Collateral Estoppel will not Prevent Insured from Denying Duty to Defend or Indemnify Based on Intentional Act Exclusion When Only Issue is Whether Insured is Negligent

A minor, insured under her paternal grandparents’ farm-ranch policy, was sued for negligently setting fire to a company. The minor’s insurer provided a defense and then sought a declaratory judgment that it was not obligated to indemnify the minor for the judgment entered against her. The main issues were whether the insurer was collaterally estopped from asserting its intentional injury exclusion and whether it sent an improper reservation-of-rights-letter.

The court held that there was no duty to indemnify. First, the insurer was not collaterally estopped from asserting the intentional injury exclusion because the issues were not identical. In the criminal case, the jury only had a negligence count before it and did not address the issue of intention. Second, the reservation-of-rights letter was proper because it is acceptable to send a reservation-of-rights letter before the underlying suit is filed; and there was no conflict of interest, since both the insurer and insured would have profited from a finding that the insured was not negligent.

American Family Mut. Ins. Co. v. Westfield Ins. Co., 2011 WL 5826010, —N.E.2d —- (Ill.App. 4 Dist., 2011).