Insurance Company’s Restrictive Endorsement Did Not Limit Coverage in Accident; Indiana Insurance Co. v. Royce Realty

Cathy Stackhouse obtained a $4.5 million jury verdict against Lakemoor Golf Course and Royce Realty for an accident that took place on Lakemoor’s golf course. The golf course and Royce Realty were insured by Indiana Insurance Co.

Royce Realty was the manager of several golf courses, shopping centers and apartment buildings. Because of the need for protection, it purchased a commercial general liability policy from Indiana Insurance Co. But Indiana Insurance Co. attempted to severely restrict its own liability by attaching an endorsement that limited the policy’s coverage to claims “arising out of the ownership, maintenance or use of Royce’s headquarters in Oak Brook and operations necessary or incidental to those premises.”  After the Stackhouse verdict against Lakemoor and Royce, Indiana Insurance sued in the Chancery court for a declaratory judgment that the Stackhouse judgment was not covered. 

Both Royce and Stackhouse moved for summary judgment arguing that the endorsement was ambiguous. The case heard in Lake County, Ill., resulted in a grant of the motion for summary judgment;  Indiana Insurance appealed. 

In the Illinois Appellate Court, Indiana Insurance argued that the recent ruling in Pekin Insurance Co. v. Recurrent Training Center, 409 Ill.App.3d 114 (2011) was persuasive. But the Illinois Appellate Court thought otherwise and affirmed the Lake County judge’s order granting summary judgment for Royce and Stackhouse.

The Illinois Appellate Court, guided by the Supreme Court’s instructions in Crumb & Forster Managers v. Resolution Trust Corp., 156 Ill. 2d 384 (1993) wherein it was stated that to know the intent of the parties, it is important to construe the policy as a whole, taking into account the type of insurance for which the parties had agreed and the risks undertaken. 

On appeal, Indiana argued that it intended the endorsement to transform the underlying commercial general liability policy, which insured against risks from Royce’s business operations, into a premises liability policy that insured only in risks related to Royce Realty’s use of its offices. The appellate court disagreed with that interpretation of the policy and was guided by not what the insurer intended but by what a reasonable person in the shoes of the insurer would understand the policy to mean. 

The policy was labeled as a CGL (commercial general liability) policy that purported to insure such risks that were intended, not the endorsement that nullified most of that coverage if Indiana Insurance had its way. 

The Illinois Appellate Court found that the endorsement was ambiguous in that it limited coverage to losses arising out of Royce Realty’s “uses of the premises and arising out of ‘operations incidental to those premises’ without defining those terms and reasonable people can differ over the meaning of the terms.”

 Indiana maintained that the case of Pekin Insurance Co. v. Recurrent Training Center, 409 Ill. App. 3d 114 (2011) decided by the First District of the Appellate Court was persuasive.  However, this court declined to follow that court’s decision.  In the Recurrent Training Center case which involved a claim arising out of an accident to a pilot involved in the business that trained airline pilots, the reviewing court here said that “where an endorsement irreconcilably conflicts with a provision in the body of the policy, the terms of the endorsement control.”  The appellate court said that the plane crash was not an “inherent risk” of the training center’s business and that the insurer did not insure the training center’s business operations. 

In this case, the appellate court found that the Recurrent Training Center opinion is contrary to the rule that courts must consider “the type of insurance for which the parties have contracted, the risk undertaken and purchased, the subject matter that is insured and the purposes of the entire contract.”  Crumb & Forster Managers v. Resolution Trust Corp., 156 Ill.2d  at 391. 

Accordingly, the appellate court did not find Recurrent Training Center’s opinions persuasive and declined to follow it affirming the Lake County Circuit Court judge’s order. 

Indiana Insurance Co. v. Royce Realty, 2013 IL App. (2d) 121184 (May 30, 2013).

Kreisman Law Offices has been handling trial work and cases for individuals, families and businesses for more than 37 years in and around Chicago, Cook County and its surrounding areas, including Maywood, Downers Grove, Orland Park, Blue Island, Harwood Heights, Glenview, Oak Lawn, Burr Ridge, Chicago (Lincoln Park), Park Ridge and Hillside, Ill.

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