Appeal from the Circuit Court of Kankakee County. No. 91 MR 338. Honorable PATRICK M. BURNS, Judge, Presiding.
Released for Publication March 31, 1994. Petition for Leave to Appeal Denied October 6, 1994.
Present - Honorable Kent Slater, Presiding Justice, Honorable Peg Breslin, Justice, Honorable Tobias Barry, Justice
The opinion of the court was delivered by: Barry
JUSTICE BARRY delivered the opinion of the court.
Plaintiff, Del Posing, doing business as Del's Pest Control (Posing), brought an action in the Circuit Court of Kankakee County for declaratory judgment against Merit Insurance Company (Merit) and the owners of three buildings for which plaintiff had conducted termite inspections and/or performed pest control services, seeking to have the court determine plaintiff's liability insurance coverage under a policy issued by Merit. The case was heard and taken under advisement. On July 16, 1993, the court entered judgment for plaintiff and ordered Merit to reimburse plaintiff for defense costs incurred theretofore, to assume plaintiff's defense in suits brought by the property owners and to indemnify plaintiff in the event judgment was entered against him in those suits. Merit appeals.
Merit claims that the trial court's ruling was erroneous in four respects: 1) that the court erroneously determined that the provisions, definitions and exclusions in Merit's comprehensive general liability policy were not clear and unambiguous; 2) that the court erroneously concluded that the property owners' claims were not excluded from coverage as intangible economic losses; 3) that the court erroneously concluded that the policy's exclusion for intentional acts of the insured did not preclude coverage for the damages claimed in the underlying lawsuits; and 4) that the court's determination of Merit's duty to indemnify plaintiff in the property owners' suits was premature.
According to the record on appeal, plaintiff purchased a comprehensive general liability (CGL) policy issued by Merit for his extermination business through the John W. Slater Insurance Agency in August of 1986. Plaintiff periodically renewed the policy, paying yearly premiums in excess of $3000, through August, 1989. Plaintiff's renewal policy for the period 8/11/87 to 8/11/88 was admitted into evidence as plaintiff's Exhibit 1.
By its terms, the policy's property liability coverage is limited to $50,000 per occurrence. Under "Description of Hazards," the policy describes plaintiff's business as "exterminators - including termite control - excluding the use of gas of any kind including completed operations." The pre-printed policy provides the following definitions relevant to this appeal: "'incidental contract' means any written 1) lease of premises, 2) easement agreement, except in connection with construction or demolition operations on or adjacent to a railroad, 3) undertaking to indemnify a municipality required by municipal ordinance, except in connection with work for the municipality, 4) sidetrack agreement, or 5) elevator maintenance agreement; * * * 'occurrence' means an accident, including continuous or repeated exposure to conditions, neither expected nor intended from the standpoint of the insured which results in bodily injury or property damage; * * * 'property damage' means 1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or 2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period." Under "exclusions," the policy provides, "This insurance does not apply: a) to liability assumed by the insured under any contract or agreement except an incidental contract; but with respect to bodily injury or property damage occurring while work performed by the named insured is in progress, this exclusion does not apply to a warranty that such work will be done in a workmanlike manner." Appended to the policy is Merit's form "ME-36 (4-87)" endorsement modifying the policy in the following relevant respect: "2) Exclusion (a) is deleted and replaced by: a) liability assumed by the insured under any contract or agreement except an incidental contract."
The record also contains copies of complaints filed in the Circuit Court of Kankakee County by the three property owners, which plaintiff forwarded to Merit. The first was filed in seven counts by Dean and Dana Goselin on January 20, 1988 against Posing and the seller of the subject residential real estate, Donna Wood. Count VII, the only one against Posing, charges that Posing "conducted his [termite] inspection in a negligent manner," that "it was the negligently rendered opinion upon which [the Goselins] proceeded to purchase the property," and that, as a result, the Goselins "purchased a house with a diminished value which requires great inconveniences and costs to repair with said damages amounting therefrom being in excess of $15,000.00."
The second complaint was filed by Morning Star MissionaryBaptist Church on October 17, 1988 in two counts and subsequently amended to add Count III. The complaint, as amended, charges in Count I that Posing and the church entered into a contractual agreement for the extermination of subterranean termites on the church's premises in May, 1984; that Posing "failed to fulfill the contract . . . in that he failed to apply the necessary additional treatment to the premises as required by the written Agreement;" and that "as a direct consequence of [Posing's] breach of said written Agreement, the building on the [church's] premises was infested with termites and [the church] has been damaged in the amount of . . . $46,000.00, said sum representing the cost of repairing the structural damages to the walls, floorboards and supporting arc beams of said building." Count II charges that Posing breached an express warranty "that subterranean termites would be controlled on the [church's] premises during the period of the Agreement." Count III charges negligence in that Posing "failed to properly exterminate termites on the subject premises; [and] . . . failed to inspect and notify the [church] of the infestation of termites in a timely manner."
The third complaint was filed by James Forrester in six counts on March 16, 1990 against Posing and Sis Spurger Realty and Leda Tatro, the real estate broker and seller, respectively, of residential property purchased by Forrester. Counts I through V pertain to Posing. In Count I, Forrester charges that all named defendants "failed to use due care in obtaining and communicating information regarding the condition of the . . . property," and that Forrester "suffered damages, proximately caused by the Defendants' negligent misrepresentation, in excess of $50,000.00, for necessary repairs discovered in May, 1989, in an amount in excess of the purchase price." In Count II Forrester complains that the several defendants made misrepresentations with knowledge of their falsity, and he claims punitive damages of $100,000. In Count III, Forrester complains that the several defendants "intentionally concealed material facts regarding the condition of the property" and made other material and untrue statements knowing them untrue or "in culpable ignorance of the truth or falsity of the statements," upon which Forrester detrimentally relied, and again claims both compensatory and punitive damages. Counts IV and V complain that Sis Spurger and Posing violated sections 261 and 311 of the Illinois Consumer Fraud Act.
Plaintiff's Exhibits 2, 3 and 4 are cover letters from Merit returning to plaintiff the complaints filed by the Goselins, Forresterand the Morning Star Baptist Church, respectively, and refusing to defend the actions under plaintiff's policy of insurance. In the Goselin case the letter recites, "There is no allegation in the complaint that the property damage was caused by an occurrence or accident but simply alleges that the damage was already present and you negligently failed to discover it. There is no allegation that your negligence caused physical injury to tangible property during the policy period." In the Morning Star Baptist Church case the letter from Merit states, inter alia, "Your policy with this company contains following [sic] exclusion, 'this insurance does not apply to liability assumed by the insured under any contract or agreement except an incidental contract.' The contract in question does not fall under the definition of incidental contract.'" And, in the Forrester case Merit's letter recites, "It is our position that there is no occurrence or accident complained of in the complaint. In addition, any intentional acts complained of are not covered. It is also our position that there is no allegation of property damage because there is no allegation of physical injury to or destruction of tangible property as a result of any occurrence. * * * The payment of punitive damages is excluded by endorsement ME-36."
The standard for determining an insurer's duty to defend requires our review of the underlying complaints and our construction of the policy of insurance. ( United States Fidelity & Guaranty Co. v. Wilkin Insulation Co. (1991), 144 Ill. 2d 64, 578 N.E.2d 926, 930, 161 Ill. Dec. 280.) The law applicable to our review was cogently expressed by Justice Bilandic in Wilkin:
"If the underlying complaints allege facts within or potentially within policy coverage, the insurer is obliged to defend its insured even if the allegations are groundless, false, or fraudulent. ( Thornton v. Paul (1978), 74 Ill. 2d 132, 384 N.E.2d 335, 23 Ill. Dec. 541.) An insurer may not justifiably refuse to defend an action against its insured unless it is clear from the face of the underlying complaints that the allegations fail to state facts which bring the case within, or potentially within, the policy's coverage. ( Conway v. Country Casualty Insurance Co. (1982), 92 Ill. 2d 388, 442 N.E.2d 245, 65 Ill. Dec. 934.) Moreover, if the underlying complaints allege several theories of recovery against the ...