Philadelphia Indemnity Insurance Co. v. Gonzalez

2024 IL App (1st) 230833, 247 N.E.3d 739

Opinion

2024 IL App (1st) 230833

SIXTH DIVISION August 23, 2024 No. 1-23-0833

______________________________________________________________________________ IN THE APPELLATE COURT OF ILLINOIS FIRST DISTRICT ______________________________________________________________________________ PHILADELPHIA INDEMNITY INSURANCE ) Appeal from the COMPANY, a/s/o Renaissance Realty ) Circuit Court of Group, Inc., ) Cook County. ) Plaintiff-Appellant, ) ) v. ) No. 21 L 644 ) ) NORINAICA GONZALEZ, ) Honorable ) Justice James E. Snyder, Defendant-Appellee. ) Judge, presiding.

JUSTICE C.A. WALKER delivered the judgment of the court, with opinion. Presiding Justice Oden Johnson and Justice Hyman concurred in the judgment.

OPINION

¶1 In this subrogation action, Plaintiff Philadelphia Indemnity Insurance Company

(Philadelphia), as subrogee of Renaissance Realty Group, Inc. (Renaissance), appeals from the

circuit court’s partial grant of defendant Norinaica Gonzalez’s motion to dismiss, contending the No. 1-23-0833

court erred by interpreting the lease between Renaissance, as landlord, and Gonzalez, as tenant, to

limit Gonzalez’s liability for negligent conduct to damages to her rental unit. We affirm.

¶2 I. BACKGROUND

¶3 On September 25, 2019, Renaissance and Gonzalez entered into a written lease agreement

(hereinafter “Lease”) for an apartment (“Unit 601”) in a multi-unit building located on the 1500

block of West Belmont Avenue in Chicago.

¶4 The Lease, contained in the record on appeal, contains multiple provisions relevant to the

resolution of Philadelphia’s claims. On the first page of the Lease, Unit 601 is described as the

“Leased Address (Premises).” Another provision on the first page states:

“In consideration of the mutual covenants and agreements herein stated, Landlord(s)

hereby leases to Tenant(s) and Tenant(s) hereby leases from Landlord(s) for use as a private

dwelling only, the Premises, together with the fixtures and appliances listed below (if any)

in the premises, for the above Term of Lease, subject to all the provisions of this Lease.”

¶5 Also on the first page, in a section labeled “Landlord’s Property Insurer,” Philadelphia is

listed as Renaissance’s insurer. In the section immediately below, labeled “Tenant’s Property

Insurer, if required by the Landlord,” there is no insurer listed.

¶6 Section 10, labeled “Tenant Maintenance Obligations,” provides:

“Tenant shall maintain the Premises in a clean, presentable and safe condition at all

times and in accordance with all health, safety and building code regulations. At the

termination of this Lease and upon surrender of the Premises, all fixtures, appliances and

personal property of the Landlord shall be in the same condition as they were on the

Beginning Date, normal wear and tear excepted. Landlord may at its sole option use all or

-2- No. 1-23-0833

part of the Security Deposit (if any) to repair any damage to the Landlord’s property caused

either directly by Tenant or by Tenant’s negligence.”

¶7 Section 19 of the Lease, labeled “Damages and Negligence,” states: “Tenant shall be liable

for any damage done to the premises as a result of Tenant’s or Tenant’s invitees, guests, or others

authorized to reside in the Premises direct action, negligence, or failure to inform Landlord of

repairs necessary to prevent damage to the Premises.”

¶8 In a portion of the Lease titled the “Rules and Regulations,” item #10 provides, in relevant

part, that, “[A]ny liability or loss arising from the use or operation of a grill shall be borne by

Tenant.”

¶9 On January 20, 2021, Philadelphia filed a complaint, as subrogee to Renaissance, against

Gonzalez. Therein, Philadelphia alleged that on August 7, 2020, a small fire started in Gonzalez’s

kitchen in Unit 601, which caused “a substantial amount of smoke” and activated the building’s

sprinkler system. The sprinkler system caused significant water damage to both Unit 601 and other

units, totaling over $200,000.

¶ 10 Renaissance submitted an insurance claim to Philadelphia, which paid “in excess of

$50,000 to cover” repairs and lost rental income. Philadelphia alleged Gonzalez was liable to

reimburse Philadelphia, as subrogee to Renaissance, for this coverage. Specifically, count I of the

complaint alleged Gonzalez negligently caused the fire that resulted in the property damage. Count

II alleged that Gonzalez breached the Lease because it required her to pay for any damages caused

by her negligence, but she violated this term by refusing to reimburse Philadelphia. Philadelphia

attached the Lease to the complaint.

-3- No. 1-23-0833

¶ 11 On May 20, 2021, Gonzalez moved to dismiss the complaint under section 2-619 of the

Code of Civil Procedure (735 ILCS 5/2-619 (West 2020)), arguing she was an implied coinsured

of Renaissance’s policy pursuant to the Illinois Supreme Court’s holding in Dix Mutual Insurance

Co. v. LaFramboise, 149 Ill. 2d 314 (1992), and thus could not be sued by Philadelphia in

subrogation.

¶ 12 On June 30, 2021, Philadelphia responded, arguing in relevant part that the Lease terms

demonstrated the parties’ intent not to make Gonzalez an implied coinsured. In so arguing,

Philadelphia alleged Gonzalez obtained a $300,000 “general liability insurance” policy through

State Farm. The State Farm policy is not included in the record, though Gonzalez acknowledged

its existence in her reply to Philadelphia’s response to her motion to dismiss.

¶ 13 On July 26, 2021, the circuit court denied Gonzalez’s motion in part and granted it in part.

With respect to count I, for negligence, the court denied Gonzalez’s motion and explained, “the

Court does not find that [Gonzalez] was intended to be a coinsured, and the motion to dismiss is

denied.” Regarding count II, for breach of contract, the court granted Gonzalez’s motion in part

and limited Philadelphia’s recoverable damages to those damages caused to Unit 601 only. The

court wrote that Section 19 of the Lease could functionally be understood as stating “Tenant shall

be liable for any damage done to the premises as a result of Tenant’s negligence” and found the

term “premises” referred only to Unit 601, thus excluding Gonzalez from liability for damage

outside of Unit 601. Accordingly, the court found Philadelphia could not “seek compensation for

damage beyond” Unit 601.

¶ 14 On September 20, 2021, Philadelphia filed a Motion for Clarification and Reconsideration.

Therein, Philadelphia relayed that, “[a]t the August 31, 2021 case management conference, [the

-4- No. 1-23-0833

circuit court] *** advised that the damages were limited to the unit of origin with respect to both

Counts I and II even though that language is not currently found in the Court’s Order.” Philadelphia

asked the court to reconsider because a “logical interpretation” of the July 26, 2021, order was that

Philadelphia could “recover all of its damages pursuant to Count I,” including damages beyond

Unit 601. On November 17, 2021, the circuit court denied Philadelphia’s motion in its entirety.

¶ 15 Gonzalez answered the complaint on December 21, 2021, and on February 28, 2022,

Philadelphia moved for summary judgment regarding the damages arising from Unit 601 only,

which it alleged totaled $18,831.04. Gonzalez opposed the motion, claiming genuine issues of

material fact existed regarding proximate cause and whether (1) she acted negligently and (2) other

parties acted negligently to contribute to any alleged damages.

¶ 16 On June 3, 2022, the circuit court granted Philadelphia’s motion for summary judgment as

to liability only on Counts I and II for damages to Unit 601, with the total of those damages to be

determined at trial. The court later transferred the matter from the Law Division to the Municipal

Division of the circuit court.

¶ 17 On March 28, 2023, the parties agreed to a consent judgment against Gonzalez in the

amount of $18,831.04 for only those damages to Unit 601 and specified in the agreed order that,

“Should the circuit court’s July 26, 2021 order be reversed and remanded by a reviewing court,

both parties agree that discovery as to negligence, liability with respect to alleged damages outside

of [U]nit 601, and alleged damages as to the multi-unit residential apartment building *** should

proceed.” The court entered the agreed order on April 11, 2023. This appeal followed.

-5- No. 1-23-0833

¶ 18 II. JURISDICTION

¶ 19 The circuit court entered the agreed order on April 11, 2023, and Philadelphia filed its

notice of appeal on May 8, 2023. Accordingly, this court has jurisdiction, pursuant to Illinois

Supreme Court Rule 301 (eff. Feb. 1, 1994) and Rule 303 (eff. July 1, 2017).

¶ 20 III. ANALYSIS

¶ 21 On appeal, Philadelphia claims the circuit court erred in limiting its recoverable damages

to Unit 601 after determining Gonzalez was not an implied coinsured. Gonzalez responds that the

court correctly interpreted the lease.

¶ 22 Philadelphia’s claim is based on the circuit court’s partial grant of Gonzalez’s section 2-

619 motion to dismiss. 735 ILCS 5/2-619 (West 2020). “When deciding a motion based on section

2-619, a court is to accept all well-pled facts in the complaint as true and will grant the motion

only when it appears that no set of facts could be proved that would allow the plaintiff to recover.”

Dawkins v. Fitness International, LLC, 2022 IL 127561, ¶ 24. The reviewing court will “construe

the pleadings and supporting documents in the light most favorable to the nonmoving party.” Id.

We review the grant of a motion to dismiss de novo. Id.

¶ 23 This case presents a matter of contractual interpretation, as a lease is a “type of contract

[citation], and, as such, it is governed by the rules which govern contracts generally.” Midland

Management Co. v. Helgason, 158 Ill. 2d 98, 103 (1994). A reviewing court’s goal in interpreting

a contract is to give effect to the parties’ intent based on the document as a whole. Id. at 104. “The

parties’ intent is not determined by viewing a clause or provision in isolation ***.” Thompson v.

Gordon, 241 Ill. 2d 428, 441 (2011). Where a contract’s terms are clear and unambiguous, we

must enforce those terms without reference to extrinsic sources. Id. We review de novo a lower

-6- No. 1-23-0833

court’s interpretation of the lease’s terms. Department of Transportation v. 600 West Dundee, LLC,

2019 IL App (1st) 181699, ¶ 7.

¶ 24 Dix provides the starting point for our interpretation of the Lease. Dix, 149 Ill. 2d 314. In

Dix, the landlord and the tenant entered into a lease agreement that provided, in relevant part, the

tenant “ ‘will assume their [sic] own risk for their [sic] personal property and Landlord *** will

not be responsible for fire, wind, or water damage.’ ” Id. at 318. Thereafter, the leased premises

were damaged in a fire started by the tenant. Id. The landlord’s insurance company paid the claim

and then filed a subrogation action against the tenant to recover what it paid. Id. The Illinois

Supreme Court held that the insurance company could not maintain an action against the tenant.

Id. at 323. The court explained that the lease, read as a whole, “does not reflect any intent that,

during the course of the one-year term, the tenant would be responsible to any fire damage to the

realty.” Id. at 321.

¶ 25 The court explained that it found “significant that the parties, who obviously considered

the possibility of fire, expressly provided for the tenant’s personal property but failed to do so with

respect to the leased premises,” which indicated “that the parties intended for each to be

responsible for his own property.” Id. at 322. In so finding, the court also noted that the landlord

maintained its own fire insurance policy and explained that a rent-paying tenant essentially

becomes an implied coinsured of such a policy. Id. at 322-23.

¶ 26 Following Dix, the majority view has developed that a tenant will not be responsible for

damages to the property caused by the tenant’s negligence “unless the parties’ contrary intent is

clear” from the terms of the lease. Towne Realty, Inc. v. Shaffer, 331 Ill. App. 3d 531, 540 (2002);

see Cincinnati Insurance Co. v. DuPlessis, 364 Ill. App. 3d 984, 986 (2006) (The “clear import”

-7- No. 1-23-0833

of Dix is, regarding negligently caused fire damage, “unless the parties’ contract expressly makes

the tenant liable, it will be presumed that the parties did not so intend.”). One court explained that

“it would be incongruous to require both the landlord and the tenant to obtain fire insurance

on the same premises, and because the tenant in essence pays for the insurance out of his

rent, the tenant, as a matter of law, is exculpated from liability for negligently causing fire

damage to the building where the landlord procures insurance thereon.” American National

Bank & Trust Co. v. Edgeworth, 249 Ill. App. 3d 52, 56 (1993).

The Towne court further explained that the Dix court’s discussion of tenants as implied co-insureds

was not outcome-determinative; instead, the focus in interpreting the lease should be on who bears

the insurance burden:

“[T]he key factor in determining whether the parties intended to exculpate the tenant from

liability for negligently caused fire damage to the leased premises is the allocation of

insurance burdens as evidenced by the lease. When the provisions of the lease either

explicitly or implicitly indicate that the lessor will obtain insurance against the risk of fire

loss to its building, the tenant will normally not be liable for negligently causing fire

damage to that building unless the parties’ contrary intent is clear. Such a rule gives effect

to the parties’ probable and customary intent that the landlord is to look to the insurance

he has agreed to procure for indemnification for fire loss. *** In addition, as the Dix court

explained, under such circumstances, the tenant is essentially a coinsured under the

landlord’s insurance policy by virtue of his payment of rent.” Towne, 331 Ill. App. 3d at

540 (discussing Dix decision).

-8- No. 1-23-0833

¶ 27 Applying these principles here, and considering the Lease in its entirety, we find that

Philadelphia and Gonzalez did not intend for Gonzalez to be generally liable for negligently caused

fire damage outside of Unit 601. Therefore, we affirm the circuit court’s order limiting

Philadelphia’s recoverable damages. The Lease expressly contemplates specific instances where

Gonzalez will be liable for negligently caused damage—“Rules and Regulations,” part 10’s

provision regarding the grill, and section 19, making her liable for damages to Unit 601, described

therein as the “premises.” The Lease does not contain an express provision specifically making

Gonzalez liable for damages due to her negligence beyond Unit 601 and explicitly states that

Renaissance alone bears the general insurance burden. Thus, like the lease at issue in Dix, the

Lease shows that Renaissance and Gonzalez considered the issue of insurance responsibility

between the parties, then expressly made Gonzalez liable only in specific instances, while placing

the general insurance responsibility on Renaissance. See Dix, 149 Ill. 2d at 322 (Where the lease

enumerated instances where the tenant was responsible for his personal property, the contract’s

silence as to the tenant’s liability for the premises as a whole indicated “that the parties intended

for each to be responsible for his own property.”). Under these terms, the circuit court correctly

concluded that Illinois law maintains Gonzalez was not liable for negligently caused fire damage

outside of Unit 601.

¶ 28 Philadelphia raises arguments disputing this interpretation of the Lease. First, Philadelphia

points to Section 19’s language that Gonzalez is liable for any negligence causing damage to the

“premises,” focusing on the fact that the word “premises” in line 1 is not capitalized. This,

Philadelphia contends, was intentional and means that the “premises” referred to in Section 19,

line 1, is different from the “Premises” as defined on page 1 of the Lease, which refers specifically

-9- No. 1-23-0833

to Unit 601. Instead, Philadelphia argues, the lowercase “premises” in Section 19 should be

interpreted to subject Gonzalez to liability for the building as a whole.

¶ 29 This interpretation fails because it is counter to how the term “[P/p]remises” is used in the

Lease, whether capitalized or not, and how the areas of the building outside of Unit 601 are referred

to in the Lease. Philadelphia’s contention that the lowercase “premises” in Section 19 is meant to

delineate something different than the capitalized “Premises” is belied by one of the first entries

on the first page, where the Lease uses the capitalized and uncapitalized versions terms

interchangeably:

“In consideration of mutual covenants and agreements herein stated, Landlord(s) hereby

lease to Tenant(s) and Tenant(s) hereby leases from Landlord(s) for use as a private

dwelling only, the Premises, together with the fixtures and appliances listed below (if any)

in the premises, for the above Term of Lease, subject to all the provisions of this Lease.”

In this section, both “Premises” and “premises” indisputably refer to Unit 601. This demonstrates

that the term, whether capitalized or not, refers to Unit 601. This is also demonstrated by the

lowercase “premises” being used to only possibly refer to Unit 601 in Section 40 (“If the premises

is a condominium or part of a Homeowners Association ***”). In fact, “[P/p]remises” is never

used to refer to another area outside of Unit 601 unless one adopts the interpretation of line 1 in

Section 19 for which Philadelphia advocates.

¶ 30 Our interpretation of the Lease is supported by the fact that the areas outside of Unit 601

are repeatedly and exclusively described using other terms besides “[P/p]remises” throughout the

Lease. Specifically, the Lease uses the terms “property,” “common areas,” or “elsewhere in

building” in referencing areas outside of Unit 601 in no fewer than 12 other Sections or

- 10 - No. 1-23-0833

Rules/Regulations, demonstrating the parties’ intent that, whether capitalized or not, the term

“[P/p]remises” referred only to Unit 601. 1 This drafting also defeats Philadelphia’s contention that

our interpretation strains credulity because Renaissance would likely not agree to limit the scope

of Gonzalez’s liability to Unit 601. If the parties had intended for Gonzalez to be liable for

negligent conduct in other areas besides Unit 601, they would have done so with lease terms

making her liable for negligently causing damage to the “property,” “common area,” or “elsewhere

in the building.” The Lease does not do so.

¶ 31 Philadelphia also disputes our interpretation by referencing Section 10 of the Lease, which

reads, in relevant part,

“At the termination of this Lease and upon surrender of the Premises, all fixtures,

appliances and personal property of Landlord shall be in the same condition as they were

on the Beginning Date, normal wear and tear excepted. Landlord may at its sole option use

all or part of the Security Deposit (if any) to repair and/or replace any damage to Landlord’s

property caused either directly by Tenant or by Tenant’s negligence.”

Philadelphia contends this term implies that Gonzalez can be liable for negligently caused damage

to any of Renaissance’s “property,” including fire damage to units besides Unit 601. This

suggested interpretation is counter to the plain meaning of the section, to which we must give

effect. Thompson, 241 Ill. 2d at 441. The plain meaning of the provision is that the “property” in

the second sentence is the “personal property” referenced in the first (i.e., Gonzalez must return

the personal property of the landlord contained in Unit 601 to the landlord in the condition she

found it, absent wear and tear) and to the extent that personal property has damage beyond normal

1 Specifically, Sections 2, 13, 14, 22, 23, 24, 29; and Rules and Regulations 1, 5, 7, 11, and 13.

- 11 - No. 1-23-0833

wear and tear caused by Gonzalez’s negligence, the landlord may use the security deposit to pay

for that damage. To interpret this provision otherwise would be to improperly divorce the second

sentence from any relation to the first. See Village of Orland Hills v. Citizen Utilities Co. of Illinois,

347 Ill. App. 3d 504 (2004) (clauses in a contract should be interpreted as having been inserted

deliberately).

¶ 32 Philadelphia further argues that the circuit court found Gonzalez was not an implied

coinsured of Renaissance’s policy with Philadelphia, and, based on this finding, this court should

conclude Gonzalez is excluded from the protection afforded to tenants, pursuant to Dix and its

progeny. Instead, Philadelphia argues that this court should apply the “common law” of Illinois,

as purportedly stated in Fire Insurance Exchange v. Geekie, 179 Ill. App. 3d 679, 682 (1989), and

find Gonzalez liable due to the absence of an express clause to the contrary, as, “in the absence of

an express agreement to the contrary, a tenant is liable for damages to the leased premises resulting

from his failure to exercise due care.”

¶ 33 This argument fails because even if we agreed with the circuit court that Gonzalez was not

an implied coinsured pursuant to the Lease, it does not follow that this would make her liable for

negligently caused fire damage outside of Unit 601. As explained in Towne, the implied coinsured

concept is not outcome determinative; instead, where the lease imposes on the landlord the

responsibility to maintain insurance (as the Lease does here), the broader policy of not holding

tenants liable controls, absent an express provision to the contrary. Towne, 331 Ill. App. 3d at 540.

This conclusion is not affected by Philadelphia’s citation to Geekie, which cannot impact our

interpretation of Dix and its progeny because it predates Dix.

- 12 - No. 1-23-0833

¶ 34 Philadelphia also cites Gonzalez’s alleged procurement of a $300,000 policy from State

Farm as evidence of the parties’ intent that she be liable for any damage caused by her own

negligence, whether contained in Unit 601 or not. First, we find that the intent of the parties is

clear from the language of the Lease; thus, it is inappropriate to consider any evidence beyond the

written agreement. Thompson, 241 Ill. 2d at 441. Moreover, even if it were hypothetically

appropriate to consider the parol evidence of the alleged State Farm policy in determining the

parties’ intent, we could not do so because the alleged State Farm policy is not included in the

record on appeal, and we must construe its absence against Philadelphia. See Foutch v. O’Bryant,

99 Ill. 2d 389, 391-92 (1984).

¶ 35 Philadelphia’s final claim is that equitable principles dictate that it should have a right to

recover on a subrogation claim against Gonzalez. This argument fails because Philadelphia cannot

overcome a core tenet of the equitable remedy of subrogation—“a subrogee can have no greater

right than the subrogor and can enforce only such rights as a subrogor could enforce.” Lobo IV,

LLC v. V Land Chicago Canal, LLC, 2019 IL App (1st) 170955, ¶ 118. Per the Lease (as explained

above), Renaissance has no right to recover against Gonzalez for damages outside of Unit 601,

and, therefore, neither does Philadelphia as subrogee to Renaissance’s rights.

¶ 36 IV. CONCLUSION

¶ 37 Because the Lease shows the parties’ intended Gonzalez not to be liable for damages

outside of Unit 601, we affirm the circuit court’s limitation on Philadelphia’s recoverable damages.

¶ 38 Affirmed.

- 13 - No. 1-23-0833

Philadelphia Indemnity Insurance Co. v. Gonzalez, 2024 IL App (1st) 230833

Decision Under Review: Appeal from the Circuit Court of Cook County, No. 21-L-644; the Hon. James E. Snyder, Judge, presiding.

Attorneys Matthew F. Policastro, of Cozen O’Connor, of Chicago, for for appellant. Appellant:

Attorneys Ellen J. O’Rourke, of Michael D. Gallo & Associates, of for Chicago, for appellee. Appellee:

- 14 -