Illinois Appellate Court Holds That An Insurer’s Duty To Indemnify Can Be Triggered Even Though The Insurer’s Duty To Defend Has Not Been Triggered

Insurance Coverage Case Advisory, Issue 73

In Selective Insurance Company of South Carolina v. Cherrytree Companies, Inc., ___ N.E.2d ___, 2013 IL App (3d) 120959 (Ill. App. Ct. Nov. 4, 2013), the Appellate Court of Illinois, Third District, applying Illinois law, held that the policy at issue did not require the filing of a "suit" before the policyholder could seek indemnification for damages it agreed to pay pursuant to a settlement agreement. Accordingly, the appellate court reversed the circuit court's judgment granting the insurer's motion to dismiss.

Selective Insurance Company insured Cherrytree Companies under a policy that included both commercial general liability coverage and umbrella liability coverage. Id. at *1. Cherrytree contracted with AGP Grain Marketing, LLC, to build a grain storage facility. Id. When construction was almost complete, trusses in the facility sank and the concrete walls in the center of the facility bowed outward. Id. After Cherrytree notified Selective about the problem, Selective investigated the incident and denied coverage on the basis that, inter alia, the problems with the grain storage facility did not qualify as an "occurrence" under the policy. Id. Subsequently, Cherrytree informed Selective that Cherrytree and AGP had reached a settlement, and Cherrytree requested indemnification from Selective. Id. at *2.

Selective filed a declaratory judgment action against Cherrytree seeking, inter alia, a declaration that the amounts for which Cherrytree sought indemnification were not covered under the CGL or umbrella liability portions of the policy. Id. Cherrytree filed counterclaims for breach of contract and bad-faith denial of coverage. Id. at *3. Selective moved to dismiss Cherrytree's counterclaims on the grounds that, inter alia, the policy required the filing of a "suit" against Cherrytree before coverage would apply. Id. The CGL coverage section of the policy stated in relevant part:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply.

Id. at *1. The umbrella liability section stated in relevant part:

We will pay on behalf of...

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