Estoppel Cannot Create Insurance Coverage

Lack of Bodily Injury, Personal Injury or Occurrence Bars Coverage

May 25, 2022

BACKGROUND

Cambridge sued seeking a declaratory judgment that it did not owe Defendants Terry Gaca and Janet Waymen (collectively, “Defendants”) a duty to defend an underlying lawsuit under the terms of their insurance policy.

Defendants’ policy with Cambridge includes Homeowner’s Liability Insurance and Personal Umbrella Liability Insurance (the “Policy”). The Policy provides:

If a claim is made or a suit is brought against an “insured” for damages because of “bodily injury” or “property damage” caused by an “occurrence” or “personal injury” caused by an offense to which this policy applies, we:
1. Will provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent.
“‘Bodily injury’ means bodily harm, sickness or disease, including required care, loss of services and death that results.” “‘Property damage’ means physical injury to, destruction of, or loss of use of tangible property.” “‘Personal injury’ means injury arising out of . . . [t]he wrongful eviction from, wrongful entry into, or invasion of right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor . . .”. Finally, “‘[o]currence’ means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results . . . in: ‘bodily injury’ or ‘property damage.’”

The Policy also contains several exclusions. Coverage does not apply to:

“Bodily injury” or “property damage” which is expected or intended by an “insured” even if the resulting “bodily injury” or “property damage”;
is of a different kind, quality or degree than initially expected or intended; or
is sustained by a different person, entity, real or personal property, than initially expected or intended….
“Personal injury”:
caused by or at the direction of an “insured” with the knowledge that the act would violate the rights of another and would inflict “personal injury”….

Based on these events, Cambridge alleged the Underlying Suit does not involve “property damage, ” “personal injury, ” or an “occurrence” under the Policy and moved for summary judgment.

DISCUSSION

The parties agree Illinois law applies. In Illinois, the construction of an insurance policy is a question of law. An insurance policy is to be construed as a whole and requires the court to ascertain and give effect to the true intentions of the contracting parties.

If the underlying complaint alleges facts that fall “within or potentially within” the coverage of the policy, the insurer is obligated to defend its insured even if the allegations are “groundless, false, or fraudulent.” United States Fidelity & Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 73 (1991) (emphasis in original).

FIRST: an “occurrence” is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Cambridge specifically argues there is no “accident.” Illinois courts have defined “accident” for the purpose of insurance coverage disputes as “an unforeseen occurrence, usually an undesigned sudden or unexpected event of an inflictive or unfortunate character.” [W. Am. Ins. Co. v. Mw. Open MRI, Inc., 2013 IL App (1st) 121034, ¶ 22]

The relevant inquiry is “whether the injury is expected or intended by the insured, not whether the acts were performed intentionally.”

The complaint in the Underlying Suit asserts public nuisance, conspiracy to create public nuisance, and violations of Naperville ordinances The complaint alleges Defendants intentionally conspired to violate the public’s rights and avoid enforcement of Naperville’s ordinances. Further, the complaint establishes Defendants knew their use of the property as a boarding house and truck lot violated Naperville ordinances, and even sued Naperville to challenge the legality of the ordinances. The complaint in the Underlying Suit establishes the injuries were intentional, not accidental. Therefore, there was no “occurrence” as that term is defined in the Policy.

SECOND: Defendants must be the “owner, landlord, or lessor” of the “room, dwelling or premises” where the alleged invasion occurred. Because Frederick is the owner of the property that was “invaded,” there is no “personal injury” alleged in the Underlying Suit.

Estoppel

To establish equitable estoppel under Illinois law, Defendants must show:

[Cambridge] misrepresented or concealed material facts;
[Cambridge] knew at the time [it] made the representations that they were untrue;
[Defendants] did not know that the representations were untrue when they were made and when they were acted upon;
[Cambridge] intended or reasonably expected that [Defendants] would act upon the representations;
[Defendants] reasonably relied upon the representations in good faith to [their] detriment; and
[Defendants] would be prejudiced by [their] reliance on the representations if [Cambridge] is permitted to deny the truth thereof.

Defendants failed to establish equitable estoppel. Defendants have not shown Cambridge misrepresented any material facts. The undisputed facts show Cambridge denied coverage at all times. Defendants do not show they detrimentally relied on any misrepresentation by Cambridge.

Defendants say Cambridge is estopped from denying coverage because an insurance company cannot deny coverage and file a declaratory judgment suit. This argument is unsupported by the facts and applicable law. The estoppel doctrine cannot create coverage where none existed in the first place. Because Cambridge followed Illinois law and does not have a duty to defend under the Policy, Defendants’ estoppel arguments fail.

THIRD: Defendants argue Cambridge is estopped from denying coverage because it waited too long to file this action. The Underlying Suit was filed in August 2019, while this action was filed in March 2020. But we need not determine if this delay was unreasonable because, as with Defendants’ second estoppel argument, the doctrine does not apply if the insurer did not breach its duty to defend.

The Court granted Cambridge’s Motion for Summary Judgment.

ZALMA OPINION

Liability insurance covers a large possibility of claims made against an insured that could potentially be covered by the policy. However, no insurance policy covers every possible loss and never will cover intentional torts. Since the claims were all intentional the insured’s tried to claim that the actions of Cambridge estopped them from denying the request for defense and indemnity. They failed for lack of evidence.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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