2018 IL App (3d) 170809
Ill. App. Ct.2019Background
- Preckshot Professional Pharmacy operated a leased pharmacy in Peoria; AT&T subcontractor performing directional boring struck a water service line about 18 inches from the premises, causing water to inundate the interior above ground.
- Preckshot submitted an insurance claim under its Pharmacists Mutual policy; Pharmacists Mutual investigated (Dona Engineering) and denied coverage citing policy exclusions for “water below the surface of the ground” and for “Defects, Errors, or Omissions.”
- Preckshot sued for breach of contract and alleged bad-faith denial under 215 ILCS 5/155(1).
- Pharmacists Mutual counterclaimed for a declaratory judgment that coverage was excluded; it moved for summary judgment on the counterclaim and on Preckshot’s claims.
- The trial court granted summary judgment to Pharmacists Mutual, finding both the groundwater exclusion and the defects/errors exclusion applied; Preckshot appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the policy’s “water below the surface of the ground” exclusion bars coverage for damage caused when underground water seeps upward and damages interior space | Preckshot: exclusion applies only where both the water and the resulting loss/damage remain below ground; once water reaches interior it is no longer "below the surface" and exclusion does not apply | Pharmacists Mutual: exclusion refers to origin of the water (water originating below ground), and excludes damage caused when that water flows, seeps, or leaks into building components | Court: exclusion applies; it looks to the origin of the water (below surface) and expressly excludes water that exerts pressure on or flows, seeps, or leaks through/into building parts, so coverage is excluded |
| Whether subsections (a)–(d) limit exclusion to inherently underground structures (e.g., basements, septic tanks) | Preckshot: contextual reading shows subsections refer to below-ground structures; thus ordinary doors/windows/floors/walls were not intended to be covered by the exclusion unless below ground | Pharmacists Mutual: list includes building components generally; subsections are not limited to below-ground-only structures and should be read to avoid surplusage | Court: subsections cover above- and below-ground building components; reading them narrowly would render other subsections superfluous, so exclusion covers water seeping through floors, walls, doors, windows, etc. |
| Whether the “Defects, Errors, or Omissions” exclusion independently bars coverage | Preckshot: contested applicability; argued exclusion likely inapplicable or limited | Pharmacists Mutual: contends term “property” is not limited and exclusion applies (negligent acts related to construction/repair/workmanship) | Court: did not decide because groundwater exclusion alone disposes of coverage; skeptical but unnecessary to resolve |
Key Cases Cited
- Shannon v. Boise Cascade Corp., 208 Ill. 2d 517 (Illinois 2004) (summary-judgment standard)
- Founders Ins. Co. v. Munoz, 237 Ill. 2d 424 (Illinois 2010) (insurance-policy interpretation principles)
- Barth v. State Farm Fire & Casualty Co., 228 Ill. 2d 163 (Illinois 2008) (courts must not read additional terms into insurance policies)
- Dowd & Dowd, Ltd. v. Gleason, 181 Ill. 2d 460 (Illinois 1998) (avoid interpretations that render contract terms surplusage)
- Central Ill. Light Co. v. Home Ins. Co., 213 Ill. 2d 141 (Illinois 2004) (application of rule against surplusage in policy construction)
- Bull v. Nationwide Mut. Fire Ins. Co., 824 F.3d 722 (8th Cir. 2016) (exclusion for water below surface barred coverage where water originated in pipe beneath slab and damaged above-ground parts)
- Colella v. State Farm Fire & Cas. Co., [citation="407 F. App'x 616"] (3d Cir. 2011) (similar exclusion applied where drain line under slab caused first-floor damage)
- Carver v. Allstate Ins. Co., 76 S.W.3d 901 (Ark. Ct. App. 2002) (water originating underground is within exclusion even if it erupts above ground and causes damage)