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Usaa Casualty Insurance Company v. Thomas A. Mcinerney Iii and Kelly K. Mcinerney

October 31, 2011

USAA CASUALTY INSURANCE COMPANY, PLAINTIFF AND COUNTERDEFENDANT- APPELLANT,
v.
THOMAS A. MCINERNEY III AND KELLY K. MCINERNEY,
DEFENDANTS AND COUNTERPLAINTIFFS- APPELLEES (PAUL J. CYR AND LAURIE CYR, INDIVIDUALLY AND AS PARENTS AND NEXT FRIENDS OF SUMMER CYR, KAI CYR, AND TORREY CYR, MINORS, DEFENDANTS).



Appeal from the Circuit Court of Lake County. Honorable Raymond J. McKoski Judge, Presiding. No. 09-MR-1492

The opinion of the court was delivered by: Justice Schostok

JUSTICE SCHOSTOK delivered the judgment of the court, with opinion. Justices McLaren and Hudson concurred in the judgment and opinion.

OPINION

¶ 1 The plaintiff, USAA Casualty Insurance Company (USAA), appeals from an order entered in favor of the defendants, Thomas and Kelly McInerney. The trial court concluded that USAA owed a duty to defend the McInerneys in a lawsuit brought against them by Paul and Laurie Cyr. The Cyrs sought rescission of a real estate contract or compensatory damages because, following the purchase of their home from the McInerneys, the Cyrs experienced extensive water infiltration and flooding in the basement of the home. We affirm.

¶ 2 I. BACKGROUND

¶ 3 On June 23, 2006, the Cyrs entered into a real estate contract to purchase the McInerneys' house in Lake Bluff. The McInerneys signed a residential real property disclosure report indicating that they were "aware of flooding or reoccurring leakage problems in [the] crawlspace or basement." The McInerneys supplemented that disclosure by further stating in the report that "during heavy rains slight seepage has occurred. New landscaping and [two] drains have provided [a] remedy to this occurrence. On rare occasions, we experience slight seepage." The sale was closed on July 27, 2006. In March 2007, the Cyrs began to experience significant water infiltration and flooding in the basement of the home. The Cyrs and their children also began to experience mold-related illnesses.

¶ 4 On June 1, 2007, the Cyrs filed a complaint, seeking rescission of the real estate sales contract or compensatory damages under the theories of breach of contract, violation of the Residential Real Property Disclosure Act (Disclosure Act) (765 ILCS 77/1 et seq. (West 2006)), fraudulent misrepresentation, and negligent misrepresentation. The Cyrs alleged that, after taking possession of the property, they began to experience "continuous water infiltration through the walls and the foundation into the basement, in amounts well in excess of what could be considered 'slight seepage.' " In addition, during heavier rains, the basement would become flooded and soaked. The Cyrs further alleged that, because they spent a great deal of time in the playroom and office in the basement, they began to experience severe mold-related illnesses due to the presence of stationary and airborne mold throughout the home. The Cyrs were forced to evacuate until they could conduct a full mold remediation of the home.

¶ 5 In their claim for negligent misrepresentation (count IV), the Cyrs alleged that the McInerneys breached their duty to exercise reasonable care in completing the disclosure report by (1) "carelessly omitting" the fact that there were material defects in the basement and foundation when they should have known of such defects, and (2) "disclosing that there was only slight seepage in [the] basement, which was based on their careless and erroneous determination as to the nature of the leakage problems in the basement." The Cyrs further alleged that, "[a]s a direct, proximate, reasonably probable and foreseeable consequence of the [McInerneys'] negligent acts or omissions," they suffered loss and damage to the property and to their personal belongings, and personal injury.

¶ 6 The McInerneys' USAA family liability insurance policy provided:

"If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will:

1. pay up to our limit of liability for the damages for which the insured is legally liable; and

2. provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent ***."

Accordingly, the McInerneys tendered to USAA the defense of the underlying action. USAA refused to defend the McInerneys. On January 2, 2009, USAA filed a complaint for declaratory judgment, arguing that the McInerneys were not covered because the Cyrs did not allege that the McInerneys' conduct resulted in bodily injury or property damage caused by an occurrence as defined in the policy. USAA further argued that any alleged occurrence was excluded from coverage because it was caused by intentional acts of the McInerneys or because the action arose from a contract.

ΒΆ 7 The McInerneys filed an answer and a counterclaim to USAA's complaint for declaratory judgment. In their counterclaim, the McInerneys requested that the trial court enter a judgment in their favor for the legal expenses they incurred in defending the underlying action plus prejudgment interest and costs (count I). The McInerneys also requested attorney fees pursuant to section 155 of the Illinois Insurance Code (215 ILCS ...


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