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Insurer Can’t Flush Away Its Obligation to Defend

In a current opinion, the Northern District Court docket of Illinois reaffirmed the bedrock precept that an insurer’s responsibility to defend is broad and triggered by any allegations in a criticism that doubtlessly fall inside a coverage’s protection grant.  In Harleysville Pref. Ins. Co. v. Dude Merchandise Inc., et. al., Case No. 21-c-5249 (N.D. Ailing. Dec. 21, 2022), the insured, Dude Merchandise, Inc., sought protection from its insurer, Harleysville Most popular Insurance coverage Firm, in opposition to a category motion lawsuit that alleged Dude Merchandise deliberately and falsely marketed its wipes as “flushable” regardless that the product allegedly didn’t break aside and brought on “clogs and different sewage injury.” 

Harleysville had issued a business common legal responsibility coverage and umbrella legal responsibility coverage to Dude Merchandise, which supplied protection for “property injury” attributable to an “prevalence” throughout the coverage interval.  The insurance policies additionally contained exclusions for “anticipated or meant damage,” which precluded protection for property injury that’s anticipated or meant from the standpoint of the insured, and for “injury to impaired property not bodily injured” which arises from a defect or harmful situation within the insured’s product. Harleysville filed a declaratory judgment motion in search of a willpower that it didn’t have an obligation to defend or indemnify Dude Merchandise below the CGL or umbrella coverage.  Harleysville argued, amongst different issues, that there was no “prevalence” as a result of the category motion criticism contained allegations of intentional misrepresentation, there have been no allegations of “property injury,” and the “anticipated or meant damage” and “impaired property” exclusions would apply to preclude protection. 

The court docket famous that “[u]nder Illinois regulation . . . an insurance coverage firm’s ‘responsibility to defend below a legal responsibility insurance coverage coverage is so basic an obligation {that a} breach of that responsibility constitutes a repudiation of the contract.’”  The court docket then analyzed the allegations within the class motion criticism, noting that whereas the plaintiffs didn’t use the particular time period “property injury,” there have been factual allegations that encompassed property injury, together with the allegations of damage within the type of “clogs or different sewage injury.”  Utilizing the identical line of reasoning, the court docket discovered the category motion criticism additionally alleged an “prevalence,” as below Illinois regulation, “injury to one thing aside from the [insured’s product] itself does represent an ‘prevalence[.]’” There have been no allegations Dude Merchandise meant the type of injury its merchandise brought on and there was no causal connection between Dude Product’s alleged intentional misrepresentation as to using its product and the precise property injury attributable to its product.  For a similar causes, the court docket rejected Harleysville’s argument that the “anticipated or meant damage” exclusion utilized.  Lastly, the court docket defined that the “impaired property” exclusion doesn’t apply to third-party property that’s bodily broken, such because the alleged injury to the putative class’s sewage programs.  Harleysville’s responsibility to defend subsequently was triggered. 

Harleysville reaffirms that in most jurisdictions, an insurer’s responsibility to defend is broad and an insurer can not flush away the elemental obligation to defend its insured.



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