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ARTICLE

Court Rules When Extrinsic Evidence Can Be Used to Defeat the Duty to Defend

Benjamin Boris

Summary

  • The Illinois Third District Appellate Court clarified that an insurer can consider an insured’s previous conviction to defeat the duty to defend.
  • The insurer argued the plaintiff should be collaterally estopped from contesting his criminal battery convictions in the coverage action.
  • The circuit court’s application of collateral estoppel, as well as its grant of the insurer’s motion for summary judgment, were affirmed.
Court Rules When Extrinsic Evidence Can Be Used to Defeat the Duty to Defend
Zhenjin Li via Getty Images

Under Illinois law, when evaluating a declaratory judgment action pertaining to an insurer’s duty to defend, a court compares the allegations in the underlying complaint and the relevant provisions of the policy. In light of this norm, often referred to as the “eight corners rule,” extrinsic evidence is typically not taken into account in the duty-to-defend analysis. Moreover, Illinois courts are precluded from looking to extrinsic evidence when evaluating an insurer’s duty to defend if doing so “tends to determine an issue crucial to the determination of the underlying lawsuit.” In a decision issued earlier this year, the Illinois Third District Appellate Court clarified when an insurer can consider extrinsic evidence, in the form of an insured’s previous conviction, to defeat the duty to defend.

 

In Erie Insurance Co v. Gibbs, the Third District Appellate Court considered the circuit court’s ruling that the plaintiff insurer had no duty to defend a lawsuit against the defendant insured in light of extrinsic evidence conclusively establishing that the insured acted intentionally. The underlying lawsuit arose from an incident involving the insured, Dr. Thomas Gibbs, who was taken to the hospital after the police arrived at his residence to investigate a reported domestic dispute. Gibbs, highly intoxicated upon his arrival at the emergency room, attempted to leave the hospital. When met with resistance from Mr. Adams, an emergency room technician, Gibbs pushed Adams to the floor, causing him to suffer a broken knee cap. As a result, two misdemeanor criminal battery cases were filed against Gibbs, and he was found guilty in both cases after stipulating to the facts alleged by the state.

Subsequently, Adams filed a negligence action against Gibbs for his injuries. Erie Insurance Company then filed a declaratory judgment action, seeking a ruling that it owed no duty to defend Gibbs in the negligence action under the home insurance policy it issued to Gibbs. In relevant part, Erie argued that coverage for the lawsuit was barred by an exclusion for bodily injury that was “expected or intended” by the insured and an exclusion for personal injury that the insured intended or that resulted from physical abuse (together, the “intentional act exclusions”).

Gibbs filed a motion to stay the coverage proceeding, arguing that its resolution would require the court to make findings of fact that would determine his liability in the negligence action. The circuit court denied the motion to stay, and Erie then filed a motion for summary judgment, arguing that Gibbs should be collaterally estopped from contesting his criminal battery convictions in the coverage action and, consequently, the convictions’ determination that Gibbs acted intentionally. The circuit court granted Erie’s motion and Gibbs appealed.

On appeal, the Third District Appellate Court first considered whether the circuit court erred in denying Gibbs’s motion to stay and thereby “impermissibly interfered with a material issue of fact critical to the underlying case.” While acknowledging that the circuit court is not permitted to determine a critical issue in the underlying case, the Third District also recognized that “extrinsic evidence from criminal convictions, including stipulations made in those cases, can be used” where it constitutes “conclusive evidence of an insured’s intent.” The Third District pointed to Allstate Insurance Co. v. Carioto, which held that the nature of the crime and the insured’s admission in a deposition that he acted intentionally amounted to conclusive evidence of intentional conduct. Similarly, Gibbs’s criminal battery conviction, which required proof beyond a reasonable doubt of Gibbs’s intent, and his stipulation to the facts asserted by the state, which included intentionally pushing Adams, amounted to conclusive evidence of Gibbs’s intentional conduct. Thus, the Third District held the circuit court properly could consider the misdemeanor convictions and issue an opinion in the declaratory judgment action without interfering with a material issue of fact critical to the underlying case.

The Third District then considered whether the circuit court erred in granting Erie’s motion for summary judgment despite Gibbs’s argument that the elements of collateral estoppel were not satisfied. Specifically, Gibbs argued that there was no identity of issues between the criminal battery case and the underlying action. The court rejected this framework, holding that the correct identity-of-issues analysis would be to compare the criminal case and the declaratory judgment action, not the underlying action. Accordingly, the court determined that the issues of whether Gibbs acted intentionally when he pushed Adams so as to be held guilty for criminal battery and whether Gibbs acted intentionally when he pushed Adams so as to trigger exclusions based on intentional conduct are the same.

Because the Third District found all elements of collateral estoppel had been met, it then considered Gibbs’s argument that he lacked an incentive to litigate the intentionality of his conduct in the criminal battery case, rendering the application of collateral estoppel nonetheless unfair. The Third District reasoned that although Gibbs stipulated to the state’s facts, he nonetheless pleaded “not guilty” to the misdemeanor charges against him. In contrast, the cases cited by Gibbs involved criminal defendants who had pled guilty in exchange for a reduced charge or sentence, thereby eliminating any incentive to litigate the facts underlying the charges against the defendants. The Third District found Gibbs still had such an incentive given that he pled “not guilty” to the charges against him. Thus, the circuit court’s application of collateral estoppel, as well as its grant of Erie’s motion for summary judgment, were affirmed.

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