Opinion
No. 99 C 6763
May 17, 2000
MEMORANDUM OPINION AND ORDER
Cincinnati Insurance Company ("Cincinnati") brought this action seeking declaratory relief that it has no duty to defend defendants Eastern Atlantic Insurance Company ("Eastern") and Integrity Underwriters, Inc. ("Integrity") against counterclaims brought by Midwest Integrity Underwriters Agency, Inc. ("Midwest") in litigation pending in the Circuit Court of Cook County, Illinois. Cincinnati and Eastern/Integrity have filed cross-motions for judgment on the pleadings as to whether Cincinnati has a duty to defend Eastern and Integrity. For the following reasons, Cincinnati's motion for judgment on the pleadings is DENIED. Eastern and Integrity's motion for judgment on the pleadings is GRANTED.
BACKGROUND
Cincinnati Insurance Company ("Cincinnati") issued a general commercial liability insurance policy ("GCL policy") which insured Eastern Atlantic Insurance Company ("Eastern") and Integrity Underwriters, Inc. ("Integrity"). Cincinnati also issued an umbrella liability policy to Integrity. Those policies define the circumstances under which Cincinnati is to indemnify Eastern and Integrity. Of relevance to this litigation, the GCL and umbrella policies cover "personal injury" caused by enumerated offenses arising out of the insured's business. The GCL policy defines "personal injury" as "injury, other than bodily injury, arising out of one or more of the following offenses . . . (d) Oral or written publication of material that slanders or libels a person or products or disparages a person's or disparages a person's of organization's goods, products, or services." Under the umbrella policy, personal injury includes "(4) libel, slander, or defamation of character. . . ."
On December 22, 1998, Eastern filed a complaint in the Circuit Court of Cook County against Midwest Integrity Underwriters Agency, Inc. ("Midwest") and its shareholders. Midwest responded with a counterclaim and a third party complaint against Integrity. Cincinnati's duty to defend Eastern and Integrity against those claims is at issue in this litigation.
Midwest's complaint against Eastern and Integrity contains three counts: breach of contract (Count I), tortious interference with subproducer agreement (Count II), and tortious interference with Midwest's customers (Count III). Count I is not at issue in this litigation. Count II is based upon a letter from Eastern to Midwest which allegedly asked Midwest to terminate its relationship with Shewmake Agency, one of its subproducers. That letter stated that its request was necessary because of Eastern's concern over Mr. Shewmake's character and that he "is not the type of retail producer that we would like to build our relationship on." Midwest alleged that Eastern sent the letter "intentionally and maliciously" forte purpose of inducing Midwest to terminate their business relationship with Shewmake. Midwest further alleged that, as a result of Eastern's demands, Midwest was forced to terminate their relationship with Shewmake, thereby injuring Midwest's business reputation and interfering with Midwest's business activities. Count III alleges Eastern and Integrity intentionally and maliciously interfered with Midwest's business relationship with its customers by, among other things, causing notification to falsely be given to Midwest's insurance carriers that Midwest was engaged in activities which could trigger liability under their errors and omissions policies, resulting in lost customers and the revenues associated with those customers.
A subproducer acts in a sales capacity to the insurance company.
Cincinnati brought this action, praying for a judgment declaring that it has no duty under the policies to defend or indemnify with respect to the counterclaim and third party claims filed against Eastern and Integrity, respectively. Eastern and Integrity filed a cross motion for judgment on the pleadings, requesting this court to find that Cincinnati does have a duty to defend Eastern and Integrity against the counterclaims filed by Midwest. All parties agree that this case is appropriate for judgment on the pleadings.
ANALYSIS
Under Illinois law, "[t]he construction of an insurance policy and a determination of the rights and obligations thereunder are questions of law for the court which are appropriate subjects for disposition by way of summary judgment." Crum Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 390, 620 N.E.2d 1073, 1077 (1993). The legal principles governing the construction of insurance policies are well settled. An insurer's duty to defend is more inclusive than its duty to indemnify. Tews Funeral Home. Inc. v. Ohio Cas. Ins. Co., 832 F.2d 1037, 1042 (7th Cir. 1987). "In determining whether an insurer has a duty to defend its insured, the court must look to the allegations in the underlying complaint and compare these allegations to the relevant coverage provisions of the insurance policy." Crum Forster, 156 Ill. 2d at 393, 620 N.E.2d at 1079. When making this comparison, the court should not simply look to the particular legal theories pursued by the claimant, but must focus on the allegedly tortious conduct on which the lawsuit is based. Pipefitters Welfare Educ. Fund, 976 F.2d 1037, 1039 (7th Cir. 1992) (citing Western Cas. Sur. Co. v. Adams County, 179 Ill. App.3d 752, 534 N.E.2d 1066, 1068 (1989)). "If the complaint states a claim that is within, or even potentially or arguably within, the scope of coverage provided by the policy," the insurer is obligated to provide the insured a defense. Id. (citing United States Fidelity Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 73, 578 N.E.2d 926, 930 (1991)). An insurer is obligated to defend its insured if the allegations in a complaint give rise to the possibility of recovery under the policy; "[t]here need not be a probability of recovery." Tews, 832 F.2d at 1042 (quoting 7 C.J. Appleman, Insurance Law Practice § 4683.01 at 67 (1979)).
The insurer may properly refuse to defend its insured only if it is clear from the face of the complaint that the wrongdoing alleged is not covered under the policy. Pipefitters, 976 F.2d at 1040 (citing Conway v. Country Cas. Ins. Co., 92 Ill.2d 388, 442 N.E.2d 245, 247 (1982)). The threshold a complaint must meet to present a claim for potential coverage, and thereby raise a duty to defend, is minimal. West Bend Mutual Insurance Co. v. Sundance Homes, Inc., 238 Ill. App.3d 335, 337-38, 606 N.E.2d 326, 328 (1992). If any one claim potentially falls within the scope of coverage, the insurer must provide a defense. Id. (citing Maryland Cas. Co. v. Peppers, 64 Ill.2d 187, 355 N.E.2d 24, 28 (1976)). The court "must read the underlying complaint liberally and in favor of the insured." Travelers Ins. Cos. v. Penda Corp., 974 F.2d 823, 829 (7th Cir. 1992) (citing Wilkin Co., 144 Ill. 2d at 74, 578 N.E.2d at 930).
Because only one of Midwest's claims need potentially fall within the scope of coverage in order to trigger a duty to defend, this court focuses solely upon Count III of Midwest's counter and cross claims. In this court's view, Count III, read liberally, as it must be, triggers Cincinnati's duty to defend Eastern and Integrity. Cincinnati argues that it has no duty to defend Eastern and Integrity against Count III of Midwest's counter and cross claims because it states a claim for tortious interference with Midwest's policyholders, not defamation or liable. Indeed, Midwest does not allege that Eastern or Integrity engaged in liable, slander, or defamation anywhere in its cross or counter claims. However, a complaint "need not allege or use language affirmatively bringing the claims within the scope of the policy, as the question of coverage should not hinge exclusively on the draftsmanship skills or whims of the plaintiff in the underlying action." Western Cas. Sur. Co., 179 Ill. App.2d 752, 756, 534 N.E.2d 1066, 1068 (citing International Minerals Chem. Corp. v. Liberty Mut. Ins. Co., 168 Ill. A. 3d 361, 522 N.E.2d 758, 768 (1988)). What is determinative is the misconduct alleged. Hurst-Rosche Engineers, Inc. v. Commercial Union Ins. Co., 51 F.3d 1336, 1344 (7th Cir. 1995). Here, Count III of Midwest's counterclaims alleges all of the elements of defamation: a false statement (Midwest was engaged in activities which could trigger liability under their errors and omissions policies), communicated to another (written notification to Midwest's insurance carriers), injury to Midwest's reputation, and deterrence of others from associating with Midwest (lost customers and revenues associated with those customers).See Kolegas v. Heftel Broadcasting Corp., 154 Ill.2d 1, 9, 607 N.E.2d 201, 205, 296 (1992) (citing Restatement (Second) of Torts § 559 (1977)).
This case is thus unlike those cited by Cincinnati, in which only one or some elements of a claim covered by an insurance policy were alleged in the underlying suit. In Chicago Title Trust Co. v. Hartford Fire Ins. Co., 424 F. Supp. 830 (N.D. Ill. 1976), for example, the court rejected the argument that a complaint for the negligent handling of a check could be read to potentially include a claim for libel merely because the underlying injury — harm to business reputation — was the same injury as caused by libel. The underlying complaints in Chicago Title did not allege that the insured had uttered or communicated any defamatory matter about the plaintiff's. Id. at 833. Here, by contrast, the complaint does allege that Eastern and Integrity communicated a defamatory matter, even though the word "defamation" is not used in the complaint. The possibility that the plaintiff could produce evidence establishing a claim for defamation against the insured is thus far more reasonable in this case than in Chicago Title.
Likewise, in Diamond State Ins. Co. v. Chester-Jensen C., Inc., 243 Ill. App.3d 471, 611 N.E.2d 1083 (1st Dist. 1993), the plaintiff in the underlaying action alleged injury to employees as evidence of economic loss giving rise to a claim for breach of contract. Because the suit was not brought on behalf of those employees and did not seek reimbursement for their medical care, the court found that allegations of the employees' illness or injury did not transmute the economic claim into one for bodily injury. Id. at 477-78, 611 N.E.2d at 1088. Whereas reading background facts of a claim which sounds in contract to convert it into a tort claim for bodily injury would be "an unreasonable interpretation" of a complaint, see Hurst-Rosche engineers v. Commercial Union Ins. Co., 51 F.3d 1336, 1344 (7th Cir. 1995), reading a claim for one tort to raise the possibility that the plaintiff could assert a claim for a different tort with the overlapping elements is not "a far-fetched interpretation" of a claim. See id.
Cincinnati next argues that even if Midwest's counter and cross claims allege a covered injury, Cincinnati still does not have a duty to defend the claims because the policies exclude coverage for personal injury arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity. Because Midwest alleges that Eastern and Integrity "intentionally and maliciously" interfered with Midwest's business relationships, Cincinnati argues, Midwest implicitly alleges that Eastern and Integrity caused the false notices to be issued with knowledge of their falsity, thereby precluding coverage under the policies. However, the cross and counter claims do not allege that Eastern and Integrity had knowledge of the falsity of their notices when they gave them. Reading the claims liberally, it is possible that Midwest is alleging that Eastern and Atlantic intentionally interfered with its business relationships by making statements that they believed to be true or were reckless as to the truth of the statements. The tort of intentional interference with business relationships does not require knowledge of the falsity of the interfering statement.
Reading Midwest's counter and cross claims against Eastern and Integrity liberally and in favor of the insureds, Eastern and Integrity, this court must conclude that Count III is arguably within the scope of coverage for personal injury resulting from defamation. This court must also conclude that the claims are arguably not excluded by the "with knowledge of the falsity" exclusion for coverage. Therefore, Cincinnati has a duty to defend Eastern and Integrity against Midwest's counter and cross claims.
CONCLUSION
For the reasons stated, plaintiff Cincinnati Insurance Company's motion for judgment on the pleadings is DENIED. Eastern Atlantic Insurance Company and Integrity Underwriters, Inc.'s motion for judgment on the pleadings is GRANTED. This court finds that Cincinnati has a duty to defend Eastern and Integrity against the cross and counter claims brought by Midwest in the Circuit Court of Cook County, Illinois, Case No. 98 CH 17784. All other pending motions are moot. This case is closed in its entirety.