April 2022 Case Notes & Comments

“You can get excited about the future. The past won’t mind.” ~ Hillary DePiano, playwright and author.

MONTHLY QUIZ: Insurer issues an Illinois property policy covering a 40-building condominium complex that insures against "direct physical loss or damage" to the buildings. The Policy includes an appraisal provision that applies if Insurer and Association "disagree on the value of the property, the amount of Net Income and operating expense or the amount of loss... If there is an appraisal, [Insurer] ... still retains [its] right to deny the claim." Following notice of a hail storm, Insurer inspects the building and issues Association a $17,140.88 check for the minimal damages. Insurer denies the remainder of the claim on the ground that it found no further wind or hail damage to the buildings. Association responds by providing Insurer with an estimate which exceeds $2M and demands an appraisal. Insurer rejects the demand for appraisal and files a DJ on the basis that it is disputing coverage. Association moves to dismiss the DJ, arguing that it has properly invoked the appraisal condition. Who is right? Should the DJ be dismissed? Will this matter proceed to appraisal? You be the judge (Answer below).

ILLINOIS APPELLATE COURTS CONFIRM THAT BUSINESS INCOME LOSSES DUE TO COVID-19 ORDERS ARE NOT COVERED UNDER ILLINOIS LAW: In separate decisions, the First and Second District Appellate courts recently upheld insurers denial of coverage for business income losses arising out of COVID-19 closure orders in Sweet Berry Café, Inc. v. Soc'y Ins., Inc., 2022 IL App (2d) 210088 and Lee v. State Farm Fire & Cas. Co., 2022 IL App (1st) 210105. In both cases, the appellate courts upheld judgments in favor of the insurer at the initial pleading stage, finding that, as a matter of Illinois law, loss of business income due to the COVID-19 pandemic and the related closure orders from Governor Pritzker were not the result of “direct physical loss” to the insured’s property and, therefore, coverage was not triggered under the applicable commercial property policies. While the issue had previously been addressed by Federal Courts in Illinois, as the first Illinois Appellate decisions deciding the question under state law, these decisions firmly place Illinois in the overwhelming majority of states which have similarly ruled in insurers' favor.  

SUBROGATION - INDIANA FEDERAL SUIT FILED AGAINST AUTONOMOUS VEHICLE MANUFACTURER ARISING FROM ALLEGEDLY DEFECTIVE ELECTRICAL SYSTEM: On February 16, 2022, an Illinois-based insurer filed an almost $1.3M subrogation suit against a well known manufacturer of electric and autonomous vehicles. The Insurer's lawsuit sounds in negligence and automobile products liability and alleges that the Manufacturer's electrical system and its components were defective in their design, manufacture and/or assembly and failed under normal use conditions. Insurer also contends that the Manufacturer failed to warn, or provided inadequate warnings to the Insured. At least one of the claimed defects allegedly arose from the regulation of electrical current within the vehicle's lithium batteries. As a result of these alleged defects, an electrical arcing event occurred within the engine compartment, creating a "dangerous fire" which spread to the insured's residence and resulted in a massive property loss. We continue to monitor this suit with interest, as well as the developing legal and regulatory issues related to autonomous vehicles. State Farm Fire & Casualty Co. a/s/o Randall W. and Dorothy S. Sencaj, et al. v. Tesla, Inc., Case No. 2022-cv-00342 (S. Dist. Ind. Feb 16, 2022).

WORKERS’ COMPENSATION: Appellant-Employee (Petitioner), a dispatcher for Appellee-Employer (Respondent), Williams County Sheriff’s Department, alleged that he sustained injuries at work, including to his lower back, when he fell down 12-15 stairs while retrieving a lunch bag he had forgotten in his car. No one witnessed the alleged accident, and Petitioner was the only witness who testified as to the accident. Petitioner testified he fell down the stairs due to “poor lighting” in the stairwell. On the day of the accident, just prior to lunch, Respondent disciplined Petitioner for losing track of an officer he had dispatched, as a result of which Petitioner signed a two day, unpaid suspension. Notably, Petitioner had been previously disciplined for repeatedly lying to his manager as to whether his data software was working. Furthermore, Petitioner’s subsequent medical records did not indicate any bruising or abnormalities. Although the Arbitrator found Petitioner’s accident credible at trial, the Commission reversed the Arbitrator’s decision and vacated all awards. The circuit court then reversed the Commission’s decision and reinstated the Arbitrator’s decision on the grounds that Commission's findings were against the manifest weight of the evidence. The Appellate court reversed the circuit court decision and reinstated the Commission decision. The Appellate Court held that the Commission’s finding, that Petitioner failed to prove he sustained an accident, was not against the manifest weight of the evidence. The Appellate Court reasoned that Petitioner fabricated his accident because of his two-day suspension without pay. Additionally, the Court concluded that, given his job history, Petitioner may have been motivated by the possibility of resigning or losing his job in the future. Finally, the Court reasoned that Petitioner was not credible because he had been disciplined for lying in the past. Therefore, the Court affirmed the Commission’s finding that Petitioner failed to prove he sustained an accident. Murray v. Ill. Workers’ Comp. Comm’n, 2022 IL App (5th) 210129WC-U (Jan. 24, 2022).

ANSWER TO QUIZ: . Association wins, Insurer loses. Insurer's DJ complaint was dismissed. In certain circumstances, Illinois courts allow declaratory actions between an insurer and an insured if the there is "an actual controversy between the parties" concerning opposing "tangible, legal interests" in the policy. Although the parties had opposing interests (i.e. Insurer denied coverage and rejected the appraisal demand v. Association's appraisal request), once Insurer denied Association's request for an appraisal, there was no longer any controversy between the parties. According to the Illinois Appellate Court, Insurer's denial of the Association's appraisal request, "terminated any controversy regarding [the] applicability" of the policy's appraisal provision. Had Insurer sought guidance in a declaratory action as to the application of the provision, it should have sought the declaration prior to denying the Association's request. Travelers Indemnity Co. of America v. Townes of Cedar Ridge Condo Ass'n, 2022 IL App (3d) 200542App (5th) 170235 (Apr. 25, 2022).

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