2019 IL App (1st) 181867
Ill. App. Ct.2019Background
- Evergreen Real Estate Services managed Martin Luther King Jr. Plaza and bought a Private Company Advantage policy from Hanover, which included a Corporate Entity Liability (entity liability) part and a Miscellaneous Professional Liability (professional liability) part.
- The entity liability coverage broadly insured losses for claims against the insured entity but excluded claims "based upon arising out of or in any way related to the performance, provision or rendering of Professional Services." The professional liability part covered wrongful acts in rendering professional services but excluded claims for "unfair or deceptive business practices, including but not limited to, violations of any local, state or federal consumer protection laws."
- Tenants filed a putative class action against Evergreen and the building owner MLK Partners alleging violations of Chicago’s Residential Landlord and Tenant Ordinance (RLTO). Evergreen tendered defense; Hanover initially refused, later accepted under a reservation of rights.
- Hanover contended the RLTO claims were excluded either as claims arising from professional services (entity liability exclusion) or as unfair/deceptive business practices or violations of a consumer-protection law (professional liability exclusion), and refused to defend or indemnify.
- Evergreen sued for a declaratory judgment requiring Hanover to defend and for section 155 (vexatious and unreasonable denial) damages; Hanover counterclaimed and sought a declaration it need not defend MLK Partners as an additional insured.
- The trial court ordered Hanover to defend Evergreen and MLK Partners but denied Evergreen’s section 155 claim. Both sides appealed; the appellate court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend under professional liability policy | Policy covers wrongful acts in rendering professional services; RLTO claims are not clearly within the consumer-protection/unfair-practices exclusion | RLTO is a local consumer-protection law and/or the allegations allege unfair or deceptive business practices, so the exclusion bars coverage | Duty to defend exists — RLTO and the complaint do not unequivocally fall within the exclusion; reasonable doubt resolved for insured |
| Duty to defend under entity liability policy (professional-services exclusion) | Even if services are "professional," the professional liability part would cover those claims and the entity exclusion should not bar defense | Entity liability exclusion for professional services precludes coverage for the same conduct | Court found duty to defend overall because professional liability part’s exclusion did not clearly apply; coverage potential exists |
| Duty to defend MLK Partners as additional insured | MLK Partners sought defense as additional insured under the policy | Hanover argued it owed no defense to MLK Partners for same exclusionary reasons | Duty to defend MLK Partners under professional liability part — trial court’s ruling affirmed |
| Section 155 bad-faith claim | Hanover unreasonably refused to defend and is liable under 215 ILCS 5/155 | Hanover had an arguable, reasonable basis to deny coverage; novel questions made its position not vexatious | No section 155 sanctions — insurer’s coverage position was at least arguable and not unreasonable |
Key Cases Cited
- International Minerals & Chemical Corp. v. Liberty Mutual Insurance Co., 168 Ill. App. 3d 361 (exclusionary clauses must be clear to deny coverage)
- Myoda Computer Center, Inc. v. American Family Mutual Insurance Co., 389 Ill. App. 3d 419 (policy must be construed as a whole to determine coverage)
- Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127 (standard of review discussions for section 155 issues)
- Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513 (purpose of section 155 and bad-faith penalty explained)
- Lawrence v. Regent Realty Group, Inc., 197 Ill. 2d 1 (RLTO violations can occur without scienter)
- Price v. Philip Morris, Inc., 219 Ill. 2d 182 (distinguishing consumer-protection statutes' remedial purpose)
- Rozenfeld v. Medical Protective Co., 73 F.3d 154 (an insurer not liable under section 155 when its position is at least arguable)
- Greenwich Insurance Co. v. RPS Products, Inc., 379 Ill. App. 3d 78 (insurer bears burden to show exclusion applies clearly)
- Johnston v. Anchor Organization for Health Maintenance, 250 Ill. App. 3d 393 (consumer-protection laws protect purchasers of goods/services)