Insurer Has Duty to Defend when Insurance Contract May Possibly Cover Alleged Source of Liability
In Margulis v. BCS Insurance Co., Scott Margulis (“Margulis”), individually and on behalf of a class of similarly situated individuals, filed a class action petition in Missouri against Bradford & Associates (“Bradford”), an insurance agent and broker that had transmitted unsolicited, automated telephone calls advertising its services. Margulis’s claim alleged that Bradford’s unsolicited telephone calls were a common law invasion of privacy and violation of a federal statute that restricts telephone solicitations. BCS Insurance Company (“BCS”), Bradford’s professional liability insurer, declined coverage and did not defend Bradford in the action. Margulis and Bradford settled for $4,999,999, with such judgment amount to be satisfied exclusively from the proceeds of the insurance policies and claims against Bradford’s insurer. Margulis then filed a declaratory judgment action against BCS, seeking an order declaring that BCS had a duty to defend Bradford in the underlying action and required BCS to pay the judgment amount. The circuit court granted BCS’s motion for summary judgment and denied Margulis’s motion for summary judgment.
On appeal, Margulis contended that the circuit court impermissibly construed ambiguous policy language narrowly, rather than broadly, such that the possibility of coverage would be foreclosed. Margulis asked that the court hold that BCS had and breached a duty to defend Bradford and find BCS is estopped as a matter of law and must indemnify the underlying judgment plus post-judgment interest. BCS contended that Margulis ignored the key passage in the policy, that the action arises out of the conduct of the business of the insured in rendering services from others. Therefore, BCS further contended that it cannot be estopped when it never had a duty to defend.
The court reviewed whether BCS breached its duty to defend Bradford in the underlying action. The court concluded that BCS had no duty to defend Bradford in the underlying action because the policy could not possibly cover the liability arising out of the facts alleged by Margulis. The court did not agree with Margulis that “all that the BCS Policy requires” is “a negligent act arising out of the conduct of Bradford’s insurance agency business.” Such interpretation effectively deletes the “rendering services for others” language in the policy. Therefore, the terms of the policy clearly precluded the possibility of coverage and also restricted the use of the doctrine of estoppel.
Illinois Insurance Law: The insurer has a duty to defend if the complaint alleges facts potentially within policy coverage. An insurer may not justifiably refuse to defend an action against its insured unless it is clear from the face of the underlying complaint that the allegations fail to state facts, which bring the case within, or potentially within, the policy’s coverage. In other words, an insurer must defend if the insurance contract might possibly cover the alleged source of liability.
Margulis v.BCS Insurance Co., 2014 IL App (1st) 140286.
