United States: Illinois Appellate Court Further Clarifies The "Eight Corners Rule" While Construing The Term "Collectible" As Applied To Contingent Coverage

In Bartkowiak v. Underwriters at Lloyd's London, 2015 Ill. App. (1st) 133549 (Aug. 13, 2015), the Illinois Appellate Court, First District, affirmed the decision of the trial court in a declaratory judgment action that Lloyd's had no duty to defend its insured, Jack Gray, a truck broker, because there was no possibility of coverage under Lloyd's "Contingent Automobile Liability" policy.  In its August 13, 2015 decision (a copy of which may be accessed here), the court: (1) provided additional guidance regarding the circumstances under which a court may look beyond the eight corners of the complaint and the insurance policy to determine whether an insurer properly has denied a duty to defend; (2) construed the term "collectible" as used in the Lloyd's policy, finding that it was not ambiguous; and (3) clarified that the Illinois estoppel doctrine could not apply because there was no possibility of coverage (and thus no duty to defend).  

The Lloyd's policy provided that coverage under the policy would not apply if there was "valid and collectible" automobile liability insurance of any nature available to the insured.  Jack Gray was an additional insured on an automobile liability policy issued by Northland Insurance to the truck driver involved in the accident from which the claim arose.  The Appellate Court held that the trial court appropriately looked beyond the Lloyd's policy and the pleadings in the underlying wrongful death suit to determine that Lloyd's properly denied coverage.  

Plaintiff argued that the court's review should have been limited to those documents.  The Appellate Court noted that while a court's review ordinarily is limited by the "eight corners rule," "provided that the trial court is not, in effect, adjudicating a critical issue in the underlying case, there is no reason why the trial court could not consider relevant, objective, undisputed facts in deciding the duty to defend, even if those facts fall outside the pleadings of the underlying lawsuit." 

Here, there was no dispute that the truck driver's policy with Northland served as the primary insurance, and that Northland provided a defense to Jack Gray in the underlying suit.  Plaintiff admitted as much in her declaratory judgment complaint.  We see no reason why the trial court should have been required to ignore these objective, undisputed facts in evaluating defendant's duties under the policy.  There was no risk that doing so would require the trial court to determine an issue critical to the underlying case; the fact that Northland provided insurance and a defense to Jack Gray had no effect on the issues of the underlying case, which concerned the defendants' negligence for the death of plaintiff's husband.  To demand that the court simply ignore basic, uncontroverted facts such as these would impose the kind of 'judicial blinders' the Illinois Supreme Court has decried.

Importantly, the Appellate Court rejected plaintiff's argument that the trial court could not look beyond the "eight corners" of the complaint and the policy where Lloyd's had not filed a declaratory judgment action or defended Jack Gray under a reservation of rights.  The court found that the cases plaintiff relied on were distinguishable and stressed that so long as the facts relied upon by the trial court were objective and undisputed and did not require the court to determine a critical issue in the underlying suit, the trial court had not erred in looking beyond the Lloyd's policy and the underlying complaint to determine Lloyd's duty to defend.  

Plaintiff next argued that because the Northland primary policy only provided $1 million in coverage, but the insured's loss exceeded $1 million, there was no "collectible" insurance as to the remainder of the loss and the Lloyd's policy therefore should apply. The Appellate Court affirmed the trial court's decision that the term "collectible" was not ambiguous.  Looking at the policy as a whole, the appellate court agreed that the Lloyd's policy provided primary coverage where the automobile liability insurance for trucks brokered by Jack Gray "completely failed due to invalidity or insolvency.  If Jack Gray could collect at all from that primary insurance, then [Lloyd's] policy would not apply." Because other collectible insurance was available to Jack Gray under the Northland policy, Lloyd's did not have a duty to defend the lawsuit and also no duty to indemnify Jack Gray.

Finally, the appellate court concluded that Lloyd's was not estopped from denying coverage simply because it denied coverage without seeking a declaratory judgment.  "[E]stoppel does not apply where the insurer ultimately prevails in the argument that it has no duty to defend . . . In other words, the estoppel doctrine cannot create coverage where none existed in the first place."  Because Lloyd's had no duty to defend, the estoppel doctrine did not apply.

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