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Estoppel can not create insurance coverage



The Cambridge Mutual Fire Insurance Company (Cambridge) sued to seek a declaratory judgment that they did not owe Defendant Terry Gaca and Janet Waymen (collectively “Defendant”) an obligation to defend an underlying trial under the terms of their insurance. Thomas J. Frederick sued in Illinois state court, claiming that the defendants had a boarding house and a large truck parking facility on their property (the “underlying suit”). The Underlying Suit alleged general nuisance, conspiracy to create a general nuisance and nine violations of the City of Naperville (“Naperville”) zoning ordinances under the Adjoining Landower Act, 65 ILCS 5 / 1113-15.

IN Cambridge Mutual Fire Insurance Company v. Terry L. Gaca, and Janet L. Wayman, individually and as trustees of The Janet L. Wayman TrustNo. 20 C 2447, United States District Court, ND Illinois, Eastern Division (17 May 2022) Cambridge requested a summary judgment.

BACKGROUND

Cambridge sued and sought a declaratory judgment that they did not owe Defendant Terry Gaca and Janet Waymen (collectively “Defendant”) an obligation to defend an underlying trial under the terms of their insurance.

Defendant’s policies at Cambridge include Homeowner’s Liability Insurance and Personal Umbrella Liability Insurance (the “Policy”). The policy contains:

If a claim is made or an action is brought against an “insured” for damages due to “bodily injury” or “property damage” caused by an “event” or “personal injury” caused by a crime to which this insurance applies, we:

Will provide a defense at our expense by agents of our choice, even if the trial is unfounded, false or fraudulent.

“” Body injury “means bodily injury, illness or disease, including necessary care, loss of service and death that occurs.” “” Property damage “means physical damage to, destruction of or loss of use of property.” “‘Personal injury’ means injury resulting from… [t]unlawful eviction from, incorrect entry into or infringement of individual tenant-ownership in a room, dwelling or premises that a person owns, is committed by or on behalf of its owner, landlord or landlord. . . ”. Finally, “‘[o]”occurrence” means an accident, including continuous or repeated exposure to substantially the same general adverse conditions, which results in:. . . in: “bodily injury” or “property damage.”

The policy also contains several exceptions. The coverage does not apply to:

  1. “bodily injury” or “property damage” expected or intended by an “insured” even if the resulting “bodily injury” or “property damage”;
  2. is of a different type, quality or degree from what was originally expected or intended; or
  3. maintained by a person, entity, real estate or personal property other than what was originally expected or intended …
  4. “Personal injury”:
  5. caused by or on behalf of an “insured” with the knowledge that the act would violate another’s rights and would cause “personal injury” …

Based on these events, Cambridge argued that the underlying lawsuit does not involve “property damage”, “personal injury” or an “event” under the policy and moved for summary judgment.

DISCUSSION

The parties agree that Illinois law applies. In Illinois, the construction of an insurance policy is a matter of law. An insurance policy must be interpreted as a whole and requires the court to determine and implement the real intentions of the parties to the contract.

If the underlying complaint alleges facts that fall “within or potentially within the “coverage of the insurance, the insurer is obliged to defend its insured even if the allegations are” baseless, false or fraudulent “. United States Fidelity & Guar. Co. v. Wilkin Insulation Co.144 Ill.2d 64, 73 (1991) (emphasis in original).

FIRST: an “event” is “an accident, including continuous or repeated exposure to substantially the same general adverse conditions.” Cambridge specifically claims that there is no “accident”. Illinois courts have defined “accident” for insurance coverage disputes as “an unforeseen event, usually an unplanned sudden or unexpected event of an inflictive or unfortunate nature.” [W. Am. Ins. Co. v. Mw. Open MRI, Inc., 2013 IL App (1st) 121034, ¶ 22]

The relevant investigation is “about damage expected or intended by the insured, not if actions was carried out intentionally. “

The complaint in the underlying trial alleges general inconvenience, conspiracy to create general inconvenience and violations of Naperville’s ordinances. The complaint alleges that Defendant deliberately conspired to violate public rights and avoid enforcing Naperville’s ordinances. Furthermore, the complaint states that the defendants knew that their use of the property as a boarding house and truck lock violated Naperville’s ordinances and even sued Naperville to question the legality of the ordinances. The complaint in the underlying suit states that the damage was intentional, not unintentional. Therefore, there was no “occurrence” as that term is defined in the policy.

OTHER: The respondent must be “the owner, landlord or landlord” of the “room, dwelling or premises” where the alleged invasion occurred. Since Frederick is the owner of the property that was “invaded”, there is no “personal injury” alleged in the underlying lawsuit.

Estoppel

To establish a reasonable stop under Illinois law, defendants must show:

  • [Cambridge] incorrectly presented or hidden essential facts;
  • [Cambridge] knew at the time [it] made the allegations that they were untrue;
  • [Defendants] did not know that the petitions were untrue when they were made and when they were remedied;
  • [Cambridge] intended or reasonably expected [Defendants] would act on the representations;
  • [Defendants] reasonably relied on the representations in good faith to [their] damage; and
  • [Defendants] would be prejudiced by [their] rely on the representations of [Cambridge] is allowed to deny the truth thereof.

The defendants failed to establish a reasonable ban. The defendants have not shown that Cambridge misrepresented any essential facts. The undisputed facts show that Cambridge denied coverage all along. The defendants do not show that they maliciously relied on any misrepresentation of Cambridge.

Defendant states that Cambridge is prevented from denying coverage because an insurance company cannot deny coverage and file a declaratory judgment. This argument is not supported by facts and applicable law. The Estoppel doctrine cannot create coverage where no one existed in the first place. Because Cambridge complied with Illinois law and has no obligation to defend under the policy, the defendants’ estoppel argument fails.

THIRD: Defendants claim that Cambridge is prevented from refusing coverage because it waited too long to bring this action. The underlying action was brought in August 2019, while this action was brought in March 2020. But we do not need to determine whether this delay was unreasonable because, as with the defendants’ second estoppel argument, the doctrine does not apply if the insurer has not breached its defense obligation.

The court upheld Cambridge’s request for summary judgment.

The liability insurance covers a large opportunity for claims directed against an insured who can potentially be covered by the insurance. However, no insurance covers all possible losses and will never cover intentional damages. Since the claims were all intentional, the insured tried to claim that Cambridge’s actions prevented them from rejecting the claim for defense and indemnity. They failed for lack of evidence.


(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry. He is available at http://www.zalma.com and zalma@zalma.com.

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