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Elson v. State Farm Fire and Casualty Co.

February 17, 1998

B. JOHN ELSON, CHRISTINE E. ELSON, KATHLEEN STRAND, THOMAS STRAND, AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS-APPELLANTS,
v.
STATE FARM FIRE AND CASUALTY COMPANY, AN ILLINOIS CORPORATION, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County No. 93 CH 9816 Honorable Stephen A. Schiller, judge Presiding.

The opinion of the court was delivered by: Justice O'mara Frossard

Plaintiffs appeal from the dismissal of their fifth amended complaint, which alleged claims for breach of contract, statutory and common law fraud, reformation of contract, violation of the Illinois Insurance Code (215 ILCS 5/1 et seq. (West 1994)), and estoppel. The action is based on defendant State Farm Fire and Casualty Company's denial of plaintiffs' claims under their 1993 homeowners insurance policies.

On August 2, 1996, the trial court granted defendant's motion to dismiss the fifth amended complaint for failure to state a cause of action under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1994). The court denied plaintiffs' motions for reconsideration and for leave to file a sixth amended complaint on November 19, 1996. It is from these orders that plaintiffs appeal.

I. FACTS

Plaintiffs filed this action in September of 1993. Each claim was based on the contention that defendant State Farm wrongfully denied plaintiffs' claims in 1993 for flood-related water damage under plaintiffs' homeowners insurance policies. Plaintiffs purchased standard homeowners insurance policies from State Farm in 1990, which excluded coverage for water damage caused by sewer or drain backup. In 1990, plaintiffs purchased additional insurance offered via an amendatory endorsement, which included coverage for such water damage. Also in 1990, plaintiffs' homes were flooded and they made claims based on the drain backup coverage in the endorsement, which were paid by defendant.

In 1991, plaintiffs received renewal notices from defendant which offered to renew their homeowners policies. Along with the renewal notices, plaintiffs received policy booklets setting forth the terms of coverage. The notice, termed a "renewal certificate," listed the number of the renewal policy on the face of the document and contained language which provided that $5,000 worth of drain backup coverage could be added to the policy upon payment of an additional $60.

In 1992 and 1993, plaintiffs continued to receive such renewal notices for their State Farm insurance policies and paid the required premiums, although they did not pay the additional $60 to receive coverage for drain backup damages. The amount of the premium did not reflect elimination of coverage for sewer and drain backup. In 1993, after flooding caused more water damage to their properties, plaintiffs again filed claims under their homeowners policies. Defendant denied these claims, asserting that the 1990 amendatory endorsement was not renewed in 1991 along with the original policies and plaintiffs were not covered for such damage.

II. ANALYSIS

In reviewing an order on a section 2-615 motion to dismiss, the court shall apply a de novo standard of review. Board of Library Trustees v. Cinco Construction, Inc., 276 Ill. App. 3d 417, 658 N.E.2d 473 (1995). The standard of review for a section 2-615 motion to dismiss is whether the complaint sufficiently states a cause of action, and the merits of the case are not considered. Jesperson v. Minnesota Mining & Manufacturing Co., 288 Ill. App. 3d 889, 681 N.E.2d 67 (1997). Upon review, all well-pleaded facts are taken as true and considered in the light most favorable to the plaintiffs. Rodgers v. Whitley, 282 Ill. App. 3d 741, 668 N.E.2d 1023 (1996). The complaint is to be construed liberally and should only be dismissed when it appears that plaintiff could not recover under any set of facts. Illinois Graphics Co. v. Nickum, 159 Ill. 2d 469, 639 N.E.2d 1282 (1994).

A section 2-615 motion attacks only defects apparent on the face of the complaint and is based on the pleadings rather than the underlying facts. Urbatis v. Commonwealth Edison, 143 Ill. 2d 458, 475, 575 N.E.2d 548 (1991). The court, in ruling on a section 2-615 motion, may not consider affidavits, the products of discovery, documentary evidence not incorporated into the pleadings as exhibits, testimonial evidence or other evidentiary materials. Barber-Colman Co. v. A&K Midwest Insulation Co., 236 Ill. App. 3d 1065, 603 N.E.2d 1215 (1992). In the present case, plaintiffs have incorporated several exhibits into their fifth amended complaint, primarily insurance documents, which must be considered when analyzing the sufficiency of the pleading.

In determining whether plaintiffs have met the section 2-615 pleading hurdle, we will address the sufficiency of each cause of action, or count, on an individual basis.

A. Breach of Contract (Count I)

In order to properly plead a breach of contract, a plaintiff must allege the following elements: (1) the existence of a valid and enforceable contract; (2) performance by the plaintiff; (3) breach of contract by the defendant; and (4) resultant injury to the plaintiff. Nielsen v. United Services Automobile Ass'n, 244 Ill. App. 3d 658, 662, 612 N.E.2d 526 (1993). Additionally, in alleging a breach of contract, a plaintiff's pleadings must allege facts sufficient to indicate the terms of the contract claimed to have been breached. Nielsen, 244 Ill. App. 3d at 662. The general principles governing the interpretation of insurance contracts do not differ from those controlling in other contracts. Rivota v. Kaplan, 49 Ill. App. 3d 910, 364 N.E.2d 337 (1977).

In construing insurance contracts, the court's primary purpose is to give effect to the intention of the parties as expressed therein. Rivota, 49 Ill. App. 3d at 915. Where the terms of a policy are clear and unambiguous, their plain meaning will be given effect. Economy Fire & Casualty Co. v. Kubik, 142 Ill. App. 3d 906, 909, 492 N.E.2d 504 (1986). Where, however, a provision in an insurance policy is subject to more than one reasonable interpretation, it is ambiguous and must be construed against the insurer and in favor of the insured. Kubik, 142 Ill. App. 3d at 909. See also Jones v. State Farm Mutual Automobile Insurance Co., 289 Ill. App. 3d 903, 682 N.E.2d 238 (1997); Wahls v. Aetna Life Insurance Co., 122 Ill. App. 3d 309, 461 N.E.2d 466 (1983).

In the present case, plaintiffs allege defendant breached its contract by failing to provide "plain, clear and conspicuous notice" of nonrenewal as required by their insurance policies and denying the claims of plaintiffs for losses due to water damage from sewer or drain backup. Defendant contends that the 1990 amendatory endorsement which provided for such coverage was not part of the 1991 renewal policies and subsequent renewals of plaintiffs' homeowners insurance policies. Defendant argues that sufficient notice of non-renewal of the endorsement was established in two ways; first, the form number of the 1990 amendatory endorsement was not listed on the renewal notices under the section labeled "Forms, options and endorsements," and second, the renewal notices contained a statement which purportedly alerted insureds that in order to purchase sewer or drain backup coverage, an additional payment of $60 was required.The renewal of an insurance policy is, in effect, a new contract of assurance and, unless otherwise expressed, is on the same terms and conditions as were contained in the original policy. Dungey v. Haines & Britton, Ltd., 155 Ill. 2d 329, 614 N.E.2d 1205 (1993). The general rule is that when a policy renewal is made, unless provided otherwise, the terms of the original policy become part of the renewal contract of insurance. Dungey, 155 Ill. 2d at 334; Economy Fire & Casualty Co. v. Pearce, 79 Ill. App. 3d 559, 399 N.E.2d 151 (1979). Defendant claims it has "provided otherwise" by giving sufficient notice of non-renewal of the endorsement and thus plaintiffs were not covered for water damage under the version of the policies in effect.

The key inquiry in construing policy coverage is not what the drafters actually intended, but whether that alleged intent was expressed in the language of the policy itself so that it was understandable to the person purchasing the insurance policy. Kubik, 142 Ill. App. 3d at 911. The rule that insurers should gain no advantage from their own drafting ambiguities is most rigorously applied to exclusionary provisions. Dungey, 155 Ill. 2d at 340-41 (Bilandic, J., Dissenting). Our courts have held that exclusions from the general coverage provided by an insurance policy must be stated in such clear, definite and explicit language as to warrant the Conclusion that the insured understood and accepted them. Protective Insurance Co. v. Coleman, 144 Ill. App. 3d 682, 494 N.E.2d 1241 (1986).

Applying these principles here, it is evident that an ambiguity exists as to whether the amendatory endorsement was part of the insurance contracts during subsequent renewal periods. Despite defendant's claims, it is not clear from the language of the renewal notices that the subject endorsement was not being renewed. First, defendant contends that the primary insurance policies clearly exclude drain backup coverage. While it is true that language excluding such coverage appears in the policies, such language also appeared in the policies when the 1990 amendatory endorsement providing for such coverage was in effect and when plaintiffs' claims for water damage were paid. Defendant further asserts that because the renewal certificates did not list the form number of the 1990 amendatory endorsement, plaintiffs were notified that it was no longer in effect and the exclusions from drain backup coverage in the original policies must now apply.

In support of this contention, defendant cites two cases that address the relevance of an endorsement number on a policy renewal document.

In Pearce, the central issue was whether a "youthful drivers" exclusion endorsement was in effect at the time of an automobile accident. Pearce, 79 Ill. App. 3d 559. The exclusion was signed and attached to the original policy, and upon renewal, a certificate was sent to the insured. The renewal certificate contained the notation "CE-90," the form number of the endorsement attached to the original policy. The defendant argued that the exclusion was not in effect at the time of the accident, as the original endorsement expired by its own terms and was not reexecuted upon renewal. The court rejected this argument, holding that because the renewal certificate listed the form numbers of endorsements and because there was no indication the ...


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