Read about it in this link to the September 29 ABA Journal eReport.
This is the link to the proposed New York rule.
The eReport article suggests that this provision would make the rule applicable to everyone, since blogs by out-of-state lawyers -- such as this one -- could be freely accessed in New York State.
I thought the disclaimer would be enough. Wouldn't you?
Saturday, September 30, 2006
Monday, September 11, 2006
Dead storage claim a non-starter in new case -- just like the motorcycle that burned down the storage facility
John Marx collected motorcycles and he rented two storage bays from M & S Rentals, Inc. in Morris, Illinois in which to keep them. Marx considered the bikes to be collectors’ items; whether Marx’s 1976 Honda Goldwing, 1980 Honda Goldwing, and two 1979 Yamaha 750 cc motorcycles actually were collector’s items is not resolved by the Appellate Court’s opinion in Standard Mutual Ins. Co. v. Marx, 2006 WL 2381967 (Ill.App.3rd Dist. 8/15/06).
Marx came by the storage units from time to time to visit his collection. But he didn’t just visit; he sometimes rode the bikes, too. But only the 1980 Honda was actually licensed and insured.
And he wasn’t riding the Honda on September 1, 2003; on that day, Marx had come to visit one of the ‘79 Yamahas. He’d operated this bike without incident only a month before, but when he went to start the machine on this occasion, there was an explosion – and a fire. Marx tried to put the fire out with a towel, but failed; he subsequently called 911. The fire caused more than $177,000 worth of damage to the storage facility. M & S Rentals’ insurer, Springfield Fire & Casualty Co., paid the claim and brought a subrogation suit against Marx.
Marx tendered the suit to his homeowner’s carrier, Standard Mutual; the newly reported opinion arises from the declaratory judgment action that Standard Mutual filed in response to the tender.
The Circuit Court of Grundy County found for Standard Mutual, agreeing that the homeowner’s carrier did not have a duty to defend Marx in this suit. The Appellate Court, in a unanimous opinion by Justice Kent Slater, affirmed.
Marx was not a party to the appeal: He failed to file a timely notice of appeal; his subsequent motion to adopt Springfield Fire’s brief was denied by the Appellate Court. This may seem odd to persons unfamiliar with coverage litigation, but it happens frequently. The underlying plaintiff and the insured do have a common interest: Both want the insurer’s carrier to remain on the risk – but is it not logical to assume that the insured will want this just a little bit more? It is the insured’s assets that are at risk; the easy collectibility of an eventual judgment against the insured is all the underlying plaintiff really has at stake.
In affirming the judgment in Standard’s favor, the Appellate Court noted that the “homeowner’s policy issued to Marx by plaintiff excluded liability and medical payments coverage for injury or property damage arising out of: ... The ownership, maintenance, use, loading or unloading of motor vehicles or all other motorized land conveyances, including trailers, owned or operated by or rented or loaned to an ‘insured’[.]”
On the other hand, the court noted that the policy provided that this exclusion did not apply to:
Courts around the country have split on what constitutes “dead storage”; the Standard Mutual court indicated that it was the first Illinois court to construe the term.
These are the cases cited by the Standard Mutual court as supporting the position that Marx’s Yamaha was in dead storage:
The Standard Mutual court stated that the focus should properly be on “the vehicle’s status at the time the accident occurred. For example, if the fire at the rental facility had been caused by spontaneous combustion of oily rags while Marx was absent, the Yamaha might very well have been considered to be in dead storage.” On the other hand, quoting American Family Mutual Insurance Co. v. Van Gerpen, 151 F.3d 886, 888 (8th Cir.1998), another case relied upon by the Standard Mutual court, “The ‘dead’ in ‘dead storage’ suggests, at the least, that the engine would not be running.”
Other cases cited by the insurer for the proposition that a vehicle “undergoing maintenance” or being started is not in dead storage were Nationwide Mutual Insurance Co. v. McMahon, 365 F.Supp.2d 671 (E.D.N.C.2005); David v. Tanksley, 218 F.3d 928 (8th Cir.2000) (same); Holliman v. MFA Mutual Insurance Co., 289 Ark. 276, 711 S.W.2d 159 (1986); and Broadway v. Great American Insurance Co., 465 So.2d 1124 (Ala.1985).
The underlying plaintiff suggested that this split of authority nationwide supported a conclusion that the term “dead storage” was at least ambiguous. Rejecting this argument, however, the Standard Mutual court stated, “A vehicle which is periodically driven by its owner, even briefly on private property, is not in dead storage, and an accident caused by an attempt to start that vehicle is not the type of risk contemplated by the parties to a homeowner's policy. We find no ambiguity under these circumstances.”
Besides, even if the old Yamaha could be said to be in “dead storage,” the Appellate Court concluded that it was not at an “insured location”:
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It did not matter to the coverage determination, but I have to admit to some curiosity about where Springfield Fire’s claimed $177,000 in damages came from.
Because Marx could come and go and visit his motorcycles as he pleased, Springfield’s insured, M & S Rentals, was probably a self-service storage facility, regulated under the Self-Service Storage Facility Act, 770 ILCS 95/1 et seq. Section 2(A) of the Act provides expressly that a “self-service storage facility is not a warehouse for purposes of Article 7 of the Uniform Commercial Code” (unless the owner “issues any warehouse receipt, bill of lading, or other document of title for the personal property stored,” in which case the provisions of the Act do not apply.)
If a self-service storage facility is not a warehouse, it can limit its liability to customers; it is not bound by §7-204(2) of the UCC (815 ILCS 5/7-204(2)), which allows warehousemen to limit liability only on a “per article or item” basis, or by “value per unit of weight.” Of course, a warehouse has to know what is coming in and going out of its facility; what comes in and out of the self-service storage facility is limited only by the amount of space the customer rents (and, hopefully, by §7 of the Act which provides, “No occupant may use a self-service storage facility for residential purposes,” 770 ILCS 95/7).
So did M & S Rentals limit its liability to customers in the Standard Mutual case – and, if so, where did the $177,000 in damages come from? It must have been some fire.
Marx came by the storage units from time to time to visit his collection. But he didn’t just visit; he sometimes rode the bikes, too. But only the 1980 Honda was actually licensed and insured.
And he wasn’t riding the Honda on September 1, 2003; on that day, Marx had come to visit one of the ‘79 Yamahas. He’d operated this bike without incident only a month before, but when he went to start the machine on this occasion, there was an explosion – and a fire. Marx tried to put the fire out with a towel, but failed; he subsequently called 911. The fire caused more than $177,000 worth of damage to the storage facility. M & S Rentals’ insurer, Springfield Fire & Casualty Co., paid the claim and brought a subrogation suit against Marx.Marx tendered the suit to his homeowner’s carrier, Standard Mutual; the newly reported opinion arises from the declaratory judgment action that Standard Mutual filed in response to the tender.
The Circuit Court of Grundy County found for Standard Mutual, agreeing that the homeowner’s carrier did not have a duty to defend Marx in this suit. The Appellate Court, in a unanimous opinion by Justice Kent Slater, affirmed.
Marx was not a party to the appeal: He failed to file a timely notice of appeal; his subsequent motion to adopt Springfield Fire’s brief was denied by the Appellate Court. This may seem odd to persons unfamiliar with coverage litigation, but it happens frequently. The underlying plaintiff and the insured do have a common interest: Both want the insurer’s carrier to remain on the risk – but is it not logical to assume that the insured will want this just a little bit more? It is the insured’s assets that are at risk; the easy collectibility of an eventual judgment against the insured is all the underlying plaintiff really has at stake.
In affirming the judgment in Standard’s favor, the Appellate Court noted that the “homeowner’s policy issued to Marx by plaintiff excluded liability and medical payments coverage for injury or property damage arising out of: ... The ownership, maintenance, use, loading or unloading of motor vehicles or all other motorized land conveyances, including trailers, owned or operated by or rented or loaned to an ‘insured’[.]”
On the other hand, the court noted that the policy provided that this exclusion did not apply to:
“A vehicle or conveyance not subject to motor vehicle registration which is:The Standard Mutual court held that the exploding Yamaha was neither in “dead storage” nor at an “insured location.”
* * *
(c) In dead storage on an ‘insured location’[.]”
Courts around the country have split on what constitutes “dead storage”; the Standard Mutual court indicated that it was the first Illinois court to construe the term.
These are the cases cited by the Standard Mutual court as supporting the position that Marx’s Yamaha was in dead storage:
Allstate Insurance Co. v. Burns, 837 N.E.2d 645 (Ind.Ct.App.2005) (unlicensed car which had been inoperable for over a month was in dead storage notwithstanding that fire occurred while insured was attempting to start car); Allstate Insurance Co. v. Geiwitz, 86 Md.App. 704, 587 A.2d 1185 (1991) (car kept by insured as collectible rather than for transportation was in dead storage despite fact that car was occasionally driven on property where it was stored and accident occurred while repairing gas gauge); Nationwide Mutual Fire Insurance Co. v. Allen, 68 N.C.App. 184, 314 S.E.2d 552 (1984) (motorcycle which had been inoperable for six months prior to fire caused when insured was “inspecting” cycle in his living room was in dead storage); Sharpe v. State Farm Fire & Casualty Co., 558 F.Supp. 10 (E.D.Tenn.1982) (old, unlicensed vehicles that were not driven on highway but were occasionally driven on insured’s property were in dead storage).The Standard Mutual court found other cases more persuasive, particularly North Star Mutual Insurance Co. v. Carlson, 442 N.W.2d 848 (Minn.Ct.App. 1989). Justice Slater’s opinion quotes the Minnesota Court:
“We believe this determination appropriately highlights the distinction between homeowners and automobile insurance policies. Motor vehicles are inherently dangerous instrumentalities and homeowners policies generally do not contemplate coverage of injuries when the vehicle is maintained or used in one of its inherently dangerous capacities. One inherently dangerous aspect is a motor vehicle’s use of highly volatile materials (gasoline) around ignition sources (spark plugs). This was precisely the cause of the accident in this case. Accidents caused by maintenance or use of a vehicle in such an inherently dangerous capacity are not appropriately covered in a homeowners policy, but rather in an automobile policy which requires consequently higher premiums for the increased risk of injury.”(Quoting Carlson, 442 N.W.2d at 855.)
The Standard Mutual court stated that the focus should properly be on “the vehicle’s status at the time the accident occurred. For example, if the fire at the rental facility had been caused by spontaneous combustion of oily rags while Marx was absent, the Yamaha might very well have been considered to be in dead storage.” On the other hand, quoting American Family Mutual Insurance Co. v. Van Gerpen, 151 F.3d 886, 888 (8th Cir.1998), another case relied upon by the Standard Mutual court, “The ‘dead’ in ‘dead storage’ suggests, at the least, that the engine would not be running.”
Other cases cited by the insurer for the proposition that a vehicle “undergoing maintenance” or being started is not in dead storage were Nationwide Mutual Insurance Co. v. McMahon, 365 F.Supp.2d 671 (E.D.N.C.2005); David v. Tanksley, 218 F.3d 928 (8th Cir.2000) (same); Holliman v. MFA Mutual Insurance Co., 289 Ark. 276, 711 S.W.2d 159 (1986); and Broadway v. Great American Insurance Co., 465 So.2d 1124 (Ala.1985).
The underlying plaintiff suggested that this split of authority nationwide supported a conclusion that the term “dead storage” was at least ambiguous. Rejecting this argument, however, the Standard Mutual court stated, “A vehicle which is periodically driven by its owner, even briefly on private property, is not in dead storage, and an accident caused by an attempt to start that vehicle is not the type of risk contemplated by the parties to a homeowner's policy. We find no ambiguity under these circumstances.”
Besides, even if the old Yamaha could be said to be in “dead storage,” the Appellate Court concluded that it was not at an “insured location”:
“As defined in the policy, an insured location includes “premises occasionally rented to an ‘insured’ for other than ‘business' use.” * * * [I]n this case, the storage units where the fire occurred cannot be said to have been rented to Marx on an irregular or infrequent basis. According to Marx’s deposition testimony and his answers to plaintiff’s request to admit facts, Marx had rented the same two storage bays for a period of three years prior to the fire. Such extended and continuous use cannot be characterized as “occasional” and therefore, even if the motorcycle was considered to be in dead storage, it was not in an “insured location” within the terms of the policy.
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It did not matter to the coverage determination, but I have to admit to some curiosity about where Springfield Fire’s claimed $177,000 in damages came from.
Because Marx could come and go and visit his motorcycles as he pleased, Springfield’s insured, M & S Rentals, was probably a self-service storage facility, regulated under the Self-Service Storage Facility Act, 770 ILCS 95/1 et seq. Section 2(A) of the Act provides expressly that a “self-service storage facility is not a warehouse for purposes of Article 7 of the Uniform Commercial Code” (unless the owner “issues any warehouse receipt, bill of lading, or other document of title for the personal property stored,” in which case the provisions of the Act do not apply.)
If a self-service storage facility is not a warehouse, it can limit its liability to customers; it is not bound by §7-204(2) of the UCC (815 ILCS 5/7-204(2)), which allows warehousemen to limit liability only on a “per article or item” basis, or by “value per unit of weight.” Of course, a warehouse has to know what is coming in and going out of its facility; what comes in and out of the self-service storage facility is limited only by the amount of space the customer rents (and, hopefully, by §7 of the Act which provides, “No occupant may use a self-service storage facility for residential purposes,” 770 ILCS 95/7).
So did M & S Rentals limit its liability to customers in the Standard Mutual case – and, if so, where did the $177,000 in damages come from? It must have been some fire.
Friday, September 01, 2006
If a tree falls in the insurance policy, will it be covered?
Can a tree be cut by accident?
Well, unless you have super powers, you can’t accidentally cut down a tree: Cutting a tree takes considerable effort.
But you can accidentally cut down the wrong tree – a tree you weren’t supposed to cut – a tree you didn’t intend to cut.
This fine distinction is at the heart of Pekin Ins. Co. v. Miller, 2006 WL 2265604 (Ill.App. 1st Dist. 8/8/06).
Sarang Construction hired Miller Tree Service to cut down trees on lots 13, 14, and 15 of a subdivision in Hanover Park. Miller removed the trees from lots 10, 11, and 12 instead.
The owners of these lots took umbrage. They sued for trespass – an intentional tort – and for violation of the Wrongful Tree Cutting Act, 740 ILCS 185/0.01 et seq. Section 2 of the Act provides that, “Any party found to have intentionally cut or knowingly caused to be cut any timber or tree which he did not have the full legal right to cut or caused to be cut shall pay the owner of the timber or tree 3 times its stumpage value.” (740 ILCS 185/2.) Later amendments to the property owners’ complaint alleged “negligent trespass.”
Miller tendered the suit to Pekin for a defense. Pekin brought a declaratory action instead, contending that it did not owe a defense. First, it argued, the property owners’ suit did not allege an “occurrence.” That would keep the incident outside the insuring agreement of the Pekin policy. In addition, Pekin argued, even if the incident described in the property owners’ suit was an occurrence, two policy exclusions would defeat coverage. The trial court rejected these contentions and found that Pekin had a duty to defend; the Appellate Court, in a unanimous opinion by Justice Warren Wolfson, affirmed.
The Pekin policy provided coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” Property damage would be covered only if the damage were caused by an “occurrence.” The policy, in turn, defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (2006 WL 2265604 at *2.)
The word “accident” is typically not defined in insurance policies. This was apparently the case here. Quoting Monticello Insurance Co. v. Wil-Freds Construction, Inc., 277 Ill.App.3d 697, 703, 661 N.E.2d 451, 455 (2nd Dist. 1996), Justice Wolfson noted that, “Courts define an accident as ‘an unforeseen occurrence, usually of an untoward or disastrous character or an undesigned sudden or unexpected event of an inflictive or unfortunate character.’ ... ‘The natural and ordinary consequences of an act do not constitute an accident.’”
This is consistent with the definition of the word “accident” in other cases. In Travelers Ins. Co. v. P.C. Quote, Inc., 211 Ill.App.3d 719, 570 N.E.2d 614, 619 (1st Dist. 1991) the court stated:
Pekin, relying on the formulation in Wil-Freds, contended that the trees were removed as the natural and ordinary consequence of chopping them down. Thus, there was no accident. But Justice Wolfson noted that, while “the construction defects alleged in the [Wil-Freds] complaint for breach of contract were the natural and ordinary consequences of improper construction techniques. . . the plaintiffs in the underlying complaint do not allege Miller used improper techniques in removing trees on their property. Rather, they allege he removed trees on the wrong property.” (2006 WL 2265604 at *2.)
The Pekin court looked instead to Lyons v. State Farm Fire & Casualty Co., 349 Ill.App.3d 404, 811 N.E.2d 451 (5th Dist. 2004), a case in which the insureds allegedly built levees that “protruded onto the plaintiffs’ property.” According to the Pekin court, the Lyons court concluded that “the focus of the inquiry in determining whether an occurrence is an accident is ‘whether the injury is expected or intended by the insured, not whether the acts were performed intentionally.’” ((2006 WL 2265604 at *2, quoting Lyons, 811 N.E.2d at 723.) Applying this approach, because “[t]here is no evidence Miller intended the harmful result – the clearing of trees on the wrong property,” the Pekin court concluded that the property owners’ complaint alleged an “occurrence.” (2006 WL 2265604 at *2.)
Significantly, the Pekin court found it “immaterial that the underlying complaint alleges intentional torts.” (2006 WL 2265604 at *6.) The words used to describe the conduct giving rise to the claim are not controlling; the conduct described is what counts.
That brings us to the exclusions on which Pekin also relied.
Section 2j(5) of the Pekin policy excluded coverage for property damage to “[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.” (2006 WL 2265604 at *3.)
Section 2j(6) excluded coverage for property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” (2006 WL 2265604 at *3.)
“Your work” was defined in the policy as:
The Pekin court found no Illinois case which provided any guidance in this case. Instead, the court looked to a case from Minnesota, Thommes v. Milwaukee Insurance Co., 641 N.W.2d 877 (2002).
The Pekin court read Thommes as distinguishing two different types of risk “undertaken by an insured contractor.” One is a ‘business risk’ – a risk that the insured “may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable” – as in a guarantee or warranty. CGL policies do not guarantee the quality of the work performed by their insureds. Instead, CGL policies “are intended to insure against the second type of risk – ‘the risk that [the contractor’s] work or product will cause bodily injury or property damage to other property,’ which may give rise to tort liability to third parties.” (2006 WL 2265604 at *5.)
The Minnesota court found both exclusions ambiguous – and therefore construed them against the insurer. The Pekin court agreed. With regard to exclusion 2j(5), there was a question as to whether the phrase “that particular part of real property” refers to the land – or the trees. (2006 WL 2265604 at *5.)
“In addition,” the Pekin court continued, “section 2j(5) is ambiguous because it is not clear whether the exclusion refers to any property or only to property that the insured is contractually obligated to perform operations on. Given the purpose of CGL policies, one could reasonably interpret exclusion 2j(5) to apply only to property the insured is contractually obligated to work on” – the lots on which the trees were left standing. (2006 WL 2265604 at *6.)
As for exclusion 2j(6), the Pekin court likewise found “two reasonable interpretations of the provision. The phrase ‘incorrectly performed’ could refer to the manner in which the trees were removed. Here, there was nothing incorrect about the manner in which Miller removed the trees. It also could refer to the location from which they were removed, which would be applicable in this case. It is not clear whether the exclusion applies to the unusual situation in this case because the underlying complaint does not allege Miller's tree-removal procedures were incorrect, only that trees were removed from the wrong lots. We also believe the phrase ‘your work’ as applied to 2j(6) is ambiguous. Nowhere in the exclusion or in the definition of ‘your work’ does the policy indicate whether ‘your work’ is confined to the actual location [where] Miller was hired to perform his tree-cutting work.” (2006 WL 2265604 at *6.)
The Pekin court concluded that section “2j(6) does not define the phrase ‘any property.’ If it means the land Miller cut trees on it might reasonably be argued the exclusion does not apply because it is not the land that must be ‘restored, repaired or replaced;’ it is the trees. If ‘any property’ refers to the trees that were cut, the exclusion makes no sense in this case because Miller's ‘work’ was not ‘incorrectly performed’ on the trees. We find exclusion 2j(6) is ambiguous and construe it against the insurer. It does not apply in this case.” (2006 WL 2265604 at *6.)
Wrongful tree cutting cases are not a major burden on the courts of Cook County. But Pekin has a general lesson, as well as the specific ones we’ve just gone through: When in doubt, if you’re sued, tender the complaint to your carrier. Even though the complaint does not plead “negligence” – even though the suit pleads only intentional torts – tender. The insurer has an obligation to carefully evaluate its obligations whenever a suit is tendered for a defense.
Well, unless you have super powers, you can’t accidentally cut down a tree: Cutting a tree takes considerable effort.
But you can accidentally cut down the wrong tree – a tree you weren’t supposed to cut – a tree you didn’t intend to cut.
This fine distinction is at the heart of Pekin Ins. Co. v. Miller, 2006 WL 2265604 (Ill.App. 1st Dist. 8/8/06).
Sarang Construction hired Miller Tree Service to cut down trees on lots 13, 14, and 15 of a subdivision in Hanover Park. Miller removed the trees from lots 10, 11, and 12 instead.
The owners of these lots took umbrage. They sued for trespass – an intentional tort – and for violation of the Wrongful Tree Cutting Act, 740 ILCS 185/0.01 et seq. Section 2 of the Act provides that, “Any party found to have intentionally cut or knowingly caused to be cut any timber or tree which he did not have the full legal right to cut or caused to be cut shall pay the owner of the timber or tree 3 times its stumpage value.” (740 ILCS 185/2.) Later amendments to the property owners’ complaint alleged “negligent trespass.”
Miller tendered the suit to Pekin for a defense. Pekin brought a declaratory action instead, contending that it did not owe a defense. First, it argued, the property owners’ suit did not allege an “occurrence.” That would keep the incident outside the insuring agreement of the Pekin policy. In addition, Pekin argued, even if the incident described in the property owners’ suit was an occurrence, two policy exclusions would defeat coverage. The trial court rejected these contentions and found that Pekin had a duty to defend; the Appellate Court, in a unanimous opinion by Justice Warren Wolfson, affirmed.
The Pekin policy provided coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” Property damage would be covered only if the damage were caused by an “occurrence.” The policy, in turn, defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (2006 WL 2265604 at *2.)
The word “accident” is typically not defined in insurance policies. This was apparently the case here. Quoting Monticello Insurance Co. v. Wil-Freds Construction, Inc., 277 Ill.App.3d 697, 703, 661 N.E.2d 451, 455 (2nd Dist. 1996), Justice Wolfson noted that, “Courts define an accident as ‘an unforeseen occurrence, usually of an untoward or disastrous character or an undesigned sudden or unexpected event of an inflictive or unfortunate character.’ ... ‘The natural and ordinary consequences of an act do not constitute an accident.’”
This is consistent with the definition of the word “accident” in other cases. In Travelers Ins. Co. v. P.C. Quote, Inc., 211 Ill.App.3d 719, 570 N.E.2d 614, 619 (1st Dist. 1991) the court stated:
An insurance policy’s use of the word “occurrence” instead of “accident” broadens coverage and eliminates the need to find an exact cause of damages so long as they are neither expected nor intended from the standpoint of the insured. Nevertheless, the occurrence must still be accidental. (Aetna Casualty and Surety Co. v. Freyer (1980), 89 Ill.App.3d 617, 619, 44 Ill.Dec. 791, 411 N.E.2d 1157.) An accident is defined as “an unforseen occurrence of untoward or disastrous character” or “an undesigned sudden or unexpected event.”Miller surely intended to chop down trees but, just as surely, Miller did not intend to chop down trees on the wrong lots. That was not expected from the insured’s standpoint.
Pekin, relying on the formulation in Wil-Freds, contended that the trees were removed as the natural and ordinary consequence of chopping them down. Thus, there was no accident. But Justice Wolfson noted that, while “the construction defects alleged in the [Wil-Freds] complaint for breach of contract were the natural and ordinary consequences of improper construction techniques. . . the plaintiffs in the underlying complaint do not allege Miller used improper techniques in removing trees on their property. Rather, they allege he removed trees on the wrong property.” (2006 WL 2265604 at *2.)
The Pekin court looked instead to Lyons v. State Farm Fire & Casualty Co., 349 Ill.App.3d 404, 811 N.E.2d 451 (5th Dist. 2004), a case in which the insureds allegedly built levees that “protruded onto the plaintiffs’ property.” According to the Pekin court, the Lyons court concluded that “the focus of the inquiry in determining whether an occurrence is an accident is ‘whether the injury is expected or intended by the insured, not whether the acts were performed intentionally.’” ((2006 WL 2265604 at *2, quoting Lyons, 811 N.E.2d at 723.) Applying this approach, because “[t]here is no evidence Miller intended the harmful result – the clearing of trees on the wrong property,” the Pekin court concluded that the property owners’ complaint alleged an “occurrence.” (2006 WL 2265604 at *2.)
Significantly, the Pekin court found it “immaterial that the underlying complaint alleges intentional torts.” (2006 WL 2265604 at *6.) The words used to describe the conduct giving rise to the claim are not controlling; the conduct described is what counts.
That brings us to the exclusions on which Pekin also relied.
Section 2j(5) of the Pekin policy excluded coverage for property damage to “[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.” (2006 WL 2265604 at *3.)
Section 2j(6) excluded coverage for property damage to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” (2006 WL 2265604 at *3.)
“Your work” was defined in the policy as:
a. Work or operations performed by you or on your behalf; and(2006 WL 2265604 at *3.)
b. Materials, parts or equipment furnished in connection with such work or operations.
The Pekin court found no Illinois case which provided any guidance in this case. Instead, the court looked to a case from Minnesota, Thommes v. Milwaukee Insurance Co., 641 N.W.2d 877 (2002).
The Pekin court read Thommes as distinguishing two different types of risk “undertaken by an insured contractor.” One is a ‘business risk’ – a risk that the insured “may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable” – as in a guarantee or warranty. CGL policies do not guarantee the quality of the work performed by their insureds. Instead, CGL policies “are intended to insure against the second type of risk – ‘the risk that [the contractor’s] work or product will cause bodily injury or property damage to other property,’ which may give rise to tort liability to third parties.” (2006 WL 2265604 at *5.)
The Minnesota court found both exclusions ambiguous – and therefore construed them against the insurer. The Pekin court agreed. With regard to exclusion 2j(5), there was a question as to whether the phrase “that particular part of real property” refers to the land – or the trees. (2006 WL 2265604 at *5.)
“In addition,” the Pekin court continued, “section 2j(5) is ambiguous because it is not clear whether the exclusion refers to any property or only to property that the insured is contractually obligated to perform operations on. Given the purpose of CGL policies, one could reasonably interpret exclusion 2j(5) to apply only to property the insured is contractually obligated to work on” – the lots on which the trees were left standing. (2006 WL 2265604 at *6.)
As for exclusion 2j(6), the Pekin court likewise found “two reasonable interpretations of the provision. The phrase ‘incorrectly performed’ could refer to the manner in which the trees were removed. Here, there was nothing incorrect about the manner in which Miller removed the trees. It also could refer to the location from which they were removed, which would be applicable in this case. It is not clear whether the exclusion applies to the unusual situation in this case because the underlying complaint does not allege Miller's tree-removal procedures were incorrect, only that trees were removed from the wrong lots. We also believe the phrase ‘your work’ as applied to 2j(6) is ambiguous. Nowhere in the exclusion or in the definition of ‘your work’ does the policy indicate whether ‘your work’ is confined to the actual location [where] Miller was hired to perform his tree-cutting work.” (2006 WL 2265604 at *6.)
The Pekin court concluded that section “2j(6) does not define the phrase ‘any property.’ If it means the land Miller cut trees on it might reasonably be argued the exclusion does not apply because it is not the land that must be ‘restored, repaired or replaced;’ it is the trees. If ‘any property’ refers to the trees that were cut, the exclusion makes no sense in this case because Miller's ‘work’ was not ‘incorrectly performed’ on the trees. We find exclusion 2j(6) is ambiguous and construe it against the insurer. It does not apply in this case.” (2006 WL 2265604 at *6.)
Wrongful tree cutting cases are not a major burden on the courts of Cook County. But Pekin has a general lesson, as well as the specific ones we’ve just gone through: When in doubt, if you’re sued, tender the complaint to your carrier. Even though the complaint does not plead “negligence” – even though the suit pleads only intentional torts – tender. The insurer has an obligation to carefully evaluate its obligations whenever a suit is tendered for a defense.