A federal District Court in Illinois has determined that the term “commencing” is ambiguous in a property insurance policy that provides coverage for “loss or damage commencing [d]uring the policy period…[w]ithin the…United States of America.”1
At issue in Temperature Service Company, Inc. v. Acuity, was whether property damage, that began before the policy period, but continued on and after the policy period “commenced”, was covered under the first party property insurance policy issued by Acuity.
Temperature Service Company’s (“Temperature”) commercial property was insured by Acuity from January 1, 2013, to January 1, 2014. In August 2013, Temperature excavated around the building to construct a storage addition. During the excavation process, Temperature 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, Temperature retained a consultant to perform a subsurface soil investigation of the premises. The consultant documented cracks in the building foundation, steps and drywall, and damage to the window frames and doors. A third-party contractor then conducted an engineering and geotechnical investigation of the premises, which revealed, among other damage, cracks in the exterior masonry.
Based on the work of the consultant and independent contractor, and on their own observations of the deterioration of the property, Temperature argued that the urban backfill caused and continues to cause damage to the insured premises. Temperature’s position was that while the damage may have started before the policy period, it continued during it, and therefore “commenced” during the policy period, regardless of whether the damage may have begun before the policy was issued.
After Temperature submitted a claim for coverage of stabilization measures, structural upgrades and other property repairs, Acuity issued a denial. Acuity denied the claim on the grounds that “commencing” meant a single moment when the alleged damage to the property began or originated. Acuity further argued that the plaintiffs’ claims failed because they had not been able to show that the “commencement date” fell within the policy period of January 2013 through January 2014.
After the Temperature filed suit, Acuity moved for summary judgment on the basis of its interpretation of the policy.
The court denied the motion on the following grounds:
No Illinois state court or federal court applying Illinois law has confronted this exact issue. The weight of authority from other jurisdictions, however, counsels against granting summary judgment here for at least three reasons. First, the term “commencing” is ambiguous. In Association of Unit Owners of Nestani v. State Farm Fire and Casualty Company, 670 F. Supp. 2d 1156 (D. Or. 2009), the court considered whether the term “commencing” referred to “the first occurrence of the type of loss claimed,” as advocated by the defendant-insurer, or to “each occurrence of the loss in a series of multiple losses,” as argued by the plaintiff-insured. Id. at 1159. The court found both definitions plausible and thus construed the term against the insurer. Id.; see also Kief Farmers Co-op Elevator Co. v. Farmland Mut. Ins. Co., 534 N.W.2d 28, 32 (N.D. 1995) (considering an identical provision and holding that because both the insured and the insurer “offered rational but different meanings for the policy coverage provision, we conclude that the provision is ambiguous”), accord Ellis Court Apartments, Ltd. P’ship v. State Farm Fire & Cas. Co., 72 R.3d 1086, 1090-91 (Wash. Ct App. 2003). This Court will do so, as well. 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.
This was the first Illinois court decision on the issue of whether “commencing” is ambiguous in an insurance policy.
This decision is a good example of policyholder advocates utilizing creative advocacy to obtain a fair result for insureds. When insurance provisions lend themselves to more than one reasonable interpretation, public adjusters and policyholders advocates should bring the interpretation supporting coverage to the insurer’s attention to try to resolve the dispute short of litigation.
Public adjusters and policyholder advocates that take the time to put insurers on notice of alternative interpretations of “ambiguous” provisions to give insurers an opportunity to consider alternative interpretations aid policyholders in two ways:
- Dispute Resolution – While reasonable minds can differ, ambiguous insurance provisions are generally construed in favor of coverage. Given this reality, insurers may be willing to resolve a claim short of litigation where there is a truly objectively ambiguous provision;
- Build a Case for Bad Faith – By putting the insurer on notice of the reasonable interpretation, if the insurer refuses to acknowledge that the provision can be objectively interpreted in more than one way, when litigation later commences, it may be more difficult for the insurer to avoid liability for bad faith by asserting the “genuine dispute” doctrine as a defense.