                             In the
 United States Court of Appeals
               For the Seventh Circuit
                          ____________

No. 02-3302
CONNECTICUT INDEMNITY COMPANY,
                                               Plaintiff-Appellant,
                                 v.

DER TRAVEL SERVICE, INC.,
                                              Defendant-Appellee.
                          ____________
            Appeal from the United States District Court
       for the Northern District of Illinois, Eastern Division.
            No. 02 C 637—Suzanne B. Conlon, Judge.
                          ____________
       ARGUED APRIL 7, 2003—DECIDED MAY 2, 2003
                     ____________


 Before BAUER, ROVNER, and WILLIAMS, Circuit Judges.
  BAUER, Circuit Judge. A consumer fraud lawsuit al-
leged DER Travel Service, Inc. (“DER”) engaged in a
scheme to intentionally defraud its customers. DER’s
insurance company, Connecticut Indemnity Company
(“Connecticut”), brought this diversity action seeking a
declaratory judgment that it had no obligation to defend
DER in the lawsuit. The district court determined that
Connecticut had a duty to defend the suit. Because the
district court viewed the underlying complaint in contra-
vention of Illinois law, we reverse.
2                                                 No. 02-3302

                      BACKGROUND
   DER was sued in the Circuit Court of Cook County,
Illinois, captioned Harter, et. al. v. Auto Europe, Inc., et al.
(“Harter”). The Harter suit is a class action alleging that
DER, along with other car rental companies, violated the
Illinois Consumer Fraud and Deceptive Business Prac-
tices Act, 815 ILCS § 505/2. This appeal centers upon the
content of the complaint filed in that suit.
  The plaintiffs in the Harter case alleged that the value
added tax (“VAT”) imposed on car rentals in European
countries was due only on the actual cost of the car rental
but the defendants applied the VAT percentage to both the
cost of the car rental and the booking fee they charged
consumers. Plaintiffs state that no VAT was due on the
booking fee earned by the defendants.
  With specific reference to DER, plaintiff Edward
Sadlowski claimed that DER overcharged him when he
booked a rental car by inflating the size of the VAT; that
is, when DER calculated the dollar amount of the VAT, it
applied the VAT percentage rate to the entire price, includ-
ing DER’s booking fee. The complaint adds that DER
failed to disclose that the VAT was not due on the booking
fee. This, the Harter complaint states, violated the Con-
sumer Fraud Act through “deceptive pricing and other
deceptive acts” which were “intentionally and willfully
effected in disregard of law.” DER notified its insurer,
Connecticut, about the Harter suit and requested coverage.
  DER is insured under Connecticut’s Travel Agents’
Professional Liability Policy, which covers, inter alia, any
sums DER:
    shall become legally obligated to pay as “damages”
    because of:
    Coverage C—Any negligent act, error, or omission of
    the “insured” or any other person for whose acts the
No. 02-3302                                                 3

    “named insured” is legally liable in the conduct of
    “travel agency operations” by the “named insured.”
  However, Exclusion (p) of the policy expressly excludes
from Coverage C:
    liability arising out of any act, error, or omission which
    is wilfully dishonest, fraudulent, or malicious, or in
    willful violation of any penal or criminal statute or
    ordinance, and is committed (or omitted) by or with
    the knowledge or consent of the “insured.”
  Upon receiving notice of the complaint, Connecticut
notified DER that it would provide no defense in the
lawsuit; it denied coverage because, it said, the alleged
conduct fell within the scope of Exclusion (p). Connecticut
then filed this complaint seeking a declaratory judgment
that it had no obligation to defend DER in the state suit.
  On cross-motions for summary judgment, the district
court held that the Harter complaint did not clearly pre-
clude the plaintiffs from establishing liability under a
negligence standard; that the complaint did not clearly
exclude a non-intentional claim under the Consumer
Fraud Act and that, since a possibility remained that cov-
erage clause C covered the claim in the Harter action,
Connecticut was obligated to defend DER. Connecticut
appeals.


                        ANALYSIS
   We review a district court’s decision to grant summary
judgment de novo. The district court determined that
Illinois law governed this dispute, which neither party
contests. Illinois law treats the interpretation of an insur-
ance policy as a question of law that the court may resolve
summarily. Crum & Forster Managers Corp. v. Resolution
Trust Corp., 620 N.E.2d 1073, 1077 (Ill. 1993).
4                                                No. 02-3302

   Whether an insurer must defend the insured is a ques-
tion resolved by comparing the allegations of the underly-
ing complaint against the insured to the insurance policy.
Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 655
N.E.2d 842, 847 (Ill. 1995). Even if some of the conduct
alleged is not covered that will not obviate the duty to
defend if conduct covered by the policy is also alleged.
Maryland Cas. Co. v. Peppers, 355 N.E.2d 24, 28 (Ill. 1976).
However, an insurer has no duty to defend where it is “clear
from the face of the underlying complaint that the al-
legations fail to state facts which bring the case within, or
potentially within, the policy’s coverage.” U.S. Fidelity &
Guaranty Co. v. Wilkin Insulation Co., 578 N.E.2d 926, 930
(Ill. 1991). The legal labels used by a plaintiff in the
underlying case are not dispositive as to whether a duty
to defend exists. Lexmark Int’l, Inc. v. Transp. Ins. Co.,
761 N.E.2d 1214, 1221 (Ill. App. Ct. 2001).
  There is no dispute between the parties about the insur-
ance policy itself. The terms of the policy clearly limit
coverage to only negligent acts, errors, or omissions. So
we focus our attention on the Harter complaint to deter-
mine whether its allegations potentially fall within the
generous strictures of a claim for negligence.
    The pertinent paragraphs of the complaint are as follows:
     18. In every rental (basic or inclusive) whether by
     partial or full payment, the customer pays an add-on
     which is not for tax or insurance but is simply an
     extra fee to the broker, i.e., or a disguised increase in
     the base price.
     19. This is done by the mechanism of the broker
     calculating the foreign sales tax as a percentage of
     the base price.
     20. The base price includes the broker’s booking fee,
     on which no foreign sales tax is due, because the
No. 02-3302                                              5

   booking by the broker occurs entirely in the United
   States.
   21. Nonetheless, this spurious extra charge shows up
   on the booking acknowledgment, either broken out
   separately as tax, or simply put into the final or
   total base price, with a statement on the booking
   acknowledgment that this total base price “includes
   tax.”
   22. While it is technically true that the total base
   price on the booking acknowledgment “includes tax,”
   the statement and the very presentation of this price
   information are designed to mislead and conceal from
   the customer that there is an add-on which is going
   directly to the broker as a disguised increase in the
   base price, and not for any tax or legitimate add-ons
   for insurance or other benefits.
   23. All three defendant brokers follow the same indus-
   try scheme of deceptive pricing by giving the broker
   an add-on which defendants intend the consumer to
   believe is a part of a “sales tax” or “VAT.”
   24. There are thousands of customers who are decep-
   tively overcharged in this manner every year, and
   the defendant brokers collect millions of dollars in
   such overcharges annually without customers realiz-
   ing how they are being deceived.
   25. The scheme or device described here is inherently
   deceptive and is intended to deceive and mislead
   customers such as plaintiffs who would object to pay-
   ment of any add-on presented falsely as a sales tax
   when in fact the amount is going to the broker.
  A review of these paragraphs reveal not a hint of negli-
gent conduct alleged. The complaint lucidly sets forth that
DER purposefully engaged in a scheme to deceive con-
sumers. The question then is whether the conduct al-
6                                               No. 02-3302

leged in the complaint is at least arguably within a category
of wrongdoing covered by the policy. We have considered
this question and conclude it is not. This answer is de-
duced from the clear and unambiguous language of the
Harter complaint. The facts, as presented in the com-
plaint, are consistently couched in terms of intentional
deception and fraud.
    The paragraphs under Count VII allege, inter alia:
     135. Plaintiff sues DER under the Illinois Consumer
     Fraud Act, 815 ILCS § 505/2 on behalf of himself,
     and on behalf of all class members who booked a car
     from DER.
     137. DER has violated the rights of all class members
     under the Illinois Consumer Fraud Act who booked
     a car from DER while residing outside of Illinois
     because the deceptive pricing and other deceptive
     acts took place at the defendant DER’s principal place
     of business which is Illinois.
     140. The actions of the DER are intentionally and
     willfully effected in disregard of law.
  However, these paragraphs paint only part of the pic-
ture: there are also the paragraphs incorporated by refer-
ence to Count VII, most notably those paragraphs depict-
ing the alleged scheme. The Harter complaint is barren of
any mention of negligence, inadvertence, error, or mistake,
or anything even implying such conduct. Instead, the
complaint speaks only that DER deceived, schemed, and
defrauded consumers.
  The factual allegations of intentional schemes notwith-
standing, DER points to the fact that the plaintiffs could
have asserted a negligence claim under the Consumer
Fraud Act. Illinois courts have interpreted the Consumer
Fraud Act in a manner such that plaintiffs do not have
to prove a defendant intended to deceive them. See, e.g.,
No. 02-3302                                                       7

Rubin v. Marshall Field & Co., 597 N.E.2d 688, 695 (Ill.
App. Ct. 1992); Carl Sandburg Village Condominium Ass’n
No. 1 v. First Co., 557 N.E.2d 246, 249-50 (Ill. App. Ct.
1990). DER contends, and the district court held, that a
possibility exists under the Consumer Fraud Act that
DER could be liable for negligently failing to tell consumers
how DER calculated the VAT and that this possibility
obviates the need to consider the underlying complaint
at face value. We disagree.
  While the district court correctly observed that negligent
conduct is actionable under the Consumer Fraud Act, it
is the actual complaint, not some hypothetical version,
that must be considered.1
  In United Fire and Cas. Co. v. Jim Maloof Realty, 435
N.E.2d 496 (Ill. App. Ct. 1982), plaintiffs brought suit
against the insured, alleging knowing, willful and wanton
misrepresentation. The insurer denied coverage, arguing
that it had no duty to defend intentional fraud. The court
found that the “complaint must be read as a whole in
order to assess its true nature. Therefore, since the fac-
tual allegations of the complaint are premised upon only
one theory of recovery, that of intentional fraud, . . . [the
insurer] has no duty to defend its insureds.” Id. at 498-99.
See also Mutual Service Casualty Insurance Co. v. Country
Life Insurance Co., 859 F.2d 548 (7th Cir. 1988) (apply-
ing Illinois law) (finding no duty to defend a breach of


1
   The district court relied, in part, on our decision in Solo Cup
Co. v. Federal Ins. Co., 619 F.2d 1178 (7th Cir. 1980) (applying
Illinois law). We find this case to be distinguishable because the
generalized nature of the complaint in Solo Cup left open the
possibility of a potentially covered claim. We noted that the
underlying complaint alleged “a full panoply of offenses” and that
the allegations were “general.” Id. at 1185. In the case sub judice,
the Harter complaint contains none of those characteristics; it
solely alleges intentional fraud.
8                                                    No. 02-3302

contract claim when the underlying complaint alleged
company’s denial of employee benefits was an intentional
scheme); Illinois Farmers Insurance Co. v. Preston, 505
N.E.2d 1343 (Ill. App. Ct. 1987) (finding no duty to de-
fend because complaint expressly indicated plaintiff’s
reliance upon a conspiracy theory, not negligence); Rubloff,
Inc. v. American Nat’l Fire Ins. Co., 1997 U.S. Dist. LEXIS
6886 (N.D. Ill. 1997) (denying coverage for breach of
contract claim based on knowingly wrongful conduct).2


                        CONCLUSION
  We acknowledge the well-settled doctrine that an under-
lying complaint must be liberally construed in favor of
the insured and that any doubts be resolved in favor of
the insured. Lexmark Int’l, Inc. v. Transp. Ins. Co., 761
N.E.2d 1214, 1221 (Ill. App. Ct. 2001). However, we find
no evidence that the Harter complaint alleged DER acted
in a negligent fashion. Phrases such as “mislead and
conceal,” “scheme or device,” and “intentionally and will-
fully” are the paradigm of intentional conduct and the
antithesis of negligent actions. Thus, Connecticut has no
duty to defend or indemnify DER in connection with the
consumer fraud class action. For these reasons, we reverse


2
   We are cognizant of the First Circuit’s position in Auto Eur.,
L.L.C. v. Conn. Indem. Co., 321 F.3d 60 (1st Cir. 2003), an
identical action between Connecticut and Auto Europe, which
stems from the Harter class action. Connecticut coincidentally
provides coverage for all three defendants in the class action.
While that court applied Maine law to reach its conclusion that
Connecticut had a duty to defend Auto Europe, it noted that even
if Illinois law was applicable, Connecticut would still not prevail.
While the First Circuit’s abbreviated analysis of Illinois law is
dicta, we have taken it into consideration. However, we respect-
fully disagree with the First Circuit’s conclusion with respect to
the application of Illinois law.
No. 02-3302                                            9

the district court’s order granting summary judgment
for DER, and remand with directions to enter summary
judgment for Connecticut.
                             REVERSED    AND   REMANDED.

A true Copy:
      Teste:

                     ________________________________
                     Clerk of the United States Court of
                       Appeals for the Seventh Circuit




                 USCA-02-C-0072—5-2-03
