On March 1, 2018, an Illinois appellate court held an insurer breached its duties to defend and indemnify a grocer after gang members shot and killed a young woman and injured another outside of the Chicago grocer. The court interpreted “liability arising out of . . . premises” language in an additional insured endorsement, broadly holding that if the basis for imposing liability arises out of the premises, the party qualifies as an insured regardless of how the injury occurs. Dominick’s Finer Foods v. Indiana Ins. Co., 2018 IL App (1st) 161864, ¶ 66. Thus, a premises defect, such as an icy sidewalk or poor lighting, was not required. However, the court refused to find the insurer committed statutory bad faith, explaining “[t]here is a difference between disagreeing with a party’s position and finding that position so untenable as to be unreasonable and evidence of bad faith.” Id. at ¶ 95.
According to the underlying complaint, the shooters first confronted the victims inside the Dominick’s supermarket, and followed them outside to the parking lot where the shooting occurred. The deceased’s estate sued Dominick’s, Kennedy Plaza (the premises owner in which Dominick’s was a tenant), and the security companies working on location. The estate alleged Dominick’s possessed, operated, and controlled the store and had a duty “to ensure the safety of [its] patrons and invitees,” but breached that duty by negligently failing to supervise or otherwise protect “store patrons and invitees,” such as the victims, from harm.
Netherlands Insurance Company provided commercial general liability insurance to Kennedy, under which Dominick’s was an additional insured. After Dominick’s requested a defense, the insurer denied coverage. Dominick’s ultimately contributed $1.3 million to settle the underlying litigation. Dominick’s then filed suit against Netherlands. After cross-motions for summary judgment, the Cooke County Circuit Court held Dominick’s was not entitled to coverage and entered judgment in Netherlands’ favor. Aggrieved, Dominick’s appealed.
In ascertaining the duty to defend, Illinois courts examine the allegations in the underlying complaint—where the complaint alleges facts within or potentially within coverage, the insurer must defend. U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 73, 161 Ill.Dec. 280, 578 N.E.2d 926 (1991). Further, where a policy provision is subject to more than one reasonable interpretation, it is ambiguous, and “[a]ll doubts and ambiguities must be resolved in favor of the insured.” Id.
The appellate court began with a detailed summary of the allegations and premises liability under Illinois law. The additional insured endorsement provided Dominick’s was an additional insured, but “only with respect to liability arising out of . . . [p]remises or facilities owned by [Kennedy].” The court broadly defined “liability” as “the condition of being legally responsible to a plaintiff,” and in the tort context, owing and breaching a duty of care, resulting in injury to the plaintiff. Applying that definition, the court found that the “sole basis” for imposing a legal duty on Dominick’s was its relationship to the premises. The “premises” were therefore “directly and indispensably tied to the alleged legal duty . . . .”
In reaching its conclusion, the court distinguished language requiring that the injury arose out of the premises, as opposed to the liability for the injury. See, e.g., Reis v. Aetna Cas. & Sur. Co., 69 Ill. App. 3d 777, 780, 25 Ill.Dec. 824, 387 N.E.2d 700 (1978). The court explained the former requires something particular about the premises play a role in the injury. In contrast, “liability” is a far broader concept, including all of the underlying conduct and circumstances. Accordingly, the court held allegations of a premises defect were not necessary before a lawsuit could be interpreted as alleging “liability arising out of the premises.”
In addressing the Section 155 statutory bad faith claims, the court stated that whether conduct is “vexatious and unreasonable” is determined by the totality of the circumstances. And where “there is a bona fide dispute concerning coverage, the assessment of costs and statutory sanctions is inappropriate, even if the court later rejects the insurer’s position.” See State Farm Mut. Auto. Ins. Co. v. Smith, 197 Ill. 2d 369, 380, 259 Ill.Dec. 18, 757 N.E.2d 881 (2001). Here, the court found Netherlands’ positon was not so unreasonable as to warrant statutory damages. Instead, a bona fide coverage dispute existed. The court relied in part on the fact that an “able and experienced trial judge” had agreed with Netherlands’ coverage decision.
Dominick’s is significant because the court drew a key distinction between the additional insured language “liability arising out of” and “injury arising out of.” While the court found the later requires that something particular about the premises contributed to the injury, the former does not. Instead, where the duty sought to be imposed on the defendant is tied to the premises, the defendant enjoys additional insured status. Insurers and insureds alike should carefully review their additional insured endorsements to confirm the scope of coverage provided for premises lawsuits, whether a traditional slip-and-fall or deadly criminal episode.