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Bellington Realty and Eighteen Investments, Inc. v. Philadelphia Insurance Co.

United States District Court, Seventh Circuit

May 31, 2013

Bellington Realty and Eighteen Investments, Inc., Plaintiffs,
v.
Philadelphia Insurance Company, Defendant.

MEMORANDUM OPINION AND ORDER

THOMAS M. DURKIN, District Judge.

Plaintiff Bellington Realty ("Bellington") brought this diversity action against its insurer, Philadelphia Insurance Company ("Philadelphia"), alleging claims for breach of contract and relief under Section 155 of the Illinois Insurance Code, 215 ILCS 5/155.[1] Presently before the Court are the parties' cross-motions for summary judgment. R. 16, 21. For the reasons explained below, Bellington's motion for partial summary judgment on Philadelphia's first affirmative defense is granted, and Philadelphia's motion for summary judgment is denied.

Background

Philadelphia issued a commercial lines insurance policy to Bellington. R. 25, Def.'s Resp. to Pls.' Stmt. of Facts ("Def.'s Resp. PSOF") ¶ 3. The policy was effective August 2009 through August 2010 and included coverage for commercial property, commercial general liability, commercial crime, and commercial auto. Id. ¶¶ 3, 4. The policy insured property at over 750 locations around the country, including an apartment building located at 7937 South Marquette Avenue in Chicago, Illinois. Id. ¶¶ 1, 6. The commercial property coverage portion of the policy insured 7937 South Marquette against risks of direct physical loss or damage unless limited or excluded. Id. ¶ 7. This type of policy is commonly referred to as an "all-risk" policy. See R. 19-1, Pls.' Br. at 4.

In December 2009, there was a fire at 7937 South Marquette. Def.'s Resp. PSOF ¶ 23. Bellington notified Philadelphia of the loss and submitted a claim for coverage. Id. ¶ 24. Philadelphia began investigating the claim. In March 2010, Philadelphia sent Bellington a letter requesting additional documents and information relating to the 7937 South Marquette apartment building. R. 18-14, Pls.' Exh. N. Philadelphia's letter described Bellington's claim as "vandalism/arson damage." Def.'s Resp. PSOF ¶ 36. In May 2010, Philadelphia issued a letter to Bellington denying the claim. Id. ¶ 37. Philadelphia's denial was based on its determination that 7937 South Marquette had been vacant for more than 60 consecutive days before the fire and that the fire was an act of vandalism. Id. As a result, Philadelphia denied the claim based on the policy's exclusion for loss or damage to vacant property caused by vandalism. Id.

In this lawsuit, Bellington and Eighteen Investments contend that Philadelphia must pay for all of the losses and damages sustained by them as a result of the fire at 7937 South Marquette. R. 53, Am. Compl. ¶ 10. Philadelphia denies that it has a duty to pay Plaintiffs' claim, and asserts three affirmative defenses. See R. 54, Am. Answer. Philadelphia's first affirmative defense is based on the policy's so-called "vacancy exception." Specifically, the vacancy exception provides that if a loss is caused by "vandalism, " Philadelphia will not pay for the loss if the building was vacant for more than 60 consecutive days before the loss occurred. But if the loss is caused by one of the other "covered causes of loss" under the policy, Philadelphia will pay for a loss sustained in a vacant building, however, the amount Philadelphia would otherwise pay for the loss will be reduced by 15%.

Bellington moves for partial summary judgment on Philadelphia's first affirmative defense. Bellington argues that, as a matter of law, the "vandalism exclusion" does not apply in this case. Bellington contends that even if the fire was intentionally and/or maliciously set and thus may qualify as an act of "arson, " the policy does not specifically exclude coverage for arson. Bellington argues that arson is a type of fire, as contrasted to a type of vandalism, and that Philadelphia's defense that the vacancy exclusion precludes coverage for fires caused by arson fails. Bellington asserts that, at a minimum, the term "vandalism" is susceptible to more than one reasonable interpretation and, therefore, it is ambiguous as to whether the vacancy exception encompasses an arson fire.

Philadelphia's cross-motion for summary judgment addresses the same issue: whether arson constitutes "vandalism" under the vacancy exception. Philadelphia contends that the vacancy exception is not ambiguous. Rather, looking at the plain, ordinary, and popular meaning of the term "vandalism" demonstrates that arson is a type of vandalism. As a result, Philadelphia asserts that the Court should find that arson constitutes vandalism under the vacancy exception and grant partial summary judgment in favor of Philadelphia.

After reviewing the policy and the case law cited by the parties, the Court agrees with Bellington that, at a minimum, it is ambiguous whether the term "vandalism" includes arson. Accordingly, Philadelphia cannot preclude coverage based on its position that the December 2009 loss was caused by vandalism.

Analysis

At issue in this case is the interpretation of the parties' agreement, namely, the "all-risk" property insurance policy Philadelphia issued to Plaintiffs. "An insurance policy is a contract, and the general rules governing the interpretation of other types of contracts also govern the interpretation of insurance policies." Hobbs v. Hartford Ins. Co. of the Midwest, 823 N.E.2d 561, 564 (Ill. 2005). The rules of contract interpretation are well settled. Under Illinois law, which applies in this diversity action, the "primary objective is to ascertain and give effect to the intention of the parties, as expressed in the policy language." Id.

In Outboard Marine Corporation v. Liberty Mutual Insurance Company, 607 N.E.2d 1204, 1212 (Ill. 1992), the Illinois Supreme Court set forth the general principles for construing insurance policies. Specifically,

The construction of an insurance policy's provisions is a question of law. In construing an insurance policy, the court must ascertain the intent of the parties to the contract. To ascertain the meaning of the policy's words and the intent of the parties, the court must construe the policy as a whole, with due regard to the risk undertaken, the subject matter that is insured and the purposes of the entire contract. If the words of the policy are unambiguous, a court must afford them their plain, ordinary, and popular meaning. However, if the words in the policy are susceptible to more ...

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