrine - enforcement of the duty to
defend (24 N. Ill. U. L. Rev. at 224-25; see Ehlco, 186 Ill. 2d at 154, 708 N.E.2d at
1136). That duty is a "fundamental" obligation of an insurer. Ehlco, 186 Ill. 2d at 151,
708 N.E.2d at 1135.
We conclude that, under the reasonable time test, Penn did not breach its duty to
defend. Plaintiff tendered defense of the suit to Penn on June 5, 2002, and plaintiff
subsequently filed its declaratory judgment action on August 13, a little more than two
months later. Penn filed its answer and cross-claim less than two months after that.
Plaintiff has not cited, and our research has not revealed, any case holding that an
insurer breached the duty to defend where a declaratory judgment action was
9
commenced within four months. On the contrary, courts have declined to apply
estoppel where the time period between notification to the insurer of the underlying suit
and the filing of a declaratory judgment action exceeded that presented here. See
Westchester Fire Insurance Co., 321 Ill. App. 3d 622, 747 N.E.2d 955 (six months);
Sears, Roebuck & Co., 254 Ill. App. 3d 686, 627 N.E.2d 173 (seven months). We
discern no reason to find the relatively brief passage of time at issue here as anything
other than reasonable.
Plaintiff also argues that estoppel should be applied because even after
plaintiff filed its declaratory action, Penn failed to take steps to advance the
litigation and remained "virtually idle" for two years prior to plaintiff's filing of
its motion for summary judgment. We disagree. Penn responded
promptly to plaintiff's declaratory judgment action by filing its
answer and cross-claim within two months. Thereafter, Penn did
not remain "idle"; it filed a motion for default judgment within
six months, premised on its apparently mistaken belief that
plaintiff had failed to respond to Penn's cross-claim. Beyond that, we
find that plaintiff's "failure to advance the litigation" argument
is waived. Although it was mentioned in a perfunctory fashion in
plaintiff's motion for summary judgment, there is no indication that
it was argued to the trial court. "[A]n issue not presented to
or considered by the trial court cannot be raised for the first
time on review." In re Marriage of Schneider, 214 Ill. 2d 152, 172,
824 N.E.2d 177, 189 (2005).
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Assault and Battery Exclusion
Finally, having determined that Penn is not estopped from
raising policy defense, we consider the effect of the assault and
battery exclusion contained in the insurance policy. In doing
so, we are no longer limited to the allegations of the complaint,
but may also consider extrinsic evidence gathered during the
discovery process. See Mutlu v. State Farm Fire & Casualty Co.,
337 Ill. App. 3d 420, 785 N.E.2d 951 (2003); Fidelity & Casualty Co.
v. Envirodyne Engineers, Inc., 122 Ill. App. 3d 301, 461 N.E.2d 471
(1983). Deposition testimony contained in the record establishes
that Edward Jackson intentionally shot Marvin White while White
was on the dance floor of L.A. Connection. After White fell to
the floor, Jackson grabbed a bottle from a table and hit White on
the head with it. Jackson was later arrested and he was
subsequently convicted of first degree murder. See Savickas, 193
Ill. 2d 378, 739 N.E.2d 445 (criminal conviction may collaterally
estop insured from relitigating issue decided at criminal trial
in subsequent declaratory judgment action). Jackson's actions
are clearly encompassed by the assault and battery exclusion,
regardless of whether those terms are defined under the criminal
code (see 720 ILCS 5/12-1 (West 2000) (defining assault as
placing another in reasonable apprehension of receiving a
battery); 720 ILCS 5/12-3 (West 2000) (defining battery as
causing bodily harm or making physical contact of an insulting or
11
provoking nature)) or by civil case law (see Britamco
Underwriters, Inc. v. J.O.C. Enterprises, Inc., 252 Ill. App. 3d 96,
623 N.E.2d 1036 (1993) (defining civil battery as wilful touching
of another or a successful attempt to commit violence on
another)). Accordingly, the trial court properly granted summary
judgment in favor of Penn.
For the reasons stated above, the judgment of the circuit
court is affirmed.
Affirmed.
LYTTON and BARRY, J.J., concur.
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