Illinois Federal Courtshoke2013
“Commencing During The Policy Period” Ambiguous. Property Damage May be Triggered by Each Instance of New Damage.
An Illinois federal district court, applying Illinois law, held that a policy provision covering “loss or damage commencing [d]uring the policy period” was ambiguous and may be triggered “by each identifiable instance of new damage”; the provision does not require that initial damage take place during the policy period.
From January 1, 2013 to January 1, 2014, Acuity, a Mutual Insurance Company (“Acuity”), insured commercial property owned by SSV Partners, LLC and leased by Temperature Service Company, Inc. (together the “Companies”). In August 2013, the Companies were excavating a building on the property and discovered that the soil around and under the insured property contained “urban backfill” – construction debris, asphalt, concrete and other man-made materials that cause “differential settlement” of the earth. In October 2013, the Companies hired a consultant and a third-party contractor to perform a subsurface soil investigation and an engineering and geotechnical investigation of the premises. The investigations revealed cracks in the building foundation steps and drywall, damage to the window frames and doors, and cracks in the exterior masonry. The investigations led the Companies to believe that the “urban backfill” caused and continued to cause damage to the insured premises. The Companies submitted a proof of loss claim to Acuity seeking coverage for stabilization measures, structural upgrades, and other property repairs. Acuity denied coverage based on certain exclusions and limitations in the insurance policy. The Companies then filed suit in federal court.
The dispute between the parties surrounds the meaning of the term “commencing” found in the policy. The Acuity policy insures against “loss or damage commencing [d]uring the policy period.” The term “commencing” is not defined in the policy. The court noted that the Merriam Webster dictionary defines “commence” as “to begin.” Acuity filed a motion for summary judgment arguing that the Companies’ claims for coverage under the policy fail as a matter of law because the Companies conceded that they did not know and they may not ever know exactly when the damage to the insured property began. Acuity’s argument relies on “commencing” being interpreted to refer to “the single moment in time when all of the alleged damage to the insured property began or originated.” In other words, Acuity’s argument relies on the fact that the Companies could not show that the claimed damage first occurred after the policy period began. In response, the Companies argued that “[t]he Acuity policy is triggered if any one portion of the numerous claimed damages ‘commenced’ during the policy period.” Under the Companies’ interpretation of “commencing”, there could be different commencement dates for each of the multiple losses claimed.
The court denied Acuity’s motion for summary judgment noting that no Illinois state court or federal court applying Illinois law had confronted the exact issue. First, the court found the term “commencing” was ambiguous and therefore was to be construed against the insurer. According to the court: “The Acuity policy may reasonably be read to include each identifiable instance of new damage or loss, regardless of whether similar damage or loss, or damage or loss with a common but chronologically distinguishable cause, commenced prior to the policy period.” Second, the motion was denied because, after finding that “commencing” was ambiguous, there remained a question of fact as to whether any of the alleged property damage “commenced” during the coverage period. Lastly, the court denied Acuity’s motion for summary judgment because it found that “weighing expert opinions may be required to determine the threshold issue of the existence of coverage.” Temperature Serv. Co., Inc., v. Acuity, No. 16 C. 2271 (N.D. Ill. Oct. 14, 2016).