Court Opinion

ID: 9717421
Source: CourtListenerOpinion
Date Created: 2023-08-26 07:03:20.436694+00
Date Added: 2024-06-11T18:23:53.124225
License: Public Domain

JUSTICE HARRISON, dissenting: An insurer’s duty to defend is much broader than its duty to indemnify. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 393-94 (1993). An insurer may be required to defend its insured even when there will ultimately be no obligation to provide indemnification. Zurich Insurance Co. v. Raymark Industries, Inc., 118 Ill. 2d 23, 52 (1987). Whether an insurer has a duty to defend depends on a comparison of the allegations of the underlying complaint with the relevant provisions of the insurance policy. If the underlying complaint alleges facts within or potentially within the policy’s coverage, the insurer has a duty to defend. Dixon Distributing Co. v. Hanover Insurance Co., 161 Ill. 2d 433, 438 (1994). That is so even if the allegations are groundless, false or fraudulent. United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 73 (1991). The threshold that a complaint must satisfy to present a case of potential coverage is low. The allegations of the complaint must be liberally construed, and all doubts must be resolved in favor of the insured. See Trovillion v. United States Fidelity & Guaranty Co., 130 Ill. App. 3d 694, 700 (1985). An insurer cannot safely or justifiably refuse to defend an action against its insured unless it is clear from the face of the complaint that the claim is beyond the policy’s coverage. Wilkin Insulation Co., 144 Ill. 2d at 73. When an insured tenders the defense of a claim to its insurer, but the insurer does not believe that the policy affords coverage, the insurer may not simply abandon the insured. Rather, it must defend the insured under a reservation of rights and either secure a declaratory judgment as to its rights or else adjudicate the issue of coverage in a supplemental suit. Shelter Mutual Insurance Co. v. Bailey, 160 Ill. App. 3d 146, 151-52 (1987); Consolidated R. Corp. v. Liberty Mutual Insurance Co., 92 Ill. App. 3d 1066, 1072-73 (1981); Graman v. Continental Casualty Co., 87 Ill. App. 3d 896, 900 (1980); Associated Indemnity Co. v. Insurance Co. of North America, 68 Ill. App. 3d 807, 821 (1979); Aetna Casualty & Surety Co. v. Coronet Insurance Co., 44 Ill. App. 3d 744, 748 (1976). Of course, it may also defend without a reservation of rights. Tapp v. Wrightsman-Musso Insurance Agency, 109 Ill. App. 3d 928, 930 (1982). Whichever of these options it elects, however, it still must defend the insured. That duty does not abate unless and until there has been an adjudication that no defense is owed under the policy. If an insurer obtains a declaratory judgment prior to trial or settlement which frees it from its obligation to provide a defense, its responsibility for defending its insured will, of course, terminate. The mere filing of a declaratory judgment action, however, does not relieve an insurer of its responsibilities. Although there is some authority to the contrary, that view is not and has never been the prevailing view in Illinois. It is a doctrine which has been limited to a few divisions of the First District of the Appellate Court and some opinions from the Third District, e.g., Ayres v. Bituminous Insurance Co., 100 Ill. App. 3d 33 (1981), which misconstrued the precedent. Admittedly, our own court has been lax in formulating the insurer’s duty to provide a defense. In cases such as Employers Insurance v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 150-51 (1999), we have articulated the rule as if filing a declaratory judgment action and defending under a reservation of rights were merely independent alternatives. It is important to recognize, however, that before today we have never actually held that an insurer can escape the consequences of refusing to provide a defense merely by initiating a separate declaratory judgment action. The majority’s suggestion that today’s decision “reaffirms” our previous holdings is simply wrong. The doctrine embraced by my colleagues in this case fundamentally alters the law in Illinois. In the end, it will accomplish nothing other than to advance the pecuniary interests of the insurance industry. Why the majority has decided to follow such a course is unclear to me. There is no demonstrable basis for concluding that the insurance industry needs any greater protection under the law than it already receives. The fears of collusion or forced races to judgment cited by the majority are illusory. The notion that insurance companies will somehow be exploited by plotting policyholders is manufactured. In my experience, it is the policyholders who normally need protection from the insurers, not the other way around. In urging the position my colleagues adopt today, State Farm argued that it was at risk of having to provide a defense in all cases, even where the underlying complaints are clearly outside the scope of the policy. The majority accepted this proposition uncritically, but it is completely false. What the law actually provided, until today, was that the duty to provide a defense, while broad, was not absolute. As previously indicated, an insurer was not obligated to provide a defense where it was clear from the complaint that the claim was beyond the policy’s coverage. If the majority was concerned about insurers having to provide a defense in every case, today’s decision takes us to the opposite extreme. Under this ruling, insurance companies will no longer be required to expend any portion of the premiums they collect in order to meet their contractual obligation to provide defenses to their insureds. As soon as they learn that an insured has been sued, all they will have to do is have their attorneys prepare and file a complaint for declaratory judgment challenging coverage. With the filing of that complaint, their duty to defend the insured will cease. Even if no further action is ever taken on the declaratory judgment action, they will be excused from securing counsel to appear on behalf of their policyholder. For all practical purposes, their duty to defend will be rendered a nullity. Insureds are entitled to more than this. They have paid for more and the law requires more. I would therefore hold that State Farm was obligated to defend Martin in this case. Because it did not, it should be estopped from raising policy defenses to Martin’s claim for indemnification. See, e.g., Country Mutual Insurance Co. v. Murray, 97 Ill. App. 2d 61, 73-74 (1968). For the foregoing reasons, the judgments of the circuit and appellate courts should be affirmed.