ILLINOIS OFFICIAL REPORTS

Appellate Court

Pekin Insurance Co. v. Precision Dose, Inc., 2012 IL App (2d) 110195

Appellate Court

Caption

PEKIN INSURANCE COMPANY, Plaintiff-Appellee, v. PRECISION

DOSE, INC., FRANK DARNELL, JAMES KLEINHEINZ, ROBERT

KOOPMAN, WARREN SWANSON, JAMES ARTHUR, and DAVID

ZOELLNER, as Shareholders of Xactdose, Inc., Defendants-Appellants.

 District & No. Second District

Docket No. 2-11-0195

Filed

Rehearing denied

March 16, 2012

May 31, 2012

Held

(Note: This syllabus

constitutes no part of

the opinion of the court

but has been prepared

by the Reporter of

Decisions for the

convenience of the

reader.)

Summary judgment was properly entered for plaintiff insurer on its

complaint seeking a declaratory judgment that it had no duty to defend its

insured under a commercial general liability policy in an underlying

action for breach of fiduciary duty that resulted in economic losses to

plaintiffs, minority shareholders of a company, when defendants, as

majority shareholders and directors of plaintiffs’ company, formed and

operated another company engaged in the same business, since plaintiff

insurer lacked knowledge of true but unpleaded facts indicating that the

claims were potentiallycovered, defendants breached the notice provision

of the policy by failing to timely present the insurer with facts concerning

the conduct at issue, if the amended underlying complaint had alleged

that the new company “assumed operations” of the old company’s

business rather than its factory, the claim might have been within the

advertising injury coverage, and the allegation that the new company

assumed operations of the old company’s factory was not an allegation

of wrongful conduct by defendants.
Decision Under 

Review

Appeal from the Circuit Court of Winnebago County, No. 06-MR-514;

the Hon. Eugene G. Doherty, Judge, presiding.

Judgment Affirmed.

Counsel on

Appeal

Marc C. Gravino, Scott C. Sullivan, and Adam B.E. Lied, all of

WilliamsMcCarthy LLP, of Rockford, for appellants.

Robert Marc Chemers, Darryl L. Awick, and Richard M. Burgland, all of

Pretzel & Stouffer, Chtrd., of Chicago, for appellee.

Panel JUSTICE BURKE delivered the judgment of the court, with opinion.

Justices McLaren and Birkett concurred in the judgment and opinion.

OPINION

¶ 1 Pekin Insurance Company issued a commercial general liability (CGL) policy covering

Xactdose, Inc., a packager and distributor of single-dose units of liquid medication. While

serving as directors of Xactdose, Frank Darnell, James Kleinheinz, and Robert Koopman

(collectively, defendants) allegedly formed and operated another company, defendant

Precision Dose, Inc., which engaged in the same type of business. The policy was amended

to name Precision Dose as an insured. Warren Swanson, James Arthur, and David Zoellner

(collectively, plaintiffs) were the minority shareholders of Xactdose. Plaintiffs filed an

amended complaint against defendants, derivatively on behalf of Xactdose, for breach of

fiduciary duty.

¶ 2 Defendants tendered plaintiffs’suit to Pekin for defense and indemnity. Pekin denied that

the policy covered any of the claims in the underlying suit, which eventually was dismissed.

Pekin filed a declaratory judgment action in this case, seeking a declaration that it had no

duty to defend. Pekin and defendants filed cross-motions for summary judgment, and Pekin

additionallymoved to strike the affidavit of Koopman, the former president of Xactdose and

current president of Precision Dose. Pekin argued that the affidavit contained facts of which

Pekin was unaware when coverage was denied, and therefore the facts were not relevant to

whether the denial of coverage was proper.

¶ 3 The trial court struck the affidavit and granted Pekin summary judgment, and defendants

appeal. Defendants argue that the trial court erred in striking the affidavit and in determining

that Pekin did not owe defendants a duty to defend the underlying suit. First, we hold that,

even though “a circuit court may, under certain circumstances, look beyond the underlying

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complaint in orderto determine an insurer’s duty to defend” (Pekin Insurance Co. v. Wilson,

237 Ill. 2d 446, 459 (2010)), the trial court did not err in striking Koopman’s affidavit on the

ground that Pekin was unaware of the contents of the affidavit, which arguably would have

shown that the claims asserted against defendants were potentiallywithin the coverage of the

insurance policy (cf. Konstant Products, Inc. v. Liberty Mutual Fire Insurance Co., 401 Ill.

App. 3d 83, 87 (2010) (“an insurance carrier may not ignore unpleaded facts within its

knowledge, which it knows to be correct, and which, when taken together with the

complaint’s allegations, indicate that the claim asserted against the putative insured is

potentially within the coverage of the insurance policy” (internal quotation marks and

emphasis omitted)). Second, we hold that the allegations in the amended complaint were not

potentially within the policy’s coverage, and therefore Pekin is entitled to summary

judgment. We affirm.

¶ 4 FACTS

¶ 5 A. The Underlying Amended Complaint

¶ 6 On March 29, 2006, plaintiffs filed a complaint against Precision Dose and defendants.

The four-count complaint asserted claims for shareholder relief and an accounting (see 805

ILCS 5/12.56 (West 2010)), common-law fraud, breach of fiduciary duty, and successorcorporation liability that resulted in economic losses to plaintiffs. On November 15, 2006,

plaintiffs filed an amended complaint alleging breach of fiduciary duty against defendants.

The amended complaint substituted Xactdose for Precision Dose as a defendant and did not

incorporate the original complaint by reference.

¶ 7 In their reply brief, defendants suggest that “since [this] is a case involving both an

original complaint and an amended complaint, the duty to defend issue is not necessarily an

‘all or nothing’ proposition.” Acknowledging the possibility that plaintiffs’ amendment of

the underlying complaint might have no bearing on Pekin’s duty to defend, defendants

speculate that perhaps “the original complaint that named Precision Dose triggered a duty

to defend for at least a period of time until the amended complaint was filed,” at which point

the change in the underlying claims might have extinguished Pekin’s duty to defend.

Defendants offer no analysis as to how changing the claims and naming Xactdose and

removing Precision Dose as a defendant in the underlying suit might have affected Pekin’s

duty to defend. In fact, the parties do not specify whether the insureds tendered the defense

to Pekin before plaintiffs amended their complaint.

¶ 8 The trial court concluded that Pekin owed no duty to defend the original complaint or the

amended complaint. We conclude that defendants have procedurallydefaulted anyargument

regarding whether Pekin owed a duty to defend the original complaint. See Ill. S. Ct. R.

341(h)(7) (eff. Sept. 1, 2006) (“Points not argued are waived ***.”); see also Foxcroft

Townhome Owners Ass’n v. Hoffman Rosner Corp., 96 Ill. 2d 150, 154 (1983) (where an

amendment is complete in itself and does not refer to or adopt the prior pleading, the earlier

pleading ceases to be part of the record for most purposes, being in effect abandoned and

withdrawn). Accordingly, we need address only the amended complaint, which alleged only

claims of breach of fiduciary duty against defendants and named Xactdose as a defendant.

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¶ 9 The three-count amended complaint alleged that defendants were majority shareholders

and served as three of the four directors of Xactdose. Plaintiffs were the minority

shareholders, with Arthur serving as the fourth director. Defendants allegedly “formed an

‘alliance’ and were essentially in control of the corporation.” On June 24, 2003, a special

Xactdose shareholders meeting was held to discuss Xactdose’s financial state and its future.

Zoellner was the only shareholder who was not present. At the time of the meeting,

Xactdose’s financial state had been significantly affected by the termination of its contract

with Alpharma Pharmaceuticals, a company in the business of developing, manufacturing,

and marketing generic liquid pharmaceuticals. The shareholders discussed Xactdose’s state

of insolvency, the lack of potential investors and profitable products, and the means bywhich

Xactdose should “wind down” its business and dissolve. Based on discussions at the

meeting, the shareholders who were present resolved four-to-one to wind up Xactdose’s

business, sell its assets to defendants for $1.4 million, and dissolve Xactdose.

¶ 10 Allegedly unknown to plaintiffs, on April 9, 2003, defendants incorporated Precision

Dose and became its majority shareholders, officers, and directors. The amended complaint

alleged that “Precision Dose began assuming operations of the Xactdose packaging factory”

and immediately began earning a profit by promoting Megestrol, a new generic liquid

medication. Upon information and belief, plaintiffs alleged that Precision Dose sold units of

Megestrol earning (1) a $1.8 million profit “in fiscal year 2003/2004,” (2) a $4.3 million

profit in 2005, and (3) a projected $10 million profit in 2006.

¶ 11 Besides the preceding allegations common to all counts, the amended complaint

contained three identical counts of breach of fiduciary duty directed against defendants. The

claims alleged that, at the June 24, 2003, meeting, defendants denied that there were any

potential products under development that could have any positive financial impact on

Xactdose or on the shareholders themselves. Specifically, defendants failed to mention

Megestrol. For several months before the meeting, defendants allegedly had been engaging

in discussions with multiple individuals about the future of the single-unit liquid medication

packaging industry and their own futures personally. Defendants discussed with Tom

Anderson, the former Alpharma president, the possibility of setting up a partnership with

ANI Pharmaceuticals so that Precision Dose and ANI could develop and market new unitdose products. Defendants also held discussions with PAR Labs regarding the development

of Megestrol, the potential future market for the product, and a future business partnership

between Precision Dose and PAR Labs. Defendants negotiated with ANI, PAR Labs, and

other pharmaceutical companies and laboratories for the express purpose of diverting

potential future business opportunities from Xactdose to Precision Dose. Defendants

allegedly never disclosed to plaintiffs that they were involved in discussions with these

companies or that there was a potential market for Megestrol or any other product.

¶ 12 Further, defendants allegedly had never accounted for the $1.4 million payment owed to

Xactdose or any of the other winding-up activities. Defendants had represented to plaintiffs

that they would apply the purchase price to Xactdose’s corporate debts, which defendants

had guaranteed personally. However, defendants allegedly created a windfall for themselves

by negotiating the debt downward, to perhaps as much as 80% off the original amount, and

retaining the remainder without disbursing the entire $1.4 million on behalf of Xactdose.

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¶ 13 The breach-of-fiduciary-duty counts alleged that, as officers, directors, and shareholders

of Xactdose, defendants owed Xactdose a duty of loyalty, good faith, and honesty. However,

bymisrepresenting and withholding information vital to plaintiffs and by diverting corporate

opportunities for their own personal benefit, defendants breached their fiduciary duties to

Xactdose and its shareholders. Plaintiffs sought compensatory and punitive damages, a

constructive trust on any profits or income realized by defendants as a result of their

“wrongful conduct,” an accounting of the sale of assets and other winding-up activities, and

costs.

¶ 14 B. Declaratory Judgment Action

¶ 15 On January29, 2007, Pekin filed an amended complaint for declaratoryjudgment, setting

forth the following facts. Pekin issued a CGL policy, No. 00CL85805, to Xactdose as the

named insured. The policy was amended on June 30, 2003, to name Precision Dose as the

named insured. Defendants qualified as insureds under the policy by virtue of their roles as

directors and shareholders of Xactdose. The policy was to be effective from February 27,

2003, through February 27, 2004, but it was cancelled on January 22, 2004. The policy

provided in relevant part as follows:

“Coverage B. Personal and Advertising Injury Liability

1. Insuring Agreement.

a. We will pay those sums that the insured becomes legally obligated to pay as

damages because of ‘personal injury’ or ‘advertising injury’ to which this insurance

applies. We will have the right and duty to defend any ‘suit’ seeking those damages.

We may at our discretion investigate any ‘occurrence’ or offense and settle any claim

or ‘suit’ that may result. But:

(1) The amount we will pay for damages is limited as described in Limits of

Insurance (Section III); and

(2) Our right and duty to defend end when we have used up the applicable

limit of insurance in the payment of judgments or settlements under Coverage A

or B or medical expenses under Coverage C.

No other obligation or liability to pay sums or perform acts or services is covered

unless explicitly provided for under Supplementary Payments–Coverages A and B.

b. This insurance applies to:

(1) ‘Personal injury’ caused by an offense arising out of your business,

excluding advertising, publishing, broadcasting, or telecasting done by you or for

you; and

(2) ‘Advertising injury’ caused by an offense committed in the course of

advertising your goods, products, or services;

but only if the offense was committed in the ‘coverage territory’ during the policy

period.”

¶ 16 The policy defines “advertising injury” and “personal injury” as follows:

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“Section V–Definitions

1. ‘Advertising injury’ means injury arising out of one or more of the following

offenses:

* * *

c. Misappropriation of advertising ideas or style of doing business; or

d. Infringement of copyright, title, or slogan.

* * *

13. ‘Personal injury’ means injury, other than ‘bodily injury’ arising out of one or

more of the following offenses;

* * *

c. The wrongful eviction from, wrongful entry into, or invasion of the right of

private occupancy of a room, dwelling, or premises that a person occupies by or on

behalf of its owner, landlord, or lessor.”

¶ 17 At some unspecified time after plaintiffs filed their action, defendants tendered their

defense to Pekin, which refused the tender. Pekin then filed this declaratory judgment action

seeking a declaration that it owed no duty to defend the underlying action.

¶ 18 Defendants filed an answer, affirmative defense, and counterclaim to Pekin’s amended

complaint for declaratory judgment. Defendants’ counterclaim alleged that Pekin had a duty

to defend against plaintiffs’ action because the underlying complaint alleged “personal

injury” or “advertising injury” that was covered under the policy.

¶ 19 Pekin and defendants filed cross-motions for summary judgment, focusing on whether

the allegations in the underlying complaint constituted “personal injury” or “advertising

injury” under the terms of the policy. Specifically, defendants argued that the allegation that

they “assumed operations” of Xactdose constituted covered offenses, including

misappropriation of advertising ideas or style of doing business and wrongful invasion into

the right of private occupancy of the factory. Defendants also asserted that the allegation of

misrepresenting and withholding information vital to plaintiffs constituted the covered

offense of infringement of copyright, title, or slogan.

¶ 20 In support of their motion for summary judgment, defendants relied on Koopman’s

affidavit for the proposition that Precision Dose used Xactdose’s advertising ideas and

capitalized on Xactdose’s goodwill. Koopman attested that Precision Dose assumed the

operations of Xactdose on or around June 24, 2003, and remained in the business of

packaging, marketing, advertising, and distributing single-unit doses of liquid medication.

In assuming those operations, Precision Dose took over Xactdose’s marketing and

advertising methods, manufacturing, general operations, and sales and distributions.

Koopman stated that, like Xactdose, Precision Dose targeted its marketing and advertising

toward pharmaceutical companies rather than the individual consumers of liquid medication.

To his affidavit Koopman attached advertising brochures distributed by Xactdose in March

2003 and Precision Dose in July 2003 to show their similarity. Koopman attested that

Precision Dose essentially made the Xactdose advertisement its own by removing any

reference to Xactdose and replacing it with Precision Dose, “essentially stepping into

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Xactdose’s shoes.” Koopman stated that the original brochure idea came from Xactdose,

which Precision Dose assumed as part of its purchase of Xactdose’s assets in 2003.

¶ 21 Pekin moved to strike Koopman’s affidavit on the grounds that the facts set forth therein

were in the possession only of defendants and that defendants failed to show that Pekin knew

of a similarity in the marketing and operations of Xactdose and Precision Dose when Pekin

denied coverage.

¶ 22 On February 3, 2011, the trial court struck Koopman’s affidavit, denied defendants

summary judgment, and granted Pekin summary judgment. In a nine-page, single-spaced

opinion, the court held that Pekin owed defendants no duty to defend the underlying suit.

This timely appeal followed.

¶ 23 ANALYSIS

¶ 24 A. Sufficiency of Defendants’ Statement of Facts

¶ 25 Initially, we address Pekin’s request that we ignore defendants’ statement of facts as

incomplete and fraught with misstatements. Illinois Supreme Court Rule 341(h)(6) (eff. July

1, 2008) requires that the statement of facts shall contain the facts necessary to an

understanding of the case, stated accurately and fairly, without argument or comment, and

with appropriate reference to the pages of the record. Considering that an insurer’s duty to

defend turns on the words used in an underlying complaint, we agree with Pekin that portions

of defendants’ statement of facts paraphrase the record inaccurately. However, with less

egregious violations such as those here, we simply disregard the offensive portions of the

statement of facts. See Ziller v. Rossi, 395 Ill. App. 3d 130, 138 (2009). We remind

defendants’ counsel that they are required to follow Rule 341(h)(6), and we admonish

counsel to comply with the supreme court rules in the future.

¶ 26 B. Standard of Review

¶ 27 Defendants appeal from the trial court’s decisions to strike Koopman’s affidavit and to

grant Pekin summary judgment on the issue of whether Pekin owed defendants a duty to

defend the shareholder suit. The purpose of summary judgment is not to try a question of fact

but, rather, to determine whether a genuine issue of material fact exists. Adams v. Northern

Illinois Gas Co., 211 Ill. 2d 32, 42-43 (2004). “When, as in this case, parties file crossmotions for summary judgment, they concede the absence of a genuine issue of material fact

and invite the court to decide the questions presented as a matter of law.” Steadfast Insurance

Co. v. Caremark Rx, Inc., 359 Ill. App. 3d 749, 755 (2005).

¶ 28 Summary judgment is appropriate where the pleadings, affidavits, depositions, and

admissions on file, when viewed in the light most favorable to the nonmoving party, show

that there is no genuine issue of material fact and that the moving party is entitled to

judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2010); Klitzka v. Hellios, 348 Ill.

App. 3d 594, 597 (2004). The summary judgment procedure is to be encouraged as an aid

in the expeditious disposition of a lawsuit. Adams, 211 Ill. 2d at 43. However, summary

judgment is a drastic means of disposing of litigation and should not be granted unless the

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movant’s right to judgment is clear and free from doubt. Forsythe v. Clark USA, Inc., 224

Ill. 2d 274, 280 (2007).

¶ 29 In reviewing a grant of summary judgment, this court must construe the pleadings,

depositions, admissions, and affidavits strictlyagainst the moving partyand liberallyin favor

of the nonmoving party. Williams v. Manchester, 228 Ill. 2d 404, 417 (2008). Where

reasonable persons could draw divergent inferences from the undisputed material facts or

where there is a dispute as to a material fact, summary judgment should be denied and the

issue decided by the trier of fact. Espinoza v. Elgin, Joliet &Eastern Ry. Co., 165 Ill. 2d 107,

114 (1995). If a party moving for summary judgment introduces facts that, if not

contradicted, would entitle him to judgment as a matter of law, the opposing party may not

rely on his pleadings alone to raise issues of material fact. Klitzka, 348 Ill. App. 3d at 597

(citing Hermes v. Fischer, 226 Ill. App. 3d 820, 824 (1992)). We review de novo an order

granting or denying summary judgment. See Millennium Park Joint Venture, LLC v.

Houlihan, 241 Ill. 2d 281, 309 (2010).

¶ 30 “In a declaratory judgment action such as that presented here, where the issue is whether

the insurer has a duty to defend, a court ordinarily looks first to the allegations in the

underlying complaint and compares those allegations to the relevant provisions of the

insurance policy.” Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446, 455 (2010). If the facts

alleged in the underlying complaint fall within, or potentially within, the policy’s coverage,

the insurer’s duty to defend arises. Wilson, 237 Ill. 2d at 455.

¶ 31 A court’s primary objective in construing the language of an insurance policy is to

ascertain and give effect to the intentions of the parties as expressed in their agreement. If

the policy terms are clear and unambiguous, they must be given their plain and ordinary

meaning; but if the terms are susceptible to more than one meaning, they are considered

ambiguous and will be construed strictly against the insurer that drafted the policy. Wilson,

237 Ill. 2d at 455-56. Provisions that limit or exclude coverage will be interpreted liberally

in favor of the insured and against the insurer. A court must construe the policy as a whole

and take into account the type of insurance purchased, the nature of the risks involved, and

the overall purpose of the contract. Wilson, 237 Ill. 2d at 456. The insurer’s duty to defend

its insured is broader than its duty to indemnify (Wilson, 237 Ill. 2d at 456), and therefore the

insurer may be obligated to defend against causes of action and theories of recovery that are

not in fact covered by the policy and against allegations that are groundless, false, or

fraudulent (Uhlich Children’s Advantage Network v. National Union Fire Co. of Pittsburgh,

398 Ill. App. 3d 710, 716 (2010)).

¶ 32 C. Koopman’s Affidavit

¶ 33 Before granting Pekin summary judgment, the trial court struck Koopman’s affidavit, a

ruling that defendants claim was erroneous. The sufficiency of an affidavit in support of a

motion for summary judgment is determined under Illinois Supreme Court Rule 191(a) (eff.

July 1, 2002). Rule 191(a) provides that affidavits in support of or in opposition to a motion

for summary judgment must be made on the personal knowledge of the affiant and must not

consist of conclusions, but facts admissible in evidence, and must affirmatively show that

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the affiant could testify competently thereto. Ill. S. Ct. R. 191(a) (eff. July 1, 2002).

Ordinarily, the decision to strike a Rule 191 affidavit is within the sound discretion of the

trial court. American Service Insurance Co. v. China Ocean Shipping Co. (Americas), Inc.,

402 Ill. App. 3d 513, 524 (2010). However, in this case, the trial court struck the affidavit

on the ground that defendants had failed to timely inform Pekin of the affidavit’s contents,

and therefore Koopman’s assertions had no bearing on whether Pekin correctly denied

coverage when defendants tendered the defense. We agree with the parties that, in this

unusual procedural context, the court’s decision to strike the affidavit presents a question of

law that we review de novo.

¶ 34 Pekin does not seriously dispute that Koopman’s affidavit set forth facts that would

trigger a duty to defend the underlying suit. Specifically, Koopman attested that Precision

Dose derived its advertising materials from Xactdose’s brochure, which arguably was a

misappropriation of advertising ideas or style of doing business as well as infringement of

copyright, title, or slogan. However, we conclude that the trial court correctly struck

Koopman’s affidavit on the ground that Pekin was not aware of those facts when it declined

to defend the suit. While an earlier disclosure of the contents of the affidavit might have

triggered a duty to defend, it appears that defendants waited to notify Pekin of the details of

Koopman’s conduct until after the time for presenting a defense had passed. Defendants did

not disclose Koopman’s affidavit until the parties had filed cross-motions for summary

judgment in the declaratory judgment action.

¶ 35 1. “Eight Corners” Rule and Exceptions

¶ 36 Our supreme court has long held that an insurer’s duty to defend an action brought

against the insured is “ ‘determined solely by reference to the allegations of the complaint.’ ”

(Emphasis omitted.) Wilson, 237 Ill. 2d at 457-58 (quoting Zurich InsuranceCo. v. Raymark

Industries, Inc., 118 Ill. 2d 23, 52 (1987)). Illinois adheres to an “eight corners” analysis

when determining a carrier’s duty to defend, where the court compares the four corners of

the underlying complaint with the four corners of the insurance policy to determine whether

facts alleged in the underlying complaint fall within or potentiallywithin coverage. Konstant

Products, Inc. v. Liberty Mutual Fire Insurance Co., 401 Ill. App. 3d 83, 86 (2010).

¶ 37 However, the supreme court recently pointed out that this is only a “general rule” to

which there can be exceptions. Wilson, 237 Ill. 2d at 458. The court noted that, in American

Economy Insurance Co. v. Holabird & Root, 382 Ill. App. 3d 1017 (2008), the appellate

court considered the allegations of the complaint, the third-party complaint, and the relevant

language of the insurance policy in determining that the insurer owed a duty to defend.

Wilson, 237 Ill. 2d at 460. The supreme court quoted with approval the following from

Holabird & Root:

“ ‘[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 [citation]. The trial court should be able to consider all the relevant

facts contained in the pleadings, including a third-party complaint, to determinewhether

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there is a duty to defend. After all, the trial court need not wear judicial blinders and may

look beyond the complaint at other evidence appropriate to a motion for summary

judgment. [Citations.]’ (Emphasis added.)” (Internal quotation marks omitted.) Wilson,

237 Ill. 2d at 460-61 (quoting Holabird & Root, 382 Ill. App. 3d at 1031-32).

¶ 38 The Wilson court also quoted with approval Fidelity & Casualty Co. of New York v.

EnvirodyneEngineers, Inc., 122 Ill. App. 3d 301, 304-05 (1983), in which the appellate court

affirmed a declaratoryjudgment in favor of an insurance companyon the ground that the trial

court could look beyond the underlying complaint in determining the duty to defend. The

court in Envirodyne Engineers, Inc. stated the rationale for its holding as follows:

“[W]e find no support for Envirodyne’s contention that the court may not look beyond

the underlying complaint even in a declaratory proceeding where the duty to defend is

at issue. It is certainly true that the duty to defend flows in the first instance from the

allegations in the underlying complaint; this is the concern at the initial stage of the

proceedings when an insurance company encounters the primary decision of whether to

defend its insured. However, if an insurer opts to file a declaratory proceeding, we

believe that it may properly challenge the existence of such a duty by offering evidence

to prove that the insured’s actions fell within the limitations of one of the policy’s

exclusions. [Citations.] The only time such evidence should not be permitted is when it

tends to determine an issue crucial to the determination of the underlying lawsuit

[citations] ***. If a crucial issue will not be determined, we see no reason why the party

seeking a declaration of rights should not have the prerogative to present evidence that

is accorded generally to a party during a motion for summary judgment in a declaratory

proceeding. To require the trial court to look solely to the complaint in the underlying

action to determine coverage would make the declaratory proceeding little more than

a useless exercise possessing no attendant benefit and would greatly diminish a

declaratory action’s purpose of settling and fixing the rights of the parties.” (Emphasis

added.) Envirodyne Engineers, Inc., 122 Ill. App. 3d at 304-05.

¶ 39 Thus, on a motion for summary judgment in a declaratory judgment action, when

determining whether a duty to defend exists, the court is not limited to comparing the

insurance policy to the allegations of the complaint but may consider evidence usually

considered in ruling on a motion for summary judgment, so long as such evidence does not

tend to determine an issue critical to the determination of the underlying lawsuit. See Wilson,

237 Ill. 2d at 462.

¶ 40 2. True-But-Unpleaded-Facts Doctrine

¶ 41 Citing Wilson and cases like it, defendants argue that the trial court erroneously rejected

Koopman’s affidavit when determining whether Pekin owed a duty to defend. We disagree.

The trial court correctly observed that “it is important to note that the rule in [Wilson] not be

overstated; it is not a requirement to consider any material outside the underlying pleadings;

it simply permits it.” (Emphases in original.) Before Wilson was decided, the appellate court

had occasionally considered the more difficult question of which extraneous materials may

be considered and when. Nothing in Wilson suggests that these cases are no longer good law.

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¶ 42 In Shriver Insurance Agency v. Utica Mutual Insurance Co., 323 Ill. App. 3d 243, 251

(2001), Shriver Insurance Agency (Shriver) filed a declaratory judgment action against its

insurer, Utica Mutual Insurance Company (Utica), after Utica declined to defend Shriver in

an underlying lawsuit. Utica moved to dismiss Shriver’s complaint in light of a policy

exclusion, and, as in this case, the parties eventually filed opposing motions for summary

judgment. Shriver attached an affidavit from its president as well as his letter sent to Utica

informing it of the underlying action and the facts leading up to the lawsuit. The trial court

granted Shriver’s motion for summary judgment and found that Utica had a duty to defend

Shriver because the letter constituted true but unpleaded facts known to Utica. Shriver, 323

Ill. App. 3d at 246-47.

¶ 43 On appeal, the Shriver court reiterated the true-but-unpleaded-facts doctrine: “[a]n

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.” (Emphasis added.) Shriver, 323 Ill. App.

3d at 247. The court determined that the complaint in the underlying action alleged the type

of risk that Utica intended to exclude from coverage. Shriver, 323 Ill. App. 3d at 249.

Additionally, the court stated that it did not believe that the true-but-unpleaded-facts doctrine

“was meant to be applied to situations such as existed in this case, i.e., where the only

extraneous facts the insurer possessed were supplied by the insured. In such a situation the

insurer has no way of knowing whether the facts are true unless it conducts an independent

investigation.” Shriver, 323 Ill. App. 3d at 251. “Typically, in cases where the ‘true but

unpleaded facts’ doctrine has been applied to show that an insurer had the duty to defend, the

extraneous facts possessed by the insurer and known to be true were facts the insurer

discovered during its own investigation of the underlying action.” Shriver, 323 Ill. App. 3d

at 251. To illustrate that the source of “true but unpleaded facts” is often the insurer’s own

investigation, the Shriver court mentioned La Rotunda v. Royal Globe Insurance Co., 87 Ill.

App. 3d 446 (1980), and Associated Indemnity Co. v. Insurance Co. of North America, 68

Ill. App. 3d 807 (1979):

“In [La Rotunda], the court determined that Royal Globe had a duty to defend where

the results of its own investigation disclosed the true but unpleaded fact that all of the

land in question was not used as a junkyard or refuse dump. Therefore, smoke from the

land, which caused a driving accident on a neighboring road, might have come from the

vacant part of the land and not the junkyard, making the business exclusion in Royal

Globe’s policy inapplicable.

In [Associated Indemnity], the insurer, Insurance Company of North America (INA),

knew that unpleaded facts related to it byAssociated Indemnitywere true. INA possessed

a file containing documents produced in the underlying litigation that verified the truth

of Associated Indemnity’s facts. Also, INA knew the facts to be true because it was

defending another party in the underlying action.” Shriver, 323 Ill. App. 3d at 251-52

(citing La Rotunda, 87 Ill. App. 3d at 452, and Associated Indemnity, 68 Ill. App. 3d at

818-19).

¶ 44 Shriver teaches that unpleaded facts that the insured gives the insurer should be viewed

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with suspicion when determining the duty to defend, because the insurer has no way of

knowing whether the facts are true without conducting its own investigation or otherwise

verifying the information independently. In this case, the parties have not directed us to any

part of the record showing that Pekin investigated Koopman’s allegations or was made aware

of their truthfulness in some other way. In fact, the record suggests that Pekin denied

coverage without any awareness of the events contained in Koopman’s affidavit at all. The

Koopman affidavit was properlystricken because the extraneous facts contained therein were

supplied by defendants. See Shriver, 323 Ill. App. 3d at 251.

¶ 45 Moreover, the delay in defendants’ disclosure of the information in Koopman’s affidavit

provided even more reason for striking it. In Shriver, the insured’s president sent his letter

describing the material events while the insurer was contemplating its duty to defend, but it

appears in this case that defendants did not disclose the information about misappropriating

the advertising materials until the cross-motions for summary judgment had been filed. The

“eight corners” rule focuses on the complaint and the policy because the insurer must

determine whether it has an obligation to defend at the outset of the litigation. Travelers

Insurance Cos. v. Penda Corp., 974 F.2d 823, 827 (7th Cir. 1992). Where the insurer is

unaware of the purported “ ‘true but unpleaded fact,’ ” that fact may not be considered in

determining the duty to defend. Konstant Products, 401 Ill. App. 3d at 88. By delaying the

disclosure of additional facts bearing on Pekin’s duty to defend, defendants left Pekin

without knowledge of true but unpleaded facts that, when taken together with the allegations

in the complaint, indicated that the claims were potentially covered by the policy.

¶ 46 3. Clarification of Ambiguous Pleading

¶ 47 Defendants cite Millers Mutual Insurance Ass’n v. Ainsworth Seed Co., 194 Ill. App. 3d

888 (1989), for the propositions that (1) plaintiffs’ amended complaint was ambiguous and

(2) the trial court should have considered Koopman’s affidavit to clarify that ambiguity. In

Ainsworth Seed Co., the Appellate Court, Fourth District, on an appeal from a summary

declaratory judgment, considered whether an insurer’s duty to defend should be determined

entirely upon the terms of the insured’s policy and the underlying complaint or whether

extrinsic facts could be admitted, so long as those facts did not impact the issues in the

underlying action. Sophia Cross filed a personal injury action against Ainsworth Seed Co.

(ASC) and certain named employees for their negligent design, installation, and construction

of certain equipment that caused Cross’s injury. Millers Mutual Insurance Association

(Millers) issued a CGL policy to ASC and its employees. Millers filed a declaratory

judgment action seeking a declaration as to its obligations in the underlying action. Millers

asserted that certain hazard exclusions in the policy prevented coverage. The trial court

granted ASC summary judgment. Ainsworth Seed Co., 194 Ill. App. 3d at 889-90.

¶ 48 On appeal, to determine coverage, the reviewing court examined the allegations of the

underlying complaint and the insurance policy as well as the affidavit of R. Clayton

Ainsworth. In the affidavit, Ainsworth stated that the machine Cross was using was installed

by a different company also named Ainsworth Seed Company, that the present ASC was not

formed until three years later, and that the present ASC never owned or operated the machine

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that injured Cross. Focusing on the sections of the insurance policy relating to hazard

exclusions, the court concluded that Millers was not obligated to defend ASC and its

employees in the Cross action. Ainsworth Seed Co., 194 Ill. App. 3d at 893.

¶ 49 In Ainsworth Seed Co., the ambiguity in the “confused pleadings” needing clarification,

i.e., the mistaken identity of the manufacturer of the equipment causing the injury in the

underlying suit, was obvious and undisputed. Here, defendants have not explained what part

of the amended complaint was confused and needed clarification. The cases are easily

distinguished on the facts.

¶ 50 Here, Koopman’s affidavit was produced not to clarify a confused pleading but rather to

broaden the scope of the allegations in the amended complaint to trigger Pekin’s duty to

defend. We agree with Pekin and the trial court that Koopman’s affidavit was properly

stricken because the affidavit contained no “true but unpleaded facts” of which Pekin was

aware.

¶ 51 4. Notice Provision in Policy

¶ 52 We note that, in their reply brief, defendants suggest that Koopman’s affidavit should not

have been stricken because “there is seemingly no case law setting an arbitrary cutoff time

for an insured’s presentation to its insurer of facts supporting a duty to defend.” Even

assuming arguendo that this is true, defendants disregard the plain language of the policy

itself, which presented an alternative basis for striking Koopman’s affidavit. The undisputed

facts in this case show that defendants’ delay in presenting the information contained in

Koopman’s affidavit amounted to a breach of policy terms that explicitly set forth the

insureds’ duties in the event of an occurrence, offense, claim, or suit:

“a. You must see to it that we are notified as soon as practicable of an ‘occurrence’

or an offense which may result in a claim. To the extent possible, notice should include:

(1) How, when, and where the ‘occurrence’ or offense took place;

(2) The names and addresses of any injured persons and witnesses; and

(3) The nature and location of any injury or damage arising out of the

‘occurrence’ or offense.

b. If a claim is made or ‘suit’ is brought against any insured, you must:

(1) Immediately record the specifics of the claim or ‘suit’ and the date received;

and

(2) Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or ‘suit’ as soon as

practicable.

c. You and any other involved insured must:

(1) Immediately send us copies of any demands, notices, summonses, or legal

papers received in connection with the claim or ‘suit’;

(2) Authorize us to obtain records and other information;

(3) Cooperate with us in the investigation, settlement, or defense of the claim or

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‘suit’; and

(4) Assist us, upon our request, in the enforcement of anyright against any person

or organization which may be liable to the insured because of the injury or damage

to which this insurance may also apply.

d. No insureds will, except at their own cost, voluntarilymake a payment, assume any

obligation, or incur any expense, other than for first aid, without our consent.”

¶ 53 In Country Mutual Insurance Co. v. Livorsi Marine, Inc., 222 Ill. 2d 303 (2006), the

supreme court reaffirmed that an insured’s breach of a policy’s notice provision “will defeat

the right of the insured party to recover under the policy.” Country Mutual, 222 Ill. 2d at 312;

see also West American Insurance Co. v. Yorkville National Bank, 238 Ill. 2d 177, 185

(2010). This result is grounded in the principle that notice clauses “impose valid prerequisites

to insurance coverage” (Country Mutual, 222 Ill. 2d at 311) and is rooted in the well-settled

principles that insurance contracts embody the agreement of the parties, that the terms of the

policy constitute the scope of the insurer’s liability, and that the insured must perform under

those terms as a condition precedent to recovery (Imperial Fire Insurance Co. of London v.

Coos County, 151 U.S. 452, 462 (1894)).

¶ 54 The notice provision at issue required defendants to “see to it that [Pekin is] notified as

soon as practicable of an ‘occurrence’ or an offense which may result in a claim” and notify

Pekin of “the nature and location of any injury or damage arising out of the ‘occurrence’ or

offense.” The policy furtherrequired defendants to cooperate with Pekin in the investigation,

settlement, or defense of the claims. Thus, the policy explicitlyimposed on defendants a duty

to present Pekin with all available and relevant information regarding plaintiffs’ suit. One

could argue persuasively that such factual detail includes information bearing on whether

Pekin owed a duty to defend.

¶ 55 A policy provision requiring notice “as soon as practicable” means that notice must be

given “within a reasonable time.” (Internal quotation marks omitted.) Country Mutual, 222

Ill. 2d at 311. Whether notice has been given within a reasonable time depends on the facts

and circumstances of each case (Country Mutual, 222 Ill. 2d at 311-12), and the timeliness

of an insured’s notice to its insurer generally is a question of fact for the trier of fact

(Northbrook Property & Casualty Insurance Co. v. Applied Systems, Inc., 313 Ill. App. 3d

457, 465 (2000)). That said, because policy notice provisions impose valid prerequisites to

insurance coverage (Country Mutual, 222 Ill. 2d at 311), one could argue that, as a matter of

law, defendants breached the contract and thereby forfeited their right to a defense when they

waited until the summary judgment stage of Pekin’s declaratory judgment action before

notifying Pekin of details bearing on its duty to defend. Here, there is no dispute that, when

the complaint and amended complaint were filed in the underlying suit, defendants had all

the information contained in Koopman’s affidavit, yet they did not share it with Pekin. In

fact, in the affidavit, Koopman attested that he was “personally familiar with both

companies, and knowledgeable about each of their advertising and marketing practices.”

¶ 56 It is apparent that defendants breached the notice provision by failing to timely present

Pekin with the facts set forth in Koopman’s affidavit. Therefore, the trial court did not err in

striking the affidavit.

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¶ 57 D. Amended Complaint

¶ 58 Defendants contend that, even if Koopman’s affidavit is excluded, the amended

complaint triggered a duty to defend. Specifically, defendants cite the allegation that

“Precision Dose began assuming operations of the Xactdose packaging factory” and the

prayer for relief seeking “a constructive trust on any profits or income [defendants have]

received as a result of [their] wrongful conduct.” (Emphases added.) Defendants argue that

these allegations amounted to covered “advertising injuries” arising from (1)

“misappropriation of advertising ideas or style of doing business” and (2) “infringement of

copyright, title, or slogan.” Defendants also argue that the allegations amounted to covered

“personal injuries” arising from “the wrongful eviction from,wrongful entryinto, or invasion

of the right of private occupancy of a room, dwelling, or premises that a person occupies by

or on behalf of its owner, landlord, or lessor.”

¶ 59 As discussed, in a declaratory judgment action such as that presented here, where the

issue is whether the insurer has a duty to defend, a court ordinarily looks first to the

allegations in the underlying complaint and compares those allegations to the relevant

provisions of the insurance policy. Wilson, 237 Ill. 2d at 455. If the facts alleged in the

underlying complaint fall within, or potentially within, the policy’s coverage, the insurer’s

duty to defend arises. Wilson, 237 Ill. 2d at 455.

¶ 60 The alleged conduct, rather than the manner in which the claim is labeled in the

underlying complaint, determines whether the insurer has a duty to defend. Pekin Insurance

Co. v. Roszak/ADC, LLC, 402 Ill. App. 3d 1055, 1059 (2010). However, it is “the actual

complaint, not some hypothetical version, that must be considered.” (Internal quotation

marks omitted.) Steadfast Insurance Co., 359 Ill. App. 3d at 761.

¶ 61 1. Misappropriation of Advertising Ideas or Style of Doing Business

¶ 62 Defendants argue that the allegation that “Precision Dose began assuming operations of

the Xactdose packaging factory” was a covered “advertising injury” arising from the

“misappropriation of advertising ideas or style of doing business.” Defendants contend that

taking over the factory qualified as a misappropriation of Xactdose’s “style of doing

business” in that defendants (1) continued to package the same kind of product (liquid

medication) in the same kind of packaging (single-dose units), (2) used a name similar to

Xactdose (Precision Dose), (3) earned a profit by promoting Megestrol, and (4) attempted

to negotiate contracts with Alpharma and some of Xactdose’s other former clients.

¶ 63 However, the policy characterized an “advertising injury” as being caused by an offense

committed in the course of advertising goods, products, or services. Even construing the

amended complaint broadly in favor of coverage, the allegation that Precision Dose assumed

operations of the factory encompassed only the manufacture of products and did not refer to

advertising in anyway. Defendants incorrectlyassert that the amended complaint alleged that

Precision Dose misappropriated Xactdose’s entire business, including advertising and the

style of doing business. The “assuming operations” allegation referred to only Xactdose’s

factory. Had the amended complaint alleged that Precision Dose assumed operations of

Xactdose, the business, the claim might have been within the policy’s advertising injury

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coverage and triggered Pekin’s duty to defend.

¶ 64 2. Infringement of Copyright, Title, or Slogan

¶ 65 Defendants alternatively argue that the allegation that “Precision Dose began assuming

operations of the Xactdose packaging factory” was a covered “advertising injury” arising

from the “infringement of copyright, title, or slogan.” The “infringement” argument and the

“misappropriation” argument are flawed for the same reason: even under the broadest

interpretation, assuming the operation of a factory does not create the reasonable inference

that defendants also took over Xactdose’s marketing or any type of advertising. We agree

with the trial court that the “assuming operations” allegation was not a covered advertising

injury arising from the infringement of copyright, title, or slogan.

¶ 66 3. Wrongful Invasion

¶ 67 Finally, defendants argue that the allegation that Precision Dose was “assuming

operations” of Xactdose’s factory was a covered “personal injury” arising from “[t]he

wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy

of a room, dwelling, or premises that a person occupies by or on behalf of its owner,

landlord, or lessor.”

¶ 68 The policy characterized “personal injury” as being caused by “an offense arising out of

your business, excluding advertising, publishing, broadcasting, or telecasting done by you

or for you.” Defendants argue that the assumption of operations of the factory itself was an

invasion of plaintiffs’ right to private occupancy of the factory. Pekin concedes that alleged

violations of the personal rights incidental to ownership of property, such as trespass,

nuisance, or other interference with possession, arguably fall within the definition of

wrongful entry or eviction or other invasion of the right of private occupancy. Pekin further

concedes that this personal injury is not limited to natural persons but extends to the actions

of corporate entities. See Supreme Laundry Service, L.L.C. v. Hartford Casualty Insurance

Co., 521 F.3d 743, 747-48 (7th Cir. 2008).

¶ 69 However, Pekin argued–and the trial court agreed–that Pekin owed no duty to defend a

personal-injury claim because the allegation of Precision Dose “assuming operations” of the

factory was not an allegation of any wrongful conduct on the part of any of the defendants.

The court concluded that neither the allegations common to all claims nor the allegations

directed against defendants in the three counts of breach of fiduciary duty characterized

“assuming operations” as wrongful. Pekin further argues on appeal that plaintiffs’ “request

for an accounting of the sale of Xactdose’s assets has nothing to do with Precision Dose or

its assumption of Xactdose’s operations.” We agree.

¶ 70 The amended complaint alleged that defendants breached their fiduciarydutyto plaintiffs

by falsely painting a bleak financial picture of Xactdose and failing to inform plaintiffs of a

potential new source of business. Plaintiffs then alleged that defendants took over the

business operations, including the physical plant, but plaintiffs did not allege that the conduct

was wrongful.

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¶ 71 The “assuming operations” allegation lacked a nexus to plaintiffs’ prayers for relief,

which shows that the allegation was necessary only to state the chain of events. The amended

complaint sought compensatory damages, punitive damages, and the costs of litigation, none

of which were related to the parties’ relative rights regarding possession of the factory. The

other prayers for relief in the amended complaint sought a constructive trust and “an

immediate accounting of the $1.4 million sale of assets and all other Xactdose winding up

activities.” A court may impose a constructive trust to avoid unjust enrichment: when one

obtains money to which he is not entitled, under circumstances such that in equity and good

conscience he ought not retain it. Hensley Construction, LLC v. Pulte Home Corp., 399 Ill.

App. 3d 184, 193 (2010). A constructive trust is an equitable remedy that will be imposed

on proceeds of a breach of fiduciary duty. Baumgartner v. First Church of Christ, Scientist,

141 Ill. App. 3d 898, 908 (1986). Plaintiffs sought a constructive trust on any profits

wrongfully obtained by defendants after they assumed operation of the factory, but the prayer

for relief was devoid of any claim for possession of the factory. Even construing the amended

complaint broadly in favor of coverage, and regardless of whether defendants were within

their rights to assume operations of Xactdose’s factory after the sale, the amended complaint

contained no claim pertaining to wrongful entry into or eviction from the factory. We

conclude that assuming operations of the factory after withholding business information did

not qualify as the wrongful eviction from, wrongful entry into, or invasion of plaintiffs’ right

of private occupancy of the factory. Therefore, we affirm the summary judgment entered for

Pekin.

¶ 72 CONCLUSION

¶ 73 For the reasons stated, we affirm the summary judgment for Pekin entered in the circuit

court of Winnebago County.

¶ 74 Affirmed.

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