(Article from Insurance Law Alert, July/August 2020)
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An Illinois appellate court ruled that an insurer had no duty to defend an underlying suit based on exclusions for assault and battery and firearms, and that the insurer was not estopped from denying coverage based on its refusal to defend. Markel Internat’l Ins. Co. Ltd. v. Montgomery, 2020 WL 4333619 (July 24, 2020).
The underlying complaint against a bar, its owner and security guard, and two assailants (collectively, the “Defendants”) sought damages for the death of a patron and serious injuries to another. Markel disclaimed coverage based on exclusions relating to assault and battery, firearms and liquor liability. Thereafter, Markel sought a declaration that it had no duty to defend or indemnify the claims. The Defendants counterclaimed, alleging breach of contract, bad faith and coverage by estoppel. An Illinois trial court ruled in the Defendants’ favor, finding that the complaint asserted a claim that potentially fell within the scope of coverage and that Markel’s denial was vexatious and unreasonable under Illinois statutory law. The trial court also ruled that Markel was estopped from asserting defenses under the policy and was obligated to pay the underlying default judgment.
The appellate court reversed, ruling that Markel had no duty to defend and was not estopped from denying coverage. The court reasoned that all of the underlying claims “arose out of” assault and battery and/or use of a firearm. The court deemed it irrelevant that the underlying complaint alleged negligence, explaining that “the alleged negligence is inseparable from the assault and battery and the use of a firearm . . . regardless of how the causes of action were pleaded.”
Additionally, the appellate court rejected the trial court’s estoppel ruling. Under Illinois law, estoppel applies only when an insurer has breached its duty to defend. However, estoppel does not apply where, as here, the insurer’s defense obligation was not triggered in the first instance.