In this case, the Illinois appellate court clarified two important duty to defend issues: when the duty begins, and when it ends. The court did so in the context of an intentional acts exclusion in a homeowners policy. The decision in Dahms is likely to be appealed, as it raises several important questions of law.
The underlying lawsuit filed by plaintiff Terry Enadeghe against Country Mutual’s insured Charles Dahms contained separate counts alleging negligence and battery. The lawsuit arose out of an altercation in which Dahms struck Enadeghe with his briefcase. Each count alleged that Dahms “physically struck [plaintiff] with a briefcase, knocking [plaintiff] unconscious and causing him to fall to the ground.” Count I referred to those acts as negligence, alleging Dahms “[m]ade physical actions with his hands and fists toward [plaintiff],” “swung a briefcase in close proximity to the body of [plaintiff],” and “failed to warn of one or more of these negligent acts or omissions.” Count I also alleged that Dahms’ briefcase “made contact with the motor vehicle occupied by [plaintiff], causing damage to the windshield.” Count II alleged that Dahms’ striking of the plaintiff with his briefcase was a battery.
Country Mutual filed a declaratory judgment action, asserting it had no duty to defend or indemnify Dahms against the underlying lawsuit. Country Mutual’s complaint noted that Dahms had been charged with aggravated battery as a result of the alleged incident. The complaint also asserted there was no accidental “occurrence,” that the exclusion for expected or intended bodily injury applied, and that a separate criminal acts exclusion applied. A few months after Country Mutual filed its complaint for declaratory judgment, Dahms was convicted of aggravated battery.
On cross-motions for summary judgment, the trial court ruled Country Mutual had a duty to pay for Dahms’ defense but that the defense obligation began only when Dahms filed an affirmative defense of self-defense in the underlying case. Both sides appealed.
The appellate court first considered whether Country Mutual’s duty to defend began with the filing of the underlying complaint, rather than when Dahms filed his affirmative defense alleging self-defense. After considering a number of cases, the court concluded the underlying complaint did allege an accidental “occurrence” within the meaning of the policy’s definition. This was not one of the “rare cases” in which the factual allegations could only be considered “facetious” or could be credibly characterized as intentional; in the court’s view the allegations did not conclusively establish an intentional act. The court believed the allegations of the negligence count could be read to demonstrate less than intentional behavior: “We are not prepared to say, as a matter of law, that these allegations so clearly support an inference of intent that all other possible inferences are excluded.” Thus, the court held the underlying complaint potentially alleged a covered accidental “occurrence.”
The court next considered Country Mutual’s exclusion for bodily injury “that may reasonably be expected or intended to result from the intentional acts of an insured.” The court found this exclusion was “redundant” with respect to the accident requirement, construing both policy provisions as addressing the same question – “whether the person performing the acts leading to the result intended or expected the result.” Thus, the court held the exclusion did not apply for the same reasons that the policy requirement of an accidental “occurrence” was met.
Finally, the court addressed Country Mutual’s criminal acts exclusion, which barred coverage for bodily injury arising from any criminal act, which was defined in the exclusion to mean “any act or omission which is criminal in nature or for which a penal statute or ordinance permits or requires any term of imprisonment…” The exclusion further stated that it applied “regardless of whether any insured is actually charged with or convicted of a crime and regardless of whether any insured subjectively intended the bodily injury…”
The court held the exclusion applied in part. Specifically, the exclusion only operated to preclude the duty to defend at the point in time when Dahms was found guilty of aggravated battery, and not before. The clause providing that the exclusion was applicable regardless of whether any insured was actually charged with a crime, in the court’s opinion, did not give Country Mutual “unbridled authority” to decide what is criminal in nature and what is not.
The court also noted the complaint could be viewed to allege that Dahms’ striking of the plaintiff with a briefcase was accidental or an act of self-defense, either of which would not be criminal “in any sense of that word.” In the face of competing reasonable interpretations of the complaint’s allegations, the court declined to permit the insurer to adopt the interpretation that favored the exclusion and disregard reasonable interpretations of the complaint that favored coverage. Thus, before the point in time when Dahms was convicted of aggravated battery, Country Mutual could not rely on the exclusion to avoid a defense. It was only at that point in time, according to the court, that the applicability of the criminal acts exclusion became clear and free from doubt.
The ultimate conclusion was that Country Mutual’s defense obligation was triggered upon the filing of the underlying complaint which potentially fell within coverage, and continued until Dahms was convicted of the crime of aggravated battery. At that point, the duty to defend terminated. The court further opined that its decision on this point did not raise any problem of prematurity or any issue of collateral estoppel in the underlying litigation, because the jury in the criminal case had previously found Dahms’ conduct to be criminal.
Finally, the court addressed Dahms’ claim that the allegation regarding damage to the plaintiff’s windshield triggered the duty to defend, even before Dahms was convicted. The court rejected this argument, reasoning that the injuries alleged by the plaintiff pertained solely to the physical, face-to-face encounter between the plaintiff and Dahms and not to any damage to plaintiff’s windshield.