Insured’s Motion to Stay Coverage Action Denied Where Duty to Defend is Based on Allegations Against Insured
The U.S. District Court for the Northern District of Illinois, applying Illinois law, denied an insured’s motion to stay an insurer’s declaratory judgment action seeking a declaration that it owed no duty to defend. Landmark Am. Ins. Co. v. Reprod. Genetics Inst. Inc., 2025 WL 2855214 (N.D. Ill. Oct. 8, 2025). The court concluded that there were no “ultimate facts” to be litigated in the insurer’s action requiring a stay because the duty to defend could be determined by looking at the allegations of the complaint and assessing whether “if proven, those allegations would establish an injury that the policy would cover.”
The insurer sought a declaration that it had no duty to defend with respect to a class action lawsuit filed against its insured. The class action complaint alleged that the insured engaged in false and deceptive advertising regarding certain genetic testing and failed to fully disclose the accuracy of such testing. It alleged causes of actions under Illinois’s Consumer Fraud and Deceptive Business Practices Act and Uniform Deceptive Trade Practices Act, as well as breaches of various warranties.
The policy included Medical Professional Liability coverage, which excluded claims arising out of dishonest acts, and Commercial General Liability coverage, which excluded personal and advertising injury arising out of a breach of contract and five specific offenses.
In deciding whether to grant the insured’s motion to stay, the court determined that the key issue was whether it could “grant declaratory relief without deciding issues of ultimate fact.” The court stated that, under Illinois law, “declaratory complaints regarding insurance coverage are ‘premature’ when they present issues of ‘ultimate facts’ which would otherwise be resolved in the pending litigation,” such as mental culpability.
With respect to the duty to defend, the court explained that courts ordinarily look to the allegations made against the insured in the underlying lawsuit, and decide whether, if true, the allegations would implicate coverage. In doing so, the underlying facts are often irrelevant. The court applied this rule and explained first, with respect to the Medical Professional Liability coverage exclusion, that “liability coverage exclusion for claims arising out of dishonest acts does not require a determination of dishonesty.” Similarly, with respect to the Commercial General Liability coverage exclusion, the court stated that “[w]hether the underlying complaint alleges any . . . injury that would take it within the purview of the policy doesn’t require a decision that the injury occurred.”
Ultimately, the court held that there was no need to “look beyond the eight corners of the insurance policy and the underlying lawsuit to conclude that there is no ultimate fact at issue.” Whether the insured is actually guilty of the conduct alleged in the underlying lawsuit, the court reasoned, has no relevance to whether the insurer had a duty to defend. The court therefore denied the motion to stay and allowed the case to proceed.
