Customer Complaint Coverage Doesn’t Apply to Claim of Consumer Fraud
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Posted on June 24, 2022 by Barry Zalma
Plaintiff, Owners Insurance Co. (insurer), appealed from the judgment of the circuit court of Du Page County ruling that an intentional-acts exclusion in an insurance policy did not exclude coverage for the expenses incurred by defendant, Don McCue Chevrolet, Inc. (insured) in defending an underlying consumer-fraud complaint brought by a former customer, Julio Salas. In Owners Insurance Company v. DonMcCue Chevrolet, Inc., 2022 IL App (2d) 210634-U, No. 2-21-0634, Court of Appeals of Illinois, Second District (June 17, 2022) the Court of Appeals resolved the dispute.
BACKGROUND
Salas’s one-count complaint against the insured in the underlying lawsuit alleged a violation of the Consumer Fraud and Deceptive Business Practices Act (Act) (815 ILCS 505/1 et seq. (West 2020)). Salas alleged as follows:
The parties entered into a written retail installment contract for Salas to purchase a new 2020 Chevrolet truck from the insured. Per the sales contract, Salas provided $5000 cash and his 2018 Chevrolet vehicle as a down payment. The parties agreed that the sales contract would be assigned to a finance company or bank. If the insured was unable to assign the contract, the transaction would not be completed, Salas would return the new truck, and the insured would return to Salas the $5000 and the 2018 vehicle. The insured was unable to obtain financing for the purchase. Per the insured’s demand, Salas returned the new truck. However, the insured “refused and continues to refuse” to return either the $5000 or the 2018 vehicle.
The insured submitted a claim under the policy for expenses incurred in the defense of the underlying lawsuit. The insured based its claim on a policy provision entitled “Customer Complaint Defense Reimbursement Coverage” (defense-reimbursement provision). That provision stated in relevant part that the insurer would reimburse the insured for reasonable costs and expenses incurred in defending a “customer complaint suit.” Coverage was excluded for any suit resulting from “[a]ctual or alleged criminal, malicious or intentional acts” committed by the insured (intentional-acts exclusion).
The insurer declined the insured’s claim for coverage of defense expenses relying on the intentional-acts exclusion.
The insurer alleged that it was not responsible for reimbursing the insured for any expenses related to the insured’s defense of Salas’s lawsuit. The insurer alleged that there was no coverage because “[t]he decisions by [the insured] to not refund Salas the $5000 down payment or to return the 2018 Chevrolet Traverse [were] intentional acts” that fell within the intentional-acts exclusion.
The trial court denied the insurer’s motion and granted the insured’s motion, ruling that the insurer had a duty under the defense-reimbursement provision to provide coverage for the insured’s expenses in defending the underlying suit.
ANALYSIS
Where cross-motions for summary judgment are filed in an insurance coverage case, the parties acknowledge that there exist no questions of material fact but only questions of law regarding the construction of the policy.
The insurer may refuse to defend only if it is clear from the face of the complaint that the allegations fail to state facts that bring the cause within, or potentially within, coverage. If an insurer relies on an exclusionary clause to deny coverage, it must be free and clear from doubt that the clause applies. An exclusion for intentional acts is construed to exclude coverage when the insured has:
intended to act and
specifically intended to harm a third party.
The burden is on the insurer to prove that an exclusionary clause applies. An exclusionary clause for intentional conduct will not apply when a claim arises, or could potentially arise, from a merely negligent act or omission. Phrases in the underlying complaint such as “mislead,” “conceal,” “scheme,” “deceive,” “intentionally,” or “willfully” are the “paradigm of intentional conduct and the antithesis of negligent actions.” [Leighton Legal Group, LLC, 2018 IL App (4th) 170548, ¶ 38.]
Since a “customer complaint” is defined as a customer’s claim that he sustained loss or damage resulting from the insured’s “[a]cts” or “[failures to act” relative to the sale of a vehicle. However, the parties disagree as to whether the intentional-acts exclusion applies to any intentional acts or strictly to intentional misconduct.
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The word “intent” for purposes of an exclusionary clause in an insurance policy denotes that the actor desires to cause the consequences of his action or believes that the consequences are substantially certain to result. The allegations of the underlying complaint fell within the policy exclusion. The underlying complaint alleged exclusively intentional misconduct, not negligence. When read as a whole, the underlying complaint exclusively alleged an intentional violation of the Act, as opposed to a negligent one.
CONCLUSION
The trial court erred in granting summary judgment for the car dealership on the question of whether its conduct as alleged in a former customer’s consumer-fraud suit fell within the scope of insurance coverage for expenses incurred in defending lawsuits based on customer complaints. Because the underlying suit alleged strictly intentional misconduct by the dealership, the policy’s exclusion for intentional acts applied.
The appellate court, therefore, remanded the case to the trial court with directions to enter summary judgment in the insurer’s favor on the complaint.
ZALMA OPINION
The facts alleging an intentional breach of the consumer protection act, breaching the agreement between the customer and the dealership, were obviously intentional – they kept the down payment and refused to return it and the trade-in vehicle. How the trial court found the action was not intentional is amazing and the Court of Appeal brought reason to the dispute.
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(c) 2022 Barry Zalma & ClaimSchool, Inc.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected].
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Notice of Claim Later than 60 Days After Expiration is Too Late
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Injury at Massage Causes Suit Against Therapist
Read the full article at https://lnkd.in/gziRzFV8, see the full video at https://lnkd.in/gF4aYrQ2 and at https://lnkd.in/gqShuGs9, and at https://zalma.com/blog plus more than 5050 posts.
Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...