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Pope v. Economy Fire & Casualty Co.

November 7, 2002

MICHAEL ROBERT POPE, A MINOR, BY CYNTHIA LEA POPE, HIS MOTHER AND NEXT FRIEND, PLAINTIFF-APPELLANT,
v.
ECONOMY FIRE & CASUALTY COMPANY, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County. No. 00 CH 03864 Honorable Richard J. Billik, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Theis

Plaintiff Michael Robert Pope, through his mother and next friend, Cynthia Lea Pope, appeals from a declaratory judgment in favor of defendant Economy Fire & Casualty Company (Economy). On cross-motions for summary judgment, the trial court held that Economy did not commit an anticipatory breach of its duty to defend its insured in connection with a lawsuit commenced by plaintiff for injuries allegedly sustained as the result of his ingestion of lead-based paint or lead dust while renting an apartment from the insured.

On appeal, plaintiff contends that Economy's refusal of coverage before its insured was served with a lawsuit was an anticipatory breach of the insurance contract. As a result, plaintiff argues that the insured was relieved of her obligation to tender notice of the underlying lawsuit and that Economy is estopped from asserting any defenses under the policy. Additionally, plaintiff contends that the lead paint exclusion in the policy does not bar coverage for his claims of negligence arising from the presence of lead dust and violations of the Chicago Municipal Code. We affirm the judgment of the circuit court.

BACKGROUND

The following undisputed facts were adduced from the parties' cross-motions for summary judgment. In November 1989, Nancy Basta purchased a 15-unit apartment complex located at 3316-24 West Sunnyside Avenue in Chicago. She acquired a business owner's liability policy for the property which was issued by Hanover Insurance Company. That policy was in effect from November 22, 1989, until March 8, 1990. Thereafter, she was insured by Economy under a multi-peril liability policy from March 8, 1990, through March 8, 1994. From January 1989 until December 1994, plaintiff and his family rented the first-floor apartment from Basta.

In July 1993, Basta received a letter from the City of Chicago department of health. The letter referenced the Sunnyside property and stated that the City's "inspection of the above listed premises has found the presence of lead bearing paint in violation of chapter 7.4 of the Municipal Code of Chicago." The letter further ordered Basta to immediately abate the lead paint contamination and instructed her to attend a hearing at the department of health. Thereafter, Basta attended the hearing with her attorney and acknowledges that she was aware of plaintiff's allegation of lead paint poisoning at that time. She had the lead paint removed from the premises as required by the City within 30 days. Basta never gave Economy or Hanover notice of this occurrence. *fn1

Almost two years later, on March 1, 1995, plaintiff's attorney sent Basta an attorney's lien letter informing her of plaintiff's claim for injuries from "lead poisoning contracted on the premises." The letter suggested that Basta notify all present and past insurance carriers of the claim. The very next day, on March 2, 1995, plaintiff filed a complaint against Basta and others, alleging that he was poisoned by exposure to lead-based paint, dust, and residue at the Sunnyside premises. The complaint alleged that the property contained a dangerously high level of lead in paint found on the woodwork and other surfaces, that the presence of lead paint was extremely hazardous to plaintiff's health and well-being, and that plaintiff ingested lead, by either eating it or by breathing or ingesting the lead-contaminated dust created by crumbling, deteriorating or oxidizing lead-based paint. The complaint further stated that Basta and others had a duty to exercise reasonable care to remedy the danger caused by the presence of lead-based paint in the property, and that the painted surfaces were in poor condition and disrepair, with "deteriorated paint and paint dust." Additionally, plaintiff alleged negligence arising from violations of the Chicago Municipal Code.

Thereafter, on March 14, 1995, Basta forwarded plaintiff's notice of lien letter to Economy. At that time, she had not yet been served with a complaint. On April 12, 1995, Economy responded in writing to Basta. Based upon the attorney's lien letter and the policy, Economy notified her that it would be "unable to indemnify [her] nor provide a defense for [her] in this matter" because the injury to plaintiff was due to the "alleged exposure to lead paint." Economy advised Basta that according to an exclusion in the relevant policy, coverage did not apply to "bodily injury or property damage arising out of actual, threatened or alleged exposure to asbestos, lead paint, fiberglass or radon gas." The letter further provided that Economy "will, of course, be available to you to discuss the position [it has] taken." A copy of the letter was sent to Basta's insurance agent and to plaintiff's counsel. Neither Basta, her agent, nor plaintiff's counsel ever responded to the denial letter.

Plaintiff served Basta with the complaint on May 8, 1995. Basta never gave Economy notice of the lawsuit. However, she did notify Hanover of the suit. Unlike the Economy policy, the Hanover policy did not include a lead paint exclusion. After receiving notice of the underlying suit, Hanover investigated the claims against Basta and initially denied coverage for the underlying suit. Thereafter, Hanover sought a declaratory judgment regarding its obligations and defended Basta under a reservation of rights.

Plaintiff's lawsuit was eventually dismissed in accordance with a settlement agreement between Basta, plaintiff, and Hanover. Under the terms of the settlement, Hanover agreed to pay plaintiff a lump sum of $60,000. Additionally, Basta agreed to assign to plaintiff all of her claims against Economy. Plaintiff was to be paid $2 million to be collected from Economy solely through the assignment. Neither Basta nor Hanover ever notified Economy of the settlement agreement.

In March 2000, plaintiff filed a complaint as the assignee of the rights of the insured seeking a declaration that Economy breached its duty to defend Basta in the underlying action. On cross-motions for summary judgment, plaintiff argued that Economy's denial of its duty to defend before Basta received notice of the lawsuit was an anticipatory breach of the insurance contract. The trial court found that there was no breach of Economy's duty to defend where the factual allegations in the underlying suit, when compared to the lead paint exclusion in the policy, did not give rise to a potential for coverage. Plaintiff filed a timely appeal. We granted leave to the Complex Insurance Claims Litigation Association to file an amicus curiae brief in support of Economy's position.

ANALYSIS

Plaintiff contends that the trial court erred in granting Economy's motion for summary judgment and that he was entitled to summary judgment as a matter of law. A motion for summary judgment is properly granted when, viewed in the light most favorable to the nonmoving party, the pleadings, depositions, admissions, and affidavits establish that no genuine issue as to any material fact exists and the moving party is entitled to a judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2000); Ragan v. Columbia Mutual Insurance Co., 183 Ill. 2d 342, 349, 701 N.E.2d 493, 496 (1998). The standard of review in cases involving summary judgment is de novo. Ragan, 183 Ill. 2d at 349, 701 N.E.2d at 496.

Plaintiff initially argues that Economy's denial of coverage to Basta before she was served with the complaint in the underlying lawsuit was an anticipatory breach of Economy's duty to defend under the insurance contract. The concept of anticipatory breach of a contractual duty to defend under a liability insurance policy has never specifically been addressed in Illinois nor have we found any other jurisdictions that have considered the issue in this context. Thus, we find it necessary to first consider the application of the doctrine in light of the nature of the contract before us. Generally, the doctrine has been applied in Illinois primarily to bilateral executory contracts for the sale of goods and services or real estate where there is a definite duty to perform some act in the future. See, e.g., Wilmette Partners v. Hamel, 230 Ill. App. 3d 248, 594 N.E.2d 1177 (1992) (anticipatory breach of a duty to perform on an excavation contract); First National Bank & Trust Company of Evanston v. First National Bank of Skokie, 178 Ill. App. 3d 180, 533 N.E.2d 8 (1988) ...


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