Landlord-tenant class action not barred by deceptive business practices exclusion in professional liability policy

The Illinois First District Appellate Court (Judges Griffin, Hyman, and Walker), applying Illinois law, held that a class action alleging violations of the Chicago Landlord Tenant Ordinance did not fall within an exclusion in a professional liability policy that barred coverage for claims arising out of “unfair or deceptive business practices,” including violations of any local, state or federal consumer protection laws.

Evergreen Real Estate Services (“Evergreen”) manages a rental property in Chicago, Illinois.  Evergreen purchased a “Private Company Advantage Policy” from Hanover Insurance Company (“Hanover”) that provided coverage under a variety of policies.  In relevant part, the “miscellaneous professional liability insurance policy” provides coverage for “any claim made against [Evergreen] arising from a wrongful act in the rendering or failure to render professional services by [Evergreen].”  The professional liability policy, however, contained an exclusion for claims arising out of “unfair or deceptive business practices,” including violations of any local, state or federal consumer protection laws.

Tenants of the rental property filed a class action complaint against Evergreen alleging that Evergreen committed several violations of the Chicago Landlord Tenant Ordinance (“RLTO”).  Evergreen tendered the case to Hanover to defend.  Hanover initially denied coverage claiming the class action fell within the exclusion in the professional liability policy barring coverage for violation of a consumer protection law (the RLTO) or, alternatively, that the class action arose from “unfair or deceptive business practices.”  Evergreen filed suit seeking a declaratory judgment regarding Hanover’s coverage obligations, as well as bad faith damages under the Illinois Insurance Code, 215 ILCS 5/155.

The Appellate Court held Hanover had a duty to defend, because the exclusion in the professional liability policy did not apply.  The Appellate Court rejected Hanover’s argument that the RLTO is clearly and unequivocally a consumer protection law.  The court held that consumer protection laws such as the Illinois Consumer Fraud and Deceptive Business Practices Act were enacted for the purpose of protecting consumers.  In contrast: “The RLTO meanwhile is a two-way street enacted to ‘establish the rights and obligations of the landlord and the tenant’ and to ‘encourage the landlord and the tenant to maintain and improve the quality of housing.’  Both landlords and tenants derive direct benefit from the RLTO, while only purchasers of goods and services derive direct benefit from consumer protection laws.”  The court also noted that the RLTO is contained in Title 5 of the Chicago Municipal Code, notwithstanding that there is a consumer protection section contained in Title 4 of the code – thereby supporting the conclusion that the RLTO is not clearly intended to be a consumer protection law.

The Appellate Court also rejected Hanover’s argument that the class action fell within that part of the exclusion barring coverage for “unfair or deceptive business practices”:  “The criteria for proving a violation of the RLTO and for proving the commission of an unfair or deceptive business practice are different.  Not every violation of the RLTO is axiomatically an unfair or deceptive business practice.  There is insufficient information pled in the underlying class action complaint to establish that the specific claims made therein definitively comprise claims for unfair or deceptive business practices. Evergreen could certainly be found liable for violating the RLTO without being found to have committed an unfair or deceptive business practice under the applicable consumer protection statutes in Illinois, so the language of the policy does not clearly preclude coverage.”

Finally, the Appellate Court held there was no basis to award bad faith damages under Section 155, which provides for statutory damages where an insurer’s denial or delay in settling claims is vexatious or unreasonable:  “[Hanover’s] argument against coverage is not totally without merit such that section 155 is satisfied.  Hanover … put forth a good faith defense to coverage that required a novel interpretation of the policy and the RLTO.  An insurer is not liable for a violation of section 155 when it takes a reasonable, but erroneous position on its coverage obligations where its position is at least arguable.”  Evergreen Real Estate Services, LLC v. Hanover Ins. Co., 2019 IL App (1st) 181867 (Nov. 4, 2019).