In Cincinnati Ins. Co. v. American Hardware Manufacturers Ass'n, ___ N.E.2d ___, 2008 WL 4963726 (Ill.App. Ct. Nov. 12, 2008), addressing contribution between two insurers, the Illinois Appellate Court held that allegations of recklessness in a claim for defamation did not amount to intentional conduct negating a duty to defend. Cincinnati Insurance Company issued two primary "occurrence" based insurance policies to a hardware trade association, AHMA, which provided coverage to AMHA and the executives for personal and advertising injury. Federal Insurance Company issued a "claims made," not-for-profit organization liability policy affording coverage to AHMA and the executives. In an underlying action intiated by AHMA, counterclaims were alleged against AHMA and the executives for defamation, libel, breach of contract, and various statutory violations arising out of alleged misconduct and misleading representations in the publication and advertisement of material in connection with a national hardware exhibition.
Cinncinnati sought an order from the trial court declaring that it had no duty to defend or indemnify AMHA and the executives for the counterclaims. Federal entered into an assignment agreement with AMHA and the executives to transfer to Federal all of the rights under the Cincinnati polices and claims against Cincinnati relating to payment or reimbursement of defense expenses incurred in defense of the counterclaims. Cincinnati and Federal filed cross-motions for summary judgment to determine whether Cincinnati had a duty to defend and whether Cincinnati and Federal should contribute on an equal basis based on the "other insurance" clauses in the insurers' respective policies. The trial court granted Federal's summary judgment motion and denied Cincinnati's motion. Cincinnati appealed.
The appellate court affirmed. The appellate court analyzed the Cincinnati polices and found them to be internally inconsistent, because they purported to provide coverage for defamation or libel, but the definition of "occurrence" provided that there was coverage only for unintentional conduct. The court resolved the ambiguity in the Cincinnati policies to find that Cincinnati had a duty to defend. The court also held that allegations of "recklessnesss" could support a duty to defend despite policy exclusions for knowing falsehoods.
Finally, the court held that, under principles of equitable contribution, Federal's "other insurance" provisions required Cincinnati to pay one-half of defense expenses incurred by AMHA and its executives. The court reasoned that the differences between the occurrence-based and claims-made policies related only to the trigger of coverage, and that the primary policies shared significant, fundamental commonalities of risk.
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