Collateral Estoppel Prevents Insured from Denying Intent in Coverage Fight

By Don R. Sampen, published, Chicago Daily Law Bulletin, March 7, 2023

The 3rd District Appellate Court recently held that an insured’s admission of an intentional battery in a criminal case collaterally estopped the insured from claiming his alleged conduct was not intentional. As a result, his insurer was found to have no coverage obligation in a declaratory action brought to determine its coverage obligation for an underlying civil negligence action.

The case is Erie Insurance Co. v. Gibbs, 2023 IL App (3d) 220143 (Feb. 16). The insured, Dr. Thomas Gibbs, was represented by Lindsay, Pickett & Postel LLC of Chicago. Hinkhouse Williams Walsh LLP of Chicago represented the insurer, Erie.

Gibbs, a dentist who was involved in a domestic dispute and apparently drunk at the time, was taken to a hospital where he grabbed a nurse’s arm and pushed a medical technician to the floor. Misdemeanor criminal charges were then brought, to which Gibbs pleaded not guilty but nonetheless stipulated to the intentional nature of his conduct. The criminal court subsequently found him guilty.

The medical technician later filed a civil negligence action against Gibbs. He tendered his defense to Erie, which provided Gibbs homeowners’ and umbrella coverage. Those policies afforded Gibbs coverage for liability arising from an “occurrence,” but both the definition of “occurrence” and a separate exclusion made clear the coverage did not extend to the insured’s “expected or intended” conduct.

Erie filed this declaratory action seeking a determination it owed no coverage. In response, both Gibbs and the medical technician filed motions to stay pending the underlying negligence action. Upon the trial court’s denial of that motion, Erie filed a summary judgment motion, which the trial court granted. Gibbs took this appeal.

Extrinsic Evidence

In an opinion by Justice Mary W. McDade, the 3rd District affirmed. She initially addressed the motion to stay, observing that when a court in a declaratory action is faced with deciding an insurer’s duty to defend, it normally looks to the allegations of the underlying complaint.

Under Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446 (2010), however, McDade said a court is not limited to the underlying complaint. Rather appropriate extrinsic evidence may be used to demonstrate the applicability of an exclusion. Nonetheless, under Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187 (1976), the court in the declaratory action may not decide an issue crucial to the determination of the underlying lawsuit.

In practice, McDade found that extrinsic evidence from criminal convictions, including stipulations made in those cases, can be used in declaratory actions to determine whether the duty to defend arises. The use of such evidence, moreover, is consistent with American Family Mutual Insurance Co. v. Savickas, 193 Ill. 2d 378 (2000), where the Supreme Court expanded on the collateral estoppel effect of criminal convictions.

Importantly, wrote McDade, the parties in Gibbs’ criminal case “actually litigated” the question of whether he acted intentionally. As a result, that case constituted conclusive evidence of his intentional conduct that could be considered by the trial court. That court therefore did not err when it denied the motion to stay.

Collateral Estoppel Issues

Gibbs nevertheless argued that one of the requirements for collateral estoppel — an identity of issues as between the prior litigation and the case at issue — was not met. McDade rejected the point, observing that Gibbs mistakenly focused on the issues in the criminal battery case and the underlying tort action.
Rather, the correct analysis for collateral estoppel purposes was a comparison of issues as between the criminal case and the declaratory action. The issues in both cases are the same, namely, whether Gibbs acted intentionally.

Having determined that collateral estoppel can apply, McDade turned to whether, in accordance with Savickas, it would be fair to apply the doctrine. Gibbs argued in the negative, stating that he stipulated to the facts in the criminal case for the opportunity of a lighter sentence and clean record.

In support, Gibbs cited to several cases, including Talarico v. Dunlap, 177 Ill. 2d 185 (1997). In that case the court found that collateral estoppel would not apply because the insured, having reached a plea deal in the criminal case, had no incentive to litigate whether his criminal conduct had been intentional.
Here, by contrast, as found by McDade, while Gibbs stipulated to the facts in the criminal case, he contested his guilt and never reached agreement with the state regarding a reduced charge or sentence. The question of whether he acted intentionally therefore could be regarded as having been fully litigated and the “incentive to litigate” exception would not apply.

Finally, regarding Gibbs’ argument that applying collateral estoppel effectively determined the outcome of the underlying tort case contrary to Peppers, McDade disagreed. She determined that collateral estoppel only applied to the coverage issue and had no preclusive effect in the negligence action.

The 3rd District therefore affirmed the judgment in favor of Erie.

Key Points

• Extrinsic evidence may be used in a coverage case to determine applicability of policy exclusions, so long as the court does not decide issues crucial to the underlying case.
• An insured’s conviction in a criminal case where the insured’s intent is actually litigated may have a preclusive effect on the insured’s right to coverage in a declaratory action.
• The use of collateral estoppel in a coverage action arising from a criminal conviction does not have a preclusive effect in the underlying negligence action.