*1 Before E ASTERBROOK H AMILTON Circuit Judges , P EPPER District Judge . ^[*]

H AMILTON Circuit Judge . This appeal illustrates recur ring issue liability insurers their insureds: how de termine whether owes insured when first asserted insured, before *2 insurer knows the facts. The insured here was Chicago Abstract Title Agency LLC, was in title and escrow services business. In Chicago Abstract sued in state court by a title insurance company two financial firms. Chicago Abstract tendered these lawsuits its “errors omissions” liability insurer, plaintiff Title Industry As ‐ surance Company, R.R.G., known in this case as TIAC. TIAC then faced a choice. It could (a) defend Abstract ‐ out reservation; (b) defend while reserving its rights; (c) seek a declaratory concerning scope cover ‐ age. TIAC could (d) decline defend, but only al ‐ legations in complaints against clearly fell outside scope policy, then peril. Under Illinois law, when liability insurer unjustifi ably refuses defend suit against insured, will estopped later asserting defenses cov erage.

TIAC declined defend suits. suits proceeded years passed without further communications between insured. In state court plaintiffs, Coastal Funding, LLC, filed fourth amended Abstract. An attorney appointed then made belated appearance case. At about same time, filed this diversity jurisdiction action fed eral court, seeking declaration unavail able primarily because two exclusions policy. Chi cago defend federal case (the company been involuntarily dissolved 2009), two state court plaintiffs—Coastal Funding First Title surance Company—appeared this federal case as ants. To avoid confusion, we refer these two firms Claimants.

TIAC and Claimants filed cross motions for summary judgment. The district court granted Claim ‐ ants. We affirm. We disagree with portions district court opinion, particularly its ruling TIAC was required plead legal theories its federal complaint. That ruling squarely at odds with settled federal pleading practice. See Johnson City Shelby U.S. —, S. Ct. (2014) (sum ‐ marily reversing dismissal action failure identify le ‐ gal theory complaint). Nevertheless, we agree un disputed facts show TIAC breached Chicago Abstract litigation. TIAC there fore estopped asserting this very late stage policy defenses might have been available made different choice when complaints first tendered.

I. Undisputed Facts and Procedural Background

A. Errors and Omissions Policy Chicago Abstract title insurance agency operating Cook County, Illinois. As an agent First American, title company with nationwide footprint, Ab stract provided property owners lenders real estate closing, loan closing, title escrow services. issued “Abstracters, Title Insur ance Agents Escrow Agents Professional Liability Insur ance” policy, more commonly known as errors omis sions policy. The provided pay costs “Insured” became liable “by reason wrong ful act aris[ing] out professional services rendered should been rendered.” term “Insured” de fined include well as members employees acting scope their duties. Coverage *4 applied both acts occurring during policy period and prior acts if, of policy’s effective date, Insured had knowledge of those prior acts. listed two exclusions relevant this appeal. Under exclusion (a), coverage did apply any claim aris ‐ ing out of or relating “any dishonest, fraudulent, criminal, malicious or intentional wrongful acts committed or direction of Insured.” A caveat policy, labeled con dition (1), stated whenever exclusion (a) triggered, remain available each Insured “who did personally commit or personally participate commit ting any wrongful acts described [that] exclu sion and who had neither notice nor knowledge such wrongful acts, such Insured, upon receipt notice or knowledge thereof, immediately notifies Company aforesaid wrongful acts.” Under exclusion (j), apply any arising out relating “any defal cation, commingling of, failure pay funds, notes, drafts, other negotiable instruments.”

B. Underlying Complaints Procedural History In fall underwater failing fast. Records were out order. Transactions were askew. Employees unsupervised. Most alarming, out side audit uncovered significant shortfall agency’s es crow account. this unfolding crisis, without benefit comprehensive investigation with hazy under standing facts, First American two lenders done business sought help court.

On November First sued Ab stract two members, Michael Kons Steve Knupp, *5 ‐ Circuit Court of Cook County. First American alleged Chicago Abstract had facilitated escrow closings for “ir regular and suspicious” real estate “flip” transactions using First American’s policies and closing protection let ters. A “flip” A–B–C transaction involves investor (B) who buys discounted property a defaulting homeowner foreclosing lender (A) using short ‐ term unsecured loan and then immediately “flips” property by selling third party buyer (C) for higher price. Assuming both sides transaction close, investor (B) pays off short term loan and pockets profits. First American’s accused Chicago Abstract executing “flip” transactions “contrary spirit purpose” agency contract. First American added Chicago Abstract main taining proper documentation; Chicago Abstract had commingled escrow funds belonging property owners, vestors, lenders; Chicago Abstract may misappropriated some those funds. First American sought emergency injunctive relief, up including appointment receiver, as well as damages breach contract.

Several weeks later, 1st Funding Source, LLC, private capital firm, intervened First action. 1st Funding had agreed finance A–B side four “flip” transactions Abstract served title agent. For each transaction, authorized dis burse short term loan proceeds condition both sides (A–B B–C) irrevocably closed. allegedly breached agreement 1st Funding disbursing proceeds before ensuring B–C transaction closed. 1st Funding pled counts breach con tract, breach fiduciary duty, negligence. *6 ‐

Finally, on Christmas Eve 2008—less than two months af ‐ ter First American filed suit—Coastal Funding brought sep ‐ arate action Circuit Court Cook County against Chi ‐ cago Abstract, First American, and person named Donnel Thomas (elsewhere spelled “Donell”). Like 1st Funding, Coastal Funding had supplied short term financing for “flip” transactions Chicago Abstract served title agent. Back October 2008, Coastal Funding had wired $1,370,000 into Chicago Abstract’s general escrow account ex ‐ pectation funds segregated fiduciary trust account. According Coastal Funding, Chicago Ab ‐ stract breached fiduciary and committed tort conversion by “misappropriating” those funds. Coastal Fund ‐ ing alleged Donnel Thomas duped into participat ing Ponzi scheme using Chicago Abstract’s services and “flip” transactions—which believed law ful legitimate—were mere stages scheme. tendered three underlying com plaints TIAC “for defense indemnification” on Febru ary 3, 2009. On July 8, 2009, Abstract, operating by then under receivership, notified two potential claims First missing escrow funds. In letters dated July August 2009, denied coverage suits potential claims. The denial let ters cited policy exclusions (a) (j) asserted cover remedies state court plaintiffs sought. reiterated position without expla nation letter dated August 2011. state court litigation proceeded without

volvement. state court entered two orders grant ing default six counts *7 ‐ Coastal Funding’s then ‐ controlling complaint. In First American 1st Funding reached a settlement agreement effect resolving 1st Funding’s claims Chicago Abstract. First American has settled with Chi cago Abstract.

In Coastal Funding filed fourth amended com plaint in state court. Chicago Abstract defaulted. Shortly after that, in about ‐ face, TIAC appointed counsel defend Chi cago in Coastal Funding action. state court then entered order vacating default though parties dispute whether order vacated prior default judg ments . (That’s a question state courts; we do con sider here.)

Around same time began defending state court, TIAC filed this action a declaration non bases exclusions (a) (j), as well as third defense longer issue. Claimants First Coastal Funding appeared defendants federal action. Coastal Funding filed counterclaim seeking declaration breached Abstract. On parties’ cross motions summary judgment, district court granted favor Claimants, finding breach holding estopped asserting defenses coverage. Title Industry Assurance *8 8 No. 15 3310 Title Agency , 14 C 1906, 2015 WL 5675544, *6–7 (N.D. Ill. Sept. 24, 2015). This appeal followed.

II. Analysis

We review de novo district court’s grant of summary judgment, viewing all facts drawing all reasonable infer ences favor of TIAC, party whom entered. Ezell v. City , F.3d 888, 892 (7th Cir. 2017), citing Dunnet Bay Construction Co. v. Borggren , F.3d 676, (7th Cir. 2015). The interpretation insurance pol icy contours insurer’s duty to defend are ques tions state law. Illinois substantive law controls here.

A. The Duty Defend Liability insurers often encounter problem faced this case. Liability insurance policies require insureds notify their insurers claims promptly, often penalty forfeiting coverage they delay. Upon receiving such notice, insurer then must make prompt decision: will it defend will deny coverage? Often, this case, insurer must make this decision before has time investigate all relevant facts.

“The oft repeated refrain Illinois law insurer’s duty defend ‘much broader’ than duty indemnify.” Landmark Ins. v. Hilger Cir. 2016), quoting Crum & Forster Managers Corp. Resolution Trust Corp. N.E.2d (Ill. 1993). “A will arise when allegations may potentially come policy.” Westfield West Van Buren, LLC App. 2016). may simply refuse de *9 15 3310 9 fend a suit its insured unless is clear from the un derlying complaint “that the allegations fail state facts bring the case within, potentially within, the policy’s coverage.” Employers Ins. Wausau v. Ehlco Liquidating Trust , N.E.2d 1122, 1136 (Ill. 1999) (citation omitted).

Illinois law provides two avenues an insurer is un certain its obligations under policy. It may “defend the suit under reservation rights seek declaratory judg ment there is coverage.” Id. An insurer fails take either these actions does so at peril. If court later finds insurer breached duty defend, insurer will estopped asserting policy defenses coverage. Ed ward T. Joyce & Associates, P.C. v. Professionals Direct Ins. Co. , F.3d 928, (7th Cir. 2016), citing Ehlco Liquidating Trust , N.E.2d 1135. deciding whether insurer breached duty, Illinois courts ordinarily apply “eight corners” rule: “the court ‘compares four corners underlying complaint four corners determine whether facts alleged underlying complaint fall within poten tially coverage.’” Alternative Ins. Corp. v. Metro Paramedic Services, Inc. F.3d 513–14 (7th Cir. 2016) (citation omitted); see Taco Bell Corp. Continental Casualty Cir. 2004) (insurer’s “determined by allegations com plaint rather than what actually proved”).

When brings timely declaratory ac tion, Illinois courts may look beyond four corners consider extrinsic evidence, such separate related pleading. See Pekin Wilson 2010) (“To require trial court *10 15 3310 look solely to the complaint the underlying action to deter ‐ mine coverage … greatly diminish declaratory ac ‐ tion’s purpose settling and fixing the rights the parties.”) (emphasis citation omitted). But where the insurer fails to bring timely declaratory judgment action the question before the court is whether the insurer breached duty to defend, the court confines review to the insurance policy the underlying complaint, absent unusual circumstances. Compare Hilger , F.3d at (“[W]hen insurer tries to deny coverage without seeking declaratory de ‐ fending under reservation rights the relevant question whether the justifiably refused defend the action based solely on allegations the complaint, so the court’s inquiry necessarily limited those allegations.”), Bartkowiak Underwriters at Lloyd’s, London App. 2015) (trial court err taking ac count tortfeasor’s primary insurance was specifically referenced underlying complaint defend ant’s policy was known defendant at time denied coverage, basis denial, ob jective, undisputed fact). conducting review, court liberally construes

underlying insurance policy manner reasonably most favorable insured. court gives lit tle weight legal labels attached alle gations. Selective South Carolina Target Corp. F.3d Cir. 2016). Because usu ally depends on contents these written documents—the complaints insured—the issue can often decided motion summary judg ment. E.g., Metro Paramedic (affirming sum *11 3310 11 mary judgment insured); Hartford Casualty Ins. Co. v. Kar lin, Fleisher & Falkenberg, LLC , F.3d (7th Cir. 2016) (affirming summary insurer).

The rule Illinois law most important here that if underlying alleges several theories recovery, insurer’s duty defend arises “even one such theory potential policy.” Santa’s Best Craft, LLC St. Paul Fire & Marine Ins. Co. F.3d (7th Cir. 2010) (citation omitted); see Nat’l Artisan & Truckers Casualty Cir. 2015) (insurer must defend against covered claims despite presence “proscribed theory recovery”); Wilson at n.2 (where has defend against least count underlying lawsuit, must then all counts).

B . Prior Knowledge Provision

Before digging into exclusions TIAC relied upon denial letters, we must address argument raised first time federal court—that prior knowledge provision policy’s insuring agreement related question on application barred cov erage claims. The prior knowledge provi sion stated cover damages relating wrongful acts occurring “prior policy period provided on effective date th[e] Insured has knowledge such wrongful act[s].” Claimants argue waived right rely prior knowledge provision failing cite provision letters denying coverage. Those letters said nothing about Abstract’s prior knowledge. fact, *12 ‐ clear intended to rely on prior knowledge pro vision until it filed its motion summary judgment in this untimely declaratory judgment action (though al lude provision answer Coastal Funding’s coun terclaim). Federal notice pleading requires only a “short plain statement claim showing pleader is enti tled relief,” Fed. R. Civ. P. 8(a)(2), so TIAC’s failure refer prior knowledge provision declaratory is not fatal. However, Illinois substantive law con trols this diversity dispute. Illinois courts recognize a “long delay asserting policy defense may constitute waiver defense,” though party asserting waiver must prove has been prejudiced delay. E.g., Rosalind Franklin Univ. Medicine & Science v. Lexington Co. N.E.3d (Ill. App. 2014). Illinois courts recog nize “mend ‐ ‐ hold” doctrine, “preclude[s] insur ers denying on basis then changing [the] basis denial during litigation” there evidence unfair surprise arbitrariness. E.g., FHP Tectonics Corp. Home Assurance N.E.3d (Ill. App. 2016); Grin nell Mutual Reinsurance LaForge App. 2006). Claimants rely doctrines both waiver “mend hold,” arguing late assertion prior knowledge provision prejudiced them because they “did engage discovery related ‘prior knowledge’ alleged misrepresentations renewal application.” While Claimants made especially strong showing prejudice, has offered justification delay. “[S]trong proof required show waiver defense, such facts make unjust, *13 inequitable unconscionable to allow defense to be ‐ terposed.” Rosalind Franklin Univ. at (citation omitted).

Moreover, even if TIAC’s late assertion prior knowledge provision could be excused, assertion fail on its merits. Chicago Abstract’s errors omissions pol ‐ icy became effective July 2008. Nothing complaints tendered TIAC implicated Chicago Abstract its princi ‐ pals (the defendants suits) any miscon duct occurring before date.

To support its denial decision, points a letter Chicago Abstract received from First American warded before denied coverage. In letter, First warned Abstract might “have liability numerous matters stemming from activities [its] operation,” involving transactions “during period time approximately May 2008–October 2008.” First American’s early guesstimate as date range during which problem transactions may have occurred useful measure determining point its agents were on notice wrongful acts. At most, First American’s letter might prompted investi gate whether Insured advance knowledge poten tial claim. letter could justify TIAC’s flat refusal de fend Insured. rejecting reliance on prior knowledge provi

sion, we do decide whether outcome might differ ent summary record contained concrete evi dence support finding that, policy’s effective date, principals notice *14 or of conduct likely to result in a claim. record con tains no such concrete evidence. Coastal Funding’s fourth amended complaint—the pleading that precipitated TIAC’s late entry the litigation—includes a few vague allegations suggesting that Abstract’s principals may suspected trouble was afoot during the summer of 2008. But that pleading does not allege—and there is certainly no evidence the summary record support a find ing—that the principals knew about a Ponzi scheme any missing funds that time.

Mere suspicion of questionable transactions does not trig ger the prior knowledge provision. That provision requires, well, knowledge. There is no evidence that principals had such knowledge as July 2008. We therefore do decide whether, if after acquired evidence *15 ‐ showed that or its principals actually knew about wrongful acts and/or looming claims when they ap plied coverage, ordinary estoppel rules would give way. points to authority that would require that re sult, though equities arguments might support conclusion. That not this case, so we decline to predict how Illinois Supreme Court would decide issue. With neither contemporaneous nor after acquired evidence trigger prior knowledge provision, TIAC’s argu ment fails on merits.

C. TIAC’s Bases Denying Coverage 1. Exclusion (a)

We turn now provisions invoked denying coverage back 2009. Exclusion (a) withheld coverage relating “any dishonest, fraudulent, criminal, malicious intentional wrongful acts committed by at direction Insured.” Exclusion (a) does justify refusal defend tendered suits.

Later filed pleadings subsequent developments show Claimants’ damages attributable at least partly fraud someone. But complaints tendered compel conclusion. At most they placed notice one more underlying claims might subject exclusion (a). presence theory excluded from cover age simply does excuse duty defend insured. Artisan & Truckers F.3d at 723; see Santa’s Best (where presents several theories recovery, “the arises even such theory potential policy”) (citation omitted).

Most of allegations tendered complaints obvious relationship a fraud claim, though just path toward a covered would have been enough trigger duty defend. First American’s complaint accused Chi ‐ cago Abstract breach of contract, and alleged host of errors and omissions could arise as easily from negli ‐ gence as from intentional wrongdoing. The complaint al ‐ leged “irregular suspicious” real estate transactions suggested Chicago Abstract’s agents may have misappro ‐ priated escrow funds. Those nebulous allegations did not disputably remove complaint coverage, is what been required avoid defend. 1st Funding settled has not appeared federal case, but nothing 1st Funding’s complaint changes our analysis. 1st Funding alleged Abstract disbursed loan proceeds before all conditions met. It accused Chi cago Abstract negligence breaches contract fi duciary duty. It accuse fraud. Coastal Funding presents somewhat closer question, but result is same. Coastal Funding accused misappropriating and/or con verting $1,370,000. Conversion intentional tort, con version does include element intent defraud. It does require proof criminal otherwise culpable mental state. Rather, tortfeasor must simply act intention ally manner exercises dominion over property another without authorization. Whether he does so mali ciously by innocent mistake, action still conversion. See Longo Realty Menard, Inc. App. 2016) (“Conversion requires plaintiff establish preponder ance evidence: (1) defendant’s unauthorized wrongful assumption control, dominion, ownership *17 3310 17 over the plaintiff’s personal property; (2) the plaintiff’s right the property; (3) the plaintiff’s right immediate posses sion of property, absolutely unconditionally; (4) plaintiff’s demand possession property.”); Martel Enterprises v. City N.E.2d 157, (Ill. App. 1991) (“Although conversion is considered intentional tort because it requires ‘an intentional exercise dominion control over chattel,’ does not require proof malice, cul pability, conscious wrongdoing.”) (citations omitted).

Coastal Funding’s allegations misappropriation conversion factually threadbare, amounting little more than legal conclusions. That’s not surprising, given urgency with which complaint prepared. Legal conclusions standing alone will justify insurer’s refusal defend insured. See Cincinnati Ins. Co. Eastern Atlantic Ins. 742, Cir. 2001) (“What is important is legal label plaintiff attaches ant’s … conduct, but whether conduct alleged complaint least arguably one more cate gories wrongdoing covers.”); International Rollprint Packaging Products, Inc. App. 2000) (“The question coverage should hinge on whims plaintiff action.”).

Coastal Funding plead fraud count more factually robust, count named Donnel Thomas, third party whose association *18 15 3310 unexplained. could not reasonably construed the allegations Thomas somehow excluding coverage its Insured. This is particularly so in light the policy’s condition (1), provided that the fraud exclusion would not bar any Insured who neither participated in nor knew about the fraud, provided the Insured notified upon learning the misconduct.

The decisive point the underlying complaints, whether read individually together, not compel conclusion Claimants’ losses were attributable tentional wrongdoing by agents. See U.S. Fidelity & Guaranty Wilkin Insulation Co. N.E.2d (Ill. App. 1989) (“[S]ince underlying claims arise from same set circumstances, allegations single can inferred other com plaints.”), aff’d 1991). The undisputed facts show exclusion (a) could justify TIAC’s refusal Insured time tender.

2. Exclusion (j) TIAC also denied coverage based on exclusion (j), which withheld coverage any claim relating to “any defalca tion, commingling of, failure to pay funds.” Exclusion (j) also does not justify denial coverage.

Defalcation an undefined term policy. term commonly used bankruptcy context, where describes “culpable state mind” involving “knowledge of, gross recklessness respect to, improper nature relevant fiduciary behavior.” Bullock BankChampaign, N.A. U.S. —, —, S. Ct. (2013). More generally, term connotes fraud embezzlement, though broader usages have been recognized. See Defalcation Black’s Law Dictionary ed. 2014). As discussed above, could re fuse to Insured basis fraud exclusion.

As commingling, pleading—the First complaint—included such allegation, commingling essential aspect First American’s lawsuit. As undefined phrase “failure to pay,” Claimants argue they alleged very opposite state court: they alleged pay (i.e., dis burse) escrow funds under circumstances should have done so. perhaps could have countered “failure pay” should read broadly encompass Chi cago Abstract’s failure return funds lenders, but nei ther exclusion (j) nor state court complaints clear enough establish could possibly fall scope coverage. might been able assert successful defense during litigation, even *20 15 ‐ 3310 were true, follow that TIAC was entitled abandon Insured at the outset litigation.

3. Northbrook Property “Wholly Independent” Acts TIAC argues the district court should have enforced exclusion (a) and/or exclusion (j) on ground the un derlying complaints included some allegations that, if proved, might fallen outside scope coverage. Ac cording TIAC, “where alleges injuries caused both excluded acts non excluded acts,” must defend only if non excluded acts were “wholly independ ent” excluded acts. proposition difficult square settled principle Illinois law if “un derlying complaints allege several theories recovery … arises even such theory potential policy.” Santa’s Best F.3d at (citation omitted). fact, cases cites “wholly independent” argument are readily distinguishable this case illustrate narrow application rule. relies principally on Northbrook Property & Casualty Transportation Joint Agreement 2000),

where general liability excluded injuries stemming *21 15 3310 21 from “ownership, maintenance, use entrustment” of ve ‐ hicle. Id. 254. The underlying complaints alleged stu dents were injured when train collided with the insured school district’s school bus. Those complaints “utterly fail[ed] to state facts either actually potentially” brought the complaints “within policy’s coverage.” Id. While claimants attempted to argue around vehicle exclusion by characterizing students’ injuries resulting from school district’s failure to select safe bus routes, those allega tions were “nothing more than rephrasings fact students’ injuries arose school districts’ use oper ation motor vehicle.” Id. The students harmed excluded bus accident. Causation was dispute, state mind irrelevant. No set facts consistent with allegations underlying complaints could brought those complaints scope coverage. ^[6] *22 this case, when Claimants filed their initial plead ‐ ings, circumstances surrounding their injuries or possible injuries were murky at best. Records were missing. Transac ‐ tions were unaccounted for. Chicago Abstract’s escrow account was short cash, it was clear who what was respon ‐ sible shortage. Claimants sought emergency judi cial intervention preserve status quo and to avoid further losses while they sorted through facts. Their vague plead ings reflected their uncertainty. Many allegations related another generally, at least one theory—in fact, most theories—fell outside exclusions (a) (j).

First American alleged that Chicago Abstract had engaged “irregular suspicious” transactions that agents appeared have commingled misappropriated escrow funds. But First American accused Chicago Abstract failing account funds, failing turn over records, issuing unauthorized policies, neglecting super vise employees, wrongfully holding itself out agent First American. 1st Funding intervened First action, citing series incidents which Chicago Abstract allegedly disbursed loan proceeds before all condi tions satisfied. Coastal Funding filed separate com plaint speculated may converted funds. But same complaint, Coastal Funding alleged had fallen prey Ponzi scheme chestrated Donnel Thomas, third party whose associa tion unclear.

We now know Thomas inside man Abstract: Juan Orozco, employee who eventually con victed wire fraud his part Thomas’s Ponzi scheme. But Claimants know allege when they *23 filed their complaints 2008. Nor is there any indication anyone at TIAC was aware of Orozco’s crimes when it denied coverage 2009. Even TIAC known about Orozco, fraud claim—unlike motor vehicle tort, see Northbrook Prop erty at 254—requires the finder of fact ascertain the tortfeasor’s state of mind. Before undertaking fact discov ery, TIAC could not possibly known whether its Insured, defined include not Abstract its members employees acting scope their em ployment, on scheme, aware scheme, nocent victims scheme. TIAC could not preemptively refuse its Insured on basis facts it did not could then know.

The search for Northbrook Property ’s “wholly independent” cause injury futile when primary cause injury unknown. Based on “eight corners” tendered com plaints policy, see Metro Paramedic 513–14, undisputed facts show no sufficient basis TIAC deny coverage.

D. Consequences TIAC’s Breach When TIAC breached its denying defense left Insured high dry. TIAC complains Chi cago Abstract did “contest object coverage declination.” At oral argument, TIAC took point step further, suggesting because challenge denial decision, unaware “that there suggestion there might coverage under policy.” Nonsense. placed notice when tendered com plaints. cites authority proposition sured must lodge exception denial decision follow *24 ‐ up, begging reconsideration. On contrary, Illinois courts even excuse insureds complying otherwise non negotiable duties after receiving denial letters. E.g., Owners Ins. Co. v. Seamless Gutter Corp. N.E.2d (Ill. App. 2011) (“[A]n insurer should not be allowed to assert blanket denial then assert sured’s failure to provide proof loss, since law does require insured perform what appeared useless act.”); Jones Universal Casualty N.E.2d (Ill. App. 1994) (same).

When insurer learns against its insured, ball insurer’s court. It may under reservation rights, it may seek judicial input its obligations un der policy. But refuses defend, it cannot then blame insured failing win over, particularly where—as here—the insured faces significant exposure must make prompt difficult decisions regarding litigation settle ment. Cf. Waste Management, Inc. Int’l Surplus Lines 1991) (estoppel did apply where insurers did abandon insureds instead (1) sent letters expressing concerns about coverage, (2) evaluated claims un der express reservation rights, (3) subsequently sought declaratory judgment).

Though appear Coastal Funding action file declaratory relief federal court five years later, those long overdue actions cannot excuse breach back 2009. By time saw fit intervene, 1st Fund ing settled claims Abstract, had defaulted multiple counts Coastal Funding case. “Where waits bring declaratory ac tion until after action has been resolved *25 15 3310 25 or a settlement, insurer’s declaratory judgment action is untimely a matter of law.” Ehlco Liquidating Trust , N.E.2d 1138; cf. Korte Construction Co. v. American States Ins. , 764, App. 2001) (“[T]he insurer must take some action adjudicate issue of under take defend insured under reservation of rights, it must take action within reasonable time of demand insured.”) (emphasis added).

“The world is dangerous litigious place. People businesses buy liability insurance large part for peace of mind—the knowledge if sued, insurer will pro vide legal defense .” CE Design Ltd. v. King Supply F.3d (7th Cir. 2015) (Hamilton, J., concurring). When insurer breaches defend, “it’s just breach contract. An insurer’s breach abandons insured de prives peace mind it has bought.” Id. ; see Pompa Family Mutual Cir. 2008) (“‘By purchasing insurance, insured rea sonably expects he will be required furnish cost defending actions facially fall terms his policy.’ insured will deprived peace mind insurance promises can refuse case, await developments, then decide reimburse insured defense costs once clear there coverage.”) (citations omitted); Cates Construction, Inc. Talbot Partners P.2d (Cal. 1999) (“In general, policies are purchased profit advantage; rather, they are obtained peace mind security event accident other catastrophe.”).

26 15 3310

Under Illinois law, insurer breaches its duty de fend abandons its insured is estopped from later invok ing policy defenses indemnity. See Panfil v. Nautilus Ins. Co. , 799 F.3d 716, 719 (7th Cir. 2015); Philadelphia Indemnity Ins. Co. v. Title Ins. Co. , 391, 400 n.6 Cir. 2014). This Illinois rule of estoppel is strong stuff, it is intended protect insureds’ reasonable expectations of when they most need it. Because breached duty its In sured, it is barred asserting any defenses cov erage might have applied otherwise. As practical mat ter, this means is hook for judgment any reasonable settlement amount Claimants ultimately recover against TIAC’s Insured. See Delatorre v. Safeway Ins. Co. , N.E.2d (Ill. App. 2013) (“When wrongfully refuses [its insured], it is liable … breach contract. The measure of damages such con tractual breach is generally amount judgment against insured.”), citing Fidelity & Casualty New York Mobay Chemical Corp. N.E.2d (Ill. App. 1992); see Guillen Potomac Illinois N.E.2d (Ill. App. 2001) (“The measure damages breach generally amount judgment insured reasonable settlement, plus expenses incurred.”), aff’d modified 2003). end, hasty abandonment Insured may cost far more than it spent simply honored defend. district court

AFFIRMED.

[*] Honorable Pamela Pepper, United States District Judge East ern District Wisconsin, sitting designation.

[1] Coastal Funding’s fourth amended alleges fraudulent scheme involving employee Juan Orozco Donnel Thomas (the individual defendant named Coastal Funding’s first com plaint). Orozco, Thomas, their associates charged with federal wire fraud connection real estate Ponzi scheme spear headed Thomas. Orozco pled guilty several years later.

[2] There is dispute, course, Juan Orozco aware his own misdeeds. points out prior knowledge provision is triggered when “Insured” has knowledge prior wrongful act. “Insured” defined include entity employees acting within scope their duties. argues “Orozco’s participation knowledge Ponzi scheme sufficient trigger prior knowledge provision.” assumes (without developing point) Orozco acting scope his employment facilitating Ponzi scheme, dubious proposition. any event, argument proves too much. When viewed as whole, errors omissions policy included important protections for innocent Insureds. Condition (1), particular, preserved claims relating fraud Insured “who personally commit personally participate committing” fraud who “neither notice nor knowledge” fraud, provided Insured “upon receipt notice knowledge immediately notifies Company.” That protection innocent Insureds nullified single employee’s wrongdoing enough nullify coverage. We decline read so undermine important protection.

[3] Coastal Funding’s first amended complaint, filed July added some spare factual content pertaining Abstract’s alleged misconduct. There indication received, let alone re viewed, amended before denying four days later.

[4] brief includes extended discussion Gulf Underwriters KSI Services, Inc. F. App’x Cir. 2007). We are sure why. Apart being non precedential even home circuit, Gulf Un derwriters inapposite. case, claimant—whose funds em bezzled insured’s bookkeeper—filed suit after bookkeeper’s fraud came light after she pled guilty. Claimants here, aware funds missing under fishy circumstances, rushed courthouse preserve status quo long before they had clear sense cause extent their damages. Their broad vague pleadings reflect legal triage crisis, definitive grounds conclud ing engaged intentional wrongdoing defeat coverage.

[5] To support argument about exclusion (j), relies Bethel Dar win Select Cir. 2013), applied Minnesota law uphold denial defense under title insurer’s errors omis sions policy. exclusion at issue case broader than exclusion (j) here, as reached claims relating “loss, disappearance short age” funds, well as commingling misappropriation. Also, narrower, alleging intentional wrongdoing leaving room innocent mistake. Id. 1040. Those differences critical Eighth Circuit’s decision.

[6] other cases parallel analysis Northbrook Property . See State Farm Fire & Casualty Co. v. Perez , N.E.2d (Ill. App. 2008) (injury caused by automobile accident excluded; insurer had no duty defend against negligent modification claim relating modified seats); Massachu setts Bay Ins. Co. v. Unique Presort Services, Inc. N.E.2d (Ill. App. 1997) (injury caused by automobile accident excluded; insurer had no duty defend against “inextricably intertwined” claim violation drug testing regulation); Oakley Transport, Inc. Zurich Ins. App. 1995) (injury caused by automobile accident excluded; surer had no duty defend against “inextricably intertwined” claim negligent supervision driver); see Nautilus 1452–4 N. Mil waukee Avenue, LLC Cir. 2009) (damages caused faulty contractor work excluded; “inter twined” negligence statutory claims). each these cases, gra vamen excluded injury. courts refused allow claimants insureds avoid unambiguous exclusions artful labeling.