Ind. Ins. Co. v. Royce Realty

• Citation: 2013 IL App (2d) 121184,990 N.E.2d 1244,371 Ill.Dec. 866
• Decision Date: 30 May 2013
• Docket Number: No. 2–12–1184.,2–12–1184.
• Parties: INDIANA INSURANCE COMPANY, Plaintiff–Appellant, v. ROYCE REALTY AND MANAGEMENT, INC., and Cathy Stackhouse, Defendants–Appellees.
• Court: United States Appellate Court of Illinois

2013 IL App (2d) 121184
990 N.E.2d 1244
371 Ill.Dec. 866

INDIANA INSURANCE COMPANY, Plaintiff–Appellant,
v.
ROYCE REALTY AND MANAGEMENT, INC., and Cathy Stackhouse, Defendants–Appellees.

No. 2–12–1184.

Appellate Court of Illinois,
Second District.

May 30, 2013.

[990 N.E.2d 1246]

Jay S. Judge, Andrew G. Witik, Deborah A. Ostvig, Judge, James & Kujawa, LLC, Park Ridge, for appellant.

John A. Kornak, Thomas J. Popovich, Mark J. Vogg, Law Offices of Thomas J. Popovich, P.C., McHenry, for appellees.

OPINION
Justice SCHOSTOK delivered the judgment of the court, with opinion.

[371 Ill.Dec. 868]¶ 1 The plaintiff, Indiana Insurance Company, filed a declaratory judgment action seeking a determination as to whether a claim for personal injury suffered by one of the defendants, Cathy Stackhouse, was covered under an insurance policy Indiana had issued to the other defendant, Royce Realty and Management, Inc. On October 2, 2012, the circuit court of Lake County granted summary judgment in favor of the defendants, finding that the claim was covered under the policy. Indiana appeals this determination. We affirm.

¶ 2 BACKGROUND

¶ 3 The following facts are drawn from the depositions ¹ and other evidence submitted in connection with the defendants' motion for partial summary judgment. Except where noted, these facts are undisputed.

¶ 4 Royce Realty is in the business of managing various commercial properties owned by others, including, inter alia, residential buildings, shopping centers, and two golf courses. Kim Plencner has worked for Royce Realty for many years and since the late 1990s has been the president of Royce Realty. Among other duties, he handled the obtaining of insurance for Royce Realty.

¶ 5 At all times relevant to this case, Kim's brother Kevin Plencner was the vice president of Royce Realty, responsible for many of the day-to-day operations. He also served as the general manager of the Lakemoor Golf Club, supervising the operation of the golf course. He hired two other employees to directly manage, maintain, and operate the golf course. Those employees' paychecks came from Royce Realty. Although Kevin Plencner occasionally visited the golf course, he generally oversaw the golf course's operations from his office in Oak Brook Terrace.

¶ 6 Douglas Nelson was a licensed insurance broker. In 2002, he began working for Assurance Agency, Ltd. His accounts included Royce Realty, for which he prepared insurance proposals that he presented to Kim Plencner. In his deposition, Kim Plencner testified that he wanted Assurance to set up an insurance program that would protect against risks and losses at the various properties managed by Royce Realty.

¶ 7 The record does not reflect the nature of the insurance policies procured by Assurance for Royce Realty between 2002 and 2005. However, in May 2005, Indiana issued a set of insurance policies to Royce Realty that included coverage labeled “commercial general liability” (CGL) coverage. It appears that this was the first time Indiana insured Royce Realty.

[990 N.E.2d 1247]

[371 Ill.Dec. 869]¶ 8 Section I of the CGL coverage form stated that the policy included three types of coverage: coverage for bodily injury and property damage (coverage A); personal and advertising injury (defined to include injury arising out of offenses such as false imprisonment, malicious prosecution, wrongful eviction, defamation, invasion of privacy, and copyright infringement) (coverage B); and medical expenses (coverage C). The portion relating to coverage A stated that the policy applied to bodily injury and property damage if, among other things, the bodily injury or property damage was caused by an accident that took place in the “coverage territory.” The “coverage territory” was defined as encompassing the United States, its territories and possessions, and Canada. The portion relating to coverage C stated as follows:

“a. We will pay medical expenses as described below for ‘bodily injury’ caused by an accident:

(1) On premises you own or rent;

(2) On ways next to premises you own or rent; or

(3) Because of your operations;

provided that:

(1) The accident takes place in the ‘coverage territory’ and during the policy period * * *.” (Emphasis added.)

¶ 9 Section II of the coverage form, labeled “Who Is An Insured,” stated that employees were insured, “but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business.” The policy further defined the phrase “your work” as, among other things, “[w]ork or operations performed by you or on your behalf.”

¶ 10 The CGL policy also contained an endorsement (Endorsement) labeled “Limitation of Coverage to Designated Premises or Project.” The Endorsement stated that the CGL insurance applied only to claims “arising out of * * * [t]he ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises.” The schedule that was part of the Endorsement listed only a single location under “premises”: 800–1000 Royce Boulevard, in Oak Brook Terrace, the main office of Royce Realty.

¶ 11 Nelson testified that, prior to placing the above insurance, he spoke with one of Indiana's underwriters ² about the Endorsement. He knew that the Endorsement was on the policy and believed that its purpose was to limit liability to occurrences at the designated premises. He did not recall whether he told the underwriter that the policy could not include the Endorsement. The record does not contain any testimony by Nelson that he specifically told Kim Plencner or anyone else at Royce Realty about the presence of the Endorsement or his understanding of its purpose.

¶ 12 Kim Plencner testified that Nelson would present various insurance proposals both before and during a meeting with [371 Ill.Dec. 870]

[990 N.E.2d 1248]

him, and he was the person who had the final decision-making power over any insurance obtained by Royce Realty. However, the record does not contain any evidence of any discussion between Nelson and Kim Plencner about the presence of the Endorsement or its effect on the policy. Nor is there any evidence that Kim Plencner ever met directly with anyone at Indiana. The only evidence that Kim Plencner knew of the Endorsement is that he ultimately signed off on the Indiana insurance policies proposed by Assurance, including the CGL policy with the Endorsement. (The Endorsement was listed in the table of contents of the CGL policy.) The CGL policy was renewed in substantially similar form twice, and was in effect in April 2008.

¶ 13 On April 26, 2008, Stackhouse was walking on the golf course at the Lakemoor Golf Club when a tree fell on her, seriously injuring her. She filed a personal injury lawsuit against Lakemoor and Royce Realty. Indiana initially defended the lawsuit on behalf of Royce Realty without a reservation of rights. On April 29, 2010, however, Indiana notified Royce Realty that it was withdrawing from that defense, contending that Kevin Plencner had substantially misled Indiana regarding the nature of Royce Realty's involvement with the golf course.

¶ 14 Shortly thereafter, on May 4, 2010, Indiana filed the declaratory judgment action that is before us in this appeal, contending that the policy did not cover Stackhouse's injury. In October 2010, Stackhouse obtained a $4.5 million verdict against Lakemoor and Royce Realty in the personal injury suit. Lakemoor's insurer paid approximately $3.5 million, and Stackhouse entered into a settlement with Royce Realty pursuant to which Royce Realty assigned her its rights under the $1 million CGL policy issued by Indiana. Stackhouse was then joined as a defendant in the declaratory judgment action, and filed an answer, affirmative defenses, and counterclaims alleging bad faith.

¶ 15 On January 25, 2012, the defendants filed a motion for summary judgment on the issue of coverage. The motion was briefed and argued. During this period, a number of witnesses were deposed. Among them were Jill Kaestner, a senior claims specialist for Indiana who eventually handled Stackhouse's claim, and Mary Prugh, the director of claims for Assurance (the insurance broker).

¶ 16 Kaestner testified that she was uncertain about the effect of the Endorsement on the policy and that she therefore identified it as creating a potential coverage issue. Kaestner knew that Stackhouse had been injured at the Lakemoor golf course, not at Royce Realty's main office in Oak Brook Terrace. However, she did not know how the Endorsement affected coverage for the accident, as Royce Realty could have acted as the property manager for the Lakemoor golf course from its main office. (In fact, Kevin Plencner testified that he generally performed his property management tasks related to the Lakemoor golf course from his office, although he also occasionally visited the golf course.) Kaestner also testified that, in her more than 20 years as an insurance adjuster, she had never seen an endorsement such as the one at issue in this case.

¶ 17 Kaestner explained that, although she had identified possible coverage issues, Indiana agreed to defend Royce Realty in the personal injury action because there was at least potential coverage. Indiana defended Royce Realty without a reservation of rights because Kevin Plencner initially told her that Royce Realty did not own or operate the Lakemoor golf course. Indiana therefore took the view that it [371 Ill.Dec. 871]

[990 N.E.2d 1249]

could be dismissed from the lawsuit fairly quickly and thus would not need to reserve its rights. However, once it became clear (through the depositions of Kevin Plencner and other golf course employees) that Royce Realty served as the property manager for the golf course, Indiana decided to withdraw from representing Royce Realty, citing the Endorsement.

¶ 18 Prugh reviewed the policy and Endorsement after the incident, when questions about coverage arose. She testified...