Court Finds No Defense Obligation Despite Allegations of Negligence

October 29, 2020 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin, October 20, 2020

The 1st District Appellate Court recently held that, despite allegations of negligence, a complaint against an insured under a general liability policy failed to trigger a duty to defend.

The case is General Casualty Company of Wisconsin v. Burke Engineering Corp., 2020 IL App (1st) 191648 (Sept. 14). The claimants against the insured, who were assignees of rights under the policies, were represented by The Deratany Firm. Clyde & Co. US LLP represented the insurer, General Casualty.

The insured, Burke, provided water engineering and consultation services to the Village of Crestwood from 1980 to 2006. Beginning in 2009 residents of the village filed lawsuits against the village, alleging that for a number of years the village knowingly sold water to the residents from a contaminated well, resulting in various personal injuries for which damages were sought.

Once the residents learned of Burke’s role, they added the firm as a defendant. The claims asserted were negligence, consumer fraud, common law fraud and civil conspiracy to commit fraud. Among other allegations, the residents claimed Burke failed to disclose the harmful chemicals in the water and concealed the contamination to avoid the cost of making the water safe.

At one point all the allegations against Burke were dismissed with prejudice, except the conspiracy count, which was dismissed without prejudice. Amended complaints, however, according to the residents, preserved the negligence claims for appeal.

Burke tendered the claims to its professional liability carrier which agreed to defend. It also tendered to General Casualty, its general liability insurer and issuer of an umbrella policy. In 2014, after being provided a copy of the fourth amended complaint, General Casualty sent a letter to Burke setting forth several reasons why its policies provided no coverage. Among them were that the complaint failed to allege damages caused by an “occurrence” and that the policies excluded coverage for expected or intended injuries.

Subsequently, Burke and the underlying plaintiffs — the village residents — reached a settlement agreement with the professional liability carrier for $18.3 million. The settlement required that carrier pay its remaining policy limit, leaving a balance of about $18 million. The settlement further required Burke to assign its rights against General Casualty to the residents.

General Casualty then filed a declaratory action seeking a determination that it had no coverage action. The residents filed a counterclaim alleging breach of contract, waiver and estoppel, and bad faith. The trial court ultimately granted summary judgment for General Casualty, and the residents took this appeal.


In an opinion by Justice Michael B. Hyman, the 1st District affirmed. He initially addressed the residents’ argument that Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90 (1992), provided a basis for coverage in their case. In Outboard Marine, the court found that allegations the defendant discharged pollutants into Lake Michigan gave rise to a duty to defend, notwithstanding a pollution exclusion in the defendant’s insurer’s policy.

Hyman, however, said that Outboard Marine provided no assistance to the residents here. He observed that the focus of the case was the ambiguous nature of the pollution exclusion, and also that the underlying complaint did not allege any intentional polluting activity but only that it occurred.

In the instant case, by contrast, the residents asserted intentional conduct by Burke in failing to disclose the contaminated nature of the water. While the complaint included “negligence” counts, Hyman said the court must look to the “actual factual allegations, not the label.” Here the negligence count incorporated claims of intentional conduct from other counts and expressly reiterated intentional conduct in the count itself.

The residents further argued that General Casualty had knowledge of true but unpleaded facts that gave rise to a duty to defend. They pointed to correspondence between General Casualty and Burke’s attorneys that included phrases like “potential for coverage.”

When read in its entirety, however, Hyman found the correspondence did not admit a duty to defend or that the allegations fell within coverage. Quite the opposite, the correspondence indicated that no “occurrence” occurred and that the expected-or-intended exclusion otherwise applied.

The residents also contended that their intention to appeal the dismissal of their negligence counts — of which they argued General Casualty was aware — gave rise to a defense obligation because, they said, General Casualty knew Burke might ultimately be found liable. Hyman disagreed, observing that, notwithstanding the intention to appeal, nothing in the record supported the assertion that Burke’s conduct was an accidental occurrence.

The 1st District therefore affirmed summary judgment in favor of General Casualty.

Justice Carl Anthony Walker dissented, arguing that a court could hold Burke liable even if the residents failed to prove that it expected or intended its actions to cause bodily injury or property damage.

Key point

Allegations of negligence that set forth factual assertions demonstrating only that the defendant engaged in non-accidental and intentional conduct do not give rise to a duty to defend under a general liability policy.

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