IL App 1st / Duty to Defend

Negligence Claim Arising out of Shooting Barred by Assault and Battery / Firearm Exclusions

The Illinois Appellate Court for the First District, in an opinion written by Justice Mikva with Justices Cunningham and Harris concurring, applying Illinois law, reversed the trial court and held that Markel International Insurance Co. (“Markel”) did not have a duty to defend Carolyn’s Lounge (“Carolyn’s”), a Chicago nightclub, in a lawsuit over an incident that lead to the death of one of its patrons. The Appellate Court held that an insurer has no duty to defend where the underlying allegations do not potentially fall within the policy’s coverage. The policy language proved clear and unambiguous; and so, Markel had no duty to defend its insured.

An October 30, 2011 incident in the parking lot of Carolyn’s resulted in the death of Kyle Matthews and the injury of Tremeice Dangerfield. Mr. Matthews and Ms. Dangerfield were confronted as they were leaving Carolyn’s by Mr. Bettis and Mr. Jones—who were returning to Carolyn’s with handguns after being removed from the premises. A security guard barred the door to prevent Mr. Bettis and Mr. Jones from entering Carolyn’s, thus leaving Mr. Matthews and Ms. Dangerfield outside with the men. Ms. Dangerfield and Mr. Matthew’s estate sued Carolyn’s, Carolyn’s owner, and Carolyn’s security guard for negligence, and in the same case sued the two assailants for assault and battery. Carolyn’s tendered the underlying action to Markel, its general liability insurer, and Markel denied coverage explaining that the incident fell within the assault and battery exclusion, the firearms exclusion, and the liquor liability exclusion of its policy. Markel did not defend Carolyn’s in the underlying action, in which a default judgment was entered against Carolyn’s. Markel filed the instant declaratory judgment action seeking a declaration that it did not owe a duty to defend or indemnify Carolyn’s. Carolyn’s filed a counterclaim alleging breach of contract, estoppel from asserting coverage defenses, and bad faith. The Circuit Court held that Markel had a duty to defend Carolyn’s in the underlying action, Markel breached its duty to defend and indemnify, and its denial was vexatious and unreasonable under Section 155 of the Illinois Insurance Code. The Circuit Court also held Markel was estopped from asserting any defenses under the policy and must satisfy the judgment entered against Carolyn’s to the extent of its policy limit. The parties disputed the applicable policy limits and the number of occurrences. Both parties appealed.

On appeal, Markel argued that its policy’s “Assault and Battery Exclusion and Firearms Exclusion categorically exclude[d] [Mr. Matthews and Ms. Dangerfield’s] injuries from coverage.” Under the assault and battery exclusion, Markel’s policy excluded “any claim, suit, cost or expense arising out of assault and/or battery, or out of any action or omission in connection with the prevention or suppression of such acts, whether caused by or at the instigation or direction of any Insured or Insured’s employees, patrons or any other person.” In contrast, Carolyn’s argued that Markel had a duty to defend and indemnify because the underlying complaint “allege[d] negligent conduct on the part of Carolyn’s that does not relate to, or arise out of, any potential assault or battery.”

The Appellate Court agreed with Markel that the alleged negligence was inseparable from the assault and battery and the use of a firearm. “Every allegation in the underlying complaint clearly arises out of the assault and battery of Ms. Dangerfield and Mr. Matthews, and the use of the firearm to kill Mr. Matthews.”

The Appellate Court also rejected Carolyn’s argument that Markel was estopped from denying coverage because it made no effort to defend Carolyn’s in the underling lawsuit. According to the Appellate Court the estoppel doctrine applies only where an insurer has breached its duty to defend. Thus, estoppel cannot create coverage where no coverage otherwise existed.

Finally, the Appellate Court found that because the policy did not provide coverage for the underlying lawsuit, all other issues on appeal were mooted or resolved: Markel’s failure to defend was not vexatious and unreasonable under Section 155, and the Appellate Court did not need to address Carolyn’s appeal related to the applicable policy limits or the number of occurrences. To our knowledge, the case was not remanded. Markel Int’l Ins. Co. v. Montgomery, 2020 IL App (1st) 191175 (July 24, 2020).