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Intentional exclusion of law counteracts claims for defense and indemnity



The plaintiff, Owners Insurance Co. (insurer), appealed against the judgment of the Du Page County District Court, which ruled that an intentional exclusion from an insurance policy did not preclude coverage of the expenses incurred by the defendant, Don McCue Chevrolet, Inc. (insured) in defending an underlying consumer fraud complaint from a previous customer, Julio Salas. IN Owners Insurance Company v. DonMcCue Chevrolet, Inc., 2022 IL App (2d) 210634-U, no. 2-21-0634, Court of Appeals of Illinois, Second District (June 17, 2022), the court resolved the dispute.

BACKGROUND

Sala’s simple complaint against the insured in the underlying lawsuit alleged a breach of the Consumer Fraud and Deceptive Business Practices Act (Act) (815 ILCS 505/1) et seq. (West 2020)). Salas stated as follows:

The parties entered into a written installment agreement for Salas to purchase a new 2020 Chevrolet truck from the insured. Under the sales contract, Salas provided $ 5,000 in cash and his 2018 Chevrolet vehicle as a down payment. The parties agreed that the sales contract would be transferred to a finance company or bank. If the insured could not hand over the contract, the transaction would not be completed, Salas would return the new truck and the insured would return $ 5,000 and 2018 vehicles to Salas. The insured could not obtain financing for the purchase. At the insured’s request, Salas returned the new truck. But the insured “refused and continues to refuse” to return either $ 5,000 or 2018 vehicles.

The insured filed a claim under the insurance for costs incurred in the defense of the underlying lawsuit. The insured based his claim on an insurance provision entitled “Customer Complaint Defense Reimbursement Coverage”. That provision stated in the relevant part that the insurer would reimburse the insured for reasonable costs and expenses to defend a “customer complaint.” Coverage was excluded for all processes originating from “[a]actual or alleged criminal, malicious or intentional acts ”committed by the insured (exclusion of intentional acts).

The insurer rejected the insured’s claim for coverage of defense costs on the basis of the exclusion of intentional acts.

The insurer claimed that it was not responsible for reimbursing the insured for any costs related to the insured’s defense of Sala’s lawsuit. The insurer claimed that there was no cover because “[t]he decides [the insured] not to refund the $ 5,000 Salas down payment or to return the 2018 Chevrolet Traverse [were] intentional acts ”which fell within the scope of the intentional acts.

The district court rejected the insurer’s claim and upheld the insured’s claim and ruled that the insurer was obliged under the provision on defense compensation to provide coverage for the insured’s expenses to defend the underlying action.

ANALYSIS

When a cross-claim for a summary judgment is submitted in an insurance protection case, the parties acknowledge that there are no significant factual issues but only legal issues concerning the construction of the insurance.

The insurer may refuse to defend only if it is clear from the front of the complaint that the allegations fail to state facts that bring the cause within, or potentially within, coverage. If an insurer relies on an exemption clause to deny coverage, it must be free from doubt that the clause applies. An exception for intentional acts is interpreted as excluding coverage when the insured has:

  1. intended to act and
  2. specifically intended to harm a third party.

It is up to the insurer to prove that an exception clause applies. An exclusionary clause will not apply when a claim arises, or could potentially arise, from a purely negligent act or omission. Phrases in the underlying complaint such as “misleading”, “hiding”, “planning”, “deceiving”, “intentionally” or “intentionally” are “the paradigm of intentional conduct and the opposite of negligent acts.” [Leighton Legal Group, LLC, 2018 IL App (4th) 170548, ¶ 38.]

Since a “customer complaint” is defined as a customer’s claim that he has suffered loss or damage as a result of the insured’s “[a]cts “or”[failuretoact”inrelationtothesaleofavehicleThepartiesdonotagreeastowhethertheexclusionofintentionalacts[underlåtenhetattagera”iförhållandetillförsäljningenavettfordonParternaärdockoenseomhuruvidauteslutningenavuppsåtligahandlingargäller[failurestoact”relativetothesaleofavehicleHoweverthepartiesdisagreeastowhethertheintentional-actsexclusionappliestoa few intentional acts or strictly to intentional acts misconduct.

The word “intent” in an exemption clause in an insurance states that the operator wants to cause the consequences of his action or believes that the consequences are substantially certain. The allegations about the underlying complaint fall within the policy exemption. The underlying complaint concerned exclusively intentional misconduct, not negligence. When read as a whole, the underlying complaint alleges exclusively an intentional violation of the law, as opposed to a negligent one.

CONCLUSION

The district court erred in issuing a summary judgment to the car dealer on the question of whether its conduct alleged in a previous customer’s case of consumer fraud falls within the scope of insurance coverage for expenses to defend lawsuits based on customer complaints. Since the underlying lawsuit was alleged to be strictly intentional misconduct by the dealer, the exclusion of the policy applied to intentional acts.

The Court of Appeal therefore referred the case back to the District Court with instructions to make a summary judgment in favor of the insurer in the complaint.

Facts about a deliberate violation of the Consumer Protection Act, a violation of the agreement between the customer and the dealer, were obviously intentional – they kept the down payment and refused to return it and the exchange car. How the district court found that the measure was not intentional is fantastic and the court of appeal gave reason for the dispute.


(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 misconduct 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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