In Illinois insurance coverage actions, an insurer can be estopped from asserting any policy defenses to coverage if the insurance company fails to take proper action. The general rule of estoppel provides that an insurer taking the position that a complaint potentially alleging coverage under a policy that includes a duty to defend may not simply refuse to defend the insured by declaring it not to be covered under the policy. Rather, the insurer has two options: (1) defend the suit under a reservation of rights or (2) seek a declaratory judgment that coverage does not exist. If the insurer fails to take either of these steps and is later found to have wrongfully denied coverage, the insurer is estopped from raising policy defenses to coverage. Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127, 150 (1999).
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