Duty To Defend Insured In Civil Case Terminated With Criminal Conviction

The 1st District Appellate Court recently held that allegations in an underlying complaint against an insured sufficiently alleged negligence so as to require the insurer to defend, but that the duty to defend ended once the insured was criminally convicted of the alleged conduct.

The case is Country Mutual Insurance Co. v. Dahms, 2016 IL App (1st) 141392. Country Mutual was represented by Carlson Law Offices. Muslin & Sandberg represented the insured, Charles Dahms.

Dahms was involved in an altercation with a cab driver in October 2011. The cab driver sued Dahms in October 2012. In an amended complaint, the driver alleged negligence in one count of his complaint and intentional battery in the second count.

The cab driver’s counsel notified Dahms of the potential lawsuit prior to filing the underlying lawsuit, and Dahms tendered to his homeowners carrier, Country Mutual. Country Mutual denied coverage.

After the filing of the underlying lawsuit, it brought this coverage action. It contended it had no duty to defend because of the absence of an “occurrence” or accident and also based on the intentional acts exclusion in the policy.

In March 2013, Dahms was convicted of aggravated battery in connection with the underlying civil lawsuit’s allegations. In October 2013, he answered the amended complaint in the underlying lawsuit and asserted self-defense as an affirmative defense.

Country Mutual and Dahms filed cross-motions for summary judgment in this coverage action in the trial court. The trial court found that Country Mutual had a duty to defend but one that began only after the filing of Dahms’ self-defense affirmative defense. Dahms appealed; Country Mutual cross appealed.

Pre-conviction Duty

In an opinion by Justice David Ellis, the 1st District affirmed in part and reversed in part.

He initially addressed the duty to defend up until the time of Dahms’ criminal conviction. Country Mutual argued that, just because the underlying complaint used the term “negligence” in one of the underlying counts, that did not mean that the actual conduct alleged was not intentional.

Ellis noted that Illinois courts cannot decide the ultimate fact of an insured’s intent in an underlying lawsuit during a declaratory judgment action addressing the duty to defend that lawsuit.

On the other hand, Ellis pointed out that courts are not blind to the fact that a plaintiff may have an incentive to draft pleadings in a way that triggers insurance coverage.

He thus pointed to several cases where an underlying complaint characterized actions as “negligent” but where the allegations set forth what could only be deemed an intentional act. In such cases, like Allstate Insurance Co. v. Carioto, 194 Ill.App.3d 767 (1990), the courts have held that substance controls over the moniker placed on the claim by the plaintiff.

These types of cases, though, Ellis said, are rare, and in the instant case the court could not say that, as a matter of law, the allegations clearly supported an inference of intent to the exclusion of all other possible inferences.

Thus, before Dahms was convicted, and based on the allegations of the complaint, Ellis found that neither the intentional acts nor criminal acts exclusions eliminated the possibility of coverage, and Country Mutual had a duty to defend.

Post-conviction Duty

Dahms’ conviction, however, meant that a jury had found, beyond a reasonable doubt, that Dahms had committed a crime, and the applicability of the criminal acts exclusion became clear and free from doubt. At that point, no question existed about the coverage court deciding an issue prematurely that could be binding in the underlying tort case. Nor could Country Mutual be accused of using its self-serving discretion in determining that Dahms’ conduct was criminal.

Thus, upon Dahms’ conviction, Country Mutual’s duty to defend terminated. This was so, moreover, even though the fact of the conviction was beyond the four corners of the underlying complaint. Ellis said that looking beyond the complaint was appropriate in this case to acknowledge an undisputed fact that had the effect of triggering a policy exclusion.

Finally, an issue arose concerning allegations in the cab driver’s complaint about Dahms damaging the windshield of the cab, which property damage was not alleged to have been caused intentionally. If the complaint sought recovery for negligently caused property damage, said Ellis, then Dahms would be entitled to coverage.

Ellis, nevertheless, found that the complaint did not seek recovery for the windshield – only injury to the cab driver – and, therefore, no coverage was owed.

Accordingly, the court found that Country Mutual had a limited duty to defend and, thus, partially affirmed and partially reversed the trial court’s decision.

Key Points

• Where the allegations of an underlying complaint give rise to a duty to defend, that duty may terminate upon the criminal conviction of the insured for the conduct alleged.
• Evidence of a criminal conviction is admissible in a declaratory coverage action, even if outside the allegations of the underlying complaint, where the evidence is relevant to coverage.