Maryland Casualty Company v. Dough Management Company
36 N.E.3d 953
Ill. App. Ct.2015Background
- In Sept. 2009 Scot Vandenberg fell from the upper deck of a 75-foot yacht (Bad Influence II) and suffered catastrophic injuries; he and his wife sued numerous defendants including Dough Management Co. and Michael Rose.
- Maryland Casualty issued a commercial general liability (CGL) policy to Dough covering bodily injury except for an "Aircraft, Auto Or Watercraft" exclusion that precludes coverage for injury "arising out of" ownership, maintenance, use or entrustment of a watercraft owned or operated by an insured.
- The Vandenbergs’ filed underlying complaint alleged negligence tied to lack of railing on the yacht’s top deck and that a bench was placed inches from the unrailed edge; they did not file a proposed amended complaint alleging a separately negligent, "unstable/wobbly" bench.
- The parties privately settled the underlying suit by assignment of insurers’ rights (including Maryland’s policy); Maryland then sued for declaratory relief, asserting no duty to defend or indemnify under the watercraft exclusion and later that the settlement was unreasonable.
- At summary judgment the circuit court found the underlying claims were "inextricably bound" to the yacht’s maintenance/use and granted Maryland’s motion; defendants appealed arguing coverage and reasonableness of the settlement.
Issues
| Issue | Plaintiff's Argument (Maryland) | Defendant's Argument (Dough/Michael) | Held |
|---|---|---|---|
| Whether the CGL watercraft exclusion bars coverage for the Vandenbergs’ claims | Underlying complaint alleges injuries arising from yacht maintenance/use (lack of railing); exclusion therefore applies | The underlying (or "true but unpleaded") facts include an independent theory that an "unstable/wobbly" bench caused the fall, which is not a watercraft use/maintenance claim | Held: Exclusion applies; underlying complaint alleges only yacht-related maintenance/use claims, so no duty to indemnify |
| Whether allegations in an unfiled amended complaint may be treated as "true but unpleaded facts" to trigger coverage | Insurer: unfiled, self-serving allegations cannot be presumed true and are not verifiable without independent investigation | Defendants: the unfiled amended complaint alleged negligent provision of an unstable bench and should be considered | Held: Unfiled amended complaint allegations are not "true but unpleaded facts"; court will not treat them as establishing independent coverage |
| Whether extrinsic evidence (depositions, expert reports) creates coverage by proving an independent bench theory | Insurer: extrinsic evidence cannot substitute for a pleaded independent theory that was never filed; evidence not considered for coverage | Defendants: depositions and expert report show bench instability and an independent cause, so policy exclusion should not apply | Held: Court declined to consider extrinsic evidence to create coverage because underlying pleadings did not assert an independent bench theory |
| Whether court must decide if the settlement was reasonable | Insurer: no duty to indemnify, so reasonableness need not be reached | Defendants: even if exclusion arguably applied, settlement was reasonable so indemnity required | Held: Court did not reach settlement reasonableness after deciding no duty under policy exclusion |
Key Cases Cited
- Virginia Surety Co. v. Northern Insurance Co. of New York, 224 Ill. 2d 550 (Ill. 2007) (summary judgment standard and insurer duty context)
- Founders Insurance Co. v. Munoz, 237 Ill. 2d 424 (Ill. 2010) (cross-motions for summary judgment; legal issues for de novo review)
- Jewelers Mutual Insurance Co. v. Firstar Bank Illinois, 213 Ill. 2d 58 (Ill. 2004) (de novo review of summary judgment)
- Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278 (Ill. 2001) (insurance policy construction principles)
- Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446 (Ill. 2010) (policy construction; plain meaning and ambiguity rules)
- Northbrook Property & Casualty Co. v. Transportation Joint Agreement, 194 Ill. 2d 96 (Ill. 2000) (duty to defend analysis comparing underlying allegations to policy coverage)
- Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90 (Ill. 1992) (insurer duty to indemnify arises only when loss actually falls within coverage)
- La Rotunda v. Royal Globe Insurance Co., 87 Ill. App. 3d 446 (Ill. App. Ct. 1980) (example of insurer’s investigation revealing true but unpleaded facts affecting coverage)
- Associated Indemnity Co. v. Insurance Co. of North America, 68 Ill. App. 3d 807 (Ill. App. Ct. 1979) (insurer’s knowledge of true but unpleaded facts from its own file may trigger duty to defend)
- Shriver Insurance Agency v. Utica Mutual Insurance Co., 323 Ill. App. 3d 243 (Ill. App. Ct. 2001) (limits on treating unverified or insured-supplied extrinsic facts as "true but unpleaded")