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Western World Insurance Co. v. Penn-Star Insurance Co.

June 8, 2009


The opinion of the court was delivered by: J. Phil Gilbert District Judge


This matter coming before the Court on the motion for summary judgment filed by plaintiff Western World Insurance Company ("Western World") (Doc. 46). Defendants City of East St. Louis ("City") and Ronnie McCoy ("McCoy") have responded to the motion (Docs. 48 & 49), and Western World has replied to that response (Doc. 50).

I. Summary Judgment Standard

Summary judgment is appropriate where "the pleadings, the discovery and disclosed materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Spath v. Hayes Wheels Int'l-Ind., Inc., 211 F.3d 392, 396 (7th Cir. 2000). The reviewing court must construe the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor of that party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Chelios v. Heavener, 520 F.3d 678, 685 (7th Cir. 2008); Spath, 211 F.3d at 396. Where, as in this case, the parties do not dispute the essential facts, the only question is whether the movant is entitled to judgment as a matter of law.

II. Facts

This matter arose after the City awarded McCoy a contract to demolish a building at 320 Collinsville Road. When McCoy performed the demolition on June 19, 2006, he intentionally destroyed part of a wall common to 320 Collinsville Road and 318 Collinsville Road, not knowing it was a common wall. Once he realized the wall was common to both buildings, he stopped. Nevertheless, the demolition caused over $100,000 in damage to the 318 Collinsville Road building.

Defendant Penn-Star Insurance Company, the insurer of 318 Collinsville Road, paid for the repairs and brought a subrogation suit against the City and McCoy to recover the amounts it paid. See Penn-Star Ins. Co. v. McCoy Constr. Co., No. 07-cv-175-DRH (S.D. Ill.). That underlying suit alleged causes of action for negligence and inverse condemnation. McCoy tendered the defense of the suit to its insurer Western World, which declined to defend or to pay for any resulting liability. The parties to the underlying suit have since settled.

The case before the Court is an action by Western World under the Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a declaration that the commercial general liability policy it issued to McCoy (No. NPP971220) ("Policy") does not cover the property damage to 318 Collinsville Road and that, as a consequence, it is not obligated to defend or indemnify McCoy. It believes the property damage to 318 Collinsville Road was not an "occurrence," as that term is defined in the Policy, and falls within several liability exclusions, including one for damage to common walls. The City and McCoy disagree and assert that the common wall exclusion is invalid.

III. Analysis

Under Illinois law, which all parties agree applies to this action, an insurer has an obligation to defend its insured in an underlying lawsuit if the complaint in the underlying lawsuit alleges facts potentially within the coverage of the insurance policy, even if the allegations end up being groundless, false or fraudulent. General Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092, 1098 (Ill. 2005). To determine if the underlying suit alleges a situation potentially within the insurance coverage, the Court compares the complaint to the relevant provisions of the insurance policy. Id. If any theory of recovery in the underlying complaint falls within the insurance coverage, the insurer will have a duty to defend. Id.

Under Illinois law, interpretation of an insurance policy, even an ambiguous policy, is a matter of law. Crum & Forster Managers Corp. v. Resolution Trust Corp., 620 N.E.2d 1073, 1077 (Ill. 1993); River v. Commercial Life Ins. Co., 160 F.3d 1164, 1169 (7th Cir. 1998). In interpreting a policy, the Court must attempt to effectuate the parties' intention as expressed by the policy. Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307, 314 (Ill. 2006). If the policy is unambiguous, the Court must construe it according to the plain and ordinary meaning of its terms. Id. On the other hand, if the policy is ambiguous, the Court must construe all ambiguities in favor of the insured and against the insurer, who drafted the policy. Id. In making the comparison, the Court must give the policy and the complaint a liberal construction favor of the insured. Country Mut. Ins. Co. v. Carr, 867 N.E.2d 1157, 1160 (Ill. App. Ct.), app. denied, 875 N.E.2d 1110 (2007).

The Court now turns to the question of whether the underlying complaint alleges a situation covered by the Policy.

A. Occurrence

Western World argues the Policy does not cover the demolition damage to 318 Collinsville Road because it only covers property damage if it is caused by an "occurrence," Policy, § I, ¶ 1.b(1), which the Policy defines as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions," Policy, § V, ¶ 13. It argues that because McCoy intended to demolish the common wall, the damage to it was not an "accident." The City, on the other hand, argues that the damage to 318 ...

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