United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 578 N.E.2d 926
(1991)). Put another way, an insurer is obligated to defend its insured if the allegations in the
complaint give rise to the possibility of recovery under the policy; “there need not be a probability
of recovery." Tews Funeral Home, Inc., 832 F.2d at 1042. Ambiguities within the policy must be
construed in favor of the insured. Pipefitters Welfare, 976 F.2d at 1040 (citing Wilkin Insulation Co.,
144 IL.2d at 74, 578 N.E.2d at 930). The insurer may properly refuse to defend only if it is clear
from the face of the complaint that the alleged misconduct is not covered under the insurance policy.
Id. at 1040 (citing Conway v. Country Cas. Ins. Co., 92 Ill.2d 388, 442 N.E.2d 245 (1988)). The
court "must read the underlying complaint liberally." Travelers Ins. Cos. v. Penda Corp., 974 F.2d
823, 829 (7th Cir. 1992) (citing Wilkin Insulation Co., 144 Ill.2d at 74, 578 N.E.2d at 930).

The material facts are undisputed. The court must determine, as a matter of law, whether
Connecticut Indemnity has a duty to defend DER Travel in the Harter action. Connecticut
Indemnity contends the Consumer Fraud Act claim (Count VII) in the Harter action concerns
intentional misrepresentation, On that basis, Connecticut Indemnity asserts it has no duty to defend
because the applicable insurance policy provision (coverage clause C) covers negligent acts or
omissions, and the policy expressly excludes willfully dishonest, fraudulent, or malicious acts. DER
Travel asserts the Harter complaint alleges both intentional and negligent misrepresentations about
inclusion of the reservation fee in the tax calculation. Resolution of this dispute requires a
comparison of the allegations in the Harter complaint with the coverage provisions of the insurance
policy. See Crum & Forster, 156 Ill.2d at 394, 620 N.E.2d at 1079; TIG Insurance Co. v. Joe Rizza

Inc., No. 00 C 5182, 2002 WL 406982, at *7-8 (N.D. Ill. Mar. 14, 2002).


Finally, the court notes that a co-defendant brought a declaratory judgment action in another
jurisdiction to compel Connecticut Indemnity to defend the Harter action. See Auto Europe, L.L.C.
y. Connecticut Indemnity, No. 01-271-P.H., 2002 WL 475123, at *5-6 (D. Maine, Mar. 28, 2002).
The Maine court determined the Harter complaint included claims that were potentially covered
under the insurance policy. The court applied Maine law, which is analogous to Illinois law on an
insurer’s duty to defend. See United Bank v. Chicago Title Ins. Co., 168 F.3d 37, 39 (1st Cir. 1999).
Because this court concludes the Harter complaint encompasses a claim potentially within
Connecticut Indemnity’s duty to defend under Illinois law, discussion of DER Travel’s collateral
estoppel argument is unnecessary. Nevertheless, Auto Europe is persuasive.

CONCLUSION

As a matter of law, Connecticut Indemnity is not entitled to declaratory judgment that it has

no duty to defend the Harter action. Accordingly, Connecticut Indemnity’s motion for summary

judgment is denied. DER Travel’s motion for summary judgment is granted.

August 5, 2002 ENTER:

Heap (2. Onto
zarie B. Conlon

United States District Judge


within the elements of a § 505/2 violation; the references do not necessarily invoke a defendant’s
mental state.

In Solo Cup v. Federal Ins. Co., 619 F.2d 1178 (7th Cir. 1980), the plaintiff's Equal
Employment Opportunities Commission complaint alleged the employer had “fntentionally engaged
in unlawful employment practices.” Despite that allegation, the court held the insurer breached its
duty to defend because a disparate impact claim did not require proof of discriminatory motive. Solo
Cup, 619 F.2d at 1187. In Blakely v. Hermitage Ins. Co., No. 94 C 359, 1994 WL 142952, at *2-3
(N.D. Il. Apr. 15, 1994), the plaintiff used the term “negligently” in a count that primarily alleged
battery. The court determined the plaintiff’s crafting of the complaint to allege negligent conduct
could not trigger the duty to defend. Reading the factual allegations of the complaint, the court
determined plaintiff's claim alleged an intentional tort (battery) that was excluded from insurance
coverage. Finally, in Sun Electric Corp. v. St. Paul Fire & Marine Ins., Co.,No. 94 C5846, 1995
WL 270230 (N.D. Ill. May 4, 1995), the court recognized that claims under the Lanham Act, the
Maine Deceptive Practices Act, and the Maine Trade Secret Act did not require proof of intentional
misconduct to establish liability. As a result, the court held the insurer was not entitled to invoke
the intentional misconduct exclusion clause in the insurance policy.

Solo Cup, Blakely, and Sun Electric are instructive. Similar to Blakely, Connecticut
Indemnity’s reliance on allegations that the “actions of the DER are intentionally and willfully
effected in disregard of the law” is not dispositive. See Travelers Ins. Co. v. Penda Corp., 974 F.2d
823, 827 (7th Cir. 1992) (“question of coverage should not hinge exclusively on the draftsmanship
skills or whims of the plaintiff in the underlying action”). Like the claims in Solo Cup and Sun

Electric, a Consumer Fraud Act claim does not require proof of an intent to deceive. Count VII


The Harter complaint alleges plaintiff Edward Sadlowski reserved a rental car with DER
Travel in Rosemont, Illinois. Compl. at 158. Sadlowski was not informed the value added tax was
charged on the reservation fee. Jd. at §{] 62-63. The complaint further alleges: “DER intended to
deceive Sadlowski in this manner and deceptively conceal under the guise of a tax that Sadlowski
was simply paying an increase in the fee that DER would receive directly.” Id. at § 65. The
complaint refers to “deceptive acts” and “deceptive pricing.” Compl. at { 23, 67, 137. Further,
Count VII alleges “the actions of the DER are intentionally and willfully effected in disregard of the
law.” Jd. at § 140. Connecticut Indemnity argues these allegations establish the Consumer Fraud
Act claim is based on a willful violation, not negligent misrepresentation.

The court’s review of the Harter complaint reveals that Count VII does not clearly exclude
a Consumer Fraud Act claim for negligent misrepresentation. To state a consumer fraud claim, a
plaintiff must establish a deceptive act or misrepresentation of a material fact by the defendant; that
the defendant intended the plaintiff to rely on the deception; and the deception or misrepresentation
occurred in the course of business. Gragg v. Calandra, 297 Ill. App. 3d 639, 647, 696 N.E.2d 1282,
1288 (2d Dist. 1998). Significantly, proof of an intent to deceive is unnecessary; an innocent or
negligent misrepresentation is sufficient to establish liability under the Consumer Fraud Act. Rubin
v. Marshall Field & Co., 232 Ill. App. 3d 522, 533, 597 N.E.2d 688, 695 (1st Dist. 1992).

The complaint alleges Sadlowski relied on DER Travel’s purported misrepresentation about
the amount due on the value added tax. Count VII alleges a Consumer Fraud Act violation in general
terms. Compl. at [J 134-140. Connecticut Indemnity’s reliance on allegations of deceptive acts or
a deceptive pricing plan to establish intentional conduct is misplaced. The Consumer Fraud Act

requires proof of a deceptive act to establish a violation. Hence, references to deceptive acts fall


complaint’s allegations do not clearly limit the Consumer Fraud Act claim to intentional misconduct.
The complaint’s reference to the terms “intent” and “willful” could be construed to allege DER
Travel’s intent that Sadlowski rely on the misrepresentation. Compl. at § 140. Indeed, a defendant
may be liable for a Consumer Fraud Act violation if he intended the plaintiff to rely on the
misrepresentation, but the misrepresentation was recklessly, negligently, or innocently conveyed.
Carl Sandburg Village Condominum Assn. No. I v. First Condominium Develp. Co., 197 11. App.
3d 948, 953, 557 N.E.2d 246, 280 (1st Dist. 1990); accord United Fire and Casualty Co. v. Jim
Maloof Realty, Inc., 105 Ill. App. 3d 1048, 1050, 435 N.E.2d 496, 498 (3d Dist. 1982) (no duty to
defend where every allegation of misrepresentation was prefaced with “knowingly, willfully, and
wantonly”). The ambiguity in the Harter complaint must be resolved in DER Travel’s favor. Wilkin
Insulation Co., 144 Il.2d at 74, 578 N.E.2d at 930.

In sum, Connecticut Indemnity is not entitled to declaratory judgment. Under Illinois law,
the duty to defend is broader than the duty to indemnify. The court is required to read the underlying
complaint liberally, and must interpret the insurance policy in favor of the insured. To grant
declaratory judgment, the complaint must clearly exclude a non-intentional claim under the
Consumer Fraud Act. Application of these principles establishes there remains a possibility that
coverage clause C covers the consumer fraud claim in the Harter action. As a result, Connecticut
Indemnity must defend the Harter action as a matter of law. See Wilkin Insulation Co., 144 Il.2d
at 74, 578 N.E.2d at 930 (where even one claim is covered under the insurance policy, insurer must
provide a complete defense to all claims asserted). The duty to defend continues unless an Illinois
court construes the complaint to exclude unintentional conduct in Count VIL. Sears, Roebuck & Co.

vy. Reliance Ins., Co., 654 F.2d 494, 496 (7th Cir. 1981).


42

bye ox (06197)

United States District Court, Northern District of Illinois

Name of Assigned Judge
or Magistrate Judge

Suzanne B. Conlon

Sitting Judge if Other
than Assigned Judge

CASE NUMBER 02 C 637 DATE 8/5/2002
CASE CONNECTICUT INDEMNITY CO. vs. AUTO EUROPE, INC., ET AL.
TITLE
[In the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature.
MOTION: of the motion being presented.]
DOCKET ENTRY:
(1) o Filed motion of [ use listing in “Motion” box above.]
(2) im Brief in support of motion due.
(3) 0 Answer brief to motion due. . Reply to answer brief due.
(4) oO Ruling/Hearing on set for at
(5) Oo Status hearingfheld/continued to] [set for/re-set for] on set for at
(6) QO Pretrial conference[held/continued to] [set for/re-set for] on set for at .
(7) im Trial[set for/re-set for] on at
(8) a [Bench/Jury trial] [Hearing] held/continued to at
(9) a This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]
OOFRCP4(m) OGeneral Rule21 CIFRCP4I(a)(1) ( FRCP41(a)(2).

ao) =o [Other docket entry] Plaintiff's motion for summary judgment [30-1] is denied. Defendant DER

Travel Service, Inc.’s motion for summary judgment [33-1] is granted. ENTER MEMORANDUM

OPINION AND ORDER. S 2 )
(il) ff [For further detail see order attached to the original minute order.]

| Notices maited by judge’s staff.
Notified counsel by telephone.
Docketing to mail notices.

v | Mail AO 450 form.

No notices required, advised in open court.

No notices required.

Copy to judge/magistrate judge.

courtroom
cB deputy’s
initials

LYNO9 Lonssia“sn

number of notices

received ih .}
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AUG 06 2002

ate docketed

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8/5/2002

date mailed notice

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mailing deputy initials



alleges DER Travel violated the Consumer Fraud Act because Sadlowski rented a car under a
deceptive pricing scheme. Compl. at {§ 134-137. The complaint does not clearly preclude
Sadlowski from establishing liability under a reckless or negligence standard, or even through proof
of an innocent misrepresentation. Indeed, “where bona fide controversies arise over the issue of
negligence versus intentional conduct, declaratory judgment actions are premature until resolution
of that question in the underlying tort case.” State Farm Mutual Automobile Ins. Co. v. Pfiel, 304
Il. App. 3d 831, 834, 710 N.E.2d 100, 103 (1st Dist. 1999); see also Hartford Fire Ins. Co. v.
Whitehall Covalescent and Nursing Home, Inc., 321 Ill. App. 3d 879, 889, 748 N.E.2d 647, 682 (Ist
Dist. 2001) (where the insurance policy provided the possibility of covering a fraudulent scheme as
a “medical incident,” insurance company had a duty to defend).

Connecticut Indemnity relies on Rubloff and Mutual Service. See Mutual Service Casualty
Ins. Co. v. Country Life Ins. Co., 859 F.2d 548 (7th Cir. 1988); Rubloff, Inc. v. American Nat’l Fire
Ins., No. 95 C 6845, 1997 WL 264327 (N.D. Ill. May 13, 1997). Mutual Service is distinguishable
because the underlying complaint alleged a “knowingly wrongful, unlawful, and oppressive” scheme
to breach a contract. 859 F.2d at 552. The court held the plaintiff had pleaded an intentional tortious
breach of contract claim. Jd. The plaintiff failed to plead a negligence claim in the alternative. In
contrast, the Harter complaint alleges a Consumer Fraud Act violation that does not necessitate an
allegation of a particular mental state in the purported deception or misrepresentation. See also Solo
Cup, 619 F.2d at 1187.

Rubloffheld the insurance company had no duty to defend because the underlying complaint
conclusively alleged intentional misconduct. 1997 WL 264327, at *6-7. The court held the

complaint was not ambiguous as to the insured’s state of mind. Jd. In contrast, the Harter


Civ. P. 56(e); Silk v. City of Chicago, 194 F.3d 788, 798 (7th Cir. 1999). The court considers the
record as a whole and draws all reasonable inferences in the light most favorable to the nonmoving
party. Bay v. Cassens Transp., Co., 212 F.3d 969, 972 (7th Cir. 2000). A genuine issue of material
fact exists when the evidence is sufficient to support a reasonable jury verdict in favor of the
nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Insolia v. Philip
Morris, Inc., 216 F.3d 596, 599 (7th Cir. 2000).
Il. Duty to Defend

Under Illinois law, "the construction of an insurance policy and a determination of the rights
and obligations thereunder are questions of law for the court which are appropriate subjects for
disposition by way of summary judgment." Crum & Forster v. Resolution Trust Corp.,156 l.2d
384, 391, 620 N.E.2d 1073, 1077 (1993).' An insurer's duty to defend is broader than its duty to
indemnify. Tews Funeral Home, Inc. v. Ohio Cas. Ins. Co., 832 F.2d 1037, 1042 (7th Cir. 1987).
"In determining whether an insurer has a duty to defend its insured, the court must look to the
allegations in the underlying complaint and compare these allegations to the relevant coverage
provisions of the insurance policy." Crum & Forster, 156 Ill.2d at 393, 620 N.E.2d at 1079. The
court should examine the legal claims pursued by the claimant, and the alleged conduct that is the
basis of the action. Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037,
1039 (7th Cir. 1992).

"If the complaint states a claim that is within, or even potentially or arguably within, the

scope of coverage provided by the policy," the insurer is obligated to defend the insured. Jd. (citing

' The parties agree Illinois law governs resolution of Connecticut Indemnity’s duty to
defend.


policy (“the insurance policy”). The insurance policy provides DER Travel with insurance coverage
for:

Coverage C - Any negligent act, error or omission of the insured or any other person

for whose acts the named insurer is legally liable in the conduct of travel agency

operations by the named insured.

Def. 56.1 Facts, Ex. C (internal quotations omitted). Connecticut Indemnity agrees to defend legal
actions against DER Travel seeking damages for bodily injuries, property damage, negligent acts,
or other personal injuries. Jd. at (4. The insurance policy excludes misconduct that is “willfully
dishonest, fraudulent or malicious, or in willful violation of any penal or criminal statute or
ordinance, and is committed (or omitted) by or with the knowledge or consent of the insured.” Jd.,
Ex. C, (internal quotations omitted).

DER Travel is a defendant in the Harter action. The Harter complaint alleges DER Travel
violated the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS § 505/1 et seq.
(“the Consumer Fraud Act”), by improperly calculating the value added tax due on car rentals in
Europe. DER Travel timely notified Connecticut Indemnity about the Harter action. Connecticut
Indemnity determined it had no duty to defend.

DISCUSSION
I. Standard of Review

Summary judgment is proper when the moving papers and affidavits show there is no
genuine issue of material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ.
P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); King v. National Human Res. Comm.,
218 F.3d 719, 723 (7th Cir. 2000). Once a moving party has met its burden, the non-movant must

go beyond the pleadings and offer specific facts showing there is a genuine issue for trial. Fed. R.


IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS boc;
EASTERN DIVISION OCKET ED

AUG 06 2002

CONNECTICUT INDEMNITY COMPANY,
Plaintiff, No. 02 C 637
v. Suzanne B. Conlon, Judge
AUTO EUROPE, INC., KEMWEL HOLIDAY
NO. LLC, and DER TRAVEL SERVICE,

Defendants.

MEMORANDUM OPINION AND ORDER

Connecticut Indemnity Co. (“Connecticut Indemnity”) sues Auto Europe, L.L.C. (“Auto
Europe”), Kemwel Holiday Autos, L.L.C. (“Kemwel”), and DER Travel Service, Inc. (“DER
Travel”) for a declaratory judgment regarding Connecticut Indemnity’s duty to defend DER Travel
in Harter, et. al. v. Auto Europe, Inc. et al., No. 01 C 07549, pending in the Circuit Court of Cook
County, Illinois (“the Harter action”). Auto Europe was voluntarily dismissed from this action.
Kemwel was dismissed pursuant to Fed. R. Civ. P. 4(m). Connecticut and DER Travel cross-move
for summary judgment.

BACKGROUND

All facts are undisputed. Connecticut Indemnity is an insurance company operating in

Connecticut. DER Travel is a travel service company that reserves car rentals for tourists traveling

to Europe. DER Travel is insured under Connecticut Indemnity’ s travel agents professional liability

U