Sheckler v. Auto-Owners Insurance Company
| Decision Date | 22 October 2021 |
| Docket Number | Appeal No. 3-19-0500 |
| Citation | 2021 IL App (3d) 190500,190 N.E.3d 336,454 Ill.Dec. 736 |
| Parties | Monroe SHECKLER and Dorothy Sheckler, Plaintiffs-Appellants, v. AUTO-OWNERS INSURANCE COMPANY, Ronald McIntosh and Wayne Workman, Defendants (Auto-Owners Insurance Company, Defendant-Appellee). |
| Court | United States Appellate Court of Illinois |
Mark E. Wertz, of Law Office of Mark Wertz, P.C., of Pekin, and John W. Robertson, of Statham & Long, LLC, of Galesburg, for appellants.
Peter J. Wenker and Brian T. Fairfield, of Brooks Law Firm, P.C., of Rock Island, for appellee.
¶ 1 In this insurance coverage dispute, we must decide whether an insurer's duty to defend extends to the tenants of the insured property against a third-party negligence contribution claim when the tenants are not identified as persons insured under the policy. We hold that the duty to defend does extend to the tenants under these specific circumstances.
¶ 3 Monroe1 and Dorothy Sheckler rented an apartment in Pekin, Illinois from Ronald McIntosh. Prior to renting the apartment to the Shecklers, McIntosh paid the annual premium on the insurance policy covering the apartment from amounts collected from his other rental properties. The lease agreement for the apartment explicitly provided that McIntosh "shall maintain fire and other hazard insurance on the premises only" and that the Shecklers would be "responsible for any insurance they desire on their possessions contained in the leased premises." An indemnification clause further exculpated McIntosh from any damages or injury occurring on the premises.
¶ 4 In compliance with the lease, McIntosh obtained an insurance policy from Auto-Owners Insurance Company (Auto-Owners), which provided replacement cost coverage, rental loss protection, and liability protection. The policy declarations listed McIntosh and his wife Rita Kay McIntosh as the only named insureds.
¶ 5 The rental apartment had a traditional gas stove and range. Under the lease, McIntosh was responsible for appliance maintenance and repairs. When the Shecklers notified him that the oven and a burner on the stove were not working, he placed a service call with Wayne Workman. Workman met with the Shecklers, removed the knob from the burner, but left to find additional replacement parts. The Shecklers began smelling gas and tried masking the odor with Febreze. The Febreze proved to be inadequate at obscuring the smell. Undeterred, Monroe Sheckler turned on the stove. The stove burst into flames setting the apartment ablaze. The apartment sustained severe fire damage.
¶ 6 Auto-Owners paid McIntosh's claim for the damage to the apartment and then filed a subrogation action in McIntosh's name against Workman to recoup payment for the fire damage. Auto-Owners alleged Workman's repair work was the proximate cause of the fire. Following depositions, and discussion with Auto-Owners, Workman filed a third-party complaint for contribution against the Shecklers. Workman's complaint alleged that the Shecklers were negligent for, among other reasons, failing to advise Workman that they smelled gas, trying to mask the odor with Febreze, and lighting the oven despite the strong odor of gas. The Shecklers tendered their defense against the contribution claim to Auto-Owners. After Auto-Owners twice refused to defend them, the Shecklers filed an independent declaratory judgment action in the circuit court naming Auto-Owners, Workman, and McIntosh as defendants. Workman filed an answer with a counterclaim against Auto-Owners seeking coverage for the Shecklers. Citing our supreme court's decision in Dix Mutual Insurance Co. v. LaFrambroise , 149 Ill. 2d 314, 173 Ill.Dec. 648, 597 N.E.2d 622 (1992), Workman argued the Shecklers were coinsured under the Auto-Owners policy. Ergo, Auto-Owners had a duty to defend them against the third-party contribution claim.
¶ 7 The parties filed cross-motions for summary judgment. On May 20, 2019, the circuit court held a hearing where the parties presented their arguments. On behalf of both himself and the Shecklers, Workman argued that the policy issued to McIntosh also covered the Shecklers for damages alleged in his third-party contribution suit, claiming that Auto-Owners’ duties also included indemnification. The trial court stated the key issue as whether "as a matter of law *** tenants are always the co-insureds for insuring the [rental] property." The Shecklers contended that because McIntosh intended to use the rental payments to pay for the policy premium, they acquired coinsured status; Auto-Owners argued that the duty to defend had to be based on language of the policy. McIntosh presented an affidavit to the court averring that he never intended to provide liability coverage to the Shecklers.
¶ 8 On August 2, 2019, the circuit court ruled on the key issue as previously framed, stating:
On August 7, 2019, the court entered summary judgment in favor of Auto-Owners and against both the Shecklers and Workman.
¶ 9 On August 19, 2019, Workman filed a notice of appeal; on August 23, 2019, the Shecklers filed a separate notice of appeal. Upon the parties’ request, this court entered an order consolidating those appeals on September 10, 2019. While this appeal was pending, a jury returned a verdict in favor of Workman in Auto-Owners’ subrogation action against him. Workman subsequently filed a motion to voluntarily dismiss his appeal in this case, which we granted. We now address the Shecklers’ appeal and reverse the circuit court's judgment.
¶ 11 Summary judgment is proper when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." (Internal quotation marks omitted.) Bremer v. City of Rockford , 2016 IL 119889, ¶ 20, 412 Ill.Dec. 813, 76 N.E.3d 1271. When, as here, the parties file cross-motions for summary judgment, they agree that only questions of law are involved and invite the court to decide the issues based on the record. Id. Appellate review of summary judgment is de novo. Home Insurance Co. v. Cincinnati Insurance Co. , 213 Ill. 2d 307, 315, 290 Ill.Dec. 218, 821 N.E.2d 269 (2004).
¶ 12 The Shecklers argue that under Dix , 149 Ill. 2d 314, 173 Ill.Dec. 648, 597 N.E.2d 622, they are coinsured, as a matter of law, under the policy agreement executed by McIntosh and Auto-Owners. Because they are coinsured and thus indemnified, they could not be held liable for any damages to the insured property. In addition, the Shecklers assert that Auto-Owners had a duty to defend them from Workman's third-party contribution claim arising from the fire damage, as there is no reasonable basis for differentiating between a situation where a claim is made directly against a coinsured and where a claim is being made for contribution against a coinsured.
¶ 13 Auto-Owners argues that the Shecklers are not coinsured under the fire policy because McIntosh paid the premium before receiving their rent. The insurance company also asserts that the language of the insurance policy controls in this situation, not the lease. Auto-Owners also contends that Dix is inapplicable in this case and, instead, this court should follow the holding of Hacker v. Shelter Insurance Co. , 388 Ill. App. 3d 386, 327 Ill.Dec. 433, 902 N.E.2d 188 (2009).
¶ 14 In Dix , the landlord maintained fire insurance on residential property leased to a tenant. Dix , 149 Ill. 2d at 317-18, 173 Ill.Dec. 648, 597 N.E.2d 622. The tenant, while removing exterior paint from the property with a power stripper, caused fire damage to the property. Id. at 318, 173 Ill.Dec. 648, 597 N.E.2d 622. The fire insurance company paid the landlord's claim for the fire damage, then in a subrogation claim sought to recoup payments from the tenant for negligently causing the fire damage. Id.
¶ 15 On appeal to the Illinois Supreme Court, the insurer argued that the tenant was liable for the negligently caused fire damage because the lease did not contain a provision expressly relieving the tenant of liability. Id. at 320, 173 Ill.Dec. 648, 597 N.E.2d 622. The court examined whether the insurance company had the right to subrogate against the tenant, noting that subrogation is an "equitable right and remedy which rests on the principle that substantial justice should be attained by placing ultimate responsibility for the loss upon the one against whom in good conscience it ought to fall." Id. at 319, 173 Ill.Dec. 648, 597 N.E.2d 622.
¶ 16 In rejecting the insurer's argument, the court found that "a tenant is generally liable for fire damage caused to the leased premises by his negligence" but that the parties to the lease may agree to exonerate the tenant from liability under the terms of the lease. Id. Examining the terms of the lease as a whole, the spirit of the agreement, and the reasonable expectations of the parties, the court found the parties intended to exculpate the tenant from negligently caused fire damage. Id. at 319-20, 173 Ill.Dec. 648, 597 N.E.2d 622. This conclusion rested on the finding that under the language of the lease, the tenant assumed the risk for his personal property while the landlord was exonerated from liability for damage to that personal property in the event of a fire. Absent from the lease was a provision addressing liability...
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