By Daniel P. Costello, Esq.
What can be considered when evaluating whether an insurance company owes a duty to defend? Our firm recently asked this question to the Illinois Supreme Court in an appeal submitted this month.
Unfortunately, the answer to that question just became a lot murkier. Historically, a carrier’s duty to defend was triggered by allegations within the plaintiff’s complaint and the four corners of the policy, which determined whether this was a covered loss or if the insured’s conduct fell outside the policy’s coverage. However, in the aftermath of Pekin v. Wilson, it is now unclear what a court “may” consider when evaluating a carrier’s duty to defend.
In Pekin v. Wilson, Pekin denied its duty to defend because the underlying complaint against Wilson did not bring Wilson’s coverage within the policy. Wilson challenged Pekin on the basis that he had filed a counterclaim in the underlying action that brought the case within Pekin’s policy. The dispute ascended all the way to the Illinois Supreme Court, where the Court held in favor of Wilson, finding that “a circuit court may, under certain circumstances, look beyond the underlying complaint in order to determine an insurer’s duty to defend.”
Now, carriers face the ambiguity of determining what “certain circumstances” potentially bind them to their duty to defend. The Court in Pekin v. Wilson pointed to two appellate court decisions that properly considered evidence beyond the underlying complaint. First, in Pekin v. Holabird & Root, the court permitted consideration of relevant facts from all pleadings, including third-party complaints. However, the Holabird & Root decision had very limited application and the decision emphasized a court’s discretion in reviewing the additional evidence by stating that it “may look beyond the complaint.”
Second, Fidelity & Casualty Co. of New York v. Envirodyne Engineers, Inc. extended the permissible evidence considerations even further. The Envirodyne Engineers court noted that the duty to defend initially flows from the underlying complaint’s allegations. But once a declaratory proceeding is initiated, the parties may offer evidence to prove whether the insured’s actions fell within the policy. The court seemingly makes the additional consideration mandatory, stating that “[t]he only time such evidence should not be permitted” is when it tends to determine a crucial issue in the underlying case.
The inconsistencies created by Pekin v. Wilson are already appearing within the Illinois districts. For example, in addressing very similar factual situations, the First District arrived at divergent opinions in Pekin v. Roszak/LLC and Pekin v. Pulte Home because the former case relied solely on the pleadings, whereas the latter considered additional evidence including the contracts and discovery responses.
To date, carriers have little to no guidance as to the limitations of this policy. Most notably, carriers are left in dark as to what types of additional evidence can be considered—is it limited to underlying pleadings, or does it extend to contracts, affidavits, and other discoverable information? Furthermore, is it the court’s discretion to consider the additional evidence, or is it mandated to review all offered evidence? Are Chancery Courts now going to become fact finders on the underlying case?
We aim to have these questions answered and the confusion alleviated with our recent appeal. But until the Illinois Supreme Court considers the issue, we expect the inconsistent results to remain.