McCann Plumbing, Heating & Cooling, Inc. v. Pekin Insurance Co.

2023 IL App (3d) 190722, 228 N.E.3d 372

• Court: Appellate Court of Illinois
• Decided: August 23, 2023
• Docket: 3-19-0722
• Status: Published

Opinion

2023 IL App (3d) 190722

Opinion filed August 23, 2023 ____________________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

McCANN PLUMBING, HEATING & ) Appeal from the Circuit Court COOLING, INC., an Illinois Corporation;) of the 21st Judicial Circuit, ANDREW R. McCANN; and WENDY ) Iroquois County, Illinois, McCANN, ) ) Appeal No. 3-19-0722 Plaintiffs-Appellants, ) Circuit No. 19-L-10 ) v. ) Honorable ) James B. Kinzer, ) Judge, Presiding. PEKIN INSURANCE COMPANY, an ) Illinois Corporation, ) ) Defendant-Appellee. ) ____________________________________________________________________________

JUSTICE ALBRECHT delivered the judgment of the court, with opinion. Presiding Justice Holdridge and Justice McDade concurred in the judgment and opinion. ____________________________________________________________________________

OPINION

¶1 Plaintiffs, McCann Plumbing, Heating & Cooling, Inc.; Andrew R. McCann; and Wendy

McCann, brought an action in the circuit court of Iroquois County against defendant, Pekin

Insurance Company, for breach of an insurance contract and sought declaratory judgment.

Defendant filed a counterclaim against plaintiffs seeking declaratory judgment. The circuit court

entered judgment in defendant’s favor. We affirm. ¶2 I. BACKGROUND

¶3 The parties do not dispute the essential facts giving rise to this lawsuit. Andrew R.

McCann and Wendy McCann own a commercial building located at 119 Chestnut Street in

Onarga, Illinois. They purchased the building in 2011 to use for McCann Plumbing, Heating &

Cooling, Inc., their heating, ventilation, and air conditioning business. At the time of purchase,

the building was surrounded by two uninhabited properties to its north and south. The record

indicates that this area encountered bouts of flooding.

¶4 Pekin Insurance Company (Pekin) is a licensed provider of personal and business

insurance and provides insurance policies to the residents of Illinois. The McCanns and Pekin

entered into a commercial lines insurance policy with a period of coverage from November 4,

2017, through November 4, 2018. The policy provided insurance coverage for “direct physical

loss of or damage to” the covered property, which included the McCanns’ building and their

business’s tangible property stored in the building. The policy listed several exclusions where

Pekin would not pay for losses or damages incurred.

¶5 At some time prior to January 23, 2018, the Village of Onarga declared that the building

adjacent and to the south of the McCanns’ property was in an unsafe or unsanitary condition.

The Village then ordered the building to be demolished.

¶6 On January 23, 2018, a contractor retained by the Village demolished the building. While

the record does not provide a detailed description, the parties have stipulated that, in the course

of the adjacent building’s destruction, the McCanns’ building was damaged, leaving a portion of

their building open to the elements. The extent of damage incurred by the McCanns’ building as

a result of the adjacent building’s demolition remains in dispute. The Village initially

communicated a willingness to fix the damage. But upon inspection, a building code

2 administrator for the Village informed the McCanns that repairing the damaged wall would not

resolve various structural issues found. The McCanns sought coverage from Pekin for damage

incurred from the January 23, 2018, demolition.

¶7 In response to the McCanns’ claim, Pekin tendered a letter on March 21, 2018, denying

coverage for damage resulting from the demolition based on several exclusionary provisions of

their policy, including the governmental action exclusion, which provides in relevant part:

“We will not pay for loss or damage caused directly or indirectly by any of the

following. Such loss or damage is excluded regardless of any other cause or event

that contributes concurrently or in any sequence to the loss.

***

c. Governmental Action

Seizure or destruction of property by order of governmental authority.

But we will pay for acts of destruction ordered by governmental authority and

taken at the time of a fire to prevent its spread, if the fire would be covered under

this Coverage Part.”

¶8 On June 4, 2019, plaintiffs filed a three-count complaint. Count I alleged breach of

contract, count II sought declaratory judgment, and count III alleged improper claims practice

under sections 154.6 and 155 of the Illinois Insurance Code (215 ILCS 5/154.6, 155 (West

2018)). All three counts pertained to Pekin’s denial of coverage for the damage incurred to the

McCanns’ building as a result of the January 23, 2018, demolition.

¶9 On August 2, 2019, Pekin answered plaintiffs’ complaint and filed a counterclaim

seeking declaratory relief of its own. That is, pursuant to several exclusionary provisions

including the governmental action provision, Pekin sought a judicial declaration that it had no

3 duty to provide coverage based on the loss incurred to the McCanns’ building. The McCanns

answered Pekin’s counterclaim for declaratory judgment on August 30, 2019.

¶ 10 Soon after, the McCanns filed a motion for partial judgment on the pleadings. Pekin

concurrently filed a response to the McCanns’ motion and its own motion for judgment on the

pleadings on October 15, 2019. The cross-motions for judgment on the pleadings largely recited

the parties’ respective prior arguments. The McCanns asserted the exclusions sought by Pekin

were inapplicable to the instant matter, as damage to the McCanns’ building was not rendered

pursuant to the Village’s order. Pekin argued that the policy language offers a clear and

unequivocal demonstration that the governmental action exclusion applies and that the McCanns

are excluded from coverage. On October 22, 2019, the McCanns filed a combined reply in

support of their initial motion and response to Pekin’s cross-motion.

¶ 11 A day later, arguments were held on the parties’ cross-motions. Although the parties

argued the applicability of other provisions within the policy, the circuit court’s ruling, as noted

in its record sheet entry, was limited to a judgment on the applicability of the governmental

action exclusion. In granting Pekin’s motion for judgment on the pleadings, the circuit court

found that “the government[al] act[ion] exclu[sion] applies” and dismissed the case.

¶ 12 The McCanns timely appealed this ruling.

¶ 13 II. ANALYSIS

¶ 14 On appeal, the McCanns argue that, because the Village’s demolition order was for the

adjacent lot, the Village did not order the destruction or damage to the McCanns’ building. Nor

could the order authorize the damage, as the McCanns assert, because there are defined statutory

measures a municipality must take prior to issuing a lawful destruction of a building. The Village

did not take these necessary steps to destroy or demolish their building. In sum, the McCanns

4 suggest that, because the Village neither issued a demolition order for their commercial building

nor had the authority to cause damage to it pursuant to its demolition order concerning the

adjacent property, the governmental action exclusion is inapplicable.

¶ 15 The McCanns devote considerable attention to the phrase “by order of government

authority,” contending that, based on the foregoing, the language does not apply to the damage

their building incurred. In doing so, they focus on the wrong portion of the exclusion. Neither

party disputes that the Village’s directive to demolish the adjacent property constitutes an “order

of governmental authority.” The parties stipulate that on or about January 23, 2018, the adjacent

building was demolished. Both parties also agree, at least to some extent, that the McCanns’

property incurred damage as a result of the adjacent building’s destruction.

¶ 16 The central issue, rather, is whether this damage was caused “directly or indirectly” from

the destruction and whether that damage falls within the purview of the governmental action

exclusion under the parties’ commercial lines insurance policy. For the reasons that follow, we

hold that it does.

¶ 17 We review a judgment on the pleadings de novo. Pekin Insurance Co. v. Miller, 367 Ill.

App. 3d 263, 265 (2006). The construction of an insurance policy, as a question of law, is also

subject to de novo review. Central Illinois Light Co. v. Home Insurance Co., 213 Ill. 2d 141, 153

(2004).

¶ 18 An insurance policy is a contract and is governed by the rules of contract interpretation.

Hobbs v. Hartford Insurance Co. of the Midwest, 214 Ill. 2d 11, 17 (2005). Accordingly, our

primary objective when construing the language of an insurance policy “is to ascertain and give

effect to the intentions of the parties as expressed by the words of the policy.” Rich v. Principal

Life Insurance Co., 226 Ill. 2d 359, 371 (2007). In interpreting a policy’s language, “[a]ll the

5 provisions of the insurance contract, rather than an isolated part, should be read together to

interpret it and to determine whether an ambiguity exists.” United States Fire Insurance Co. v.

Schnackenberg, 88 Ill. 2d 1, 5 (1981). We assign the plain, ordinary, and popular meaning to the

undefined terms in the policy, i.e., the terms “will be construed with reference to the average,

ordinary, normal, reasonable person.” Sproull v. State Farm Fire & Casualty Co., 2021 IL

126446, ¶ 19.

¶ 19 Courts “must *** narrowly construe[ ]” exclusionary provisions—provisions absolving

an insurer from liability—to not deprive the insured from the coverage benefit for which he or

she has paid. Burton v. Government Employees Insurance Co., 135 Ill. App. 3d 723, 726 (1985).

An exclusionary provision will only deprive an insured coverage where “its terms are clear,

definite, and specific.” Gillen v. State Farm Mutual Automobile Insurance Co., 215 Ill. 2d 381,

393 (2005). Conversely, if the language in the policy is “susceptible to more than one reasonable

interpretation, [it is] ambiguous” and will be strictly construed against the insurer. Outboard

Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108 (1992).

¶ 20 As the party seeking the exclusion, the burden remains on the insurer “to show that a

claim falls within a provision of the policy that excludes coverage, and an exclusion relied upon

to deny coverage must be free and clear from doubt.” West Bend Mutual Insurance Co. v.

Rosemont Exposition Services, Inc., 378 Ill. App. 3d 478, 486 (2007). Otherwise, coverage will

be resolved in favor of the insured. See Economy Preferred Insurance Co. v. Grandadam, 275

Ill. App. 3d 866, 869 (1995). However, the rule of liberal construction in favor of coverage only

applies when the policy is ambiguous, and courts “will not [create] ambiguity where none

exists.” Hobbs, 214 Ill. 2d at 17; Allstate Insurance Co. v. Mathis, 302 Ill. App. 3d 1027, 1029

(1999).

6 ¶ 21 This issue is one of first impression. There is no binding authority in Illinois interpreting

the applicability of the governmental action exclusion, and as consequence, there is no Illinois

caselaw offering guidance on whether this exclusion may be broadly applied to exclude losses

incurred ancillary to a governmental order.

¶ 22 The commercial lines insurance policy before us features the adverbial phrase “directly or

indirectly” modifying the verb “caused” within the preamble sentence for the exclusions: “We

will not pay for loss or damage caused directly or indirectly by any of the following.” While not

necessary to the inherent meaning of the verb “caused,” these terms serve as adjuncts, which

“may be optionally added to almost any clause” and are “important to help the [read]er

understand the flow of the story, the time or place of an event, the way in which an action was

done, etc.” Paul R. Kroeger, Analyzing Grammar: An Introduction 58 (2005). In short, this

phrase provides context to the manner and limitations (or perhaps boundlessness) of the

predicate.

¶ 23 The relevant exclusionary provision, “destruction of property by order of governmental

authority,” contains two noun phrases tethered by a preposition. The first noun phrase’s contours

are defined through a complemental prepositional phrase. That is, dissimilar to the adjunctive

“directly or indirectly” from the preamble sentence, the prepositional phrase “of property” is

“selected by” and offers necessary context to the word “destruction.” 1 Kroeger, supra at 87. This

phrase is the focus of the exclusion. For the exclusion to apply, however, it is necessary that the

destruction of property be carried out through an order of governmental authority.

Destruction is defined as “The act or process of demolishing, devastating, or overthrowing ***.” 1

Black’s Law Dictionary (11th ed. 2019). 7 ¶ 24 Considering the preamble sentence and the relevant exclusion together, we find, at a

minimum, that the McCanns’ property damage is a loss that grew out of and was therefore

“caused *** indirectly” from the destruction of property. Further, we find that the McCanns’ loss

falls under the governmental action exclusion because the damage stems from the Village’s

demolition order.

¶ 25 Based on the foregoing, we cannot say the phrase “caused directly or indirectly” is

ambiguous. The terms within the policy, namely the pairing “caused *** indirectly,” are

undeniably broad and may lead to unsatisfactory results, but they are nonetheless clear. While

sweeping in its absolution, the parties agreed to these provisions, and there is no indication

within the record that the parties intended to limit the application of this exclusion when agreeing

to the policy, either through the inclusion of limiting language or otherwise. Considered in its

entirety, the plain, ordinary, and popular meaning of the policy supports our reading that the

damage incurred was an indirect result caused by the destruction of the adjacent property. We

believe the McCanns’ alternative reading would manufacture “ambiguity where none exists” and

the terms of the commercial lines insurance policy are “clear, definite, and specific.” Hobbs, 214

Ill. 2d at 17; Gillen, 215 Ill. 2d at 393; Mathis, 302 Ill. App. 3d at 1029. Having found no

ambiguity, we conclude that the circuit court correctly applied the governmental action exclusion

to deny the McCanns’ recovery.

¶ 26 In support of their respective positions, the parties cite a varied string of persuasive

authority within their appellate briefs. Generally, one line of the cited cases interprets the

applicability of fire policy exemptions when damage was incurred through conflagration related

8 to acts from civil authority orders. 2 The other line of cases interprets the policy exclusion at issue

but does so in the context of “[s]eizure[s] or destruction of property” stemming from the

execution of criminal search warrants. 3 Because these cases are non-Illinois matters that are

factually inapposite and fail to address the unique issue presented, we refuse to adopt, or even

borrow from, their reasoning.

¶ 27 As previously stated, the McCanns assert that the Village’s demolition order only

sanctioned damage to the adjacent building and not their own. Therefore, a narrow reading of the

exclusion’s phrase “by order of governmental authority” does not include the McCanns’

property, as there was never an order of destruction against their property. However, reading the

policy in its entirety, the exemption covers “loss or damage caused directly or indirectly”

through the “destruction of property by order of governmental authority.” A plain reading of

these clauses together does not imply a separate order is required for the exemption to attach.

¶ 28 III. CONCLUSION

¶ 29 The judgment of the circuit court of Iroquois County is affirmed.

¶ 30 Affirmed.

2 For cases concerning conflagration from civil authority orders, the parties cite Bankers Fire & Marine Insurance Co. v. Bukacek, 123 So. 2d 157, 159 (Alaska 1960), Hocking v. British America Assur. Co. of Toronto, Canada, 113 P. 259, 260 (Wash. 1911), and Conner v. Manchester Assur. Co., 130 F. 743 (9th Cir. 1904). 3 For cases concerning seizures or destruction of property, the parties cite Kao v. Markel Insurance Co., 708 F. Supp. 2d 472, 477 (E.D. Pa. 2010), Alton v. Manufacturers & Merchants Mutual Insurance Co., 624 N.E.2d 545 (Mass. 1993), and Danulevich v. Hartford Fire Insurance Co., 421 A.2d 559, 562 (Conn. Super. Ct. 1980). 9 McCann Plumbing, Heating & Cooling, Inc. v. Pekin Insurance Co., 2023 IL App (3d) 190722

Decision Under Review: Appeal from the Circuit Court of Iroquois County, No. 19-L-10; the Hon. James B. Kinzer, Judge, presiding.

Attorneys Matthew J. Duco, of Spiros Law, P.C., of Danville, for for appellants. Appellant:

Attorneys Robert Marc Chemers and Richard M. Burgland, of Pretzel & for Stouffer, Chtrd., of Chicago, for appellee. Appellee: