Defending The Premature Declartory Action Motion
When Is A Declaratory Judgment Action Subject To Dismissal As Premature?
In some cases, insurance coverage may be dependant upon facts established, proven or discovered in an underlying action. For example, a plaintiff may allege negligent conduct and intentional conduct. The resulting judgment based upon the negligent conduct can trigger coverage and a duty to indemnify, while a judgment based on intentional conduct usually results in no coverage.
A declaratory judgment action may be premature if it requires a finding that an injury was intentionally inflected which could possibly establish the allegations within a civil case or tort complaint and preclude the plaintiff from recovering under multiple theories. Maryland Casualty Company v. Peppers, 64 Ill.2d 187, 355 N.E.2d 24 (1976).
A Defense Is Required – Even in the Face of Intentional Conduct
In Peppers, the insured, due to previous burglaries, had been spending the night in a Pizza Hut he owned. He was awoken by a noise at the door and when he went to the door he saw a person fleeing. He shouted for him to stop and then fired his shotgun wounding the person.
The fleeing person filed a personal injury action against the insured which was tendered to his insurer, who filed a suit for declaratory judgment. The tort complaint contained allegations of both negligent and intentional conduct. The trial court held that the conduct was clearly intentional and therefore excluded under the policy. The Supreme Court held that such a finding could possibly establish the allegations of an assault count in the tort complaint and might preclude the tort plaintiff’s right to recover under the other theories alleged within the complaint. The ruling of a trial court in a declaratory judgment action under such circumstances was held to be “premature” by the Supreme Court. The issue of intent was one of the ultimate facts upon which the tort recovery was predicated in the underlying action and therefore, not proper for a determination within a declaratory action prior to resolution of the tort case.
Likewise in Grinnell Mutual Reassurance Company v. Frierdich, 79 Ill.App.3d 1146, 399 N.E.2d 252, 35 Ill.Dec. 418 (5th Dist. 1979) the court held that a declaratory judgment action involving an assault was premature. In Grinnell, the tort plaintiff and the insured were involved in an altercation which resulted in a complaint being filed against the insured alleging intentional tearing of clothes, forcing the plaintiff to the ground, pulling of hair, scratching, punching, and other acts of physical or forceful violence. The complaint also alleged that the insured intentionally kicked the claimant in the head. Additional counts within the complaint alleged that these same acts were done “willfully, wantonly, and maliciously.”
The insurer alleged that the complaint, taken with the deposition testimony of the parties, established that the insured intentionally caused the claimant’s injuries and was therefore precluded from coverage under the policy. While relying on the decision in the Maryland v. Peppers, the court held that a finding of an intentional act within a declaratory judgment action is “an abuse of judicial discretion because of the interrelation of the issues involved in the litigation between the injured party and [the insured] and between [the insured] and the insurance company.” Grinnell v. Frierdich, Ill.App.3d at 1149, N.E.2d at 255. The Court of Appeals affirmed the Trial Court’s finding that the insurer had a duty to provide a defense to the insured but, would not be barred from subsequently raising the defense of non-coverage.
Declaratory judgment actions have also been found to be premature when they have been based upon a conviction for involuntary manslaughter. In State Farm v. Shelton, 176 Ill.App.3d 858, 531 N.E.2d 913, 126 Ill.Dec. 286 (1st Dist. 1988), the court reviewed whether an insurance company can secure a declaratory judgment that it has no duty to defend its insured in an underlying personal injury action, before the resolution of that litigation, “on the ground that the insured was convicted of an intentional crime arising out of the incident.” The insured had shot and killed an individual and was convicted of murder. After a bench trial, that conviction was reduced to involuntary manslaughter by the Appellate Court. The decedent’s wife filed a wrongful death action against the insured with counts for battery as well as negligence. State Farm defended the insured under a reservation of rights and brought a declaratory judgment action based upon an exclusion for “intended or expected” injury. State Farm alleged that the exclusion was applicable and was established as a matter of law because of the insured’s criminal conviction. In the underlying criminal case, the insured expressly denied intent. The insured testified that he fired a warning shot into the ground and did not intend to harm the decedent and did not remember firing the fatal shot. The Court of Appeals held that the declaratory judgment action was premature due to the fact that the jury could find that the insured’s actions were negligent. Prior to the resolution of the civil action, any ruling regarding the intent of the insured by the court in the declaratory judgment action was premature.
Similarly, a finding of expected or intended bodily injury in a declaratory judgment action based upon a conviction for battery is premature. State Farm Fire & Casualty Company v. Leverton, 289 Ill.App.3d 855, 683 N.E.2d 476, 225 Ill.Dec. 308 (4th Dist. 1997); (Leverton I). In Leverton I, the insured was convicted of aggravated battery to the claimant. The claimant filed a civil complaint against the insured with counts of battery and negligence. The conviction for aggravated battery was based upon an encounter in an alley behind a bar during which the claimant pushed the insured who then swung around striking the claimant in the face with a beer bottle. State Farm filed a declaratory judgment action alleging that its homeowners policy contained an exclusion for bodily injury which was “either expected or intended by the insured.” The court held that where a bona fide dispute arises over the issue of negligence and intentional conduct, the tort litigation should be resolved before the court decides the coverage issue in a declaratory action. The court noted that even though the allegations of negligence were “weak,” they did not rise to the level of being facetious. As a result, the insurer was required to provide a defense to the insured in the tort action.
After the resolution of the underlying tort action by a jury verdict based upon negligence, the matter came up on appeal again in State Farm Fire & Casualty Company v. Leverton, 314 Ill.App.3d 1080, 732 N.E.2d 1094, 247 Ill.Dec. 762 (4th Dist. 2000); (Leverton II). The court then considered the trial court’s finding that the injuries were excluded based upon the fact that they were expected or intended; intentional and not an “accident.” The court of appeals found that the insured was convicted of aggravated battery defined as “intentionally or knowingly causing great bodily harm.” Prior decisions have found that the conviction is sufficient to support a finding of intentional conduct unless contradicted or explained. The insured testified that he acted in self defense and the jury verdict found that the insured was negligent and not guilty of any intentional tort.
The court held that although the allegations were that the insured negligently swung the beer bottle, the record was insufficient to find that his actions were negligent and not the result of an intentional act of swinging at someone with a beer bottle in hand. As a result, it is reasonable to conclude that the insured either “expected or intended” to cause injuries. Based upon this intentional conduct, there was no coverage under the State Farm policy of insurance.
Dismissal not appropriate in all cases
In Allstate Ins. Co. v. Kovar, a homeowner insurer brought an action for a declaratory judgment that an intentional injury exclusion barred coverage for the injury since the insured had been convicted of battery. Allstate Ins. Co. v. Kovar, 842 N.E.2d 1268, 1271 (Ill. Ct. App. 2nd Dist. 2006). In the underlying action, the plaintiff filed a complaint against three individuals alleging that one of them had negligently waved a sharp object near him, cutting him. Id. at 1270. The incident took place in front of the home of one of the defendant’s stepfathers. Id. The home was covered by a homeowner’s policy issued by Allstate. Id. at 1271. Allstate alleged in their declaratory action that the exclusion stated that the injuries were not covered by the policy. Id. Allstate filed a motion for summary judgment, which the trial court granted under the reasoning that the policy excluded intentional acts and criminal acts, that the defendant who resided in the house had plead guilty to battery and that therefore the policy exclusion applied. Id.
The appellate court determined that the case was not about whether it may eventually be decided that Allstate is not obligated pursuant to the insurance policy. Id. at 1275. Rather, it is only about whether the conviction, in and of itself, is sufficient to answer that question. Id. The court stated that beyond that, any consideration of whether the victim’s injuries were intentionally or criminally caused was not appropriate because under the Peppers doctrine, it is generally inappropriate for a court considering a declaratory judgment action to decide issues of ultimate fact that could bind the parties to the underlying litigation. Id. As a general rule, a court may decide such matters in a declaratory judgment action if they have been conclusively established by, for example, an insured’s conviction. Id. A decision here as to whether one of the individuals acted intentionally or criminally could obviously bind the parties to the underlying litigation. Id. Thus, the court found it inappropriate at this stage to go farther into the question of whether, based on the conviction alone, they could conclude the victim’s injuries were intentionally or criminally caused. Id.
Further, the appellate court discussed whether the criminal conviction could estop the parties from arguing that the acts underlying the conviction were not intentional. Id. The court then went through the threshold requirements that need to be established before allowing estoppel and whether the application of estoppel would result in any unfairness. Id. at 1276. The court found that Allstate had not presented facts from which they could determine that the issue decided in the criminal case and the one presented in the civil case were identical, since the conviction did not recount the underlying facts of the conviction. Id. Further, the court found that the defendant did not have a strong incentive to litigate the battery issue in the earlier proceeding since pleading guilty gave him the opportunity for a lighter sentence and a clean record. Id. at 1277. Therefore, the court found estoppel to be inappropriate. Id.
In U.S. Fidelity & Guaranty Ins. Co. v. Jiffy Cab Co., the insurer sought a declaratory judgment that its general automotive liability policy did not provide coverage to an assault by a cab driver. U.S. Fidelity & Guaranty Ins. Co. v. Jiffy Cab Co., 265 Ill. App. 3d 533, 536 (5th Dist. 1994). The underlying civil action resulted from an altercation that ensued after the passengers of a cab and the cab driver disagreed as to the best route to take. Id. at 535. The cab driver ended up fatally stabbing one of the passengers. Id. The trial court granted summary judgment for the insurer in the declaratory action finding that the policy did not provide coverage because the underlying action was not one which resulted from the ownership, maintenance or use of a covered auto. Id. at 536. The defendants appealed alleging that the insurer’s declaratory action was premature. Id.
The appellate court found that it is well established that when an insurer is uncertain as to whether it should defend or refuse to defend, it can file a declaratory action to determine its obligations and rights. Id. However, it has been held that a declaratory action should not be decided prior to the adjudication of the underlying action where the issues to be decided in both actions are substantially similar. Id. at 537. The rationale for this is to prevent the declaratory action, through the subsequent application of the doctrine of collateral estoppel, from preempting the determination of the issues in the underlying tort litigation. Id. A court in a declaratory action may not determine whether the insured is actually liable nor may it determine any facts upon which the insured’s liability is based. Id. However, an adjudication of a declaratory action concerning coverage is not considered premature, where the issues in an underlying suit and a declaratory judgment action are separable because the question of coverage in a collateral proceeding prejudices no party. Id. In this case, the court found the issue to be resolved in the coverage action wholly separable from any of the issues involved in the underlying action. Id. The sole issue to be resolved in the coverage action is whether the underlying claim resulted from the use, operation, or maintenance of a covered auto. Id.
A declaratory judgment dismissal can be appropriate in cases of unintentional conduct
In Stokes v. Pekin Ins. Co., the plaintiff filed a complaint for declaratory judgment seeking a determination as to whether the policy limit of $100,000-per-person or the $300,000-per-accident limit applied. Stokes v. Pekin Ins. Co., 298 Ill. App. 3d 278, 280 (5th Dist. 1998). The underlying action arose after the plaintiff sustained severe injuries as a result of an automobile accident in which she was a passenger in the car. Id. at 279. The defendant filed a motion to dismiss the declaratory action on the basis that such a determination prior to a judgment of liability would be premature. Id. at 280. The trial court granted the motion to dismiss. Id.
The appellate court found that a declaratory action is premature prior to a finding of liability. Id. In determining the ripeness of a declaratory action, the court must first determine whether the complaint recites in sufficient detail an actual and legal controversy between the parties which demonstrates that the plaintiff is interested in the controversy. Id. An actual controversy exists where there is a legitimate dispute admitting of an immediate and definite determination of the parties’ rights, the resolution of which would help terminate all or part of the dispute. Id. The complaint for the declaratory action must show that the underlying facts and issues of the case are not moot or premature. Id.
The appellate court disagreed with the plaintiffs that the issue of liability in the underlying suit and the declaratory action were entirely different and unrelated and that none of the facts in the one would arise in the trial of the other. Id. at 283-84. The court found that unless liability is ultimately determined to be greater than $100,000, any declaratory action as to whether the policy limit is above $100,000 is meaningless. Id. at 284. It would be nothing more than an advisory opinion and the court may not issue advisory opinions that are contingent upon the possible happening of a future event. Id. Thus, there was no actual controversy and the declaratory action was premature. Id.
Likewise, in Weber v. St. Paul Fire & Marine Ins. Co., the plaintiff brought a declaratory judgment seeking a judgment that a nursing home’s insurance included coverage for exposure to treble damages under the Nursing Home Care Act. Weber v. St. Paul Fire & Marine Ins. Co., 251 Ill. App. 3d 371, 372 (3rd Dist. 1993). The underlying action arose when a resident of the nursing home wandered away from the home and eventually died from exposure to the elements. Id. at 371. The trial court in the declaratory action found that the insurance policy would provide coverage for treble damages under the Act if such damages were awarded in the underlying tort action previously filed by the plaintiff against the nursing home. Id. at 372. However, the appellate court reversed finding that the action was not ripe for adjudication. Id.
The appellate court found that in this case the insurance company was questioning whether it had a duty under the policy to indemnify if triple damages were awarded not if they had a duty to defend the insured in the underlying action. Id. at 373. The issue of a duty to defend is generally ripe for adjudication soon after the occurrence giving rise to the claim. Id. While, whether or not there is a duty to indemnify does not arise until an insured becomes legally obligated to pay damages in the underlying action. Id. A declaratory judgment is not intended to permit moot or hypothetical cases, or to enable parties to secure advisory opinions or legal advice from the court with respect to anticipated future difficulties. Id. Thus, a declaratory action brought to determine an insurer’s duty to indemnify its insured, brought prior to a determination of the insured’s liability, is premature since the question to be determined is not ripe before adjudication in the underlying action. Id. at 274.
In Hertz Corp. v. Garrott, a self-insurer rental car company filed a declaratory action seeking to determine whether it had a duty to indemnify its insured in connection with an accident involving a rented vehicle which resulted in underlying actions. Hertz Corp. v. Garrott, 207 Ill. App. 3d 644, 645 (5th Dist. 1991). The trial court found that at the time of the accident, the driver was operating the rental car intoxicated, so the rental agreement had been breached and the self-insurer was under no contractual obligation to provide indemnity. Id. at 646. However, the appellate court found that nothing in the record disclosed that any of the parties had made payments or suffered any actual loss with respect to the underlying pending lawsuits. Id. at 647. Thus, until judgments were entered in the underlying causes of action or the self-insurer could demonstrate that it has suffered an actual loss, a cause of action seeking a declaration of the amount of potential indemnification required by the contract or imposed by law did not accrue. Id. Thus, the court found that the declaratory action could not be considered until the resolution of the pending lawsuits. Id. at 848.
Further, in Batteast v. Argonaut Ins. Co., the plaintiff filed a declaratory action to determine the maximum amount of coverage available under an insurance policy issued to a hospital. Batteast v. Argonaut Ins. Co., 118 Ill. App. 3d 4, 4 (1st Dist. 1983). The defendants moved to dismiss the complaint claiming there was no actual controversy and the trial court granted the motion. Id. The underlying action involved a personal injury action in which the plaintiff alleged that while in the care of the hospital, he suffered permanent brain damage. Id. at 5.
The appellate court affirmed the motion to dismiss. Id. In order to maintain a declaratory judgment action there must be an actual controversy between parties capable of being affected by a determination of the controversy. Id. at 6. The controversy in this case stemmed from the parties’ differing interpretations of the provisions regarding the amount of coverage in the applicable insurance policy. Id. The plaintiff’s right to any amount was contingent upon a finding of liability in the underlying tort action. Id. Even if liability was established, a resolution of the dispute would remain unnecessary unless the damages exceeded $1 million, the amount of coverage. Id. Thus, the appellate court determined that they could not create a right to premature litigation. Id. The instant fact situation did not create an actual controversy between the parties. Id. Thus, the plaintiff did not have standing to maintain a declaratory judgment. Id.
A declaratory judgment dismissal is normally not appropriate in cases of ordinary negligence
In Bonnie Owen Realty Co. v. Cincinnati Ins. Co., the insured brought a declaratory judgment action seeking determination that two liability insurance policies imposed on the insurer a duty to defend and indemnify the insured in the underlying actions alleging negligence in connection with an apartment fire. Bonnie Owen Realty Co. v. Cincinnati Ins. Co., 283 Ill. App. 3d 812, 815 (5th Dist. 1996). The underlying action resulted from an apartment fire, where several people lost their lives and numerous suffered injury. Id. The action was brought alleging negligence against the defendant in failing to provide proper security at the apartment building and allowing someone to enter the premises and start a fire. Id. In the declaratory action, the trial court entered summary judgment for the plaintiff and found a duty of the insurer to defend. Id. at 816.
On appeal the insurer argued that the exclusions in the insurance policies for professional services barred coverage. Id. Defendant argued that the plaintiff was engaged in the business or profession of property management and that the underlying complaints alleged negligence in the provision of professional services in the conduct of this profession or business. Id. at 817. The appellate court agreed with the defendant that the duty to indemnify arises only when the insured becomes legally obligated to pay damages in the underlying action. Id. at 818. Further, a declaratory action to determine an insurer’s duty to indemnify its insured, brought prior to a determination of the insured’s liability, is premature since the question to be determined is not ripe for adjudication. Id. However, an exception does exist where the issues involved in the declaratory action are separable from those in the underlying action. Id. The primary concern is that an untimely determination in the declaratory action could subsequently prejudice a party in the underlying action through application of collateral estoppel. Id. at 819. Thus, the court in the declaratory action must not determine the ultimate question of the insured’s liability or the facts upon which such liability is based. Id.
The appellate court agreed with the trial court that the issues involved in the declaratory action were separable from those in the underlying suits. Id. The only issue in the declaratory action was whether the negligence of the plaintiff, if any, constituted professional negligence or malpractice. Id. Answering this question could not impact in any way the underlying actions and could not prejudice any party. Id. The only question presented in the declaratory action was one of contract construction. Id. Thus, the trial court did not err in finding that the defendant had a duty to indemnify the plaintiff up to the policy limits in the event judgment was entered against it in the underlying suits. Id.
In Illinois State Med. Ins. Services, Inc. v. Cichon, a medical malpractice insurer sought a declaratory judgment that there was no duty to indemnify the physician for liability in malpractice actions. Illinois State Med. Ins. Services, Inc. v. Cichon, 258 Ill. App. 3d 803, 805 (3rd Dist. 1994). The underlying causes of action alleged medical malpractice based on erroneous diagnoses and sexual misconduct. Id. The defendants in the declaratory action alleged on appeal that the trial court’s determination that the insurer had no duty to indemnify its insured should not have been made until the medical malpractice liability had been determined. Id. at 806.
The appellate court found that it had been held that a declaratory judgment action to determine an insurer’s duty to indemnify its insured, brought prior to a determination of the insured’s liability, is premature since the question to be determined is not ripe before adjudication. Id. at 807. Thus, the court said it would appear that the insurer was premature in seeking the declaratory judgment. Id. However, the court found that this case came within the exception to the general rule because the question of coverage could appropriately be decided in a declaratory judgment action where the issues in the underlying suit were separable from those in the collateral proceeding. Id. If the issues are substantially the same so that collateral estoppel would apply to control the resolution of the issues in the underlying suit, declaratory judgment would be premature. Id. However, the court found this not to be the case here, since the issues presented in the medical malpractice action were quite different from the declaratory action, so the factual determinations made in the declaratory action would not control the outcome of the underlying lawsuits. Id. at 807-08.
In Bituminous Cas. Corp. v. Fulkerson, an insurer brought a declaratory action against the insured seeking a declaratory judgment that it had no duty to defend or indemnify the insured in a third party’s suit alleging negligence and breach of warranty. Bituminous Cas. Corp. v. Fulkerson, 212 Ill. App. 3d 556, 558 (5th Dist. 1991). The insurer had sold a comprehensive general liability insurance policy to an oil well service contractor. Id. The contractor was sued for negligence in his setting of a packer in an oil well that was being constructed. Id. The insurer filed the declaratory action based on an exclusion in the policy which stated that the insurance did not apply to damage to property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control. Id. at 560. The trial court absolved the insurer from any obligation to indemnify the insured under the policy. Id. at 561.
The appellate court found that since there had been no adjudication of liability on the underlying action, the trial court’s judgment had to be reversed. Id. Where a declaratory action is brought to determine an insurer’s duty to defend, the rule is that the court must look only to the complaint in the underlying action to see if the allegations set forth therein show that the insured’s conduct is within or potentially within the coverage. Id. at 562. If the conduct alleged in the underlying action is within or potentially within the policy’s coverage, the insurer is duty bound to defend its insured. Id. These principles are derived from the rule that when a court is asked to declare whether an insured’s conduct is covered under a policy in the context of a declaratory action, the court must not determine disputed factual issues that are crucial to the insured’s liability in the underlying action. Id. A declaratory judgment should not be used to force the parties to an injury action to have a “dress rehearsa”l of an important issue expected to be tried in the injury action. Id. In this case, the court found that was precisely what was happening. Id. at 563. The issues, such as how much responsibility the insured had for the events causing the closure of the plaintiff’s well, in the declaratory action were clearly central to the charges brought by the plaintiffs in the underlying action and were not merely ancillary matters. Id.
Declaratory judgment action not premature where claimant had not yet filed suit, but claim being handled under reservation of rights.
In Safeco Ins. Co. v. Brimie, an insurer under a homeowner policy brought a suit seeking declaration that it owed no coverage to its insured with respect to an underlying action involving a dirt bike accident. Safeco Ins. Co. v. Brimie, 163 Ill. App. 3d 200, 202 (1st Dist. 1987). The underlying action involved a wrongful death action against the manufacturer alleging that the dirt bike was not reasonably safe for its intended use and that it was inherently instable. Id. The passenger on the dirt bike died after the driver crashed while crossing a playground. Id. No action was brought against the driver until after the declaratory action had been filed. Id. The insurer alleged that they owed no duty of coverage because of its policy exclusion for personal liability arising out of the use of a motorized land conveyance designed for recreational use off public roads, not subject to motor vehicle regulations and owned by any insured, while on an insured location. Id. at 203. The trial court granted summary judgment for the insured that they had no duty to defend. Id.
The insured appealed alleging that the declaratory action was premature since the insured was simply not at risk and had no actual controversy with the insurance company until after he was sued and was denied defense or coverage. Id. The court found that it is well settled that declaratory relief is available where a case presents a concrete dispute admitting of an immediate and definitive determination of the parties’ rights, the resolution of which will aid in the determination of the controversy or some part thereof. Id. at 205. It is also a long-standing principle that the courts favor declaratory actions on the issue of policy coverage prior to an adjudication of the underlying claim and that the insurer normally need not wait until the underlying suit is filed or reduced to judgment against its insured before it may seek declaratory relief based on a present denial of coverage. Id. Thus, the insurer did not need to wait until its insured was actually named in the wrongful death suit to seek a construction of the driver’s homeowner insurance policy and a declaration of whether coverage existed. Id. Further, the actual controversy of whether the driver’s homeowner insurance policy provided coverage was unrelated to the issues in the underlying wrongful death suit and therefore, a declaratory judgment before a suit was filed against the insured did not work any prejudice in the tort action. Id. Thus, the appellate court upheld the trial court’s refusal to strike the declaratory complaint as premature. Id. at 206.
In General West Casualty Co. v. Cote, the plaintiff filed an action seeking damages for injuries she sustained when the vehicle she was driving collided with a semi-tractor and trailer driven by the defendant. General West Casualty Co. v. Cote, 2006 WL 845590, at *1 (Ill. App. Ct. 1st Dist. 2006). The jury returned a verdict in the plaintiff’s favor against both the defendant and his employer. Id. The defendants’ insurance company tendered two checks payable to the plaintiff and her attorney for what the insurance company claimed was the remaining limit of liability coverage and accrued interest on the entire judgment. Id. The plaintiff refused to tender these checks claiming that the insurance company had not tendered their full liability coverage. Id. The defendants filed a motion in an underlying action seeking an order finding that the judgment had been partially satisfied. Id. at *2. The plaintiff also filed an underlying action requesting that the trial court find that perfect tender had not been made so the post judgment interest would not stop running. Id. The insurance company then filed a declaratory action naming the defendants and plaintiff from the previous case as defendants. Id. The declaratory action sought findings that the maximum liability was one million dollars and that its obligation to pay the plaintiff had been fulfilled. Id.
The trial court dismissed the action as untimely and found it an attempt to reduce the plaintiff’s recovery. Id. at *3. Thus, the interest on the plaintiff’s judgment would continue to accrue until proper tender was attained. Id. Both the trial court and the plaintiff agreed that when an insurance carrier waits to bring a declaratory judgment action until after the underlying case had been resolved, the declaratory judgment action is untimely as a matter of law. Id. The appellate court found that in cases such as this, where an insurance carrier has not denied coverage and has undertaken the defense of its insured, a declaratory judgment action to determine the amount of insurance coverage available under the carrier’s policy is not ripe for adjudication until the liability of the insured has been determined in the underlying action. Id. at 5. The court found the dispute between the insurance company and the plaintiff was ripe for adjudication since the liability of the insured to the plaintiff had been established. Thus, the court determined that the declaratory judgment action was not untimely and the circuit court erred in dismissing it on that basis. Id.
No Defense Is Required If the Declaratory Action Is Stayed
An alternative option has been upheld by the Supreme Court in State Farm Fire & Casualty Company v. Martin, 186 Ill.2d 367, 710 N.E.2d 1228, 238 Ill.Dec. 126 (1999). In Martin, State Farm issued a policy covering rental property owned by the inured. The State Farm insured offered a reduced rental rate to a tenant if the tenant would burn the building. The tenant agreed and started a fire in the basement of the building that killed two firefighters. Thereafter, the insured was indicted under federal law for maliciously damaging or destroying by means of fire and as a direct and proximate result of this conduct, death resulted to the two firefighters. A wrongful death suit was filed against the insured by the estate of the two firefighters. State Farm refused to defend and filed a declaratory judgment action. One defendant sought a stay of the declaratory judgment proceedings pending the resolution of the federal criminal cases. The court entered a stay in the declaratory judgment action. In the meantime, a default judgment in the tort case was entered against the insured in the amount of $10,000,000. Thereafter, the insured was found guilty on the criminal charge and sentenced to fifty years in prison.
State Farm filed a Motion for Summary Judgment alleging that there was no coverage because the underlying actions did not constitute a covered “occurrence” and that the insured’s action triggered two exclusions. The trial court denied State Farm’s motion and found in favor of the defendants. On appeal, although the Court of Appeals believed that State Farm was estopped from denying coverage because it failed to secure a declaratory judgment action before judgment was entered in the wrongful death suit, the court chose to base its decision instead on the policy language and found that the policy did not exclude coverage and therefore required the company to indemnify the insured for his liability arising from the deaths of the two firemen. The Court of Appeals suggested that if the exclusion did apply, estoppel would prevent the insurer from raising the policy defense. The Supreme Court revisited the estoppel argument and held that insurer must “defend the suit under a reservation of rights or seek a declaratory judgment that there is no coverage.” The claimants argued that this rule requires that the insurance company actually secure a declaratory judgment or defend under a reservation of rights. State Farm replied that it properly preserved its right to deny coverage by seeking a declaratory judgment as to its responsibilities under the policy. The court held that the insurer is only required to seek a declaratory judgment and it will not be estopped from denying coverage merely because the underlying case proceeds to a judgment before the declaratory judgment action is resolved. Because a declaratory judgment action was filed and a stay entered, State Farm was not estopped from raising policy defenses despite the fact that it did not defend its insured.
Now that the underlying tort case and criminal case were resolved, the court had no difficulty finding that the insured’s criminal conviction was prima facie evidence of the facts and as a result his actions were willful and malicious as a matter of law. The insured’s act in hiring a tenant to set fire to the building which resulted in the death of the two firemen fell within an express coverage exclusion under the State Farm policy for injuries which result from “willful and malicious acts of an insured.” As a result, State Farm was not required to indemnify the insured for the liability arising from his actions.
The decision in Martin offers the possibility that an insurer can not defend a negligence or intentional act tort suit and avoid estoppel by filing a premature declaratory judgment action if the insured chooses to stay the declaratory action rather than simply having it dismissed. If the declaratory judgment is stayed, the insurer is not estopped from raising policy defenses. If, on the other hand, the declaratory judgment action is dismissed because it is premature, the insurer would then be required to provide a defense to the insured under a reservation of rights and refile a declaratory judgment action after the resolution of the underlying tort action. Rather then agreeing to a stay of the declaratory judgment action, most plaintiff’s attorneys would file a Motion to Dismiss the declaratory judgment as premature.
Declaratory Actions Are Not Premature in Extreme Fact Situations Involving Serious Crimes or Sexual Abuse
Illinois Courts have allowed only a few exceptions to the prematurity rule for extreme cases involving sexual molestation or cases with substantial proof beyond a bare conviction. In Allstate v. Carioto, 195 Ill.App.3d 767, 551 N.E.2d 382, 141 Ill.Dec. 389 (1st Dist. 1990) the insured stated he was going to rob the claimant, did in fact rob the claimant, stabbed the claimant approximately fifteen times and entered a guilty plea to attempted murder. The insurer filed a declaratory judgment action and took the deposition of the insured. After being advised of the impact of his statement, the insured admitted that he intended to attempt murder. The insurer argued that the guilty plea together with the admissions in his deposition established that his conduct could never be an “ultimate issue” in the tort action. The court recognized that declaratory judgment actions are inappropriate when the issue is negligent verses intentional conduct but, held that when the insured’s conduct together with a criminal conviction and judicial admissions made by the insured establish that the conduct was intentional, there is no bonafide controversy in existence. This evidence taken together provide conclusive evidence of the intentional conduct of the insured.
The claimant in Carioto had amended his complaint alleging careless and negligent conduct on the part of the insured but, the court found these allegations to be facetious in light of the insured’s conduct and statements. As a result, the finding that the insured’s actions were intentional within the declaratory judgment action prior to the conclusion of the underlying litigation was permitted where the facts and evidence left no room for doubt as to the intentional conduct of the insured and conclusively established that conduct.
In West American Insurance Company v. Vago, 197 Ill.App.3d 131, 553 N.E.2d 1181, 143 Ill.Dec. 195 (2nd Dist. 1990) the court found that the insured’s conduct was clearly intentional and not merely negligent or accidental where it was alleged that the insured grabbed a waitress from behind, locked his arms around her waist and thrust his pelvis against her buttocks several times while having a erection. The court held that “quite simply, the tort complaint alleged that Vago deliberately sexually assaulted the waitress.” The negligence count within the complaint contained only allegations of intentional conduct with references to a duty and breach of duty. If the complaint had contained purely negligent allegations such as negligently falling against the waitress, the court may have been more inclined to dismiss the declaratory action as premature. As it was pled, the complaint failed to allege negligence on the part of the insured and therefore the exclusion for intentional acts applied. Further, the acts of the insured reasonably lead to the alleged injuries and therefore the exclusion for injuries expected or intended by the insured excludes coverage.
The Supreme Court reviewed whether a declaratory judgment action was premature following the conviction of an insured for first degree murder in American Family Mutual Insurance Company v. Savickas, 2000 W.L. 1429154 (Ill. Sept. 28, 2000). The Supreme Court ruled that American Family did not have a duty to defend or indemnify its insured in a civil case alleging negligent wrongful death because the insured had been convicted of first degree murder. The court ruled under the facts of this case that the insured’s conviction for first degree murder collaterally estopped the insured from asserting that the bodily injury was not expected or intended. The court recognized that its determination that the criminal conviction for first degree murder estopped the insured from contesting the intentional nature of his acts, rather then simply being prima facie evidence of intent to injury. This was contrary to its 1979 decision of Thorton v. Paul, and thus, overruled that portion of the Thorton decision. The Savickas court ruled as follows:
In Thorton we stated that the majority of courts which permit the use of criminal convictions as evidence in civil cases appear to hold that the criminal conviction is prima facie evidence of the facts. This observation no longer holds true. . . Today in the vast majority of jurisdictions, a criminal conviction now acts as a bar and collaterally estopped the re-trial of issues in a later civil trial that were actually litigated in the criminal trial.
The court limited its ruling and noted that estoppel will not always follow. Estoppel will apply only if three threshold requirements are met. First, the issue decided in the prior adjudication must be identical to the one presented in the suit in question. Second, there must be a final judgment on the merits in the prior adjudication. Third, the party against whom the estoppel is asserted must have been a party or in privity with a party to the prior adjudication.
Additionally, the parties sought to be bound must actually have litigated the issue in the first suit. Finally, even when the threshold requirements are satisfied, the doctrine should not be applied unless it is clear that no unfairness will result to the party sought to be estopped. The court stated as follows:
By finding him guilty of first degree murder, the jury necessarily found him either to have intended to kill the victim, or at least to have known that his acts created a strong probability of death or great bodily harm. This finding establishes that he “intended or expected” the result of his actions, the issue in the declaratory judgment action.
The court also applied estoppel by means of a first degree murder conviction to the civil suit count for negligent assessment of the need for self defense. The court noted that in the criminal trial, the insured argued that he was acting in self defense or that he unreasonably believed that he was acting in self defense. The court found that the criminal jury’s verdict of guilty to first degree murder necessarily resolved both these issues against the insured. Consequently, in the declaratory judgment action, neither the insured nor the victim could argue that the insured believed, even unreasonably, that he was acting in self defense.
Summary
As a general rule, a declaratory judgment action involving the determination of whether the insured’s conduct was negligent or intentional will be premature. This is true even if the declaratory action is based upon a criminal conviction involving a battery or involuntary manslaughter.
A declaratory judgment action filed under these circumstances will likely meet with a Motion to Dismiss based upon the fact that it’s premature or a Motion to Stay the Proceedings pending the outcome of the underlying tort action. If the action is dismissed, a defense will have to be provided to the insured in order to avoid an estoppel argument. If a Martin stay can be entered in the declaratory judgment action, an insurer will not be estopped from raising policy defenses even though it does not provide a defense to the insured in the underlying litigation.
In extreme cases involving murder, attempted murder or sexual molestation by adult insureds, combined with a criminal conviction, a declaratory judgment action has a much greater likelihood of being able to be pursued despite the fact that a determination regarding negligent verses intentional conduct would be made prior to the resolution of the underlying tort case.
