427 F.Supp.3d 1006
S.D. Ill.2019Background
- Artis L. Parker owned a single-family home in Illinois insured by Allstate; he relocated out of state in 2014 but retained the policy and periodically returned and maintained the property.
- Parker’s son (with a criminal record) lived alone in the insured home after other family members moved out.
- In 2018 the home burned down; Allstate’s investigator classified the cause as “undetermined.”
- Allstate denied the claim, citing (1) Parker’s alleged failure to notify Allstate of a change in occupancy and (2) an increased-hazard exclusion because Parker’s son resided alone in the home.
- Parker sued for breach of contract (Count 1) and under Illinois Insurance Code § 155 for vexatious/refusal to pay (Count 2). The court granted summary judgment to Parker on Count 1, denied his summary judgment on Count 2, granted Allstate’s cross-motion as to Count 2, and denied Allstate’s cross-motion as to Count 1.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether failure to notify Allstate of a change in occupancy permits retroactive denial of coverage | Parker: Policy does not authorize automatic rescission for any breach; insurer must provide notice of cancellation | Allstate: Failure to inform of change in occupancy breached policy and relieves insurer of liability | Court: Denial improper — policy only authorizes that insurer "may cancel" on breach and requires notice; insurer cannot retroactively cancel without notice or rely on unrelated breach to avoid coverage |
| Whether the increased-hazard exclusion bars coverage because Parker's son lived alone in the house | Parker: Exclusion applies only to losses caused by the increased hazard; no proof son caused the fire | Allstate: Presence of son increased hazard and justified denial | Court: Held for Parker — exclusion requires that the loss be caused by the increased hazard; cause was undetermined and insurer did not show son caused the fire |
| Whether Allstate's denial was vexatious/unreasonable under 215 ILCS 5/155 | Parker: Denial was unreasonable and merits fees/penalties under §155 | Allstate: Took a reasonable, good-faith coverage position based on policy language | Held: Court found a bona fide dispute and reasonable defense by Allstate; §155 relief denied |
Key Cases Cited
- Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) (federal courts sitting in diversity apply state substantive law)
- Green v. J.C. Penney Auto Ins. Co., 722 F.2d 330 (7th Cir. 1983) (purpose of cancellation notice is to afford insured time to obtain other insurance)
- Estate of Luster v. Allstate Ins. Co., 598 F.3d 903 (7th Cir. 2010) (notice requirements of cancellation protect insureds)
- Playboy Enters., Inc. v. St. Paul Fire & Marine Ins. Co., 769 F.2d 425 (7th Cir. 1985) (ambiguities limiting insurer liability construed most rigorously for insured)
- Heuer v. N.W. Nat’l Ins. Co., 33 N.E. 411 (Ill. 1893) (proximate, not remote, cause governs coverage determination)
- TKK USA, Inc. v. Safety Nat’l Cas. Corp., 727 F.3d 782 (7th Cir. 2013) (factors for determining whether insurer conduct was vexatious under Illinois law)