Intentional Acts Exclusion Precludes Duty to Defend Complaint Alleging Willful Conduct

An Illinois intermediate appellate court has held that an intentional acts exclusion precluded a duty to defend a lawsuit alleging that an insured engaged in willful misconduct.  Ill. State Bar Ass’n Mut. Ins. Co. v. Leighton Legal Grp., Inc., 2018 WL 2688182 (Ill. App. Ct. May 22, 2018).

A real estate attorney drafted a trust instrument on behalf of a group of clients.  The attorney appointed himself as a co-trustee of the trust.  The clients subsequently requested that the attorney distribute the trust corpus to the beneficiaries.  The attorney refused.  The beneficiaries sued the attorney, alleging that the trust amounted to an unlawful self-compensation scheme because (among other things) the attorney appointed himself as a co-trustee.  The suit also alleged that the attorney collected excessive fees while managing the trust.  The attorney tendered the suit to his E&O carrier, which denied coverage based on an intentional acts exclusion.

In the ensuing coverage litigation, the court granted judgment on the pleadings to the insurer, holding that the intentional acts exclusion precluded coverage.  That exclusion barred coverage for claims “arising out of any criminal, dishonest, fraudulent or intentional act or omission.”  The exclusion did not have an “in fact” or “final adjudication” requirement.  The court noted that the underlying complaint alleged that the insured “willfully refused” to distribute the trust corpus “in order to perpetuate their self-compensation scheme.”  According to the court, the use of the words “willfully” and “scheme” denoted intentional conduct that could not be the result of professional negligence, which fell within the scope of the exclusion.