Insurance Issue Grows in International Torts

Gregory Martin and Delaney Gordon were charged with scheming to destroy a building by arson in Alton. Martin owned the building: Gordon was a tenant.

On Oct. 24, 1992, Gordon allegedly left an unattended candle in a hamper in the building's basement. An accelerant was used. Firemen responded to the call, but the flames intensified.

During the blaze, the second floor collapsed onto some of the firemen, killing two of them.

Martin and Gordon were indicted by a federal grand jury. The estates of the firemen filed a wrongful death suit against the duo. Martin, in turn, tendered both wrongful death suits to State Farm Insurance Fire and Casualty Co., Martin's insurance company on the building.

After a preliminary flurry of motions, the question boiled down to whether coverage existed and whether State Farm had a duty to both defend and indemnify Martin for the wrongful death actions. The appeals court initially held that it did. State Farm Fire and Casualty Company v. Martin, 296 Ill.App.3d 466, 694 N.E.2d 105 (5th Dist. 1998), basing its decision on the key word "intent."

The 5th District found that, unlike in criminal cases where the consequences are presumed to be intended, intent in an insurance context is a very specific term and means intending only actual harm that occurs.

Here, that means that although Martin intended to burn the building down and fraudulently collect the insurance proceeds, he did not intend to kill the firemen. Therefore, although he was not entitled to the insurance proceeds, State Farm should defend Martin in the wrongful death actions.

State Farm predictably argued that the insured knew or should have known that firemen would respond to the blaze and that they could be injured or killed. It relied on an exclusionary clause in the policy whereby coverage is barred if the insured expected or intended the firemen's deaths.

The trial court, as well as the appellate court, concluded that "the firemen's deaths were an unintended result of an intended act and that therefore the occurrence qualified as an accident under the policy and that the exclusionary clause was ineffective." Id., 694 N.E.2d at 1062.

The court went on to say that "coverage is not excluded unless Martin acted with a specific intent to cause personal injury with conscious knowledge that the deaths were practically certain to occur." Id., 694 N.E.2d at 1062.

I agree with the appellate court's opinion; and, although the matter is now pending before the Illinois Supreme Court, I hope that the Supreme Court will embrace the appellate court's reasoning. (Docket No. 85659).

Insurance coverage for intentional tortious conduct always has been barred for public policy reasons. But, it is continually disturbing to see insurance companies attempting to deny coverage in cases such as these. As the State Farm court pointed out, when faced with a scope of coverage issue, the insurer must either secure a declaratory judgment as to its rights and obligations or defend the insured under a reservation of rights.

However, apparently taking the lead from the health care insurers, more and more defendants instead are taking matters in their own hands and are splintering the cases by refusing to defend or indemnify these issues, seriously holding up the underlying case for years.

Similarly, in asbestos litigation, several declaratory judgment fights are taking place over whether asbestos component part manufacturers are tied to a so-called conspiracy of silence with product manufacturers. They shrewdly are alleging that claims stemming from participation in the conspiracy are not insured.

Just what's going on here?

Plaintiff's allegations of willful misconduct when seeking punitive damages, which similarly are uninsurable under Illinois law, are not separated from the underlying action. Perhaps it is just a clever strategy to create conflict in the defense camp, but it's at the expense of the efficient administration of justice.

The 5th District's solution in State Farm to the growing intentional torts dilemma certainly posed a fair and wise solution to the issue.

Certainly, everyone recognizes the importance of the insurance industry, not only for what it allows people to do in this country in buying homes, cars and businesses, but even for its important role as one of the country's largest investors, not to mention its contributions to the development of important legal doctrines.

But it should also be recognized that insurers must acknowledge their duties under their contracts and not continue to try to devise new and different ways to circumvent legitimate coverage, for public policy encourages the compensation of victims, as the State Farm court and so many others have pointed out.

The courts should attempt to stand up to these denial of coverage actions and carefully examine just what the policy states and what coverage the insured purchased. Or, as in State Farm, perhaps even closely examine the intentional conduct in a different light when it comes to insurance coverage.

The lens of the microscope should be focused on the provisions of the insurance policy, not the consequences of one's actions, as the State Farm court found. Therefore, that calls for examining the specific harm that occurred rather than the general consequences of one's acts, as would be appropriate in a criminal context.

Already one other court, Country Mutual Insurance Company v. Hagan, — Ill.App.3d —, 698 N.E. 2d 271 (2d Dist. 1998), has followed this reasoning in relation to coverage under a homeowner's policy involving the alleged intentional acts of a minor against a minor in a sexual abuse case. The court there found it to be a question of fact and, again, did not summarily dismiss the issue as one of noncoverage.

At the very least, the State Farm case instructs lawyers that the issue of noncoverage of intentional torts is not as simple as it appears and that plaintiffs' lawyers have used, and will continue to utilize, a wealth of resources to clarify the issue.