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West American Ins. Co. v. Midwest Open MRI, Inc.

2013 IL App (1st) 121034 (Ill. App., 2013)

Words & Phrases

Occurrence: In General

Trial Judge

Honorable Lee Preston

Appellate Judge

Justice Connors


No duty to defend insured MRI provider in kickback scheme where allegations of conspiracy and monopolization did not constitute accidental conduct.

Fact Summary

Midwest Open MRI, Inc. (Midwest) provides MRI services.  It was sued by competitor Advanced Physicians and by Advanced Physician’s principal for allegedly violating section 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act).  Both complaints alleged that Midwest engaged in a “widespread solicitation and conspiracy to engage in kickback-for-referral arrangements” with certain physicians or clinics and submitted false and deceptive billing records to patients and third party payors. 

West American Insurance Company  issued a commercial general liability insurance policy to Midwest.  Midwest tendered the complaints to West American, and West American declined coverage and filed a declaratory judgment action in Cook County, Illinois seeking a declaration that it had no duty to defend or indemnify. 

The circuit court found that West American had no duty to defend or indemnify because the harm alleged did not constitute the loss of use of tangible property, but instead was ordinary economic loss.  The court also found that the harm did not constitute a “personal or advertising injury,” rejecting Midwest’s arguments that the underlying complaints had alleged discrimination.  The court also concluded that Midwest had not been estopped from raising policy defenses to the lawsuit by Advanced Physicians’ principal, despite the fact that the suit had technically been dismissed prior to Midwest’s filing of its declaratory judgment. 

The appellate court affirmed.  Although Midwest’s primary argument on appeal was based upon whether the underlying complaint had alleged a “loss of use,” the appellate court affirmed on the basis that the underlying complaint had not alleged an “occurrence,” an issue that had been argued before the circuit court but not addressed in the underlying opinion.  Although the policy did not define “accident,” the appellate court found that it was an unforeseen occurrence, usually an undesignated sudden or unexpected event of an inflictive or unfortunate character.  State Farm Fire & Cas. Co. v. Young, 2012 IL App (1st) 103736.  The court further explained that whether an occurrence is an accident depends on “whether the injury is expected or intended by the insured, not whether the acts were performed intentionally.”  United National Ins. Co. v. Faure Bros. Corp. 409 Ill. App. 3d 711 (1st Dist. 2011) (emphasis in original).  Guided by those principles, the court reached the “unavoidable conclusion” that the underlying complaint had not alleged an “occurrence” because it had not alleged any conduct or consequences which had been accidental.  Instead, Midwest engaged in a conspiracy and schemes with the express purpose of driving entities like Advanced Physicians out of business. 

The appellate court also rejected Midwest’s claim that the underlying complaint had alleged discrimination which would trigger a duty under the policy’s personal and advertising injury section.  Finally, the court found Midwest’s estoppel argument to be moot because West American never had a duty to defend and thus could not have breached it.