By Katharine Thompson
, Esq. of Gordon & Rees LLP
In Landmark American Insurance Company v. Peter Hilger
, the Seventh Circuit, applying Illinois law, recently clarified that an insurer may introduce extrinsic evidence in a declaratory judgment action regarding the insureraEUR(TM)s duty to defend. 2016 U.S. App. LEXIS 17343 (7th Cir. Sept. 22, 2016). Hilger was sued in two separate lawsuits alleging that he and others had mislead credit unions to fund loans by overstating the life-insurance policies that served as collateral. Hilger tendered his defense to Landmark under a professional liability policy held by a co-defendant. Hilger alleged that he qualified as an insured under the policy as, although he was not named in the policy, the policy provided coverage for aEURoeindependent contractorsaEUR? of the named insured provided the liability was related to professional services rendered for the named insured.
Landmark denied coverage for HilgeraEUR(TM)s claim and filed a declaratory judgment action. The District Court granted HilgeraEUR(TM)s motion for judgment on the pleadings reasoning that the underlying complaints left the relationship between Hilger and LandmarkaEUR(TM)s insured ambiguous, and that ambiguity had to be resolved in HilgeraEUR(TM)s favor.
The Seventh Circuit reversed, stating that Landmark was entitled to conduct discovery into the relationship between Hilger and LandmarkaEUR(TM)s insured, and to use information obtained to demonstrate that Landmark owed no duty to defend. The Court noted that the District Court was correct that a duty-to-defend analysis was confined to the allegations of the underlying complaint where the insurer denies coverage without seeking a declaratory judgment or defending under a reservation of rights. In contrast, where the insurer has filed a declaratory judgment (or if an insurer was proceeding under a reservations of rights), the insurer may present evidence beyond that in the underlying complaint, as long as that evidence does not determine an ultimate issue in the underlying proceeding. In this instance, the Court found that because Landmark had sought a declaratory judgment, it could offer evidence outside the complaints showing that Hilger did not render the professional services as an independent contractor for LandmarkaEUR(TM)s insured, so long as that evidence would not decide an aEUR~ultimate issueaEUR(TM) in the underlying action aEUR" and the Court found no indication that it would. Thus the Court reversed and remanded, holding Illinois law aEURoepermits Landmark to offer evidence outside the. . .complaints that Hilger isnaEUR(TM)t covered as an independent contractor under [the Landmark] policy.aEUR?
For additional information, please contact Katherine
or (215) 561-2300