(Article from Insurance Law Alert, September 2020)
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An Illinois appellate court ruled that a general liability insurer had no duty to defend an engineering firm against a suit seeking damages for personal injuries allegedly caused by contaminated water, reasoning that the underlying claims did not allege any accidental conduct. General Casualty Co. of Wisconsin v. Burke Engineering Corp., 2020 WL 5514189 (Ill. Ct. App. Sept. 14, 2020).
Burke provided water engineering and consultation services to the Village of Crestwood. When residents discovered that their drinking water was drawn from a contaminated well, rather that Lake Michigan, as represented by Crestwood officials, they brought suit. The complaint alleged claims for statutory and common law fraud, civil conspiracy and negligence. All of the claims against Burke were dismissed, except for civil conspiracy to commit fraud. Burke’s professional liability insurer agreed to defend, but General Casualty, Burke’s general liability insurer, denied coverage. General Casualty argued that the underlying claims alleged only intentional conduct, which did not constitute an “occurrence” under the policy. An Illinois trial court agreed and granted General Casualty’s summary judgment motion. The appellate court affirmed.
Crestwood residents, as assignees of Burke’s rights under the policy, argued that the underlying allegations potentially fell within the scope of coverage because the complaint alleged that Burke was negligent in breaching its fiduciary duty to inform the public about the contaminated water. Although that count was dismissed, the residents claimed that recovery was still possible because amended complaints preserved negligence claims for appeal and because they intended to amend the complaint to allege negligence based on statutory violations. Rejecting these assertions, the court explained that the factual allegations in the complaint included only intentional conduct on the part of Burke and did not allege any “unforeseen occurrence.” Additionally, the court held that any potential negligence cause of action would be irrelevant, explaining that a “court looks at the actual factual allegations, not the label.”
Finally, the court rejected the residents’ contention that facts outside the complaint triggered General Casualty’s duty to defend. The court held that correspondence between General Casualty and Burke did not establish the insurer’s acknowledgement of coverage. Further, the insurer’s supposed knowledge that the residents intended to pursue common law negligence claims on appeal was insufficient to trigger its defense obligations.