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Allstate Insurance Co. v. Lane

December 23, 2003


Appeal from the Circuit Court of Cook County No. 01 CH 12491 Honorable Richard A. Siebel, Judge Presiding.

The opinion of the court was delivered by: Justice Cahill


Defendants John J. Lane and Joan M. Lane appeal from a summary judgment in favor of plaintiff Allstate Insurance Company. The trial court concluded that Allstate had no obligation to defend or indemnify the Lanes in a lawsuit brought by Bruce C. Stern and Silvia M. Stern. The Sterns sought rescission of a real estate contract and damages because the home the Sterns purchased from the Lanes had been damaged by extensive water infiltration before the closing. We affirm.

The facts are undisputed. On June 4, 1999, the Sterns entered into a real estate contract to purchase the Lanes' house in Oak Park, Illinois. The Lanes signed a residential real property disclosure report, stating they were not aware of recurring leaks in the basement, material defects in the walls or floors, leaks or material defects in the roof, ceiling or chimney or material defects in the plumbing. The sale was closed on August 2, 1999, and the Sterns took possession of the house on August 4, 1999. They soon discovered defects in the property, including leaks, water damage and sewer odors.

The Sterns filed their amended complaint, seeking rescission of the sales contract or restitution under the theories of fraudulent misrepresentation, negligent misrepresentation, violation of the Residential Real Property Disclosure Act (765 ILCS 77/1 et seq. (West 1998)) or mutual mistake of fact. The Sterns also sued the real estate broker and agent for fraudulent or negligent misrepresentation and breach of fiduciary duty for failure to disclose known material defects in the property. The Sterns alleged that between 1984 and 1995, the Lanes replaced most of the windows in the house, but because of improper installation, the windows leaked and rainwater entered the house. The Sterns claimed that the Lanes knew of the water infiltration by the mid-1990s when they discovered damaged plaster, bubbling in the wallpaper and puddling in the basement during heavy rains. The sewer pipes cracked and the walls and floors lost structural support when the house shifted. As a result of the infiltration, the wooden studs and face boards rotted, the insulation became water-logged and the plaster walls softened. The Sterns alleged in their complaint that raw sewage leaked under the house and through the foundation of the basement. The defects forced the Sterns to leave the house.

The Sterns alleged that the Lanes knew of the defects and concealed them:

" John Lane admitted to having discovered the water damage prior to the closing and advised Tony Iwerson [the real estate agent] of the water damage. John Lane admitted that the Lanes had asked Iwerson on July 10, 1999[,] what their responsibility was with respect to the anticipated sale of the [p]roperty, and that Iwerson had told the Lanes not to advise the Sterns of the leaking and water damage." The complaint states that despite several contacts between the Sterns, Iwerson and the Lanes between July 10, 1999, and the closing on August 2, 1999, neither Iwerson nor the Lanes mentioned leaking or water damage to the Sterns.

The Lanes' Allstate family liability insurance policy provided: "Allstate will pay damages which an insured person becomes legally obligated to pay because of bodily injury or property damage arising from an occurrence to which this policy applies, and is covered by this part of the policy." The Lanes tendered to Allstate the defense of the underlying action. Allstate refused to defend the Lanes and filed a complaint for a declaratory judgment, arguing that the Lanes were not covered because the Sterns did not allege that the Lanes' conduct resulted in property damage caused by an occurrence as defined in the policy. The parties then filed cross-motions for summary judgment. The Lanes argued that Allstate should defend them in the Sterns' suit for negligent misrepresentation because the Lanes' failure to ascertain the existence and extent of the damage was an occurrence resulting in property damage. Allstate argued that the Sterns had alleged the breach of a real estate contract and economic loss caused by the Lanes' failure to disclose material defects, not "property damage" caused by an "occurrence."

Allstate further argued that it owed no duty to defend or indemnify the Lanes because the underlying action arose from a contract, intentional acts or a third-party property damage claim, all of which were excluded under the policy.

The trial court concluded that there was no "occurrence" resulting in "bodily injury" or "property damage" as defined in the policy and granted Allstate's motion for summary judgment. The Lanes appeal, arguing that the Sterns' negligent misrepresentation complaint sufficiently alleged an occurrence as defined in the policy.

We review de novo appeals from summary judgment. Atlantic Mutual Insurance Co. v. American Academy of Orthopaedic Surgeons, 315 Ill. App. 3d 552, 559, 734 N.E.2d 50 (2000). Appeals raising questions of law on the provisions of insurance policies also are subject to de novo review. Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 292, 757 N.E.2d 481 (2001). Summary judgment "is a drastic measure and should only be granted if the movant's right to judgment is clear and free from doubt." Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102, 607 N.E.2d 1204 (1992). In deciding whether a summary judgment ruling is correct, we construe all evidence strictly against the moving party and liberally in favor of the nonmoving party. Atlantic Mutual, 315 Ill. App. 3d at 559. Where, as here, the pleadings, depositions and affidavits show no genuine issue of material fact, the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West 2000); Atlantic Mutual, 315 Ill App. 3d at 559.

An insurer's duty to defend arises if the facts alleged in the underlying complaint fall within, or potentially within, the policy's coverage. Outboard Marine 154 Ill. 2d at 108. An insurer can refuse to defend its insured only if it is clear from the face of the underlying complaint that the coverage does not extend to the allegations. Outboard Marine 154 Ill. 2d at 108. The duty to defend is much broader than the duty to indemnify. Outboard Marine, 154 Ill. 2d at 125. To determine whether an insurer has a duty to defend, a court compares the allegations in the underlying complaint with the relevant coverage provisions of the insurance policy. Guillen v. Potomac Insurance Co. of Illinois, 203 Ill. 2d 141,150, 785 N.E.2d 1 (2003). "If the facts alleged in the underlying complaint fall within or potentially fall within the coverage of the policy, the insurer's duty to defendant is triggered." Guillen, 203 Ill. 2d at 150. In analyzing the terms of an insurance policy, words that are clear and unambiguous must be given their plain, ordinary and popular meaning. Travelers Insurance, 197 Ill. 2d at 292-93.

The Lanes' policy defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions during the policy period, resulting in bodily injury or property damage." The policy excluded "any liability an insured person assumes arising out of any contract or agreement" and "damage intended by, or which reasonably may be expected to result from the intentional *** acts or omissions of[,] any injured person."

The Lanes argue that Allstate is obligated to defend them because the Sterns' claims of "negligent representation and negligent failure to ascertain defects" alleged an ...

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