Cowan v. Insurance Co. of North America

Decision Date24 September 1974
Docket NumberNo. 58719,58719
Citation318 N.E.2d 315,22 Ill.App.3d 883
PartiesMichael COWAN, Plaintiff-Appellee, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellant.
CourtUnited States Appellate Court of Illinois

Tom L. Yates, Delbert T. Been, Chicago, for defendant-appellant.

Howard R. Weiss and Joseph P. Griffin, Chicago, for plaintiff-appellee.

STAMOS, Justice.

This is an appeal from an order of the Circuit Court granting summary judgment for plaintiff and denying defendant's motion to dismiss. The action was brought for declaratory judgment on a comprehensive liability insurance policy issued by defendant and sought a determination that defendant, pursuant to the policy of insurance, was obligated to satisfy an outstanding judgment entered against plaintiff.

So far as here material, the complaint alleged that defendant had issued a policy to plaintiff insuring against liability for injuries sustained by any person; that while the policy of insurance was in effect, plaintiff was involved in a traffic dispute with one Harry J. Graw; that in the ensuing argument, plaintiff inadvertently came into contact with Graw causing the latter to lose his balance and fall to the ground; and that the act causing the fall and injury of Graw was unintended and accidental.

The complaint further alleged that as a result of the foregoing, Graw filed an action for assault and battery against plaintiff which was defended by defendant's attorneys under a reservation of rights, on a combination of defenses of accidental injury and self-defense; that after a jury verdict, a judgment for $8,000 was entered in favor of Graw which the present defendant has refused to pay; and that such refusal is contrary to the contract of insurance entered into between the parties.

Defendant, in a motion to dismiss, argued that by virtue of the previous litigation between Graw and Cowan, the latter was collaterally estopped to deny that the injury inflicted upon Graw was intentional and, therefore, since any act committed by the insured with intent to cause injury is excluded from coverage under the contract of insurance, defendant was absolved from liability.

After the filing of various pleadings and the submission of memoranda, the order of the trial court denied defendant's motion to dismiss and granted plaintiff's motion for summary judgment.

On appeal, defendant urges reversal of the judgment based upon the terms of the policy of insurance and upon the cause of action for assault previously adjudicated between Graw and Cowan. The exclusionary clause in question provided that coverage does not extend to 'any act committed by or at the direction of the insured with intent to cause injury or damage to person or property.' In support of defendant's assertion that the Graw-Cowan incident falls within the exclusionary provision, we are referred to the complaint in the assault action against Cowan. The charging portion of the complaint alleged:

1. That at Chicago, Illinois, on the 31st day of December, 1965, the defendant (Cowan) violently assaulted the plaintiff (Graw) and wrongfully struck him with his fists on the body and knocked him down and fractured his right leg;

2. That said assault was willful (sic) and malicious.

Defendant concludes that the allegations of the complaint and the verdict thereon conclusively determine that Cowan intended to injure Graw. See Wendell v. Union Mutual Fire Insurance Co., 123 Vt. 294, 187 A.2d 331; Abbott v. Western National Indemnity Co., 165 Cal.App.2d 302, 331 P.2d 997.

Plaintiff initially emphasizes that the issue in the present cause is not whether he committed an intentional tort against Graw, but rather, whether he intended to injure Graw. Notwithstanding the commission of an intentional act by the insured, plaintiff asserts that the exclusionary clause is applicable only when it can be demonstrated that the injury was intentionally inflicted. In pointing to the distinction between an intentional act and an intended injury, plaintiff refers us to Smith v. Moran, 61 Ill.App.2d 157, 209 N.E.2d 18, and Baldinger v. Consolidated Mutual Insurance Co., 15 A.D.2d 526, 222 N.Y.S.2d 736, wherein the courts held upon the facts there involved, that an assault and battery was not an intentional injury within the meaning of an exclusionary clause identical in effect to one before this court.

In the present case, plaintiff argues that in his complaint he alleged that there was a minimal contact between himself and Graw, and that the resulting injury of a fractured leg was unintentional and bizarre in relation to the incident. Plaintiff further argues that it is the defendant who is estopped from relitigating the issue of whether the injury was intentionally caused. This argument is predicated upon the fact that although Graw, in his complaint for assault, prayed for exemplary damages and a finding that 'malice is the gist of the action,' 1 the verdict order affirmatively discloses that the jury assessed '0' as exemplary damages. Because the jury failed to award exemplary damages, plaintiff concludes that any finding of an intentionally caused injury is necessarily precluded.

Although both parties argue the applicability of the collateral estoppel doctrine, and disagree in their respective assessments of the prior adjudication, we feel compelled to question the basic assumption from which their arguments follow. We initially note that questions of estoppel and the question of whether an injured party's claim against an insured is within the policy's coverage are not completely unrelated. The interrelationship of the two is discussed in Apex Mutual Insurance Co. v. Christner, 99 Ill.App.2d 153, 160--163, 240 N.E.2d 742, 746--747:

Difficulties arise when an injured party brings an action against an insured, and investigation by the insurer reveals a breach of condition or an essential fact tending to place the claim outside the coverage of the policy. The insurer's interest in defending against the claim while restricting its obligation to the terms of the policy, presents the insurer with an urgent strategical problem: whether or not to defend the insured in court. . . .

It is well settled that assumption of the insured's defense constitutes a waiver by the insurer of all questions of policy coverage. If, therefore, in spite of its doubts as to coverage, the insurer elects to take over the insured's defense, it will afterwards be estopped from denying its own liability under the policy. The estoppel referred to here is 'estoppel in pais'; it is ordinary justified on the ground that the insurer has prejudiced the insured's right to control his own defense. . . .

With this in view, the insurer may wholly decline to assume the insured's defense when coverage is in doubt. Having refused to enter the litigation, the insurer cannot subsequently be estopped from setting up in its own defense any matter not decided in the original action. Abstention presents a hazard, however, since the insurer will be 'collaterally estopped' in the subsequent suit as to all issues which had been decided in the prior action. Further, the danger of collateral estoppel is substantially increased if the insured and injured parties are inclined to conspire for the purpose of establishing such facts as they may select to place themselves under the policy's coverage provisions. Finally, the nonliability of the insured is potentially the most effective bar to any policy claims against the insurer. Where the possibility exists of making a successful defense on behalf of the insured, the insurer has much to gain from placing its first reliance upon this line of action, since by declining to defend, it would sacrifice all opportunity to contest the injured party's claim.

Clearly, then, neither of these two alternatives is very satisfactory to an insurer. Sims v. Illinois National Casualty Co. of Springfield, 43 Ill.App.2d 184, 199, 193 N.E.2d 123, cited with approval in Lincoln Casualty Co. v. Vic & Mario's, Inc., 62 Ill.App.2d 262, 267, 210 N.E.2d 329, 331, discusses the insurer's options in such a predicament:

However, all authorities agree that quite often an insurer is faced with a dilemma as to whether to defend or to refuse to defend. In cases of doubt the answer is simple. It can (1) seek a declaratory judgment as to its obligations and rights or (2) defend under a reservation of rights.

The reservation of rights is a means by which, prior to determination of the liability of the insured, the insurer seeks to suspend the operation of the estoppel doctrines through a non-waiver agreement. When coverage is in doubt, the insurer will offer to defend the insured under such an agreement, reserving to insurer all of its policy defenses in case the insured is found liable. Courts have generally held such agreements valid. . . .

Estoppel in pais operates as a result of the insurer's monopolization of the insured's defense, since the insured, in reliance thereon, refrains from seeking other counsel. But no such reliance can be claimed where the insurer has defended under a reservation of rights, since the insured could have rejected the insurer's offer of counsel if he had chosen to do so. Whether, in reserving rights, the insurer also avoids the strictures of collateral estoppel is, however, unsettled. It may be that since collateral estoppel arises from privity and since the nonwaiver agreement does not alter the fact of privity, it would not suspend the operation of collateral estoppel, thus substantially diminishing the value of a reservation of rights in many cases. (Citations omitted.)

The question lastly posed in Apex is, in general terms, the issue presented in the instant case. From the analysis in Apex, it is apparent that when an insurer defends a claim against its insured under a proper reservation of rights, the question of estoppel is no longer an equitable one, but rather that branch of Res judicata...

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