2011 IL App (2d) 100970
Ill. App. Ct.2011Background
- USAA insured the McInerneys; Cyrs purchased the property and alleged post-sale water intrusion, flooding, and mold resulting in property damage and injuries.
- The McInerneys disclosed known flooding/temporary seepage in a real estate disclosure; they added that new landscaping and drains remedied seepage.
- Cyrs filed suit asserting breach of contract, disclosure Act violations, fraudulent and negligent misrepresentation, and sought rescission or damages.
- USAA refused to defend; USAA filed for declaratory judgment arguing no bodily injury/property damage caused by an occurrence and that exclusions applied.
- Trial court found USAA had a duty to defend based on negligent misrepresentation and that the flooding/mold constituted an occurrence causing damages; USAA appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether negligent misrepresentation can trigger coverage as an occurrence | McInerney argued underlying misrepresentation claims fall within coverage | USAA argued the misrepresentation is not an occurrence and is excluded | Yes; negligent misrepresentation can be an occurrence under the policy. |
| Whether the postsale flooding and mold constitute property damage/occurrence | Cyrs alleged property damage and bodily injury from an occurrence | USAA contended no covered occurrence | Yes; postsale damage from flooding/mold designated an occurrence causing property damage and mold-related injuries. |
| Whether the contract exclusion or loss-in-progress doctrine precludes coverage | Policy excludes contract-based liability; loss-in-progress doctrine could bar coverage | Exclusions/loss-in-progress apply to preclude coverage | Contract exclusion inapplicable; loss-in-progress doctrine does not apply to negligent misrepresentation. |
| Whether Lane v. Allstate dictates denial of defense | Lane controls this case to deny duty to defend | Lane is distinguishable; here misrepresentation can be covered | Distinguished; Lane not controlling; duty to defend exists. |
Key Cases Cited
- Dixon Distributing Co. v. Hanover Insurance Co., 161 Ill. 2d 433 (1994) (duty to defend determined by underlying complaint vs. policy)
- Illinois Emcasco Insurance Co. v. Northwestern National Casualty Co., 337 Ill.App.3d 356 (2003) (liberal construction in favor of insured; possible coverage)
- United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill.2d 64 (1991) (insurer obligated to defend if allegations potentially within coverage)
- General Agents Insurance Co. of America, Inc. v. Midwest Sporting Goods Co., 215 Ill.2d 146 (2005) (duty to defend when multiple theories; coverage need not be every theory)
- Illinois Masonic Medical Center v. Turegum Insurance Co., 168 Ill.App.3d 158 (1988) (liberal construction; allegations resolved in insured's favor)
- Pekin Insurance Co. v. Richard Marker Associates, Inc., 289 Ill.App.3d 819 (1997) (interpretation of potentially covered claims; doubt resolved in insured's favor)
- Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90 (1992) (policy interpretation and coverage questions)
- Posing v. Merit Insurance Co., 258 Ill.App.3d 827 (1994) (occurrence, property damage, and negligence considerations in coverage)
- Allstate Insurance Co. v. Lane, 345 Ill.App.3d 547 (2003) (distinguishable; preexisting defects; contract-based remedies)