SPRINGFIELD – All seven Supreme Court Justices reversed a ruling that insurers of landlords must defend tenants against liability claims of third parties.
On Nov. 28, they reversed Third District appellate judges who found tenants qualify for coverage because they pay for insurance when they pay rent.
The Third District decision had reached the Supreme Court in a weak posture.
Justice Daniel Schmidt based it on a peculiar precedent and Justice William Holdridge followed the precedent but disagreed with it.
Presiding Justice Mary McDade dissented.
McDade argued that nothing in the lease or the landlord’s insurance policy imposed a duty on insurer Auto-Owners to defend tenants Monroe and Dorothy Sheckler.
The Supreme Court adopted McDade’s view.
The Shecklers rented a place in Pekin from Ronald McIntosh in 2015, under a lease that lease provided that McIntosh would insure the premises and the Shecklers would be responsible for insuring their possessions.
The lease further exculpated McIntosh from damages or injury on the premises.
Before he signed the lease, he paid Auto-Owners an annual premium covering the dwelling for him and third parties for liability.
In three weeks, the Shecklers told McIntosh that the gas oven and a burner didn’t work.
McIntosh hired technician Wayne Workman, who removed a knob from the burner and left to find parts.
The Shecklers smelled gas and sprayed a deodorizer.
Monroe Sheckler turned on the stove, which ignited and started a fire.
Auto-Owners paid McIntosh for fire damage and loss of rental income.
Auto-Owners filed a subrogation action against Workman in Tazewell County Circuit Court in 2017, claiming he proximately caused the fire.
Workman in turn sued the Shecklers, who tendered the claim to Auto-Owners.
The insurer declined coverage and in 2018, the Shecklers filed for declaratory judgment against Auto-Owners, McIntosh, and Workman.
Workman filed a counter claim against Auto-Owners.
The Shecklers claimed Dix Mutual v. LaFramboise, a Supreme Court decision on subrogation from 1992, obligated Auto-Owners to defend and indemnify them.
The justices in Dix Mutual found payment of rent contributed to payment of premiums but they limited the ruling to particular facts of the case.
Circuit Judge Michael Risinger granted judgment to McIntosh in 2019, finding Dix Mutual didn’t apply because the Shecklers weren’t being subrogated against.
He found a third party sued them for negligence.
The Shecklers appealed.
So did Workman, but he dismissed his appeal when Tazewell County jurors returned a verdict for him in the subrogation action.
Monroe Sheckler died in September 2019.
Third District judges reversed circut judge Risinger in 2021, relying on Dix Mutual to classify the Shecklers as persons Auto-Owners insured.
Appellate judge Schmidt found Illinois insurers knew since 1992 that a tenant is an implied coinsured person with respect to fire damage.
He found it would be absurd to hold the Shecklers liable on a claim grounded in equity to recover payments under a policy that covered them.
He found no recovery would have been available if Auto-Owners had directly subrogated against the Shecklers.
He found it hard to imagine a lawyer not knowing that a suit against Workman would result in Workman filing an action against the Shecklers.
He found attorney fees and costs of the Shecklers added insult to injury.
Holdridge specially concurred, agreeing that Dix Mutual required Auto-Owners to defend the Shecklers but disagreeing with Dix Mutual.
Dissenter McDade claimed Schmidt and Holdridge misplaced their conclusion by a reading of Dix Mutual that went well beyond its narrow holding.
She claimed Dix Mutual expressly limited its application to subrogation and offered no authority to determine an insurer’s duties to defend or indemnify.
She posed the duty to defend as “a question of law, not equity, to be answered based on the specific language of the insurance contract, not the lease.”
She wasn’t persuaded that McIntosh sued Workman because he knew he couldn’t sue the Shecklers.
She found it at least as likely that McIntosh didn’t sue the Shecklers because he knew the lease provided no legal basis for such an action.
Supreme Court review remained pending in July, when Schmidt died.
Justice Lisa Holder White delivered the unanimous opinion.
“We agree with Presiding Justice McDade’s dissent and find Dix is not applicable to this case,” she wrote.
She found Dix Mutual was a subrogation case governed by equitable principles and this case didn’t involve those principles.
She defined subrogation as substitution regarding a legal right.
She found it entitles an insurer that has paid a loss to the rights and remedies of the insured against a third party.
She found the issue in this case was not subrogation but was whether Auto-Owners owed a duty to defend or indemnify the Shecklers against Workman.
She found the Supreme Court expressly limited Dix Mutual to the facts of the case.
“When looking at the plain language of the policy, we find the Shecklers are not covered insureds under the policy,” she wrote.
Peter Wenker and Brian Fairfield of Rock Island represented Auto-Owners.
Mark Wertz of Pekin and John Robertson of Galesburg represented the Shecklers.