Contract Exclusion Does Not Apply to Claim of Tortious Interference with Third-Party Contract
The United States District Court for the Northern District of Illinois, applying Illinois law, held that a contract exclusion did not bar coverage for a claim for tortious interference with contract because the insured’s liability did not arise “under the terms of” a contract. The Cincinnati Ins. Co. v. Metropolis Condo. Ass’n., 2026 WL 891864 (N.D. Ill. March 31, 2026).
The insured entity served as the homeowners’ association for a high-rise building. In that capacity, it executed a management agreement with a unionized company retained to operate the building’s parking garage. The management agreement obligated the insured to pay the management company’s operating expenses, including fringe benefits owed by the company to its unionized employees. During the term of the agreement, the insured allegedly directed the management company to eliminate all fringe benefit payments to its unionized employees. When the union refused to release the management company from the terms of its collective bargaining agreement, the insured allegedly directed the management company’s founder to start a new non-union company to perform the same work, which it did. Pursuant to the insured’s alleged instructions, the original management company ceased making contributions to the union, which ultimately sued the insured for breach of contract (of the management agreement) and tortious interference (with the collective bargaining agreement). The insured sought defense and indemnity coverage under the D&O liability coverage part of its policy, which the insurer denied based on the policy’s contract exclusion.
Although the insured effectively acknowledged that coverage for the breach of contract claim was barred by virtue of the policy’s contract exclusion—which precluded coverage for “any claim for . . . alleged liability of any insureds under the terms . . . of any . . . contract”—it argued that the exclusion did not bar coverage for the tortious interference claim, and the insurer thus had a duty to defend the entire lawsuit. In the ensuing coverage litigation, the court agreed with the insured.
According to the court, the insured’s alleged liability for tortious interference did not derive from liability “under the terms of” any contract—neither the management agreement nor the collective bargaining agreement. Rather, in the court’s view, the insured allegedly had induced the unionized company to breach its collective bargaining agreement, to which the insured was a stranger and under which it had no rights or obligations. The court rejected the insurer’s argument that the two claims—one for breach of contract and the other for tortious interference with contract—were based on the same conduct. According to the court, the breach of contract count arose from the insured’s actions under the management agreement between itself and the management company, whereas the tortious interference with contract count arose from the insured’s actions “that are a step removed from” the collective bargaining agreement between the management company and the union. Accordingly, the tortious interference with contract theory of liability did not fall within the policy’s contract exclusion, and the insurer had a duty to defend the entire suit.
