Pekin Insurance v. Miller

SECOND DIVISION
August 8, 2006
No. 1-05-4086
PEKIN INSURANCE COMPANY, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County.
)
v. )
)
KEN MILLER, doing business as MILLER )
TREE SERVICE, CHICAGO TITLE & TRUST )
COMPANY as Trustee under Trust No. )
53885, WILLIAM GIVENS, MARILYN GIVENS, )
JOHN MAREK, and HARRIET SLAYTON, ) Honorable
) Anthony L. Young,
Defendants-Appellees. ) Judge Presiding.
JUSTICE WOLFSON delivered the opinion of the court:
A tree-cutting service operated by Ken Miller was hired to clear trees off certain
lots. The trees were cleared from the wrong lots. The tree-cutter=s commercial general
liability (CGL) insurer, Pekin Insurance Co., refused to defend Miller against lawsuits
brought by the owners of the property trees were removed from. This court must decide
whether clearing trees off the wrong lots constitutes an "occurrence" under the CGL
policy and whether certain exclusions in the policy bar coverage. The trial court found
Pekin has a duty to defend. We agree.
FACTS
In the underlying lawsuit, plaintiffs Chicago Title & Trust Co. as Trustee under
Trust No. 53885, William Givens, Marilyn Givens, John Marek, and Harriet Slayton, filed
suit against Miller, d/b/a Miller Tree Service, and Bineet Sarang, d/b/a Sarang
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Corporation (Sarang), for trespass and violations of the Wrongful Tree Cutting Act, 740
ILCS 185/2 (West 2000). The plaintiffs later added additional counts of negligent
trespass. They alleged Sarang hired Miller to remove trees from lots 13, 14, and 15 of a
subdivision in Hanover Park, Illinois. Instead, Miller cleared trees from lots 10, 11, and
12, which were owned by the plaintiffs. The lots were cleared without the plaintiffs=
consent or permission, causing damage to their property. Relying on the wording in the
complaint, we conclude the "property" plaintiffs alleged was damaged refers to the trees
and not the land. Plaintiffs alleged the trees were valued at more than $100,000. They
requested damages in excess of $50,000 plus costs.
Miller tendered his defense to his insurer, Pekin Insurance Company (Pekin).
Pekin filed a declaratory judgment action, contending certain policy provisions excluded
coverage, and it was not obligated to defend or indemnify Miller in the underlying action.
The circuit court granted Miller=s motion for judgment on the pleadings and denied
Pekin=s motion for judgment on the pleadings. The court held "Pekin owes a defense on
the underlying tort case." The court included language in its order finding there was no
just cause to delay enforcement or appeal. 155 Ill. 2d R. 304(a). Pekin appeals.
DECISION
An insurer=s duty to defend its insured is determined by the allegations in the
underlying complaint. Viking Construction Management, Inc. v. Liberty Mutual
Insurance Co., 358 Ill. App. 3d 34, 41, 831 N.E.2d 1 (2005). A duty to defend arises if
the complaint=s allegations fall within or potentially within the coverage provisions of the
policy. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108, 607
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N.E.2d 1204 (1992). The underlying complaint is to be liberally construed in favor of the
insured. United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64,
74, 578 N.E.2d 926 (1991).
We review a judgment on the pleadings on a de novo basis. State Farm Fire &
Casualty Co. v. Tillerson, 334 Ill. App. 3d 404, 407, 777 N.E.2d 986 (2002). The
construction of an insurance policy also is a question of law subject to de novo review.
Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 292, 757 N.E.2d
481 (2001).
I. Accident/Occurrence
Pekin contends its CGL policy does not cover the property damage because
Miller=s actions do not constitute an "occurrence" under the policy. The policy provides
coverage for "those sums that the insured becomes legally obligated to pay as damages
because of >bodily injury= or >property damage= to which this insurance applies."
Property damage is covered only if the damage is caused by an "occurrence." An
"occurrence" is defined as "an accident, including continuous or repeated exposure to
substantially the same general harmful conditions."
Pekin contends Miller=s actions were intentional rather than accidental. Courts
define 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." Monticello Insurance Co. v. Wil-Freds Construction, Inc., 277 Ill. App. 3d
697, 703, 661 N.E.2d 451 (1996). "The natural and ordinary consequences of an act do
not constitute an accident." Wil-Freds, 277 Ill. App. 3d at 703. Pekin contends the
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natural and ordinary consequences of cutting down trees are damaged trees. Although
Miller may not have intended to cut down the wrong trees, Pekin says, Miller=s act of
cutting down the trees was intentional.
Pekin compares this case to Wil-Freds, where the court held the defective
construction of a building resulting in damage to the building itself did not constitute an
occurrence under a CGL policy. Wil-Freds, 277 Ill. App. 3d at 704. The court held the
construction defects alleged in the complaint for breach of contract were the natural and
ordinary consequences of improper construction techniques. Wil-Freds, 277 Ill. App. 3d
at 704. In contrast, the plaintiffs in the underlying complaint do not allege Miller used
improper techniques in removing trees on their property. Rather, they allege he
removed trees on the wrong property.
This case is more similar to Lyons v. State Farm Fire & Casualty Co., 349 Ill.
App. 3d 404, 406, 811 N.E.2d 718 (2004), where the underlying complaint alleged the
defendant built levees that protruded onto the plaintiffs= property. The insurer argued
the act of constructing levees was intentional and therefore was not an "occurrence" or
"accident" covered by the insurance policy. Lyons, 349 Ill. App. 3d at 408. The court
held the focus of the inquiry in determining whether an occurrence is an accident is
"whether the injury is expected or intended by the insured, not whether the acts were
performed intentionally." (Emphasis in original.) Lyons, 349 Ill. App. 3d at 409, citing
Wilkin, 144 Ill. 2d at 77-78. The court held there was no evidence defendant expected
or intended to build the levees so that they extended onto the adjoining property.
Lyons, 349 Ill. App. 3d at 412.
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We reject Pekin=s contention that Miller=s removal of trees on the underlying
plaintiffs= property was intentional and thus not an "occurrence" under the CGL policy.
There is no evidence Miller intended the harmful result--the clearing of trees on the
wrong property. It is immaterial that the underlying complaint alleges intentional torts. It
is the "property damage" that must be " >neither expected nor intended from the
standpoint of the insured.= " Wilkin, 144 Ill. 2d at 77. We find the allegations in the
underlying complaint constitute an "occurrence" potentially within the coverage of the
insurance policy.
II. Exclusions
Pekin contends two exclusions in the policy preclude coverage. Pekin disputes
the defendants= claim that the exclusions are ambiguous and ought to be construed in
favor of the insured.
In construing the language of an insurance policy, our primary objective is to
ascertain and give effect to the intent of the parties to the contract. Eljer Manufacturing,
197 Ill. 2d at 292. To ascertain the meaning of the policy=s language and the parties=
intent, the court must construe the policy as a whole and "take into account the type of
insurance purchased, the nature of the risks involved, and the overall purpose of the
contract." Eljer Manufacturing, 197 Ill. 2d at 292.
It is the insurer=s burden to affirmatively demonstrate the applicability of an
exclusion. Johnson Press of America, Inc. v. Northern Insurance Co. of New York, 339
Ill. App. 3d 864, 871, 791 N.E.2d 1291 (2003). Exclusion provisions that limit or exclude
coverage must be construed liberally in favor of the insured and against the insurer.
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State Farm Mutual Automobile Insurance Co. v. Villicana, 181 Ill. 2d 436, 442, 692
N.E.2d 1196 (1998).
Where a policy provision is clear and unambiguous, its language must be taken
in its "plain, ordinary, and popular sense." Wilkin, 144 Ill. 2d at 74. A provision is
ambiguous if it is subject to more than one reasonable interpretation. Wilkin, 144 Ill. 2d
at 74. Ambiguities will be construed against the insurer. Illinois Farmers Insurance Co.
v. Hall, 363 Ill. App. 3d 989, 993, 844 N.E.2d 973 (2006). However, courts will consider
only reasonable interpretations and will not strain to find an ambiguity where none
exists. Hall, 363 Ill. App. 3d at 993-94.
Section 2j(5) of the Pekin policy excludes coverage for property damage to:
"[t]hat particular part of real property on which you or any
contractors or subcontractors working directly or indirectly on
your behalf are performing operations, if the >property
damage= arises out of those operations."
Section 2j(6) excludes coverage for property damage to:
"[t]hat particular part of any property that must be restored,
repaired or replaced because >your work= was incorrectly
performed on it."
"Your work" is defined in the policy as:
"a. Work or operations performed by you or on your behalf;
and
b. Materials, parts or equipment furnished in connection with such work or
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operations."
We examine the words of the two exclusions through a prism formed by a risk
analysis of CGL insurance policies.
" >[C]omprehensive general liability policies *** are intended
to protect the insured from liability for injury or damage to the
persons 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, quoting Qualls v. Country
Mutual Insurance Co., 123 Ill. App. 3d 831, 833-34, 462
N.E.2d 1288 (1984).
See also Wilkin, 144 Ill. 2d at 82 ("business risk" exclusions in liability policies are
not intended to provide protection against the insured=s own faulty workmanship or
product; the policies are meant to afford coverage for damage to other property caused
by the insured=s work or product); Viking, 358 Ill. App. 3d at 45 (CGL policies generally
do not cover claims for breach of contract).
Initially, we separate out those coverage cases that grow out of a contractual
relationship between the insured and the injured party who contracted with the insured
to do something. Those cases do not involve personal injury or property damage
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incurred by third parties who are strangers to the contract.
The general holding of the cases is that, for one reason or another, there is no
coverage when the insured is in a contractual relationship with the injured party. That
is, CGL policies are not intended to cover breaches of contract, no matter how the
personal injury or property damage is described by the insured. See Viking, 358 Ill.
App. 3d at 45-46; Whitman Corp. v. Commercial Union Insurance Co., 335 Ill. App. 3d
859, 874-75, 782 N.E.2d 297 (2002); Indiana Insurance Co. v. Hydra Corp., 245 Ill. App.
3d 926, 929, 615 N.E.2d 70 (1993). See also West American Insurance Co. v.
Kamadulski Excavating & Grading Co., Inc., No. 05-CV-206-DRH, slip op. at 3 (S.D. Ill.
May 4, 2006) (court held two exclusions, identical to the exclusions in this case, did not
apply to injuries to third parties in the absence of a contractual relationship between the
insured and the third parties).
In other cases in which the insured is in a contractual relationship with the
underlying plaintiff, courts have construed policy exclusions to preclude coverage for
damage to the actual property the insured was working on. But damage to other
property owned by the underlying plaintiff has been covered. See Wilkin, 144 Ill. 2d at
81-82; Tillerson, 334 Ill. App. 3d at 410; Pekin Insurance Co. v. Willett, 301 Ill. App. 3d
1034, 1039, 704 N.E.2d 923 (1998); Wil-Freds, 277 Ill. App. 3d at 706-10; Hartford
Accident & Indemnity Co. v. Case Foundation Co., 10 Ill. App. 3d 115, 125-26, 294
N.E.2d 7 (1973).
Here, Miller was on the wrong property when he cut the trees. The property and
the trees belonged to the underlying plaintiffs, who sued Miller for damaging the trees.
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There was no contract between Miller and the underlying plaintiffs. The underlying
action sounds in tort law and in a violation of a tree-cutting statute.
Pekin=s reliance on Pekin Insurance Co. v. L.J. Shaw & Co., 291 Ill. App. 3d 888,
896-97, 684 N.E.2d 853 (1997), where the court held a professional services exclusion
did not require privity between the insured and claimant, is misplaced. The holding in
L.J. Shaw was confined to a particular professional services exclusion. We confine our
analysis to the type of policy and exclusions in this case.
No Illinois state court case squarely confronts the situation we find here. A case
that is nearly identical in fact and issue was decided by the Supreme Court of
Minnesota. It was a 4 to 3 decision. In Thommes v. Milwaukee Insurance Co., 641
N.W.2d 877 (Minn. 2002), Thommes & Thomas Land Clearing (Thommes) entered into
a contract to clear and grub land for a commercial development. Complying with the
owner=s instructions, Thommes cleared and grubbed one-half acre of land owned by a
different owner, who did not consent to the clearing and grubbing. Thommes, 641
N.W.2d at 879. Milwaukee Insurance Company declined to defend or indemnify
Thommes, based on exclusions 2j(5) and 2j(6), which contained language identical to
the exclusions in this case.
The court distinguished between two types of risks undertaken by an insured
contractor. There is a "business risk"--"the risk that the insured >may be liable as a
matter of contract law to make good on products or work which is defective or otherwise
unsuitable because it is lacking in some capacity.= " Thommes, 641 N.W.2d at 881,
quoting Bor-Son Building Corp. v. Employers Commercial Union Insurance Co., 323
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N.W.2d 58, 63 (Minn. 1982). CGL policies generally do not cover that kind of risk.
Thommes, 641 N.W.2d at 881.
CGL policies are intended to insure against the second type of risk--"the risk that
[the contractor=s] work or product will cause bodily injury or property damage to other
property," which may give rise to tort liability to third parties. Thommes, 641 N.W.2d at
881.
The Minnesota court held exclusion 2j(5) was ambiguous because the policy did
not define the phrase "that particular part of real property" or the word "operations." Nor
did the exclusion expressly apply to operations performed on the property of third
parties. Given the underlying purpose of CGL insurance and the principle that
insurance exclusions are to be construed strictly against the insurer, the court held the
exclusion did not bar coverage for the property damage. Thommes, 641 N.W.2d at 883.
The court held the exclusion in section 2j(6) was ambiguous because it was
subject to two reasonable interpretations--either the work was "incorrectly performed" if
performed on the wrong property, or the work was "incorrectly performed" only if the
manner in which the work was performed was faulty or defective. Thommes, 641
N.W.2d at 883-84. The court construed the exclusion narrowly against the insurer,
concluding the exclusion applied only to work performed in a faulty or defective manner
and, thus, did not bar coverage. Thommes, 641 N.W.2d at 884.
The dissenting justices maintained the exclusions were clear and unambiguous,
their plain meanings excluding coverage. Thommes, 641 N.W.2d at 884-85 (Stringer,
J., dissenting). The exclusions were not expressly limited to property performed
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pursuant to contract. Thommes was "performing operations" on the property belonging
to the third party, and the damage fell within the reference to "property damage" in
section 2j(5). Similarly, section 2j(6) clearly excluded coverage because "what could be
more incorrect than performing the work on the wrong property?" Thommes, 641
N.W.2d at 885 (Stringer, J., dissenting). The dissenting justices argued the majority=s
result was absurd. "That Thommes should have liability coverage for damages that he
inflicted as a trespasser but not have coverage for claims based on work done on the
land specified in the clearing contract defies comprehension." Thommes, 641 N.W.2d
at 885 (Stringer, J., dissenting).
We side with the Thommes majority. Both exclusions in this case are
ambiguous. In exclusion 2j(5), it is not clear what "particular part of real property" the
exclusion is referring to--the land or the trees. Miller was "performing operations" on the
trees. Pekin=s contention that trees are real property is a reasonable interpretation. The
decision Pekin cites for this proposition stands unaltered since 1873. See Osborn v.
Rabe, 67 Ill. 108 (1873) (trees are considered real property that may not be seized by a
sheriff under a fieri feci (writ of execution)). See also Gialloreto v. State of Illinois,
Division of Highways, 30 Ill. Ct. Cl. 233 (1975), citing Illinois Law & Practice, Property '
10 ("Growing trees and shrubs form part of the land and constitute real property");
Swain Nelson & Sons Co. v. Department of Finance, 365 Ill. 401, 6 N.E.2d 632, 633
(1937) ("growing trees and shrubs *** are real property in legal contemplation and the
mere removal thereof from the land does not *** convert them into personalty").
In addition, section 2j(5) is ambiguous because it is not clear whether the
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exclusion refers to any property or only to property that the insured is contractually
obligated to perform operations on. Given the purpose of CGL policies, one could
reasonably interpret exclusion 2j(5) to apply only to property the insured is contractually
obligated to work on. Because there is more than one reasonable interpretation of the
provision, we find the provision ambiguous and construe it against the insurer. It does
not apply in this case.
Turning to exclusion 2j(6), we agree with the Thommes majority that there are
two reasonable interpretations of the provision. The phrase "incorrectly performed"
could refer to the manner in which the trees were removed. Here, there was nothing
incorrect about the manner in which Miller removed the trees. It also could refer to the
location from which they were removed, which would be applicable in this case. It is not
clear whether the exclusion applies to the unusual situation in this case because the
underlying complaint does not allege Miller=s tree-removal procedures were incorrect,
only that trees were removed from the wrong lots. We also believe the phrase "your
work" as applied to 2j(6) is ambiguous. Nowhere in the exclusion or in the definition of
"your work" does the policy indicate whether "your work" is confined to the actual
location Miller was hired to perform his tree-cutting work on.
Section 2j(6) does not define the phrase "any property." If it means the land
Miller cut trees on it might reasonably be argued the exclusion does not apply because
it is not the land that must be "restored, repaired or replaced;" it is the trees. If "any
property" refers to the trees that were cut, the exclusion makes no sense in this case
because Miller=s "work" was not "incorrectly performed" on the trees. We find exclusion
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2j(6) is ambiguous and construe it against the insurer. It does not apply in this case.
Of course, parties to contracts, including insurance contracts, may agree to the
scope of coverage and which matters should be excluded from coverage. Village of
Lombard v. Intergovernmental Risk Management Agency (IRMA), 288 Ill. App. 3d 1003,
1009, 681 N.E.2d 88 (1997). But their intent to exclude the risk of damage to property
owned by third parties must be demonstrated by the use of clear and unambiguous
language. University of Illinois v. Continental Casualty Co., 234 Ill. App. 3d 340, 350-
51, 599 N.E.2d 1338 (1992). This policy does not do that. If Pekin wanted to exclude
coverage for the cutting of trees on a third party=s land it could have said so.
CONCLUSION
We affirm the trial court=s order finding Pekin is obligated to defend Miller in the
underlying lawsuit. Miller=s actions alleged in the complaint fit within the policy=s
definition of an occurrence. The exclusions in sections 2j(5) and 2j(6) are ambiguous
and do not clearly exclude coverage for the alleged property damage. We construe
them against the insurer.
Affirmed and remanded.
GARCIA, P.J., and SOUTH, J., concur.
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