State Farm Fire & Cas. Co. v. Shelton

• Decision Date: 17 November 1988
• Docket Number: 87-3877,Nos. 87-3778,s. 87-3778
• Citation: 531 N.E.2d 913,176 Ill.App.3d 858,126 Ill.Dec. 286
• Parties: , 126 Ill.Dec. 286 STATE FARM FIRE & CASUALTY COMPANY, Plaintiff-Appellee, v. Theaster SHELTON, et al. Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 913

531 N.E.2d 913

176 Ill.App.3d 858, 126 Ill.Dec. 286

STATE FARM FIRE & CASUALTY COMPANY, Plaintiff-Appellee, v. Theaster SHELTON, et al. Defendants-Appellants.

Nos. 87-3778, 87-3877.

Appellate Court of Illinois First District, Fourth Division.

Nov. 17, 1988.

[176 Ill.App.3d 860] [126 Ill.Dec. 287] Walsh, Neville, Pappas & Mahoney, Chicago (Ronald F. Neville, of counsel), for defendants-appellants.

Conklin & Roadhouse, Chicago (Thomas W. Conklin, Howard L. Lieber and Renee S. Levitt, of counsel), for plaintiff-appellee.

Justice LINN delivered the opinion of the court:

Plaintiff, State Farm Fire & Casualty Company, filed a complaint for declaratory judgment seeking a ruling that it had no duty to defend or indemnify its insured, Theaster Shelton, in a wrongful death action. The trial court granted State Farm's motion for summary judgment on its complaint, finding that since Shelton had been convicted of voluntary manslaughter for the shooting death of the victim, his actions were excluded from coverage under the insurance policy.

Shelton appeals, contending that the trial court improperly took judicial notice of the facts and results of the criminal proceeding and that the declaratory judgment action was premature.

We reverse and remand.

BACKGROUND

On January 15, 1983, Theaster Shelton, the insured, shot and killed Thomas Haseman. The facts surrounding that incident are contained in an unpublished Supreme Court Rule 23 order (Ill.Rev.Stat.1987, ch. 110A, par. 23), in which Shelton's conviction of murder after a bench trial was reduced to voluntary manslaughter by the appellate court. People v. Shelton (1985), 133 Ill.App.3d 1155, 99 Ill.Dec. 672, 496 N.E.2d 18.

Thereafter, Haseman's wife filed a wrongful death action against Shelton seeking damages. Her second amended complaint alleges in count I that the shooting was intentional. Counts II and III sound in negligence. After Shelton was served with the lawsuit, he tendered it to State Farm Fire & Casualty Company, his insurer, who agreed under a reservation of rights to defend the case. Shelton selected his own attorneys.

State Farm then filed its complaint for declaratory judgment, seeking a declaration that it had neither a duty to defend nor to indemnify Shelton because his conduct in the underlying shooting caused "intentional or expected" injury, which is excluded under the policy. State Farm moved for summary judgment on the basis that the criminal conviction for voluntary manslaughter established as a matter of law that Shelton's conduct was intended or expected.

Shelton's attorney opposed the motion without filing affidavits or other evidentiary material. He argued that the declaratory action and summary judgment motion were premature because the underlying tort suit had not been resolved and the declaratory action court's decision on the nature of the insured's conduct may improperly resolve contested issues in the tort litigation.

The trial court, believing itself bound to take judicial notice of the Rule 23 order, granted State Farm's motion for summary judgment on its complaint for declaratory relief.

OPINION

This case squarely presents the issue of whether an insurance company can get declaratory judgment that it has no duty to defend its insured in the underlying personal injury action, before the resolution of that litigation, on the grounds that the insured was convicted of an intentional crime arising out of the incident. Despite some analytical difficulties we conclude that it cannot.

Resolution of this case begins with analysis of the insurance company's duty to defend and the Illinois case law that allows a criminal conviction to be used as prima facie, but not conclusive, evidence of noncoverage under an insurance policy.

The insurer's duty to defend its insured in a lawsuit hinges upon a liberal reading of the complaint. (Maryland Casualty Co. v. Peppers (1976), 64 Ill.2d 187, 355 N.E.2d 24.) Even if the complaint alleges conduct that is not covered by the policy (usually intentional tortious conduct), the insurer must defend the suit if the complaint also alleges covered conduct (negligence). (Maryland Casualty Co. v. Peppers.) The rule has thus arisen that the insurer is duty bound to defend its insured whenever conduct alleged is potentially within policy coverage, even if the insurance company discovers that the allegations are groundless, false, or fraudulent. (Thornton v. Paul (1978), 74 Ill.2d 132, 144, 23 Ill.Dec. 541, 545, 384 N.E.2d 335, 339; LaRotunda v. Royal Globe Insurance Co. (1980), 87 Ill.App.3d 446, 451, 42 Ill.Dec. 219, 224, 408 N.E.2d 928,933 (where there is doubt as to whether there is potential coverage, it is to be resolved in favor of insured).) Only if it is clear on the "face" of the allegations "that the claim is beyond policy coverage" can the insurer conclude that it has no duty to defend the lawsuit. (87 Ill.App.3d 446, 451, 42 Ill.Dec. 219, 224, 408 N.E.2d 928, 933.) See Bay State v. Wilson (1983), 96 Ill.2d 487, 71 Ill.Dec. 726, 451 N.E.2d 880.

Notwithstanding this broad duty to defend, the insurer may establish proof after the resolution of the personal injury action that the insured's conduct is not covered under the policy, and, therefore, the insurance company has no duty to pay the judgment against the insured. See J. Roth Builders, Inc. v. Aetna Life & Casualty Co. (1987), 151 Ill.App.3d 572, 104 Ill.Dec. 920, 503 N.E.2d 782 (in a garnishment action following a jury verdict against the insured, insurance company proved that insured's conduct in burning down a house was wilful and wanton and therefore not covered under insurance policy).

State Farm argues that its policy exclusion, which applies if the occurrence or injury to the plaintiff was "intended or expected," was established as a matter of law because of Shelton's criminal conviction. Shelton, on the other hand, maintains that the trial court improperly looked beyond the allegations of Haseman's wrongful death complaint to decide that State Farm had no duty to defend or indemnify him. We are thus faced with two, seemingly irreconcilable principles of law: (1) the duty to defend depends solely on the allegations of the complaint itself and (2) on summary judgment, the court may look beyond the complaint to such facts as appear in affidavits or depositions.

The trial court judge took judicial notice of the Rule 23 conviction, reasoning that he was not required to wear "blinders" and consider only the allegations of the complaint. Despite the seeming logic of this result, we note that it ignores the more fundamental issue of whether the declaratory judgment court is empowered to decide factual issues that are integral to the injured person's lawsuit against the insured.

In this regard, we are bound to follow the Illinois Supreme Court decisions that not only prohibit the declaratory judgment court from deciding such ultimate issues of fact but also adhere to the evidentiary rule that a criminal conviction is only prima facie, not conclusive, evidence in a civil suit. (Thornton v. Paul (1978), 74 Ill.2d 132, 23 Ill.Dec. 541, 384 N.E.2d 335.) In Thornton v. Paul, the insurance company declined to defend a lawsuit against its insured on the grounds that the insured's conduct was a battery, and thus excluded from coverage. Default judgment was rendered in favor of the injured party, who then instituted a garnishment action to collect from the insurer. The insurance company attempted to introduce evidence that the insured had been convicted of a battery arising out of the incident but the trial court held that it was estopped from asserting no coverage because of its refusal to defend. The supreme court reversed, holding that the insurer did have the right to produce in the garnishment proceedings evidence of the criminal conviction arising out of the incident. The conviction would be prima facie, not conclusive, evidence that could take the insured's conduct outside of the policy's coverage. In that event, there would be no duty to pay the judgment.

In the context of the insurance company's initial duty to defend, however, the Thornton court agreed with prior authority that it "would not be appropriate, under the facts of this case, for the insurer to seek a declaratory judgment that the insured's conduct constituted a battery and was thus beyond the coverage of the insurance policy. In such a proceeding, an issue crucial to the insured's liability in the personal injury action and also one on which punitive damages could ultimately be assessed would be determined in a purely ancillary proceeding with the plaintiff and defendant in the personal injury action both aligned on the same side as defendants in the declaratory judgment action." (74 Ill.2d 132, 159, 23 Ill.Dec. 541, 552, 384 N.E.2d 335, 346 (emphasis added).) The court also concluded that the insurance company's refusal to defend the lawsuit required it to reimburse its insured for the costs of the litigation.

In the pending case, State Farm's duty to defend Shelton in the Haseman lawsuit arises out of the allegations in the complaint that his conduct was negligent and thus within policy coverage. The pertinent allegation reads: "1. * * * THEASTER SHELTON, had and held in his hands a certain pistol, fully loaded and ready to fire, and at said time and place did negligently and carelessly [cause] a gunshot wound in the body of THOMAS HASEMAN, specifically in the area of the neck." Other allegations in the complaint charge that Shelton intentionally shot the deceased, as indeed the criminal court determined.

Illinois case law holds that when a declaratory judgment court is asked to declare whether an insured's conduct is covered under a policy, it must not determine disputed factual issues that are crucial to the insured's liability in the underlying personal injury lawsuit. E.g., Maryland Casualty Co. v. Peppers (1976), 64 Ill.2d 187, 355 N.E.2d 24 ...