Phoenix Insurance Co. v. Pelco Structural, LLC ( 2019 )

2019 IL App (1st) 190477-UNo. 1-19-0477
Order filed December 9, 2019
First Division
NOTICE: This order was filed under Supreme Court Rule 23 and may not be cited as precedent
by any party except in the limited circumstances allowed under Rule 23(c)(2).
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
______________________________________________________________________________
PHOENIX INSURANCE COMPANY and TRAVELERS ) Appeal from the
PROPERTY CASUALTY COMPANY OF AMERICA, ) Circuit Court of
) Cook County.
Plaintiffs-Appellees,
)
v. ) Nos. 18 CH 8166, 18 CH 8170
)
PELCO STRUCTURAL, LLC, ) Honorable
) Sophia H. Hall,
Defendant-Appellant, ) Judge, presiding.
)
JUSTICE HYMAN delivered the judgment of the court.
Justices Pierce and Walker concurred in the judgment.
ORDER
¶1 Held: Trial court order granting summary judgment to insurer affirmed where insured
failed to comply with policy requirements in the event of a lawsuit.
¶2 Pelco Structural LLC provided Exelon Business Services Company, LLC with conductor
arms for use on a tollway project. When one of the arms broke, Exelon sought to recover the costs
of replacing the defective arms. Pelco submitted a claim to its insurers, Phoenix Insurance
Company and Travelers Property Casualty Company of America (collectively, “Phoenix”).
Phoenix denied the claim on the grounds that Pelco’s insurance policies covered damages to a third
No. 1-19-0477
party’s property, not damages to Pelco’s product. Two years later, Exelon sued Pelco alleging, in
part, that in addition to replacement costs, Exelon’s property was damaged when the conductor
arm fell almost 80-feet to the ground. Pelco did not notify Phoenix of the lawsuit until two years
later.
¶3 Phoenix sought a declaration that it had no duty to defend or indemnify Pelco for Exelon’s
lawsuit because Pelco failed to timely notify it of the litigation. Pelco counterclaimed, seeking a
declaration that Phoenix had a duty to defend. On the parties’ cross-motions for summary
judgment, the trial court granted Phoenix’s motion and denied Pelco’s motion, finding that Pelco
failed to meet the policies’ notice of suit requirements.
¶4 Pelco argues it timely notified Exelon of the litigation on the basis that (i) the policy only
required notice of a claim or suit, not both a claim and suit; and (ii) Phoenix had “actual notice”
of the claim, which excused its compliance with the policy’s notice-of-suit provisions.
Alternatively, Pelco contends that Phoenix’s denial of the claim excused it from giving notice of
the lawsuit.
¶5 In addition to the notice provisions, the policy required, in the event of a lawsuit, that Pelco
“immediately” provide Phoenix with a copy of the complaint and other relevant legal documents.
Pelco failed to adhere to this provision. We affirm.
¶6 Background
¶7 Exelon and Pelco entered into an agreement for Exelon to purchase conductor arms for use
in high voltage transmission towers on the Illinois Tollway’s Elgin/O’Hare Project. In December
2014, during construction, one of the conductor arms broke and crashed nearly 80 feet to the
ground. Exelon found a new supplier for the conductor arms and sought to recover about $2.5
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million from Pelco for the cost of removing the defective arms and purchasing and installing
replacement arms.
¶8 Pelco had a Commercial General Liability policy (CGL policy) from Phoenix and a
Commercial Excess Liability (Umbrella) Insurance policy from Travelers. The policies covered
from October 31, 2014 through October 31, 2015. The CGL policy provided Phoenix would pay
money that Pelco became “legally obligated to pay as damages because of *** ‘property damage’
to which this insurance applies” and would have “the right and duty to defend the insured against
any ‘suit’ seeking those damages.” The policy defined “property damage” in part, as “[p]hysical
injury to tangible property, including all resulting loss of use of that property.” The policy excluded
coverage for damages to Pelco’s own products.
¶9 As a condition of coverage, the policy imposed duties on Pelco for an “occurrence,”
“claim,” or “suit.” The policy stated:
(a) You must see to it that we are notified as soon as practicable of an “occurrence” or an
offense which may result in a claim.
***
(b) If a claim is made or “suit” is brought against any insured, you must:
(1) Immediately record the specifics of the claim or “suit’ and the date received; and
(2) Notify us as soon as possible.
You must see to it that we receive written notice of the claim or “suit’ as soon as
practicable.
(c) You and any other involved insured must:
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(1) Immediately send us copies of any demands, notices, summonses or legal papers
received in connection with the claim or suit.
¶ 10 The policy defined an occurrence as “an accident, including continuous or repeated
exposure to substantially the same harmful conditions.” And “suit” as “a civil proceeding in which
damages because of ‘bodily injury,’ ‘property damage’ or ‘personal injury’ to which this insurance
applies are alleged.”
¶ 11 In February 2015, Pelco, through its president Phil Albert, notified Phoenix of the Exelon
claim. By letter dated March 10, 2015, Phoenix’s representative, Laura Pytell, informed Albert
that the policy did not cover the claim. Pytell’s letter stated that “the cost of repairing and replacing
your own product is not ‘property damage’ and is not deemed to have been caused by an
‘occurrence’ ***. The policy only provides coverage if your product has caused damage to
Exelon’s property. Here, there are no allegations that the Pelco’s poles or divet arms physically
damaged any of Exelon’s cables or other property or that it suffered a loss of use of tangible
property not physically injured. Rather, Exelon alleges that Pelco’s welds in the arms were
defective and it is seeking to be reimbursed for costs associated with inspecting and replacing the
allegedly defective divet arms. Consequently, there are no allegations of damages because of
‘property damage’ caused by an ‘occurrence’ as required by the insuring agreement.”
¶ 12 The letter further stated that Phoenix’s position “is premised on the facts of the loss and
the terms and conditions of the policy. If you disagree with our coverage position and/or have any
other information or documentation that you believe would affect our coverage determination,
please immediately forward those materials to [our] attention for review and consideration.”
Phoenix “expressly reserve[d] its right to raise any other applicable defenses as it obtains
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additional information. Nothing contained herein shall be deemed a waiver on [Phoenix’s] part of
any defenses *** and [Phoenix] shall not be estopped from relying upon any other policy
provisions or other bases to limit or deny coverage for this matter ***.”
¶ 13 Two days later, Pytell spoke with Albert by phone and, according to Pytell’s note. Pytell
told Albert that based on the information provided to date, Pelco had not alleged “property
damage.” Albert told her that a claim had not been pursued, and that this was more “notice only.”
Pytell advised Albert that if Exelon pursued a claim or filed a lawsuit, Phoenix could re-review
coverage. Pytell agreed to keep the file open.
¶ 14 On July 7, 2015, Pytell emailed Albert asking if he had been in contact with Exelon and
Exelon was “still pursuing this matter.” Albert responded, “Yes, I have. Yes, they are.” In a later
phone call Albert advised Pytell that Exelon was pursuing the matter and he was awaiting
additional information. He would then determine whether Pelco needed to again present the claim
to Phoenix for review.
¶ 15 Exelon, in a July 30, 2015 letter to Albert, stated it had provided Pelco with documents
regarding the costs of repairing Exelon equipment damaged in the incident. Pelco did not inform
Phoenix that Exelon now claimed property damage. In November 2015, Pytell’s notes state that
she confirmed that Exelon had not presented anything further, though Pelco “fully expect[s] a
claim.” Pytell decided to close the file, subject to reopening and reevaluation should a claim be
filed later.
¶ 16 Exelon Litigation
¶ 17 Exelon filed a complaint against Pelco in federal court on January 15, 2016. The complaint,
which Exelon amended, alleged breach of contract and breach of warranty, as well as damage to
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Exelon equipment. In interrogatories, Exelon identified as part of its damages, the costs incurred
“to perform emergency work necessary to address the initial arm failure and secure the site and to
address damage to other equipment cause by the arm failure.” Witness testimony indicated that the
conductor arm damaged an Exelon crane.
¶ 18 Not until more than two years later, on March 17, 2018, did Pelco re-tendered its claim to
Phoenix, noting that Exelon had filed a lawsuit involving property damage. Pelco asked Phoenix
to reconsider its decision denying coverage on the grounds that Exelon’s claim now includes
damage to Exelon’s property. Pelco also asked that Phoenix accept the defense of Pelco from the
beginning of the litigation and sought $463,542 in attorney’s fees and costs.
¶ 19 Phoenix agreed to provide a defense under a full reservation of rights and pay reasonable
defense costs from the time it received notice of the lawsuit. Phoenix “reserve[d] its right to deny
coverage based upon Pelco’s breach of the policy conditions as it did not provide written notice as
soon as practicable or send *** a copy of the summons and complaint as required by the policy.”
Phoenix denied Pelco’s request to reconsider its denial of reimbursement for defense costs incurred
from the time Exelon filed its lawsuit.
¶ 20 Phoenix and Pelco both filed declaratory judgment complaints. After a hearing, the trial
court dismissed Pelco’s complaint and allowed Pelco to file its answer, affirmative defenses, and
counterclaims to Phoenix’s complaint. The Phoenix five-count complaint sought a declaration that
(i) the insurers had no duty to reimburse Pelco for its defense costs, including attorney’s fees
incurred before Pelco notified them of the Exelon suit (counts I and IV), (ii) the insurers had no
duty to defend or indemnify Pelco for the claims made against Pelco in the Exelon suit (counts II
and V), (iii) the insurers may select counsel to defend Pelco in the Exelon suit and Pelco must
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reimburse them for difference between the rates Pelco’s attorney charged and the reasonable rates
Phoenix’s attorneys would have charged.
¶ 21 Pelco’s counterclaim sought a declaration that Phoenix had a duty to defend it in the Exelon
litigation. Pelco also alleged breach of contract and sought damages under section 155 of the
Illinois Insurance Code (215 ILCS 5/155 (West 2016) for Phoenix’s failure to pay pre-tender
defense costs.
¶ 22 The parties filed cross-motions for summary judgment. The trial court granted Phoenix’s
motion and denied Pelco’s motion. The court found that Exelon’s original cost claim was “quite
different than the allegations in the lawsuit which alleges third party property damage.” The court
also found that the denial of coverage for the cost claim did not excuse Pelco from complying with
the notice-of-suit requirements in the insurance policies. The court concluded Phoenix had no duty
to defend and indemnify Pelco in the Exelon lawsuit “because of the extremely late tendering of
the lawsuit.” The court entered a written order granting summary judgment on counts I, II, IV and
V of Phoenix’s complaint. Phoenix voluntarily dismissed count III without prejudice and with
leave to refile.
¶ 23 Analysis
¶ 24 Standard of Review
¶ 25 Summary judgment is proper where “the pleadings, depositions and admissions on file,
together with affidavits, if any, show there is no genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of law.” 735 ILCS 5/2-1005(c) (West 2016).
When both parties file cross-motions for summary judgment, they agree that no material facts are
in dispute and invite a decision as a matter of law. Pielet v. Pielet, 2012 IL 112064, ¶ 28. We
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review a decision granting summary judgment de novo. Valley Forge Insurance Co. v. Swiderski
Electronics, Inc., 223 Ill. 2d 352, 360 (2006).
¶ 26 When interpreting the language of an insurance policy, we apply the general rules
governing the interpretation of contracts. Hobbs v. Hartford Insurance Co. of the Midwest, 214 Ill.
2d 11, 17 (2005). Our primary objective involves ascertaining and giving “effect to the intentions
of the parties as expressed by the language of the policy.” Valley Forge Insurance Co., 223 Ill. 2d
at 362. The language of an insurance policy must be read according to its plain and ordinary
meaning. Crum and Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391
(1993). We resolve ambiguity in favor of the insured and against the party who drafted the policy.
Baxter International, Inc., American Guarantee and Liability Insurance Co., 369 Ill. App. 3d 700,
704 (2006).
¶ 27 Pelco’s Duties Under the Policy
¶ 28 Pelco contends that because the policy requires notice of a claim or suit and not notice of
a claim and suit, it satisfied the timely notice requirement when it notified Phoenix of Exelon’s
cost claim in 2014, within a reasonable time after the incident. Pelco asserts that because “or” is
disjunctive, not conjunctive like “and,” it only needed to give Phoenix notice of a claim or a suit,
but not both.
¶ 29 A notice provision in an insurance contract constitutes a “valid prerequisite[ ]” to coverage
under the policy. Country Mutual Insurance Co. v. Livorsi Marine, Inc., 222 Ill. 2d 303, 311
(2006); Berglind v. Paintball Business Ass’n, 402 Ill. App. 3d 76, 85 (2010) (“notice provisions
are not merely technical requirements but, rather, conditions precedent to the triggering of the
insurer's contractual duties”). A notice of suit requirement in a policy enables the insurer to conduct
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a timely and thorough investigation of the insured’s claim, locate and participate in the defense of
the insured, aids the insurer in the discovery of facts bearing on coverage, and affords an
opportunity to control the litigation. Northbrook Property & Casualty Insurance Co. v. Applied
Systems, Inc., 313 Ill. App. 3d 457, 465 (2000). An insured’s breach of a notice clause in an
insurance policy by failing to give reasonable notice defeats the right of the insured to recover
under the policy. Livorsi Marine, Inc., 222 Ill. 2d at 312.
¶ 30 “Provisions in policies stating when the insurer must be notified of a covered occurrence
have generally been interpreted to require notification of the company within a reasonable time,
considering all the facts and circumstances of the particular case.” American Family Mutual
Insurance Co. v. Blackburn, 208 Ill.App.3d 281, 288, (1991); Barrington Consolidated High
School v. American Insurance Co., 58 Ill. 2d 278, 281 (1974). The reasonableness of notice
presents a fact-specific inquiry. Livorsi Marine, 222 Ill. 2d at 311-12. “Factors the courts may
consider in determining reasonable notice include: (1) the specific language of the policy’s notice
provisions; (2) the degree of the insured’s sophistication in the world of commerce and insurance;
(3) the insured’s awareness that an occurrence as defined under the terms of the policy has taken
place; (4) the insured’s diligence and reasonable care in ascertaining whether policy coverage is
available once the event has occurred; and (5) any prejudice to the insurance company.” Berglind,
402 Ill. App. 3d at 86 (citing Livorsi Marine, 222 Ill.2d at 313).
¶ 31 Pelco argues that under the policy it only had to give notice of a claim or a suit, not both.
If Phoenix was requiring multiple notices of both a claim and a suit, Pelco contends, it should have
said so.
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¶ 32 Phoenix argues that a “claim” and a “suit” are not the same, particularly here, where the
claim and the suit did not include the same alleged damages. In addition, depending on when it
knew of the claim or suit, Pelco had to provide separate notice of each as soon as practicable.
¶ 33 We need not address whether Pelco was required to provide two separate notices—first for
the cost claim and then for the lawsuit—because Pelco failed to satisfy its other duties under the
policy, which precludes it from coverage. As noted, under the “notice of claim or suit” provision
of the policy, Pelco’s duties were not limited to providing notice of claim or suit. The policy also
provided that in the event of an occurrence, offense, claim, or suit, Pelco must “[i]mmediately send
[Phoenix] copies of any demands, notices, summonses or legal papers received in connection with
the claim or suit.” Exelon filed its complaint against Pelco in January 2016; yet, Pelco failed to
“immediately” send Phoenix a copy of the complaint or any other legal papers it received in
connection with the lawsuit. Indeed, Pelco did not send Phoenix any documents related to the suit
until after Phoenix learned, in March 2018, that Exelon had filed a complaint. Pelco’s failure to
provide Phoenix documents relevant to the lawsuit until more than two years after Exelon filed its
complaint was a breach of the insurance agreement. Moreover, by withholding the documents,
Pelco deprived Phoenix of the opportunity to discover facts, participate in the defense of the
insured, and control the litigation. Thus, Pelco breached the insurance contract, which is sufficient
grounds to affirm the trial court’s order granting summary judgment to Phoenix.
¶ 34 Because we affirm on this basis, we do not address Pelco’s other arguments that Phoenix
had “actual” notice of the lawsuit or that Pelco was excused from providing notice.
¶ 35 Affirmed
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