Nationwide Property & Casualty Insurance Co. v. State Farm Fire & Casualty Co.
2022 IL App (1st) 210267
Ill. App. Ct.2022Background
- A 13-year-old bicyclist was fatally struck by a dump truck driven by an RJ&R employee while returning to a Davis Concrete construction site; RJ&R and Davis were subcontractors on the project.
- RJ&R and Davis had insurance relationships: RJ&R was insured by State Farm (auto policy, umbrella/CLUP, and a CGL), Davis was insured by Nationwide (primary). State Farm's CGL contained an automotive exclusion barring coverage for bodily injury "arising out of" use of an auto.
- The wrongful-death complaint alleged Davis Concrete was negligent in multiple, alternative respects, including (1) failing to provide adequate public-safety measures (e.g., a flagman) and (2) permitting an oversized dump truck/wrong-lane turn.
- The underlying case settled for $3.5 million: State Farm paid $3 million (exhausting RJ&R limits and CLUP) and Nationwide paid $400,000 for Davis. Nationwide (as subrogee) sued State Farm seeking a declaration that State Farm owed Davis a defense/indemnity under the CGL.
- The trial court held the CGL automotive exclusion precluded coverage (no duty to defend) and denied estoppel; the Appellate Court reversed in part, ruling State Farm had a duty to defend and was estopped from asserting coverage defenses, and remanded for entry of indemnity ($400,000) and attorney fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether State Farm had a duty to defend Davis under the CGL despite an automotive exclusion | Underlying complaint alleged non-auto conduct (failure to provide flagman/public safety) that is within or potentially within CGL coverage | All asserted negligence arose from operation/use of the dump truck and thus is excluded by the automotive exclusion | Duty to defend triggered: public-safety allegation is a non-auto theory and could be a proximate cause; reversal of trial court on duty-to-defend |
| Whether State Farm is equitably estopped from raising coverage defenses for failing to defend under reservation or promptly seek declaratory relief | State Farm failed to defend or timely seek declaration after tender; estoppel should bar its later coverage defenses | Estoppel inapplicable because no duty to defend existed | Estoppel applies: State Farm did not defend under reservation or timely seek declaratory judgment; estopped from raising defenses |
| Whether Nationwide is entitled to indemnity for the $400,000 it paid on Davis’s behalf | Nationwide (subrogee) seeks indemnity because CGL coverage was triggered and State Farm is estopped | State Farm resists indemnity based on exclusion and timeliness | Nationwide entitled to indemnity of $400,000; remanded to enter judgment and award reasonable fees/costs |
| Whether State Farm may recover defense costs for Crowley-Sheppard | State Farm sought reimbursement for defense costs | Nationwide opposed reimbursement | Trial court denied State Farm’s reimbursement request; appellate court affirmed that portion |
Key Cases Cited
- Northbrook Property & Casualty Co. v. Transportation Joint Agreement, 194 Ill. 2d 96 (Ill. 2000) (duty to defend is triggered if underlying complaint alleges facts within or potentially within coverage)
- Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90 (Ill. 1992) (compare underlying allegations to policy language to determine duty to defend)
- Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446 (Ill. 2010) (insurer’s duty-to-defend analysis compares complaint allegations to policy terms)
- Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127 (Ill. 1999) (insurer must defend under reservation or seek timely declaratory relief or face estoppel)
- Gillen v. State Farm Mutual Automobile Insurance Co., 215 Ill. 2d 381 (Ill. 2005) (exclusions construed narrowly; insurer bears burden to show exclusion applies)
- Louis Marsch, Inc. v. Pekin Insurance Co., 140 Ill. App. 3d 1079 (Ill. App. Ct. 1985) (failure to deploy flagmen/warnings can be non-auto-related basis triggering duty to defend)
- United States Fidelity & Guaranty Co. v. State Farm Mutual Automobile Insurance Co., 152 Ill. App. 3d 46 (Ill. App. Ct. 1987) (if a proximate cause is covered, coverage is not voided because another concurrent proximate cause is excluded)