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Selective Insurance Co. of South Carolina v. Cherrytree Companies, Inc.

Court of Appeals of Illinois, Third District

November 4, 2013

SELECTIVE INSURANCE COMPANY OF SOUTH CAROLINA, Plaintiff and Counterdefendant-Appellee,
v.
CHERRYTREE COMPANIES, INC., d/b/a Macon General Contractors, Defendant and Counterplaintiff-Appellant.

Appeal from the Circuit Court of the 13th Judicial Circuit, Bureau County, Illinois Appeal No. 3-12-0959 Circuit No. 11-MR-32 Honorable Marc P. Bernabei, Judge, Presiding.

Justice Holdridge concurred in the judgment and opinion.

Justice Schmidt specially concurred, with opinion.

OPINION

CARTER, JUSTICE

¶ 1 The plaintiff and counterdefendant-appellee, Selective Insurance Company of South Carolina (Selective), filed a complaint for declaratory judgment against the defendant and counterplaintiff-appellant, Cherrytree Companies, Inc., d/b/a Macon General Contractors (Cherrytree), which requested the circuit court to rule on whether the insurance policy Cherrytree had with Selective provided coverage for problems Cherrytree had with a grain storage facility it had built for another company in Fairfield, Nebraska. Along with its answer, Cherrytree filed two counterclaims, alleging that Selective breached its contract with Cherrytree and that Selective acted in bad faith in denying coverage for the Fairfield incident and another incident with a grain storage facility in Chester, Nebraska. After a hearing, the circuit court dismissed Cherrytree's counterclaims with prejudice on the pleadings. Later, the court denied Cherrytree's motion to consider and granted Cherrytree's motion for a finding pursuant to Supreme Court Rule 304(a) (eff. Feb. 26, 2010), thereby allowing Cherrytree to take this appeal. On appeal, Cherrytree argues that the court erred when it dismissed the counterclaims with prejudice. We reverse and remand for further proceedings.

¶ 2 FACTS

¶ 3 On September 14, 2011, Selective filed a complaint for declaratory judgment and other relief against Cherrytree, which Selective insured under a policy that contained commercial general liability (CGL) coverage and umbrella liability coverage. The complaint alleged that in March 2010, Cherrytree contracted with AGP Grain Marketing, LLC, to construct a grain storage facility in Fairfield, Nebraska. Cherrytree had completed 99% of the construction by October 26, 2010, when five to six trusses in the storage facility had sunk approximately one to two feet and the concrete walls in the center of the storage facility had bowed outward. Selective received notice of this problem on October 26, 2010, with a more detailed explanation given on November 4, 2010. Selective began investigating the incident in mid-November 2010 and issued a letter to Cherrytree in March 2011 that stated Selective did not believe the policy covered the problem with the storage facility. Selective stated that it was denying coverage because: (1) the problem with the storage facility did not constitute an "occurrence" under the policy; (2) the "your work" and "your product" exclusions precluded coverage; and (3) the problem with the storage facility did not constitute "property damage" under the policy.

¶ 4 Under the subject policy, the CGL coverage section stated, in relevant part:

"We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking those damages. However, we will have no duty to defend the insured against any 'suit' seeking damages for 'bodily injury' or 'property damage' to which this insurance does not apply. We may, at our discretion, investigate any 'occurrence' and settle any claim or 'suit' that may result."

¶ 5 The CGL coverage section defined "suit" as:

"[A] civil proceeding in which damages because of 'bodily injury', 'property damage' or 'personal and advertising injury' to which this insurance applies are alleged. 'Suit' includes:
a. An arbitration proceeding in which such damages are claimed and to which the insured must submit or does submit with our consent; or
b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent."

¶ 6 The umbrella liability coverage section of the policy stated, in relevant part:

"We will pay on behalf of the insured the 'ultimate net loss' in excess of the 'retained limit' that the insured becomes legally obligated to pay as damages because of 'bodily injury', 'property damage' or 'personal and advertising injury' to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking those damages when the 'underlying insurance' does not provide coverage or the limits of 'underlying insurance' have been exhausted. When we have no duty to defend, we will have the right to defend, or to participate in the defense of, the insured against any other 'suit' seeking damages to which this insurance may apply. However, we will have no duty to defend the insured against any 'suit' seeking damages for 'bodily injury', 'property damage' or 'personal and advertising injury' to which this insurance does not apply. At our discretion, we may investigate any 'occurrence' or offense that may involve this insurance and settle any resultant claim or 'suit', for which we have the duty to defend."

¶ 7 The umbrella liability coverage section's definition of "suit" was identical to the definition contained in the CGL coverage section, except that subsection "b." read, "[a]ny other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent or the 'underlying insurer's' consent."

¶ 8 According to the complaint, in June 2011, counsel for Cherrytree sent a letter to Selective in which counsel stated that Cherrytree had reached a settlement with AGP "in order to avoid costly litigation and bond claims." In part, Cherrytree had agreed "to pay AGP for various property damage and consequential damages." The complaint alleged that Cherrytree had requested Selective to indemnify it for amounts it paid or incurred as a result of the problem with the storage facility. Selective's complaint sought rulings that: (1) the amounts for which Cherrytree sought indemnification were not covered under the CGL portion of the policy; and (2) the amounts for which Cherrytree sought indemnification were not covered under the umbrella liability portion of the policy. Alternatively, the complaint sought rulings that: (1) Selective had no duty to indemnify because Cherrytree did not establish that it was legally obligated to pay damages; (2) the policy did not cover voluntary payments; and (3) Cherrytree breached its contract with Selective by refusing to pay outstanding premiums on a different policy.

¶ 9 On October 17, 2011, Cherrytree filed its answer and counterclaims. In its statement of the case, Cherrytree listed three subcontractors it used to construct the storage facility and stated:

"On October 26, 2010, the roof of the flat grain storage building owned by AGP in Fairfield, Nebraska collapsed, the walls continued to move outward near the center of the building and the hooped trusses had additional failures, resulting in a large volume of grain spewing out of the building side walls and damage to AGP property, including the grain stored at the facility, as well as the aeration, ...

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