2021 IL App (3d) 190500
Ill. App. Ct.2021Background
- McIntosh leased an apartment to Monroe and Dorothy Sheckler; the lease required the landlord to “maintain fire and other hazard insurance on the premises only” and exculpated the landlord from liability for tenant property.
- McIntosh obtained a fire insurance policy from Auto-Owners; the policy named only McIntosh and his wife as insureds; McIntosh paid the premium before leasing the unit.
- A gas-oven incident in the Shecklers’ unit caused a fire; Auto-Owners paid McIntosh’s property claim and pursued a subrogation action against repairman Wayne Workman.
- Workman filed a third-party contribution claim against the Shecklers alleging their negligent conduct caused the fire; the Shecklers tendered their defense to Auto-Owners, which refused.
- The trial court granted summary judgment for Auto-Owners; the appellate court reversed, holding (under Dix and equitable principles) the Shecklers were coinsured with respect to fire damage and Auto-Owners owed them a duty to defend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are tenants coinsured under the landlord’s fire policy? | Sheckler: Dix makes tenants coinsured where lease and rent allocation show landlord maintains insurance for premises. | Auto-Owners: Coinsured status depends on policy language; landlord paid premium before tenancy. | Yes — under Dix and lease terms here, tenants are coinsured as a matter of equity. |
| Does insurer owe the tenants a duty to defend against a third-party contribution claim arising from fire damage? | Sheckler: If coinsured, insurer must defend and indemnify against claims for fire damage to the premises. | Auto-Owners: Duty to defend is governed by the insurance contract and underlying complaint; Dix inapplicable to defense duties. | Yes — equitable extension of Dix requires Auto-Owners to defend its coinsureds here. |
| Does payment of the premium before tenancy defeat coinsured status? | Sheckler: No; rent reflects insurance cost in practice, so timing of premium payment is irrelevant. | Auto-Owners: Yes; landlord’s pre-payment shows tenants did not contribute to premium, so no coinsured status. | No — payment timing does not defeat coinsured status under the facts and lease terms. |
| Does the lease indemnification clause bar the Shecklers’ claim for defense? | Sheckler: Indemnification clause relates to tenant claims against landlord and does not address fire damage to premises; it does not negate coinsured status. | Auto-Owners: Clause shows parties intended tenants to be liable/hold harmless, undermining coinsured argument. | No — the indemnification clause does not negate the coinsured status or insurer’s duty to defend for fire damage to premises. |
Key Cases Cited
- Dix Mutual Insurance Co. v. LaFrambroise, 149 Ill. 2d 314 (Ill. 1992) (tenant may be deemed coinsured under landlord’s fire policy and insurer barred from subrogation under the particular facts of that case)
- Hacker v. Shelter Insurance Co., 388 Ill. App. 3d 386 (Ill. App. Ct. 2009) (distinguishes Dix and holds insurer’s duty to defend generally is governed by policy language, not Dix equities)
- Cerny-Pickas & Co. v. C.R. Jahn Co., 7 Ill. 2d 393 (Ill. 1955) (historic principle that insurance cost is reflected in rent and tenants effectively pay insurance)
- Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384 (Ill. 1993) (no duty to indemnify unless duty to defend exists)
- Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446 (Ill. 2010) (insurer’s duty to defend is determined by comparing underlying complaint to policy coverage)