Country Mutual Insurance Co. v. Vogelzang ( 2007 )

NO. 4-06-0589 Filed 3/19/07
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
COUNTRY MUTUAL INSURANCE COMPANY, ) Appeal from
Plaintiff-Appellee, ) Circuit Court of
v. ) Piatt County
STEVE CARR, d/b/a CARR CONSTRUCTION, ) No. 04L15
Defendant-Appellant, )
and )
JON SEEVERS; SEEVERS FARM DRAINAGE, )
INC.; RUTH ROLLINGS; and DANA BOWYER, )
Defendants, )
and )
STEVE CARR, d/b/a CARR CONSTRUCTION, )
Third-Party Plaintiff, )
v. ) Honorable
HAROLD VOGELZANG, ) John P. Shonkwiler,
Third-Party Defendant. ) Judge Presiding.
_________________________________________________________________
JUSTICE KNECHT delivered the opinion of the court:
On an unspecified date, defendant Steve Carr, d/b/a
Carr Construction, filed an insurance claim with plaintiff
Country Mutual Insurance Company (Country Mutual) with whom he
had a commercial general liability (CGL) policy. Country Mutual
denied coverage of the claim and, in May 2004, filed a
declaratory-judgment action (case No. 04-L-15) seeking a ruling
it had no duty under the insurance policy to defend or indemnify
defendant.
In March 2006, Country Mutual asked for leave to file a
third amended complaint for declaratory judgment against
defendant, which the trial court allowed. In that third amended
complaint, Country Mutual argued it had no duty to defend or
indemnify Carr because (1) the CGL policy excludes damage to
Carr's own work and (2) it alleged no "occurrence" as defined by
the policy. That same month, Country Mutual renewed its motion
for judgment on the pleadings in case No. 04-L-15. At the
hearing on the motion for judgment on the pleadings, Country
Mutual's attorney only argued the third amended complaint failed
to allege an "occurrence" as defined by the CGL policy. Country
Mutual's attorney conceded Country Mutual could no longer rely on
the CGL policy's "own-work" exclusion because the complaint in
the underlying case alleged that a subcontractor may have
performed the work that caused the alleged damage.
In June 2006, the trial court granted Country Mutual's
renewed motion for judgment on the pleadings. Carr appeals,
arguing the alleged damage in the underlying case (case No. 04-L-
8) resulted from an "occurrence" covered by his insurance policy
through Country Mutual. We reverse and remand.
I. BACKGROUND
On an unspecified date, Ruth Rollings and Dana Bowyer
filed a lawsuit (case No. 04-L-8) against Carr. The record does
not contain a copy of this initial complaint. Later, Rollings
and Bowyer filed a nine-count third amended complaint against
Carr, John Seevers, and Seevers Farm Drainage, Inc. Rollings and
Bowyer directed the first three counts of the complaint at Carr.
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Rollings and Bowyer sought $69,830.08 in damages. Count I
alleged negligence against Carr, claiming either he or his agents
or employees:
"negligently placed inappropriate backfill in
and around the basement walls, and there and
then negligently operated heavy earthmoving
equipment near said walls resulting in the
sudden movement of the basement walls, in
turn resulting in damage to said basement
walls, and to other portions of the
residence."
Count II also alleged negligence against Carr. However, in count
II, Rollings and Bowyer alleged Carr contracted with Jon Seevers,
and/or Seevers Farm Drainage, Inc., to backfill and grade around
the basement after the basement was completed. According to
count II, Seevers and/or Seevers Farm Drainage, Inc., negligently
placed inappropriate backfill around the basement walls and then
negligently operated heavy earthmoving equipment close to the
basement walls, causing sudden movement and damage to the
basement walls. Count III alleged Carr breached an implied
warranty to Rollings and Bowyer for the same conduct as was
alleged in count I and for failing to construct other portions of
the residence in a reasonably workmanlike manner. Rollings and
Bowyer directed the other six counts of the complaint against Jon
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Seevers and Seevers Farm Drainage, Inc.
In March 2006, Country Mutual renewed its motion for
judgment on the pleadings in case No. 04-L-15 after Rollings and
Bowyer filed their third-amended complaint in case No. 04-L-8.
According to the renewed motion, paragraph 7 of count II of the
underlying third amended complaint in case No. 04-L-8 alleged the
damage was caused by the negligence of subcontractor Jon Seevers
and/or Seevers Farm Drainage, Inc. According to Country Mutual's
renewed motion for judgment on the pleadings:
"This additional allegation could have
the effect of negating the allegations
contained in [p]aragraph 10 of the
plaintiff's [s]econd [a]mended [c]omplaint
for [d]eclaratory [j]udgment, which alleges
the insurance policy in question barred
coverage for damage to the insured's own
work."
As a result, Country Mutual focused its arguments for a judgment
on the pleadings on whether an "occurrence" as defined by the
insurance policy in question took place.
In May 2006, the trial court heard arguments on Country
Mutual's motion for judgment on the pleadings. At the hearing,
the attorney for Country Mutual stated:
"The cases I've cited in my various filings
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in support of my [m]otion for [j]udgment on
the [p]leadings make it clear that under
Illinois law, a construction defect resulting
from improper workmanship or poor
construction practices does not constitute an
occurrence within the definition of a
standard commercial liability policy. That's
the basis of my argument, that there is no
occurrence."
Later during the hearing, Country Mutual's attorney conceded the
policy's "own-work" exclusion, on which Country Mutual had
previously relied, was "negated by the allegation that the
subcontractor may have performed the work."
The trial court allowed Country Mutual's motion for
judgment on the pleadings, finding no "occurrence."
This appeal followed.
II. ANALYSIS
Carr argues the third amended complaint in the
underlying case (case No. 04-L-8) alleges an "occurrence" covered
by his CGL policy through Country Mutual.
A. Standard of Review
The standard of review for reviewing a trial court's
decision to grant a motion for judgment on the pleadings is de
novo. Board of Trustees of the University of Illinois v. City of
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Chicago, 317 Ill. App. 3d 569, 571, 740 N.E.2d 515, 517 (2000).
The same is true for reviewing a trial court's interpretation of
an insurance policy. Travelers Insurance Co. v. Eljer
Manufacturing, Inc., 197 Ill. 2d 278, 292, 757 N.E.2d 481, 491
(2001). In this appeal, we must determine whether the trial
court erred in finding the complaint in the underlying case did
not allege an "occurrence."
B. Insurance Company's Duty To Defend
The underlying issues in case No. 04-L-15 from which
this appeal arises are whether Country Mutual has a duty to
defend and possibly indemnify Carr in case No. 04-L-8. An
insurance company's duty to defend its policyholder is much
broader than its duty to indemnify that same policyholder.
Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.
2d 90, 125, 607 N.E.2d 1204, 1220 (1992). To determine whether
an insurance company has a duty to defend, the court must compare
the allegations in the underlying complaint to the language of
the insurance policy at issue. Outboard Marine Corp., 154 Ill.
2d at 125, 607 N.E.2d at 1220. In so doing, the court must give
the allegations in the complaint a liberal construction in favor
of the insured. Outboard Marine Corp., 154 Ill. 2d at 125, 607
N.E.2d at 1220. Further, the court must liberally construe the
provisions of the insurance policy in favor of coverage. State
Security Insurance Co. v. Burgos, 145 Ill. 2d 423, 438, 583
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N.E.2d 547, 554 (1991). After giving both the allegations in the
complaint and the provisions of the policy a liberal construction
in favor of the insured having coverage, the court must determine
if the "allegations fall within, or potentially within, the
policy's coverage." (Emphasis in original.) Outboard Marine
Corp., 154 Ill. 2d at 125, 607 N.E.2d at 1220. If the court
finds this to be so, "the insurer has a duty to defend the
insured against the underlying complaint." Outboard Marine
Corp., 154 Ill. 2d at 125, 607 N.E.2d at 1220. Even if only one
of several theories of recovery put forward by a plaintiff is
within the potential coverage of the policy, the insurer has a
duty to defend the insured on all theories of recovery. National
Union Fire Insurance Co. of Pittsburgh, Pennsylvania v. Glenview
Park District, 158 Ill. 2d 116, 124, 632 N.E.2d 1039, 1042-43
(1994). However, even if an insurer has a duty to defend,
whether the insurer will have a duty to indemnify the insured
will only be ripe for determination after the insured has
incurred liability in the underlying claim against it. Outboard
Marine Corp., 154 Ill. 2d at 127, 607 N.E.2d at 1221.
C. Relevant Policy Provisions and Their Meanings
According to the general-coverage provision of the CGL
policy at issue in this case:
"This insurance applies to 'bodily injury'
and 'property damage' only if:
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(1) The 'bodily injury' or 'property
damage' is caused by an 'occurrence' that
takes place in the 'coverage territory'; and
(2) The 'bodily injury' or 'property
damage' occurs during the policy period."
The CGL policy at issue in this case assigns definitions to
certain terms used in the policy. According to these
definitions, the policy defines "property damage" as:
"a. Physical injury to tangible
property, including all resulting loss of use
of that property. All such loss of use shall
be deemed to occur at the time of the
physical injury that caused it; or
b. Loss of use of tangible property that
is not physically injured. All such loss of
use shall be deemed to occur at the time of
the 'occurrence' that caused it."
The policy defines an "occurrence" as "an accident, including
continuous or repeated exposure to substantially the same general
harmful conditions."
However, the CGL policy at issue does not define
"accident." The term has been interpreted in different ways as
evidenced by our discussion below. Therefore, the term
"accident" in the policy in question is ambiguous. Eljer
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Manufacturing, 197 Ill. 2d at 293, 757 N.E.2d at 491. As a
result, for purposes of determining whether the damage to
Rollings and Bowyer's residence is the result of an accident, we
must give the term a liberal construction in favor of coverage.
Burgos, 145 Ill. 2d at 438, 583 N.E.2d at 554. One popular
dictionary defines an "accident" as follows:
"1a: an unforeseen and unplanned event or
circumstance b: lack of intention or
necessity: CHANCE *** 2a: an unfortunate
event resulting esp. from carelessness or
ignorance b: an unexpected and medically
important bodily event esp. when injurious
*** c: an unexpected happening causing loss
or injury which is not due to any fault or
misconduct on the part of the person injured
but for which legal relief may be sought ***
3: a nonessential property or quality of an
entity or circumstance ***." Merriam
Webster's Collegiate Dictionary 7 (11th ed.
2003).
Courts have defined an accident as "an unforeseen occurrence,
usually of an untoward or disastrous character or an undesigned
sudden or unexpected event of an inflictive or unfortunate
character." Aetna Casualty & Surety Co. v. Freyer, 89 Ill. App.
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3d 617, 619, 411 N.E.2d 1157, 1159 (1980). Some courts have also
stated that the "natural and ordinary consequences of an act do
not constitute an accident." Aetna Casualty & Surety Co., 89
Ill. App. 3d at 619, 411 N.E.2d at 1159; see also State Farm Fire
& Casualty Co. v. Tillerson, 334 Ill. App. 3d 404, 409, 777
N.E.2d 986, 990 (2002); Monticello Insurance Co. v. Wil-Freds
Construction, Inc., 277 Ill. App. 3d 697, 703, 661 N.E.2d 451,
455 (1996).
The Supreme Court of Illinois has stated a court should
not determine whether something is an accident by looking at
whether the actions leading to the damage were intentionally
done. According to the court, the real question is whether the
person performing the acts leading to the result intended or
expected the result. If the person did not intend or expect the
result, then the result was the product of an accident. United
States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill.
2d 64, 77-78, 578 N.E.2d 926, 932 (1991); see also Yates v.
Bankers Life & Casualty Co., 415 Ill. 16, 19, 111 N.E.2d 516,
517-18 (1953); Lyons v. State Farm Fire & Casualty Co., 349 Ill.
App. 3d 404, 409, 811 N.E.2d 718, 723 (2004). We apply this
definition to the CGL policy at issue in this case.
D. Property Damage
To determine if the CGL policy applies to a claim in
which a third party is seeking damages against the insured, the
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trial court must first determine if the third party has suffered
"bodily injury" or "property damage" as defined by the policy.
At issue in this case is whether Rollings and Bowyer suffered
"property damage."
Rollings and Bowyer allege in the underlying complaint
in case No. 04-L-08 that the negligent actions of defendant, his
employees, agents, and/or subcontractors resulted in damage to
their basement walls and other parts of the residence. They do
not allege they only suffered intangible property losses, such as
an economic loss, which courts do not usually consider "property
damage." Viking Construction Management, Inc. v. Liberty Mutual
Insurance Co., 358 Ill. App. 3d 34, 42, 831 N.E.2d 1, 6-7 (2005).
They allege physical injury to tangible property, their basement
walls. This falls within the broad definition of "property
damage" given by the policy.
E. Occurrence
If property damage occurred, the trial court must then
determine if that property damage resulted from an "occurrence"
as defined by the policy. In the underlying complaint in case
No. 04-L-8, the two negligence counts against Carr simply allege
that either Carr himself, his agents or employees, or his
subcontractor used inappropriate backfill around the basement
walls and then negligently operated heavy earthmoving equipment
immediately adjacent to the basement walls. The counts allege
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these activities resulted in the sudden movement of the basement
walls. The counts further allege the movement of the walls
resulted in damage to those same walls and other parts of the
residence. The underlying complaint does not contain allegations
that defendant, his employees or agents, or subcontractors
intended or expected, by their use of allegedly inappropriate
backfill material or their allegedly negligent operation of heavy
earthmoving equipment near the basement walls, that the walls
would move or be damaged. Under our supreme court's definition
of what constitutes an "accident," the allegations of the
complaint in case No. 04-L-8 allege an "accident."
As a result, we find the allegations in the underlying
complaint describe an "occurrence" as defined by the policy at
issue. The allegations in counts I and II of the underlying
complaint fall within the provisions of the general coverage
provisions of the policy at issue.
F. Policy Exclusions
Because the policy's definitions for "occurrence" and
"property damage" are so broad, it would appear the policy could
be in danger of being construed as something akin to a
performance bond. Our supreme court has stated:
"'[C]omprehensive general liability policies
*** are intended to protect the insured from
liability for injury or damage to the persons
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or property of others; they are not intended
to pay the costs associated with repairing or
replacing the insured's defective work and
products, which are purely economic losses.
[Citations.] Finding coverage for the cost
of replacing or repairing defective work
would transform the policy into something
akin to a performance bond.'" Eljer
Manufacturing, 197 Ill. 2d at 314, 757 N.E.2d
at 503, quoting Qualls v. Country Mutual
Insurance Co., 123 Ill. App. 3d 831, 833-34,
462 N.E.2d 1288, 1291 (1984).
The policy in this case is not akin to a performance bond given
the "exclusions" section of the policy. The "exclusions" section
excludes numerous types of injuries and liabilities that would
otherwise fall within the broad category of events to which this
insurance would apply.
However, Country Mutual failed to identify any specific
exclusions contained in the underlying policy into which the
allegations in the underlying complaint would fall. It is the
insurer's burden to affirmatively demonstrate the applicability
of an exclusion. As a result, in the posture of this case,
Country Mutual will have to establish a policy exclusion applies
if it wants to avoid defending Carr in case No. 04-L-8.
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G. Authority Cited by Country Mutual
Country Mutual cites several cases decided by other
districts of the Illinois Appellate Court in support of its
position that an occurrence did not take place in this case. See
Indiana Insurance Co. v. Hydra Corp., 245 Ill. App. 3d 926, 615
N.E.2d 70 (1993); Wil-Freds, 277 Ill. App. 3d 697, 661 N.E.2d
451; Tillerson, 334 Ill. App. 3d 404, 777 N.E.2d 986; Viking, 358
Ill. App. 3d 34, 831 N.E.2d 1. While these decisions are
relevant, they are not determinative of whether the alleged
negligent acts of defendant, his employees or agents, and his
subcontractor constitute an "occurrence" in the case at bar.
Further, these cases are distinguishable from the
instant case as the underlying complaints in those cases alleged
contractual or warranty breaches, not negligence as in the
instant case. See Hydra, 245 Ill. App. 3d at 929, 615 N.E.2d at
73; Wil-Freds, 277 Ill. App. 3d at 699, 661 N.E.2d at 452;
Tillerson, 334 Ill. App. 3d at 406, 777 N.E.2d at 988; Viking,
358 Ill. App. 3d at 36, 831 N.E.2d at 2. This is not to say that
a breach-of-contract claim can never allege an "occurrence."
Most important, while past decisions might help in
interpreting an insurance policy, a court must make the ultimate
determination in each case whether an "occurrence" took place
pursuant to the allegations in the underlying complaint and the
terms of the insurance policy at issue in that case.
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III. CONCLUSION
For the reasons stated, we reverse and remand the trial
court's judgment.
Reversed and remanded.
COOK and TURNER, JJ., concur.
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