Industrial Enclosure Corporation v. Glenview Insurance Agency

• Court: Appellate Court of Illinois
• Decided: February 11, 2008
• Docket: 1-05-0783 Rel
• Status: Published

Opinion

FIRST DIVISION February 11, 2008

No. 1-05-0783

INDUSTRIAL ENCLOSURE ) Appeal from the CORPORATION, ) Circuit Court of an Illinois Corporation, ) Cook County. ) Plaintiff-Appellant, ) ) v. ) No. 98 L 6459 ) GLENVIEW INSURANCE AGENCY, INC.,) an Illinois Corporation, ) The Honorable ) Stuart A. Nudelman, Defendant-Appellee. ) Judge Presiding.

JUSTICE GARCIA delivered the opinion of the court.

The plaintiff, Industrial Enclosure Corporation (IEC), was

awarded $567,172 in damages after a jury trial. The defendant,

Glenview Insurance Agency, Inc. (Glenview), filed a motion for

judgment notwithstanding the verdict contending that the court

erred in denying its motion for a directed verdict based on the

absence of any evidence that (1) Glenview proximately caused the

damages suffered by IEC under its negligence claim, and (2)

Glenview breached its duty to IEC in the procurement of the

property insurance under its breach of contract claim.

The court granted the motion for judgment notwithstanding

the verdict as to each ground. The court also explained that the No. 1-05-0783

jury was improperly instructed as to the duty owed by Glenview to

IEC.

The plaintiff appeals that order, contending sufficient

evidence was presented at trial to support its claims of breach

of contract and negligence. For the reasons that follow, we

affirm.

BACKGROUND

The plaintiff, IEC, based in Aurora, Illinois, manufactures

industrial boxes. The defendant, Glenview, is an insurance

agency located in Glenview, Illinois. Glenview employee Marcus

Toral managed IEC’s account. John Palmer, IEC’s president, was

responsible for purchasing IEC’s property insurance.

IEC and Glenview first did business in 1992, with Glenview

procuring a property insurance policy from Chubb Insurance

Company for IEC. During these meetings, Palmer and Toral also

discussed the possible purchase of flood insurance. Palmer chose

not to purchase flood insurance because IEC’s headquarters had

never been flooded, though sewer backup and runoff were concerns.

The Chubb policy was renewed through 1996. While a flood

coverage rider was discussed several times, it was never added to

the policy.

In 1996, Palmer and Toral began to shop around for

competitively priced coverage. Palmer’s brother found an

2 No. 1-05-0783

attractive quote from Amerisure that Chubb Insurance was not

willing to meet. At the same time, Toral obtained a quote from

The Maryland Insurance Group/Northern Insurance Company

(Maryland). Maryland was willing to lower its premium price to

win IEC’s business.

Palmer accepted the Maryland quote and the policy became

effective on June 1, 1996. Palmer testified that based on his

conversations with Toral, he expected the coverage limits on the

Maryland policy to be comparable to or better than those of the

Chubb policy. The policy papers were delivered at the end of

July.

On July 17 and 18, the Aurora area experienced rainfall

measuring more than 17 inches. Palmer testified that after the

storm there was damage to IEC’s building and equipment, including

several feet of standing water inside the building. An adjuster

from Maryland examined the site and determined the occurrence to

be outside the coverage of the policy because the damage to the

building was caused by floodwater and surface water. In its

August 4, 1996, letter, Maryland informed IEC that the areas

around the building showed "physical evidence characteristic of

general flooding." The letter characterized the water inside the

building as "caused directly or indirectly by flood waters from a

nearby creek and surface run off that accumulated from

3 No. 1-05-0783

surrounding property on higher ground." As the policy excluded

"[f]lood, surface water, waves, tides, tidal waves, overflow of

any body of water, or their spray," Maryland declined coverage of

the storm damage as flood related. IEC believed that the damage

inside the building was caused by sewer backup and hired its own

experts to prove that.

On November 25, 1996, IEC submitted a proof of loss

statement to Maryland totaling $2,294,704.51 for the loss of July

18, 1996, contending the loss was caused by water backup and

overflow from a sewer, drain and/or sump pump, coverage it had

under the policy.

Maryland advised IEC by letter dated January 15, 1997, that

it was denying coverage because it believed that the policy did

not provide coverage for IEC’s flood-related loss. The letter

stated, "Although the flooding throughout the area no doubt

overcharged the sewer system in and around [the IEC] building,

significant surface storm water runoff caused the damage at [the

IEC] facility." IEC sued. After a trial in federal court, a

jury returned a verdict against Maryland and awarded IEC

approximately $1.1 million in damages, with $167,000 of that

amount designated as lost profits. No appeal was taken.

IEC then filed this action to recover attorney fees and

costs in the federal litigation, as well as lost profits and

4 No. 1-05-0783

other expenses that IEC did not recover in the federal action.

IEC alleged that Glenview breached its duty to procure an

insurance contract consistent with its wishes and that Glenview

was negligent as to the Maryland policy it did procure.

After a trial, the jury found for IEC and awarded damages in

the amount of $567,162. Glenview filed a motion for a judgment

notwithstanding the verdict, arguing that the court erred in

denying its motion for a directed verdict because Glenview was

not the proximate cause of the damages claimed by IEC and that

Glenview owed no duty to IEC to interpret the Maryland insurance

policy as to the term "surface water." The trial court granted

Glenview’s motion, holding that the proximate cause of the

damages claimed by IEC was Maryland's wrongful denial of IEC

claim and not any act by Glenview. The trial court also ruled

that Glenview did not have a duty to inform IEC that Maryland

might determine that flooding caused by surface water would or

could nullify the sewer drain coverage. IEC now appeals.

ANALYSIS

A judgment notwithstanding the verdict can only be granted

when all the evidence, viewed in the light most favorable to the

nonmoving party, so overwhelmingly favors the movant that no

contrary verdict based on that evidence can stand. Maple v.

Gustafson, 151 Ill. 2d 445, 453, 603 N.E.2d 508 (1992), citing

5 No. 1-05-0783

Pedrick v. Peoria & Eastern R.R. Co., 37 Ill. 2d 494, 510, 229

N.E.2d 504 (1967). This court applies a de novo standard to our

review of decisions on motions for judgment notwithstanding the

verdict. McClure v. Owens Corning Fiberglas Corp., 188 Ill. 2d

102, 132, 720 N.E.2d 242 (1999).

I. Breach of Contract Claim

IEC first contends that Glenview’s sale of the Maryland

policy to IEC without an explanation of the differences between

the coverages offered by Maryland and Chubb Insurance violated

the parties’ contract to procure insurance. IEC contends that

Glenview breached their contract to procure insurance with

coverage for sewer and drain backup not "impaired by flooding

caused by surface water or general flooding."

An insurance broker, in general, must exercise reasonable

skill and diligence when the agent negotiates and procures an

insurance policy according to the wishes of the client. Pittway

Corp. v. American Motorists Insurance Co., 56 Ill. App. 3d 338,

346-47, 370 N.E.2d 1271 (1977). The broker must act with

competence and skill when procuring the policy. Pittway, 56 Ill.

App. 3d at 347. IEC alleges that by not specifically procuring a

policy that included a sewer and drain backup rider, Glenview did

not procure a suitable policy and thus breached the contract.

However, in a May 29, 1996, fax from Toral to Palmer

6 No. 1-05-0783

comparing price and coverage between Chubb, Amerisure and

Maryland, the attachment highlighting Maryland

that backup of sewers and drains is covered under the Maryland

policy provisions.

While the water provision in the Maryland policy procured on

behalf of IEC excluded damage due to floodwater and surface water

caused by flooding, a similar exclusion for damage caused by

sewer backup was expressly deleted. An additional coverage

endorsement for the Maryland policy procured on behalf of IEC

expressly deleted Exclusion 1.g (3), which excluded coverage for

damage caused by "[w]ater that backs up or overflows from a

sewer, drain or sump." Thus, the Maryland policy issued to IEC

provided coverage for sewer and drain backup. This conclusively

negates IEC

wishes in procuring a property insurance policy from Maryland

with sewer and drain backup coverage.

Nonetheless, IEC maintains that trial evidence was presented

that Glenview did not procure a policy with sufficient

specificity for sewer backup and runoff, thus allowing for denial

of coverage by Maryland.

However, the Toral-to-Palmer fax, with attached coverage

highlights of the three policies being considered by IEC, states

that drain and sewer backup will be covered by the Maryland

7 No. 1-05-0783

policy presented to IEC. The fax also demonstrates that Toral

laid out the comparison of the price and coverage of the policies

offered by the Amerisure, Chubb and Maryland, for Palmer

review.

The denial of coverage by Maryland for the water damage

suffered by the IEC facility was not based on the absence of

coverage for sewer backup. Rather, the problem was that the

Maryland adjuster characterized the damage to IEC

predominately flood damage rather than damage from sewer backup.

However, the end result of the federal lawsuit was that the jury

conclusively (in the absence of an appeal) determined that the

water-related damage to the IEC building was covered by the

Maryland policy and that Maryland acted in error when it denied

IEC

Because coverage was found to exist, Glenview complied with

the wishes of IEC in procuring the Maryland policy. Though IEC

had to sue Maryland to force compliance with the policy,

ultimately, the coverage that IEC sought was provided by the

Maryland policy. Glenview fulfilled the contract by procuring

insurance in accordance with IEC

IEC maintains that although Maryland "was wrong to deny

coverage to IEC, it was foreseeable that Glenview's failure to

advise IEC of the surface water exclusion and to procure an

8 No. 1-05-0783

adequate policy for IEC would subject IEC to harm." While IEC

persists that it was the inclusion of "surface water" that

provided the basis for Maryland's denial of coverage, Maryland's

August 4, 1996, letter makes clear that is not the case.

Maryland's adjuster noted that the area "immediately surrounding

your business [showed] physical evidence characteristic of

general flooding. *** [T]he policy did not include coverage for

general flooding. * * * I *** pointed out the policy exclusions

concerning flood and surface waters." (Emphasis added.) Thus,

Maryland's denial did not turn on the application of the term

"surface water" to the occurrence as IEC contends, but on the

"exclusions concerning flood and surface waters." (Emphasis

added). As it is undisputed that IEC declined repeatedly any

coverage for flood damage, we find no basis for IEC's claim that

had "surface water" not been listed in the exclusion, Maryland

would not have denied coverage for the damage to the IEC

facility.

As authority for its position that this case concerns

multiple proximate causes for IEC's claim of loss based on the

denial of coverage by Maryland, Maryland's wrongful denial being

one such proximate cause and Glenview's breach another, IEC cites

Third Eye Blind, Inc. v. Near North Entertainment Insurance

Services, LLC, 127 Cal. App. 4th 1311, 26 Cal. Rptr. 3d 452

9 No. 1-05-0783

(2005) as support. We find Third Eye Blind inapposite. Third

Eye Blind is, as IEC's counsel noted at oral argument, a "gap in

coverage" case.

In Third Eye Blind, a music band contracted with its

business manager and an insurance broker to obtain a commercial

general liability insurance policy for the group. Third Eye

Blind, 127 Cal. App. 4th at 1314, 26 Cal Rptr. 3d at 454-55. The

problem with the policy obtained on the group's behalf was that

it "excluded coverage for some liability under a Field of

Entertainment Limitation Endorsement (FELE)." Third Eye Blind,

127 Cal. App. 4th at 1315, 26 Cal. Rptr. 3d at 455. The FELE

exclusion pertained to the very risk the band's professional

entertainment work exposed them to. The court noted that the

appellants "alleged they would have obtained an errors and

omission policy if they had been so advised." Third Eye Blind,

127 Cal. App. 4th at 1316, 26 Cal. Rptr. 3d at 456. As we have

already determined that the Glenview complied with the wishes of

IEC in procuring the Maryland policy, Third Eye Blind, as a "gap

in insurance" coverage case, provides no guidance here.

II. Breach of Duty Claim

In an action for negligence, the plaintiff must establish

that the defendant owed the plaintiff a duty of care, which was

breached, proximately causing an injury. See Marshall v. City of

10 No. 1-05-0783

Centralia, 143 Ill. 2d 1, 6, 570 N.E.2d 315 (1991). Whether a

defendant owes a duty of care to a plaintiff is a question of

law. Marshall, 143 Ill. 2d at 6. In the context of an insurance

broker procuring insurance on behalf of the plaintiff, "the

primary function of an insurance broker as it relates to an

insured is to faithfully negotiate and procure an insurance

policy according to the wishes and requirements of his client."

Pittway Corp. v. American Motorists Insurance Co., 56 Ill. App.

3d 338, 346-47, 370 N.E.2d 1271 (1977).

As the trial court made clear in its consideration of

Glenview's motion for a directed verdict, IEC's theory of

recovery against Glenview turned on the application of the term

"surface water" as part of the "flood" exclusion in the Maryland

policy. While IEC argues that Glenview should have anticipated

Maryland's denial of coverage based on the "surface water"

exception in the policy, there is nothing in the record to

support IEC's underlying contention that Glenview had a duty to

advise IEC that such an exception would nullify coverage under

the sewer backup provision. Nor was any evidence presented that

such a nullification would have been known to an insurance broker

exercising the requisite "competence and skill" the law places on

an insurance broker. Pittway, 56 Ill. App. 3d at 347. In fact,

the record makes clear that to the extent Maryland denied

11 No. 1-05-0783

coverage based on the "surface water" term contained in the flood

exclusion, coverage for the damages suffered by IEC was provided

under the additional coverage endorsement for water backup from

sewer, drain and/or sump pump of the Maryland policy procured by

Glenview.

As in Pittway, IEC "essentially seeks to impose upon

insurance brokers the duty to advise their customers of the

import and meaning of the provisions of the insurance policies

which have previously been faithfully procured according to the

customer's requirements." Pittway, 56 Ill. App. 3d at 347. No

such duty exists under Illinois law. "[T]he burden was on

plaintiff to know the import and meaning of the insurance

contract *** which it accepted." Pittway, 56 Ill. App. 3d at

347. No evidence of negligence based on the breach of any duty

owed by Glenview to IEC as to the Maryland policy was presented.

The trial court properly entered judgment for Glenview

notwithstanding the jury's verdict as to duty claim as well.

CONCLUSION

The circuit court properly entered judgment notwithstanding

the verdict because there was no evidence that Glenview

proximately caused the damages suffered by IEC; nor was there any

evidence that Glenview breached its duty to IEC in the

procurement of the property insurance.

12 No. 1-05-0783

Affirmed.

CAHILL, P.J., and WOLFSON, J., concur.