Truck Insurance Exchange v. Ulman

2023 IL App (1st) 220804

• Court: Appellate Court of Illinois
• Decided: October 20, 2023
• Docket: 1-22-0804
• Status: Published

Opinion

2023 IL App (1st) 220804 Nos. 1-22-0804 & 1-22-0877 (cons.) Opinion filed October 20, 2023 Sixth Division

IN THE

APPELLATE COURT OF ILLINOIS

FIRST DISTRICT

TRUCK INSURANCE EXCHANGE, ) ) Plaintiff-Appellee, ) ) v. ) ) MARIAN ULMAN; MARY SWIETLIK; JANE ) BORUCKI; LARRY KRON; BARBARA ) PRYJDA; BRONISLAW PRYJDA; NATALIA ) WIETECHA; MARINA UROSEVIC ) DIKANOVIC; DAMJAN DIKANOVIC; ) MILAN KANTAR; NATASA KANTAR; ) BERISA ADILOVIC; ANDRZEJ BIERNAT; ) Appeal from the Circuit Court ESMA KENDIC, f/k/a Esma Ajkic; SEZAIR ) of Cook County. MURATI; FATMIRA MURATI; JAMES ) MATOUSEK, Individually and as Executor of ) the Estate of Barbara Matousek; THE ) No. 2020 CH 05226 LANDINGS CONDOMINIUM ASSOCIATION; ) BUILDING J INC.; REALTY ADVISORS, ) LTD., d/b/a Property Corporation of America; ) The Honorable HOWARD B.SILVER; and SHANDRIKA ) David B. Atkins THOMAS, ) Judge, presiding. ) Defendants ) ) (Barbara Pryjda; Bronislaw Pryjda; Natalia ) Wietecha; Marina Urosevic ) Dikanovic; Damjan Dikanovic; Milan Kantar; ) Natasa Kantar; Berisa Adilovic; Andrzej Biernat; ) Esma Kendic, f/k/a Esma Ajkic; Sezair Murati; ) Fatmira Murati; Realty Advisors, Ltd., d/b/a ) Property Corporation of America; Howard B. ) Silver; Shandrika Thomas, Defendants- ) Appellants). 1-22-0804

JUSTICE HYMAN delivered the judgment of the court, with opinion. Presiding Justice Johnson and Justice Tailor concurred in the judgment and opinion.

OPINION

¶1 A fire destroyed the Landings, a condominium building in Des Plaines. The building was

insured, but the cost of repairs exceeded the insurance limit by nearly $2 million. After

depleting the insurance proceeds, the reconstruction contractor stopped working, leaving the

building uninhabitable. Condominium unit owners sued The Landings Condominium

Association, its directors, and the building’s managing agent, alleging they violated the

Condominium Property Act (765 ILCS 605/1 et seq. (West 2020)) and breached their fiduciary

duties by (i) failing to purchase enough insurance to cover replacement costs and (ii)

mismanaging the reconstruction process.

¶2 Truck Insurance Exchange filed a complaint, which it later amended, seeking a declaration

that it had no duty to defend the insured defendants in the underlying lawsuit. The parties filed

cross-motions for judgment on the pleadings. The trial court granted Truck’s motion under

Exclusion 8(c) of the policy, which bars coverage for an insured’s failure to “establish or

maintain adequate reserves.” The court considered insurance the “functional[ ] equivalent” to

“cash reserves” and determined that the allegations in the underlying complaint fell within

Exclusion 8(c). The court also found (i) Truck had no duty to defend under the liability

coverage provision because the underlying complaint did not allege the insured defendants

caused the fire or the resulting injuries and damage and (ii) questions of fact remained

regarding whether coverage was barred under Exclusion 12, prohibiting claims brought on

behalf of an insured organization.

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¶3 The insured defendants and the unit owners filed separate appeals, which we consolidated,

arguing the trial court erred in finding (i) they were not covered under the condominium

liability provision, (ii) Exclusion 8(c) applied to bar coverage, and (iii) Exclusion 12 did not

preclude coverage. We agree with the trial court as to the condominium liability coverage and

Exclusion 12. But the trial court erred in holding that Exclusion 8(c) barred coverage. So, we

reverse and remand for further proceedings.

¶4 Background

¶5 The Landings is a 35-unit condominium building in Des Plaines. The Landings

Condominium Association (Association) hired Realty Advisors, Ltd.; its president, Howard

Silver; and its principal, Shandrika Thomas, to manage the building. (Realty Advisors resigned

as manager in February 2020). In 2018, the insured defendants switched insurers from Allstate

Insurance Company to Truck (a member of Farmers Group of Companies) (Truck) and reduced

the amount of coverage by nearly $1.6 million. The policy limit for the building’s replacement

cost under the Truck policy was $5,858,300, with a total coverage of $6,482,542.

¶6 The policy included condominium liability coverage, requiring Truck to pay if the insured

became legally obligated for damages “because of ‘bodily injury,’ ‘property damage,’ or

‘personal and advertising injury’ to which this insurance applies” and to “defend the insured

against any ‘suit’ seeking those damages.”

¶7 The policy also included Director and Officers Liability Coverage (D & O coverage) that

provided:

“We will pay the ‘loss’ which you become legally obligated to pay as a result of a

‘claim’ against any insured for any ‘wrongful acts’ committed by any insured person.

The ‘wrongful acts’ must be committed in the conduct of management responsibilities

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for the organization. We will have the right and duty to defend you against any such

‘claim,’ even if any of the allegations are groundless, false or fraudulent. However, we

will have no duty to defend you against any ‘claim’ for ‘wrongful acts’ to which this

insurance does not apply.”

¶8 The D & O coverage contained three relevant Exclusions. Under Exclusion 1, the policy

did not apply to claims “[f]or any ‘bodily injury’, ‘property damage”, or ‘personal and

advertising injury.’ ” Exclusion 8(c) excluded from coverage claims “[r]elating to or arising

from any [f]ailure of the Named Insured or any ‘insured person’ to establish or maintain

adequate reserves or levy special assessments for the repair, replacement, improvement or

maintenance of any common area elements or property owned by the Named Insured or by any

subsidiary of the Named Insured, or owned collectively by the members, or either of them.”

Finally, Exclusion 12, referred to as the “insured vs. insured” exclusion, applied to claims

“[b]rought by or maintained by or on behalf of an insured organization unless the ‘claim’ is

brought and maintained totally independent of, and totally without the solicitation, assistance,

participation or intervention of any officer, director, or trustee of an insured organization.”

¶9 The policy also included an umbrella provision of additional D & O liability coverage once

the underlying policy D & O’s coverage was exhausted.

¶ 10 In September 2018, a fire destroyed the condominium building. The Association obtained

an estimate for more than $8.3 million to rebuild. After the insurance proceeds had been

exhausted, the contractor abandoned the project, leaving the building uninhabitable.

¶ 11 In May 2020, unit owner Larry Kron filed a class action complaint on behalf of himself

and other unit owners against the Association directors, alleging, in part, that they breached

their fiduciary duties and violated the Condominium Property Act (Condominium Act) by

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knowingly failing to procure enough insurance to “fully fund a rebuild of the Property.” Truck

filed a complaint for declaratory judgment, seeking a declaration it owed no duty to defend or

indemnify the directors. The trial court eventually granted Truck’s motion for default judgment

and dismissed the Kron complaint.

¶ 12 In October 2020, Landings unit owners filed a 13-count complaint against the Association,

three Association directors, Realty Advisors, Silver, and Thomas. The unit owners alleged that

defendants failed to obtain adequate and appropriate kinds of insurance in violation of sections

12 and 18(f) of the Condominium Act (id. §§ 12, 18(f)) and section 6(b) of the Declaration of

Condominium Ownership (Declaration). The unit owners also alleged defendants violated

their fiduciary duties, engaged in fraudulent misrepresentation, and mismanaged the

reconstruction process. Furthermore, the complaint alleged defendants violated the

Condominium Act and the Declaration by accepting a bid from the contractor that exceeded

the policy limit without the unit owners’ approval and failing to keep detailed and accurate

records for the project.

¶ 13 Declaratory Judgment Complaint

¶ 14 Truck filed a four-court complaint, later amended, seeking a declaration that it had no duty

to defend the insured defendants under the D & O Coverage in the policy (count I), under the

liability coverage of the policy (count II), or under the umbrella policy (count III). Truck also

sought a declaration that it owed no duty to indemnify the insured defendants (count IV).

(Truck named the unit owners as defendants to bind them to the outcome of its declaratory

judgment suit but did not seek separate relief or judgment against them.)

¶ 15 The unit owners and Truck filed motions for judgment on the pleadings, and the insured

defendants filed a partial motion for judgment on the pleadings as to count I. The unit owners

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argued (i) the underlying complaint alleges that the insured defendants are liable for physical

injury to real and personal property under the policy’s liability coverage provision and (ii) the

D & O coverage extended to the allegations in the underlying complaint, and none of the

exclusions prevented coverage. Specifically, the unit owners argued (i) Exclusion 1 was

inapplicable due to their having alleged property damage, (ii) Exclusion 8(c) was inapplicable

as underlying complaint did not allege the insured defendants failed to establish adequate

reserves or levy assessments, and (iii) Exclusion 12 was inapplicable because the unit owners

are not an “insured organization” under the policy and the underlying lawsuit was brought

“totally independent of” the insured defendants. Also, the unit owners argued the allegations

in the underlying complaint fell within the umbrella coverage, so it was premature to decide if

Truck had a duty to indemnify the insured defendants.

¶ 16 Truck acknowledged that the insured defendants qualified as insureds under the D & O

coverage provision. Still, Truck contended Exclusion 8(c) barred coverage based on the

allegations in the underlying complaint arising from the insured defendants’ “failure to

establish or maintain adequate reserves or levy special assessments for the repair, replacement,

improvement or maintenance of the property.” Truck also asserted Exclusion 12 barred

coverage as the unit owners collaborated with the insured defendants in filing the underlying

complaint. Specifically, Truck argued that the Association’s directors authorized unit owner

Larry Kron to file an earlier class action complaint against them, and given his allegations

mirror the allegations in the underlying complaint, the directors must have collaborated with

the unit owners. (Kron is not a party to the underlying complaint.) Finally, Truck argued the

underlying complaint did not allege “personal injury” or “property damage” caused by an

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“occurrence,” or “personal and advertising injury,” as defined in the policy. Hence, Truck had

no duty to defend under the condominium liability coverage provision.

¶ 17 In a memorandum opinion and order, the trial court granted Truck’s motion for a judgment

on the pleadings and denied the unit owners’ and insured defendants’ motions. The court found

that the condominium liability coverage “applies to ‘bodily injury’ or ‘property damage’

caused by an ‘occurrence’ ” and that comparing the coverage with the allegations of the

underlying complaint, “it is apparent it does not apply.” The court found that although the

underlying complaint certainly alleges “an occurrence (the 2018 fire) *** the underlying

Plaintiffs do not allege that the [insured defendants] had any role in causing or exacerbating

the fire, but instead that they failed to maintain adequate insurance that otherwise could have

been available to repair the damage. Those alleged breaches of contract and fiduciary duty,

even if valid and proven true, are not the sort of bodily injury or property damage contemplated

by the Condominium Liability portion of the Policies, and Defendants’ arguments that they

constitute an occurrence by indirectly harming the value of the Property are unpersuasive.”

¶ 18 As for the D & O coverage, the court held Exclusion 1 inapplicable for the same reasons

the condominium liability coverage did not apply—the underlying complaint failed to allege

“personal injury” or “property damage,” as described in the policy.

¶ 19 Regarding Exclusion 12, the “insured vs. insured” exclusion, the trial court concluded that

the resolution depended on disputed questions of facts. Truck alleged the underlying claim

served as an extension of the Kron case, which Truck claims was collusive; defendants

countered that the underlying claim was wholly separate and no insured defendant had a role

in its filing.

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¶ 20 Lastly, concerning the failure of the defendants in the underlying case to maintain

insurance coverage sufficient to cover a complete repair in the event of a catastrophic loss, the

court held that Exclusion 8(c) applied. The trial court reasoned that maintaining enough

insurance to cover a loss and maintaining enough cash reserves were “functionally equivalent”

and the underlying complaint alleged a failure “to establish or maintain adequate reserves or

levy special assessments for the repair’ of the Property.”

¶ 21 The insured defendants and unit owners filed separate appeals, which we consolidated.

¶ 22 Analysis

We first address Truck’s request to strike the statement of facts section of the unit owners’

brief for containing inappropriate argument and inaccurately citing to the record in violation

of Illinois Supreme Court Rule 341(h)(6) (eff. Oct. 1, 2020). Briefs that violate the Supreme

Court rules may be stricken, in whole or in part, or offending portions disregarded. See Hall v.

Naper Gold Hospitality LLC, 2012 IL App (2d) 111151, ¶ 9. But we will do so only where the

violations hinder or preclude our review. See Hurlbert v. Brewer, 386 Ill. App. 3d 1096, 1101

(2008). The unit owners accuse Truck’s statement of facts of similar defects. We will disregard

argumentative portions or facts not borne out by the record.

¶ 23 Standard of Review

¶ 24 Like a motion for summary judgment, a motion for judgment on the pleadings is confined

to the pleadings. Pekin Insurance Co. v. Wilson, 237 Ill. 2d 446, 455 (2010) (citing Employers

Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127, 138 (1999)). Judgment on

the pleadings should be granted when the pleadings disclose no genuine issue of material fact

and the movant deserves judgment as a matter of law. Id. Our review is de novo. Gillen v. State

Farm Mutual Automobile Insurance Co., 349 Ill. App. 3d 779, 781-82 (2004).

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¶ 25 In construing an insurance policy, courts seek to ascertain and give effect to the parties’

intent. Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 292 (2001). This

entails construing the policy as a whole, considering the type of insurance purchased, the nature

of the risks involved, and the contract’s overall purpose. Id. We give clear and unambiguous

language its plain, ordinary, and popular meaning. Id. at 292-93.

¶ 26 Conversely, words susceptible to multiple meanings are ambiguous and will be strictly

construed against the insurer in favor of the insured. Id. at 293. The construction of an

insurance policy presents a question of law, which we review de novo. Id. at 292.

¶ 27 Duty to Defend

¶ 28 We liberally construe the underlying complaint and policy in the insured’s favor. United

States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 74 (1991). To determine

an insurer’s duty to defend an insured in an underlying suit, we compare the allegations in the

underlying suit with the relevant policy language. Pekin Insurance Co., 237 Ill. 2d at 455.

When the facts in the underlying complaint fall within, or potentially within, the policy’s

coverage, that triggers the insurer’s duty to defend. Id. The threshold to trigger the duty is low.

State Farm Fire & Casualty Co. v. Tillerson, 334 Ill. App. 3d 404, 408 (2002). As here, if the

underlying complaint alleges several theories of recovery against the insured, the duty to

defend arises even if one theory potentially comes within the policy’s coverage. Id. at 407-08.

¶ 29 The unit owners and insured defendants contend the trial court erred in finding (i) Truck

had no duty to defend under the condominium liability coverage provisions, (ii) Exclusion 8(c)

of the D & O policy barred coverage, and (iii) Exclusion 12 of the D & O policy does not

preclude coverage.

¶ 30 Condominium Liability Coverage

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¶ 31 The condominium liability coverage provision provides that Truck “will pay those sums

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.”

¶ 32 The trial court held this provision inapplicable. We agree. As the trial court explained, the

nature of the underlying complaint was not that the insured defendants played a role in causing

or exacerbating the fire. Rather, the insured defendants breached fiduciary duties by failing to

maintain adequate insurance to cover replacement, “not the sort of bodily injury or property

damage contemplated by the Condominium Liability portion of the Policies.” Consequently,

the facts in the underlying complaint do not fall within, or potentially within, the liability

coverage provision to trigger Truck’s duty to defend.

¶ 33 D & O Coverage

¶ 34 As noted, Truck does not contest that the non-unit owner defendants are insureds under the

D & O Coverage. But Truck contends Exclusions 1, 8(c), and 12 bar coverage. As noted, the

trial court agreed with Truck on Exclusions 1 and 8(c) and, as to Exclusion 12, questions of

fact existed as to whether it applied. The appellants do not contest the finding regarding

Exclusion 1, so we focus on Exclusions 8(c) and 12.

¶ 35 Exclusion 8(c)

¶ 36 The appellants contend the trial court erred in finding Exclusion 8(c) barred coverage.

Exclusion 8(c) excluded coverage for underlying claims that relate to or arise from the

insureds’ failure “to establish or maintain adequate reserves or levy special assessments” in

connection with common area elements or collectively owned property.

¶ 37 To repeat, provisions in an insurance policy, including exclusions, must be construed

liberally for the insured. United States Fidelity & Guaranty Co., 144 Ill. 2d at 74. Where

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denying coverage hinges on an exclusion, its applicability must be free and clear from doubt.

Country Mutual Insurance Co. v. Bible Pork, Inc., 2015 IL App (5th) 140211, ¶ 38.

¶ 38 The trial court noted the unit owners alleged in the underlying complaint that the insured

defendants breached their fiduciary duties and violated the Condominium Act by failing to

“maintain insurance coverage sufficient to cover a full repair of the Property in the event of a

catastrophic loss such as the 2018 fire.” Despite no allegations regarding a failure to maintain

cash reserves or levy special assessments, the trial court found Exclusion 8(c) applies for the

reason that insurance coverage is “functionally equivalent” to cash reserves. We disagree.

¶ 39 The policy does not define “reserves.” Generally, courts give undefined policy their plain,

ordinary, and popular meaning concerning the average, ordinary, normal, and reasonable

person. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 115 (1992).

Courts avoid interpretations that “rest[ ] on ‘gossamer distinctions’ that the average person, for

whom the policy is written, cannot be expected to understand.” Founders Insurance Co. v.

Munoz, 237 Ill. 2d 424, 433 (2010) (quoting Canadian Radium & Uranium Corp. v. Indemnity

Insurance Co. of North America, 411 Ill. 325, 334 (1952)). Further, ambiguous insurance

policy language will be construed against the insurer. Travelers Insurance Co., 197 Ill. 2d at

293.

¶ 40 Merriam-Webster’s Online Dictionary defines “reserve” as “something held back for

future or special use.” Similarly, Black’s Law Dictionary describes “reserve” as “[s]omething

retained or stored for future use; esp., a fund of money set aside by a bank or an insurance

company to cover future liabilities.” Black’s Law Dictionary (11th ed. 2019). Neither

dictionary definition refers to insurance.

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¶ 41 Significantly, the Condominium Act, which the underlying plaintiffs alleged the insured

defendants violated, defines “reserves” as “those sums paid by unit owners which are

separately maintained by the board of managers for purposes specified by the board of

managers or the condominium instruments.” 765 ILCS 605/2(n) (West 2020). Again, there is

no reference to insurance or insurance coverage.

¶ 42 The trial court, in considering “insurance” and “cash reserves” as “functionally

equivalent,” inserts language into the policy that Truck did not include. Moreover, Truck

acknowledges that no case in any jurisdiction has held that insurance and cash reserves are

“functionally equivalent.” Even assuming some allegations in the underlying complaint could

be construed as falling under the “adequate reserves” and “special assessment” provision of

Exclusion 8(c), the unrelated allegations of insured defendants’ mismanagement of the

reconstruction project create a potential for coverage and imposing a duty to defend.

¶ 43 Truck argues that all allegations in the underlying complaint “solely relate to or arise from”

the insured defendants’ failure to procure a sufficient amount of insurance. Not so. In addition

to allegations regarding insufficient insurance, the underlying complaint also alleges the

insured defendants failed to obtain competitive bids for the reconstruction project, properly

manage the project, and keep detailed and accurate records in violation of the Condominium

Act and the Declaration. Those allegations could result in liability, even if the insured

defendants had obtained sufficient insurance but failed to manage the reconstruction project

properly. That potential for coverage triggers the duty to defend.

¶ 44 Exclusion 12

¶ 45 We agree with the trial court—a question of fact remains: Does the underlying lawsuit fall

“clearly within” Exclusion 12, making judgment on the pleadings inappropriate?

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¶ 46 Truck primarily contends the allegations in the unit owners’ underlying complaint closely

resemble the allegations in Kron’s class action complaint, which, as alleged by Truck, the

insured defendants approved of and assisted in bringing. Moreover, Truck asserts we can look

beyond the underlying complaint in assessing whether Exclusion 12 applies to bar coverage,

citing Fidelity & Casualty Co. of New York v. Envirodyne Engineers, Inc., 122 Ill. App. 3d

301, 304 (1983) and Pekin Insurance Co., 237 Ill. 2d at 456 (insurer could offer evidence

proving insured’s actions fell within limitations of policy exclusions so long as evidence did

not tend to determine issue crucial to determination of underlying lawsuit).

¶ 47 Specifically, Truck asserts its amended complaint for declaratory judgment provides a

“roadmap” of commonalities between the Kron complaint and the underlying complaint and

proof of collusion between them. But nothing in the record suggests the trial court found that

the Association colluded with Kron or Exclusion 12 applies to bar coverage in that case. Other

than the allegations in its amended complaint, Truck presented no evidence showing the unit

owners colluded with the insured defendants in bringing this case. Thus, whether the unit

owners and the Association worked in collaboration raises a question of fact precluding

judgment on the pleadings.

¶ 48 Reversed and remanded.

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Truck Insurance Exchange v. Ulman, 2023 IL App (1st) 220804

Decision Under Review: Appeal from the Circuit Court of Cook County, No. 20-CH-5526; the Hon. David B. Atkins, Judge, presiding.

Attorneys Paula E. Litt and Emily E. Garrison, of Honigman LLP, of for Chicago, for appellants Realty Advisors, Ltd., Howard Silver, and Appellant: Shandrika Thomas.

Julie C. Lerman and Charles R. Franklin, of Franklin Greenswag Channon & Capilla, LLC, of Northfield, for other appellants.

Attorneys Danny L. Worker, Dawn L. Johnson, and Lindsay J. Bowman, of for Lewis Brisbois Bisgaard & Smith LLP, of Chicago, for appellees. Appellee:

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