State Farm Fire & Casualty Company v. John
80 N.E.3d 679
| Ill. App. Ct. | 2017Background
- David John was insured under a personal-liability umbrella policy issued by State Farm. Wheaton College sued John (2013 complaint) for defamation, false light, civil conspiracy, and malicious prosecution; earlier related litigation produced counterclaims and appeals.
- In the underlying case the trial court sanctioned John for discovery violations and entered default as to liability, leaving a prove-up on damages pending (sanctions/default order was interlocutory and no final money judgment had yet been entered).
- John notified State Farm of Wheaton College’s 2013 complaint in December 2015; State Farm agreed to defend under a reservation of rights and funded independent counsel.
- State Farm filed a declaratory-judgment action seeking rulings that (1) John breached notice and cooperation provisions, and (2) an intentional-conduct exclusion bars coverage; it sought declarations that it has no duty to defend or indemnify.
- John moved to dismiss or, alternatively, to stay the declaratory action pending resolution of the underlying litigation; the trial court denied the stay. John appealed the denial of the stay.
- The appellate court reversed and remanded, concluding that the trial court abused its discretion by refusing to stay because two of State Farm’s three coverage claims were premature and might implicate ultimate facts that must be decided in the underlying case.
Issues
| Issue | Plaintiff's Argument (State Farm) | Defendant's Argument (John) | Held |
|---|---|---|---|
| Whether there is an "actual controversy" warranting declaratory relief | There is an actual controversy because State Farm contends it no longer has a duty to defend or indemnify given the default and the intentional-conduct exclusion | No actual controversy: State Farm effectively admitted it was defending under reservation and indemnity is premature until a final liability/damage judgment | Court: An actual controversy exists (insurer and insured disagree); but that alone does not resolve ripeness of specific claims — some claims are premature |
| Whether declaratory relief would improperly decide ultimate facts bound to the underlying case (Peppers doctrine) | Default establishes liability so insurer can litigate intentional-conduct exclusion now | Premature to decide intent here because doing so could collaterally estop issues in the underlying litigation while the sanctions/default remains interlocutory | Court: Peppers concerns apply; adjudicating intentional-conduct exclusion (count III) would improperly decide ultimate facts while the interlocutory default/sanction could be changed |
| Whether insurer’s failure-to-cooperate claim (based on discovery sanctions/default) is ripe/separable | Failure to cooperate is independent of merits and supports declaratory relief now | The claim is premised on interlocutory sanctions/default and thus is premature until underlying liability is finally resolved | Court: Count II raises prematurity concerns because it depends on the interlocutory sanction/default and is not appropriate to decide now |
| Whether insurer’s failure-to-notify claim is separable and ripe | Notice is a distinct coverage issue not dependent on underlying merits or interlocutory rulings; it can be decided now | Notice issue may be moot if insurer must defend, but it is legally separable from the tort issues | Court: Count I (notice) is separable and could be adjudicated now; unlike counts II and III, it does not depend on interlocutory rulings |
Key Cases Cited
- Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187 (1976) (courts should not decide ultimate facts in declaratory actions that could bind issues in underlying litigation)
- Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384 (1993) (duty to indemnify is premature until insured is actually held liable, unless duty to defend is found not to have arisen)
- Underground Contractors Ass’n v. City of Chicago, 66 Ill. 2d 371 (1977) (declaratory judgment requires an actual, concrete controversy ripe for decision)
- Allianz Insurance Co. v. Guidant Corp., 355 Ill. App. 3d 721 (2005) (review of trial court’s stay decision is for abuse of discretion; factual differences can distinguish permissive adjudication)
- Hall v. Jacobs, Camodeca & Timpone, 134 Ill. App. 3d 516 (1985) (default as to liability entered as sanction is an interlocutory discovery order and not the same as a final default judgment)