2018 IL App (1st) 161864
FIRST DISTRICT
FOURTH DIVISION
March 1, 2018
No. 1-16-1864
DOMINICK’S FINER FOODS, )
) Appeal from the
Plaintiff-Appellant, ) Circuit Court of
) Cook County
v. )
)
INDIANA INSURANCE COMPANY, THE )
NETHERLANDS INSURANCE COMPANY—A )
STOCK COMPANY, MONTERREY SECURITY )
CONSULTANTS, INC., and SAFETY SERVICE ) No. 11 CH 1535
SYSTEMS SECURITY, INC. )
)
Defendants. )
)
(Indiana Insurance Company, The Netherlands )
Insurance Company—A Stock Company, Defendants- )
Appellees) )
___________________________________________ )
)
MONTERREY SECURITY CONSULTANTS, INC., )
)
Third-Party Plaintiff, )
)
v. )
) Honorable
SCOTTSDALE INSURANCE COMPANY, ) Kathleen M. Pantle,
) Judge Presiding.
Third-Party Defendant. )
JUSTICE ELLIS delivered the judgment of the court, with opinion.
Presiding Justice Burke and Justice McBride concurred in the judgment and opinion.
OPINION
¶1 This appeal involves a dispute over insurance coverage, after a young woman was killed
and a man was injured in a shooting that took place in a parking lot outside Dominick’s Finer
Foods (Dominick’s) on the northwest side of Chicago. When Dominick’s was sued by the
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decedent’s estate, it tendered its defense to insurers Netherlands Insurance Company
(Netherlands) and Indiana Insurance Company (Indiana) and later sought indemnification as
well. The insurers denied coverage, and Dominick’s filed suit for a declaration of coverage and
damages for the insurers’ alleged bad-faith conduct.
¶2 After Dominick’s and Netherlands filed cross-motions for summary judgment, the trial
court ruled in favor of Netherlands and against Dominick’s on all counts. The trial court entered
language pursuant to Illinois Supreme Court Rule 304(a) (eff. Feb. 26, 2010), allowing an
immediate appeal of these claims, while other litigation involving other parties continued in the
trial court.
¶3 We hold that Netherlands owed Dominick’s a duty to defend and indemnify under the
relevant language of the insurance policy. We thus reverse the grant of summary judgment in
favor of Netherlands and remand this case for the entry of summary judgment in favor of
Dominick’s on the issue of coverage. But we affirm the trial court’s grant of summary judgment
in favor of Netherlands on the claims of bad faith under section 155 of the Illinois Insurance
Code (215 ILCS 5/155 (West 2014)) because even if we ultimately disagree with the insurers’
interpretation of the insurance policy, we do not find their position to have been unreasonable,
and a bona fide dispute over coverage existed.
¶4 I. BACKGROUND
¶5 The entire background of this case is somewhat complicated, involving a lot of moving
parts—various parties and different insurance policies—so we will limit our background to what
is relevant to this appeal.
¶6 On September 6, 2004, a shooting occurred in the parking lot outside of a Dominick’s
supermarket on the 3300 block of West Belmont Avenue. The shooting claimed the life of
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Crystal Mustafov and injured Jose Ramirez. The shooters initially confronted the victims inside
Dominick’s before following them into the parking lot.
¶7 The Dominick’s store in question was a tenant of the Kennedy Plaza Shopping Center,
which was owned by a trio of entities: Kennedy Plaza Associates LLC, Kennedy Plaza BK, and
Kennedy Plaza RL, LLC (collectively, Kennedy Plaza).
¶8 Less than a month later, a lawsuit was filed by the estate of Crystal Mustafov, which we
will call the “Gallo litigation” after the named plaintiff. The Gallo complaint was amended
several times, the other individual injured in the shooting (Ramirez) was added as a plaintiff, and
the litigation was stayed for several years pending the outcome of criminal proceedings. The
defendants ultimately included Dominick’s, Kennedy Plaza, and security companies that
performed work at that location.
¶9 In the sixth amended complaint in the Gallo litigation, both Gallo and Ramirez alleged
that Dominick’s “possessed, operated and controlled a food store and adjacent parking lot” at
3300 West Belmont; that Dominick’s had a “duty *** to ensure the safety of [its] patrons and
invitees”; and that Dominick’s breached that duty by negligently failing to supervise or
otherwise protect “store patrons and invitees” such as Mustafov and Ramirez from harm.
¶ 10 Kennedy Plaza had purchased a commercial general liability (CGL) insurance policy
from Netherlands (Kennedy policy), in effect at the time of the shooting, which insured against
claims for bodily injury, property damage, or “personal and advertising injury.” It is undisputed
that Dominick’s was an additional insured on the policy, and that the additional insurance
covered not only the Dominick’s store but the adjacent parking lot where the shooting occurred.
The relevant portion states as follows:
“I. ADDITIONAL INSURED—BY CONTRACT, AGREEMENT OR PERMIT
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1. Paragraph 2. Under SECTION II—WHO IS AN INSURED is amended to include
as an insured any person or organization when you and such person or organization have
agreed in writing in a contract, agreement or permit that such person organization [sic]
can be added as an additional insured on your policy to provide insurance such as is
afforded under this Coverage Part. Such person or organization is an additional insured
only with respect to liability arising out of:
a. Your ongoing operations performed for that person or organization; or
b. Premises or facilities owned or used by you. ***
2. This endorsement provision I. does not apply:
a. Unless the written contract or agreement has been executed, or permit has been
issued, prior to the ‘bodily injury’, ‘property damage’ or ‘personal and advertising
injury’, ****
***
d. To ‘bodily injury’, ‘property damage’ or ‘personal and advertising injury
arising out of any act, error or omission that results from the additional insured’s sole
negligence or wrongdoing.’ ” (Emphasis added.)
¶ 11 Relying on the policy language, Dominick’s tendered its defense of the Gallo litigation to
Netherlands, which denied coverage.
¶ 12 The Gallo litigation proceeded. The seventh amended complaint added the various
entities we have collectively referred to as “Kennedy Plaza” for the first time as defendants,
claiming that Kennedy Plaza owned and operated the parking lot, had a duty to secure and
protect that lot, and breached its duty, resulting in the shootings that occurred.
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¶ 13 Kennedy Plaza settled out of the Gallo litigation in January 2010 for $40,000. That left
Dominick’s and two security companies as remaining defendants. In March 2013, by which time
a twelfth amended complaint was pending, the remaining defendants settled the litigation, with
Dominick’s contributing $1.3 million to the settlement.
¶ 14 About a year after settling, Dominick’s sued Netherlands, claiming that it had a duty to
defend and indemnify Dominick’s and asserting a bad-faith claim under section 155 of the
Illinois Insurance Code (215 ILCS 5/155 (West 2014)). 1
¶ 15 After cross-motions for summary judgment, the trial court agreed with Netherlands that
Dominick’s was not entitled to coverage under the policy. The court rejected Dominick’s
estoppel argument as well. And the court found the section 155 claim time-barred. The court thus
entered summary judgment on all counts directed against Netherlands in its favor.
¶ 16 There are other parties, other claims, and other insurance policies involved in this lawsuit
that remain pending below. None of them concern this appeal. The trial court entered language
pursuant to Rule 304(a), finding no just reason to delay enforcement of or appeal from this order,
and thus the order is properly before us on appeal.
¶ 17 II. ANALYSIS
1
Before adding Netherlands as a defendant below, Dominick’s first sued Indiana, the insurer to
whom it tendered its defense—and on whose stationery the denial letter was written. Netherlands has
since assured us that Netherlands, who issued the policy in question, is the proper party, and that Indiana
is merely its affiliate. Out of an abundance of caution, Dominick’s continues to refer to the insurers
collectively as “IIC/NIC.” We are not asked to resolve any dispute over which party is the proper insurer.
And for our purposes, it does not matter. Our analysis is concerned with the language of the insurance
policy, not which of the insurers is responsible for that policy. For the remainder of our analysis, we will
refer to the insurer as Netherlands, with the obvious caveat that we offer no opinion on which of these two
insurance companies is ultimately responsible for that policy.
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¶ 18 We review the entry of summary judgment de novo. Pence v. Northeast Illinois Regional
Commuter R.R. Corp., 398 Ill. App. 3d 13, 16 (2010). De novo review is independent of the trial
court’s decision; we need not defer to the trial court’s judgment or reasoning. Motorola
Solutions, Inc. v. Zurich Insurance Co., 2015 IL App (1st) 131529, ¶ 114. Summary judgment is
proper only where the pleadings, depositions, and admissions on file, together with the affidavits,
if any, show that there is no genuine issue of material fact, and that the moving party is entitled
to judgment as a matter of law. Mashal v. City of Chicago, 2012 IL 112341, ¶ 49. The
construction of an insurance policy is also a question of law subject to de novo review. Rich v.
Principal Life Insurance Co., 226 Ill. 2d 359, 370-71 (2007).
¶ 19 The first questions relate to coverage—whether Netherlands had a duty to defend
Dominick’s in the underlying Gallo litigation and to indemnify Dominick’s for all or part of the
$1.3 million Dominick’s paid to settle that litigation. We begin with the duty to defend.
¶ 20 A. Duty to Defend
¶ 21 The duty to defend is broader than the duty to indemnify. Pekin Insurance Co. v. Wilson,
237 Ill. 2d 446, 456 (2010). To determine whether an insurer has a duty to defend, the court
examines the allegations in the underlying complaint. United States Fidelity & Guaranty Co. v.
Wilkin Insulation Co., 144 Ill. 2d 64, 73 (1991). If the underlying complaint alleges facts within
or potentially within the policy coverage, the insurer must defend the insured. Id.
¶ 22 Both “[t]he underlying complaints and the insurance policies must be liberally construed
in favor of the insured.” Id. at 74. If a 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. An insurer cannot refuse to defend “unless it is clear from the face of the
underlying complaints that the allegations fail to state facts which bring the case within, or
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potentially within, the policy’s coverage.” (Emphasis in original.) Id. at 73. This rule holds true
“even if the allegations are groundless, false, or fraudulent.” Id. If there are several theories
alleged in that complaint, the insurer has the duty to defend all of them, even if only one theory
falls within potential coverage. Id.
¶ 23 At the time Dominick’s tendered its defense of the Gallo litigation to Netherlands, the
sixth amended complaint was pending. In the general allegations of the complaint, the plaintiffs
alleged that:
* Dominick’s “possessed, operated and controlled a food store and adjacent
parking lot” at 3300 West Belmont;
* Dominick’s was aware of gang activity and other criminal activity in the past near
that store, including “armed robberies, assault and batteries, car jackings, narcotic sales
and incidents of gang graffiti;”
* on the day in question, two individuals, who were members of a local gang,
“confronted and threatened” plaintiff Ramirez while inside the Dominick’s store;
* these two gang members were carrying “a loaded handgun” inside the store at that
time; and
* these two gang members followed Ramirez into the parking lot area, “where they
continued to confront and threaten” plaintiff Ramirez and plaintiff’s decedent, Mustafov,
ultimately resulting in the shooting.
¶ 24 In count IV, which adopted those allegations, Gallo alleged the following against
Dominick’s:
“16. That it then and there became the duty of [Dominick’s] to ensure the safety of
their patrons and invitees.
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17. That in addition, [Dominick’s] voluntarily assumed the duty to provide safety and
security services to its patrons and invitees by hiring [specific security companies, also
named defendants] to provide security services and retained supervision and control over
these security companies.
18. That [Dominick’s] breached its duty of care in one or more of the following
particulars:
a. Negligent and carelessly hired one or more security contractors when it knew or
should have known the security contractors had been disciplined and/or were on
probation with the Illinois Department of Professional Regulation for failure to
properly license and train its employees;
b. Negligently and carelessly hired and continued to employ one or more of its
security contractors when it knew or should have known that the security contractors
failed to obtain the proper licensing from the State of Illinois;
c. Negligently and carelessly hired one or more security contractors when it knew
or should have known that the security contractors and their employees lacked the
appropriate training, experience, registration cards and equipment to protect store
patrons and invitees;
d. Negligently and carelessly failed to warn its patrons and invitees of ongoing
gang activity within the store premises and parking lot when it knew or should have
known of the numerous prior criminal and gang activities that occurred on the
aforesaid premises;
e. Negligently and carelessly failed to properly supervise security operations
within the store and parking lot; and
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f. Otherwise negligently and carelessly failed to protect store patrons and invitees
when they knew or should have known of prior gang and criminal activities taking
place at the store location and parking lot.”
¶ 25 The other plaintiff, the surviving victim Ramirez, pleaded the identical allegations against
Dominick’s in count XI.
¶ 26 As shown above, the plaintiffs asserted two different theories of liability against
Dominick’s. The first, as alleged in paragraph 16 of the complaint quoted above, was a straight
premises-liability theory, based on Dominick’s status as the owner or occupier (in this case,
occupier or lessee) of the premises.
¶ 27 A duty of care, owed by an owner/occupier of land to entrants onto the land, is imposed
by law from two sources. First, that duty has always been imposed at the common law. See Ward
v. K Mart Corp., 136 Ill. 2d 132, 141 (1990) (discussing “the scope of the landowner’s or
occupier’s duty owed to entrants upon his premises” at common law). As lessee of the property,
Dominick’s “ ‘acquire[d] an estate in the land, and bec[ame] for the time being both owner and
occupier, subject to all of the responsibilities of one in possession, to those who enter upon the
land and those outside of its boundaries.’ ” Rowe v. State Bank of Lombard, 125 Ill. 2d 203, 221
(1988) (quoting Prosser and Keeton on the Law of Torts § 63, at 434 (W. Page Keeton et al. eds.,
5th ed. 1984)). Though a landowner typically owes no common-law duty to protect others from
criminal activity on its land, a “special relationship” imposing such a duty “has been recognized
where the parties are in a position of *** business invitor and invitee.” Id. at 215-16. The Gallo
complaint alleged that relationship.
¶ 28 That legal duty is also imposed under the Premises Liability Act. See 740 ILCS 130/2
(West 2014) (providing that duty owed “by an owner or occupier of any premises” to entrants
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onto premises “is that of reasonable care under the circumstances”); see also Ward, 136 Ill. 2d at
142 (noting that Premises Liability Act made only modest changes to common law, primarily
abolishing distinction between legal duty owed to “invitees” versus “licensees”).
¶ 29 The second theory alleged, as indicated in paragraph 17 of the complaint quoted above,
was a theory of voluntary undertaking—that Dominick’s voluntarily assumed a duty to protect
patrons and invitees by hiring security companies to patrol the parking lot. See Wakulich v.
Mraz, 203 Ill. 2d 223, 241 (2003) (voluntary undertaking is assumption of duty of ordinary care
not otherwise imposed by law). That duty is not imposed by law; it is one that a defendant
voluntarily assumes and must do with reasonable care. See id. at 241-42; Pippin v. Chicago
Housing Authority, 78 Ill. 2d 204, 209-10 (1979) (though housing authority “had no independent
duty to protect against criminal acts on its premises,” it could be held liable for negligent
performance of voluntary undertaking); Lavazzi v. McDonald’s Corp., 239 Ill. App. 3d 403, 408
09 (1992) (though defendant had “no independent duty in Illinois or at common law,” “[l]iability
can arise from the negligent performance of a voluntarily undertaken duty”); Jackson v. Hilton
Hotels Corp., 277 Ill. App. 3d 457, 467 (1995) (“A duty may be imposed upon defendants who
would otherwise not owe a duty where they have undertaken to perform some act and have done
so negligently.”), abrogated on other grounds by LaFever v. Kemlite Co., 185 Ill. 2d 380 (1998).
¶ 30 We now compare those allegations in the complaint to the relevant language in the
insurance policy. A truncated version of what we quoted in more detail above provides the
relevant language regarding the coverage Dominick’s would be provided as an additional insured
on the Kennedy policy:
“Such person or organization is an additional insured only with respect to liability arising
out of:
a. Your ongoing operations performed for that person or organization; or
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b. Premises or facilities owned or used by you. ***” (Emphasis added.)
¶ 31 It is undisputed that the reference to “you” is to Kennedy Plaza. It is also undisputed that
the plaza property—the property on which the Dominick’s store rested, as well as the parking
lot—were owned by Kennedy Plaza, and that the additional-insured coverage of Dominick’s
extended to both the store and parking lot.
¶ 32 Dominick’s argues that Netherlands owed a duty to defend under either prong listed in
the policy—clause a, for liability “arising out of” Kennedy Plaza’s “operations” performed for
Dominick’s, or clause b, for liability “arising out of premises” or facilities owned by Kennedy.
We will focus first on the clause, clause b.
¶ 33 In determining whether Netherlands had the duty to defend this lawsuit on behalf of
Dominick’s based on this clause b, the question is whether either theory of recovery asserted in
the Gallo complaint could be potentially interpreted as imposing “liability” on Dominick’s
“arising out of [the] premises.”
¶ 34 We begin by noting that “Illinois courts have held that the phrase ‘ “arising out of” [in an
insurance policy] is both broad and vague, and must be liberally construed in favor of the
insured.’ ” Burlington Northern Ry. Co. v. Illinois Emcasco Insurance Co., 158 Ill. App. 3d 783,
787 (1987) (quoting Maryland Casualty Co. v. Chicago & North Western Transportation Co.,
126 Ill. App. 3d 150, 154 (1984)); see also Illinois Founders Insurance Co. v. Smith, 231 Ill.
App. 3d 269, 275 (1992) (same); Dash Messenger Service, Inc. v. Hartford Insurance Co., 221
Ill. App. 3d 1007, 1012 (1991) (same); Consolidated R. Corp. v. Liberty Mutual Insurance Co.,
92 Ill. App. 3d 1066, 1068-69 (1981) (same). When that language has been found in an
additional-insured policy, it has been interpreted in favor of coverage. See Burlington Northern
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Ry. Co., 158 Ill. App. 3d at 787; Maryland Casualty Co., 126 Ill. App. 3d at 154; Consolidated
R. Corp., 92 Ill. App. 3d at 1068-69.
¶ 35 The phrase “ ‘[a]rising out of’ has been held to mean ‘originating from,’ ‘having its
origin in,’ ‘growing out of’ and ‘flowing from.’ ” Maryland Casualty Co., 126 Ill. App. 3d at 154
(quoting Western Casualty & Surety Co. v. Branon, 463 F. Supp. 1208, 1210 (E.D. Ill. 1979)).
Other synonyms include “ ‘connected with’ or ‘incidental to.’ ” Consolidated R. Corp., 92 Ill.
App. 3d at 1069 (citing Lynch Special Services v. Industrial Comm’n, 76 Ill. 2d 81, 86 (1979)).
¶ 36 The word “ ‘liability’ ” means “ ‘the quality or state of being liable,’ ” and “ ‘[l]iable’ ” is
defined as “ ‘bound or obligated according to law or equity.’ ” Young v. Allstate Insurance Co.,
351 Ill. App. 3d 151, 158 (2004) (quoting Webster’s Third New International Dictionary 1302
(1993)). “Liability” is a broad term, the condition of being legally responsible to a plaintiff,
based on the relevant law and facts, usually resulting in monetary damages, sometimes injunctive
relief. In the context of a personal-injury claim such as in the Gallo litigation, a defendant is
“liable” in tort for personal injuries suffered by a plaintiff if the plaintiff can prove that the
defendant owed plaintiff a duty of care, that the defendant breached that duty, and that the
plaintiff suffered injuries that were proximately caused by the breach of duty. Buerkett v. Illinois
Power Co., 384 Ill. App. 3d 418, 422 (2008).
¶ 37 With these general principles and definitions in mind, as we will explain below, we
believe that the allegations in the Gallo complaint triggered Netherlands’s duty to defend for two
reasons.
¶ 38 1. Premises-Liability Theory
¶ 39 As discussed previously, one of the theories of recovery alleged in the complaint was a
premises-liability claim. The sixth amended complaint alleged that the plaintiffs were invitees
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who entered the Dominick’s store; two armed individuals (at least one of them was armed)
confronted and threatened Ramirez inside the Dominick’s store proper; the individuals then
followed Ramirez out of the store into the parking lot; and they shot Mustafov fatally and
wounded Ramirez. Based on the fact that Dominick’s “possessed, operated and controlled a food
store and adjacent parking lot,” plaintiffs alleged that “it then and there became the duty of
[Dominick’s] to ensure the safety of their patrons and invitees.”
¶ 40 In our view, the premises-liability theory fell within the coverage language for “liability
arising out of [the] premises.” The sole basis for imposing a legal duty on Dominick’s under this
premises-liability theory was its relationship to the “premises”—its status as the occupier of the
property, on whom both the common law and the Premises Liability Act impose a duty of care.
See 740 ILCS 130/2 (West 2014); Ward, 136 Ill. 2d at 141. The “premises” is thus directly and
indispensably tied to the alleged legal duty on the part of Dominick’s in this case, and duty is a
required element of its ultimate “liability” to the plaintiffs in the Gallo litigation. See Buerkett,
384 Ill. App. 3d at 422 (duty is required element of negligence claim).
¶ 41 Liberally comparing the policy against the complaint, we do not find it unreasonable in
the least to conclude that the “liability” of Dominick’s in the Gallo litigation has “its origin in,”
is “growing out of,” is “flowing from” (Maryland Casualty Co., 126 Ill. App. 3d at 154) or is
“connected with” or “incidental to” (Consolidated R. Corp., 92 Ill. App. 3d at 1069) the
premises. Because it is a reasonable interpretation favoring coverage, it is one we must adopt.
The allegations of the premises-liability theory thus fell within the coverage provision for
“liability arising out of the premises.”
¶ 42 We find support for our conclusion in the only case cited by the parties involving this
identical policy language, and which also occurred, as here, in the context of an additional
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insured provision. In Consolidated R. Corp., 92 Ill. App. 3d at 1067, Consolidated Rail (Con
Rail) leased to its subsidiary, Pennsylvania Truck Lines (PTL), a parcel of land known as
Roselake Yards, where PTL would perform various services to assist Con Rail’s “piggyback”
operation. PTL procured liability insurance and named Con Rail as an additional insured. Id. The
policy provided, in serial endorsement 4, that Con Rail was an additional insured “ ‘only with
respect to [its] liability arising out of *** (b) the premises owned, maintained or controlled by
[Con Rail]’ ” (Emphases added.) Id. at 1068.
¶ 43 Eleven PTL employees were injured while working on that piggyback operation on or
near the Roselake Yards property, and each of them sued Con Rail for personal injuries. Id. at
1067. Con Rail tendered the defense of the suits to its insurer, which assumed the defense of the
first two lawsuits but refused to defend others. Id.
¶ 44 This court held that the insurer had a duty to defend under provision (b) quoted above (as
well as other provisions). The court noted the broad interpretation that courts have given to the
language “arising out of” and reasoned that “[e]ach injury was ‘incident to’ work related duties
‘connected with’ the Roselake premises owned by Con Rail.” Id. at 1069. The court found that
“this causal connection alone is sufficient to invoke coverage” under provision (b). Id. The court
found that each of the underlying personal-injury complaints “alleged facts which were
potentially covered by” provision (b), because “[t]hey asserted Con Rail’s status as lessor of the
yards in which the injuries occurred.” Id. at 1070.
¶ 45 Just as Con Rail was alleged to be responsible by virtue of its status as lessor/owner for
injuries occurring on or near the premises, so too was Dominick’s alleged to be responsible in
the Gallo complaints for acts occurring on the premises it occupied.
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¶ 46 The decision in Maryland Casualty Co., 126 Ill. App. 3d 150, which Dominick’s
emphasizes as a decision involving “liability arising out of” language, also supports our decision,
though the relevant policy language was somewhat different. There, Chicago and North Western
Transportation Co. (CNW) managed a train station in downtown Chicago and leased three
separate newsstands to Demos News, Inc. (Demos). Id. at 152. A Demos employee, reporting to
work early in the morning, was grabbed from behind as she was about 10 feet from her
employer’s door, whereupon she was dragged into a stairwell, knocked unconscious, and
sexually assaulted. Id. She sued CNW for negligently maintaining and controlling the terminal.
Id.
¶ 47 CNW was an additional insured under a CGL policy Demos purchased that covered
CNW “ ‘only with respect to liability arising out of the ownership, maintenance or use of that
part of the premises designated below leased to [Demos].’ ” Id. at 153. The insurer sought a
declaration that it had no duty to defend CNW in the underlying lawsuit, arguing that the sexual
assault did not occur on any of the premises leased to Demos. Id. at 154.
¶ 48 The court first noted the breadth and vagueness of the phrase “arising out of” and
reasoned that, liberally construed, it suggested only “ ‘but for’ causation, not necessarily
proximate causation,” between the words it connects. Id. The court also noted that the word
“premises” has been held to include “ ‘private approaches and other areas necessary or incidental
to an insured’s operations.’ ” Id. at 155 (quoting Allstate Insurance Co. v. Gutenkauf, 103 Ill.
App. 3d 889, 894 (1981)). Ultimately, the court held that, “by construing the policy liberally in
favor of the insured—a procedure necessitated by the ambiguity of the ‘arising out of’
language—the instant injuries appear to have arisen from the operation and use of the leased
premises, since they would not have been sustained ‘but for’ the victim’s employment on those
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premises” and the fact that she was “about to commence her employer’s operation when she was
assaulted.” Id. The court found it foreseeable that “employees of Demos would necessarily and
customarily use the nonleased portions of the terminal in order to go about their employer’s
business.” Id. at 154.
¶ 49 Maryland Casualty Co., which broadly interpreted the phrase “liability arising out of the
premises,” is consistent with our holding here. Netherlands is quick to point out that the language
there was different, which is correct, but it cuts in a different direction than Netherlands would
advocate. The language in Maryland Casualty Co. was “ ‘liability arising out of the ownership,
maintenance or use of that part of the premises.’ ” (Emphasis added.) Id. at 153. It was narrower,
not broader, than the language we are considering, which contains no similar qualifier—“liability
arising out of the premises.” So if anything, the difference in policy language in Maryland
Casualty Co. provides greater, not less, support for our conclusion.
¶ 50 Netherlands raises several reasons why our interpretation of “liability arising out of the
premises” is incorrect, which we will consider in turn.
¶ 51 First, Netherlands raises what amounts to a floodgates argument—that this interpretation
would lead to “nearly unlimited” coverage. “Conceivably,” says Netherlands, “Dominick’s
might fire an employee in the parking lot,” “might discriminate against a customer based on race
or age” there, or “might wrongfully use someone’s logo” on the premises—and all of those acts,
under this interpretation, would be covered under the policy.
¶ 52 Not so. In fact, these examples provide the perfect frame of reference for why the
interpretation we adopt is reasonable. In those examples given above, even if those events
happened to occur on the “premises,” the “liability” of Dominick’s for those acts would have
nothing whatsoever to do with the premises. A claim for wrongful termination would not base
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“liability” on the premises at 3300 West Belmont Avenue but, rather, on the store’s status as an
employer and its violation of some state or federal employment law. It would make no
difference, from a “liability” standpoint, whether a Dominick’s official fired the employee inside
the store, in the parking lot, at a coffee shop down the street, by e-mail, or at a visit to the
employee’s home.
¶ 53 If Dominick’s misappropriated another company’s logo, any “liability” it might incur
would not be imposed by virtue of its status as owner/occupier of the premises, but rather on the
fact that it misused a logo in violation of some law governing misappropriation or infringement.
That misappropriation could happen in a television commercial, in a mailer, or on a poster
stapled to a tree several miles away from a Dominick’s store—the location would make no
difference on the question of liability.
¶ 54 But a premises-liability claim is based on nothing more than the relationship of
Dominick’s to the premises as the owner or occupier, and the legal duties that arise as a result.
The “premises” is a necessary and indispensable part of the liability alleged. So we do not think
that our interpretation—that a premises-liability claim falls within the phrase “liability arising
out of the premises”—is so open-ended that any conceivable lawsuit brought against Dominick’s
would be covered by Netherlands.
¶ 55 Netherlands also argues that “the phrase ‘arising out of the premises’ in an insurance
policy means that the loss occurred due to some defect in the premises,” and because no such
defect was alleged regarding the premises here, the complaint did not implicate coverage. That
was the circuit court’s reasoning, too—that a defect in the premises is required.
¶ 56 Reading “liability arising out of the premises” as requiring a defect in the premises is not
an unreasonable interpretation, at least in a vacuum. The problem for Netherlands is that if we
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find our interpretation reasonable, and it favors coverage, it is the interpretation we must adopt,
even if the insurer proffers a reasonable interpretation of its own that denies coverage. See
United States Fidelity & Guaranty Co., 144 Ill. 2d at 74; see also Outboard Marine Corp. v.
Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108-09 (1992).
¶ 57 In any event, we disagree with Netherlands and the circuit court that Illinois law
interprets “liability arising out of the premises” as only referring to defects in the premises.
Netherlands cites cases in support of that position, two of which the circuit court cited, but we
find those cases distinguishable, as they involved different language in different kinds of policies
under different circumstances.
¶ 58 In Reis v. Aetna Casualty & Surety Co., 69 Ill. App. 3d 777, 780 (1978), an employee
named Phillips allegedly consumed alcohol and prescription drugs at the home of Reis, a
superior at the corporation, and later reported to work intoxicated. Recognizing his intoxication,
Reis sent Phillips home. Id. On the drive home, Phillips’s car collided with another car, killing
plaintiff’s decedent. Id. at 781. The estate sued Reis for allowing Phillips to consume drugs and
alcohol before work and for negligently sending him home from work when he was unfit to drive
a car. Id. at 780-81. Reis tendered her defense to her homeowner’s insurer, Aetna, which
disputed coverage. Id. at 781-82.
¶ 59 The vast majority of the Reis opinion was devoted to a different issue than ours—whether
an exclusion for “business pursuits” applied, given that the negligence allegedly occurred, at
least in part, at Reis’s place of business. See id. at 786-88. Once this court rejected that
argument, it proceeded to the question relevant to us, the applicability of an exclusion whose
language was never quoted verbatim in the opinion, something this court discussed in one
paragraph, the entirety of which follows:
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“The insurer belatedly has raised the contention that an exclusion of liability coverage
and medical payments coverage, where the bodily injury arose out of any premises other
than an insured premises, limits coverage to Reis’s apartment. The inconsistency of this
contention is demonstrated by the fact that the policy expressly provides medical
payments coverage for accidents on the insured premises or elsewhere. The cited
exclusion only applies to injuries arising out of the premises themselves, presumably
such accidents as falling glass. The injury here did not arise out of any premises and the
exclusion is clearly inapplicable.” (Emphases added and in original.) Id. at 788.
¶ 60 As that paragraph demonstrates, the court in Reis was required to reconcile the broad
coverage language for accidents “on the insured premises or elsewhere” (emphasis in original)
(id.) with the exclusion of coverage that, apparently, excluded coverage “where the bodily injury
arose out of any premises other than an insured” (emphasis added) (id.). Since the phrase “the
insured premises or elsewhere” quite obviously covered locations beyond the insured premises
itself, some sense had to be made out of the exclusion, which arguably, and contradictorily,
limited coverage only to the insured premises. If the exclusion were read as broadly as Aetna
urged, the exclusion would have altogether erased the words “or elsewhere” from the policy’s
broad coverage provision. Thus, in an effort to reconcile the exclusion with the coverage
language, the court determined that the exclusion language must be read narrowly to only cover
situations where the noninsured premises, itself, was responsible for the injuries—“presumably
such accidents as falling glass” on the noninsured premises. Id.
¶ 61 From that, Netherlands says that the phrase “liability arising out of the premises” can
only mean liability resulting from a defect in the premises. We find Reis readily distinguishable
in several ways.
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¶ 62 First, Reis construed a policy exclusion, which must be interpreted narrowly, as the court
there recognized and which our courts have repeatedly held. See id. at 787 (noting that
exclusions to coverage “ ‘are properly construed most strongly against the insurer’ ”); see also
Outboard Marine Corp., 154 Ill. 2d at 119 (rule of construction interpreting ambiguous terms
strictly against insurer and in favor of coverage is “especially true with respect to exclusionary
clauses”).
¶ 63 Second, as we have just discussed above, the court in Reis properly reasoned that the
language of the exclusion, if read as the insurer urged, would have so materially altered the broad
coverage language as to render it almost unrecognizable as a homeowner’s insurance policy,
which “is not a policy providing limited coverage only applicable on the designated premises;
rather, it is designed to be a broad type of coverage protecting the insured nearly everywhere.”
Reis, 69 Ill. App. 3d at 785. In our case, in contrast, there is no other language in the policy that
materially conflicts with, if not wholly contradicts, the language we are reviewing, so there is no
need to harmonize seemingly incompatible provisions.
¶ 64 Third and just as importantly, the policy language in Reis was different. The language—
not quoted verbatim by the court—apparently excluded coverage “where the bodily injury arose
out of any premises other than an insured.” (Emphasis added.) Id. at 788. In our case, the
question is whether the “liability arose out of the premises.” That is a meaningful difference.
“Injury” is a much more specific word than “liability.”
¶ 65 The notion of an injury arising out of the premises could reasonably, if not automatically,
conjure the image of something particular about the premises, something defective about the
property, playing a role in the injury. The “injury” is part of the occurrence itself. It is part of the
physical sequence of events, the result of the slip-and-fall or accident or, here, the altercation that
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occurred on the property. Saying that an injury “arises out of the premises” ties the “premises” to
the occurrence itself.
¶ 66 On the other hand, as we discussed previously, “liability” is a far broader concept.
“Liability” certainly includes the concept of an injury; a defendant cannot be held “liable” unless
the plaintiff proves that he or she suffered an injury. Buerkett, 384 Ill. App. 3d at 422. But
liability includes much more than that; it includes all of the underlying conduct and
circumstances, and whether the plaintiff has proven that those facts satisfy the elements of a legal
claim imposed by statute or the common law against a particular defendant. In the context before
us, “liability” in tort requires that plaintiff prove not only an injury, but also the imposition of a
legal duty of care, a breach of that duty, and a proximate causation between the breach of duty
and the plaintiff’s injuries. Id. A defendant’s duty of care is just as essential to holding
Dominick’s liable as the “injury” is. In our view, if the basis for imposing a duty “arises out of
the premises,” as it clearly does here, that is enough to say that the “liability” of Dominick’s
arises out of the premises, regardless of how the injury occurred.
¶ 67 So it would not surprise us that the language “bodily injury arising out of the premises”
might be read more narrowly than “liability arising out of the premises.” Even if Reis were not
otherwise distinguishable because it considered an exclusion, and because the court was required
to harmonize incompatible provisions, the language Reis considered was materially different.
¶ 68 For the same reasons we have just given, we are not persuaded by Netherlands’s citation
to Economy Fire & Casualty Co. v. Green, 139 Ill. App. 3d 147 (1985), a case that is nearly
identical to Reis in all material respects and, indeed, relied heavily on Reis.
¶ 69 There, a mother filed suit against various defendants after her child was hit by a car. Id. at
148. The defendants filed a counterclaim against the mother for contribution, claiming that the
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mother’s negligence, in whole or in part, caused the boy’s injuries. Id. The mother tendered her
defense to the insurers that issued her homeowner’s policy (Badger) and her automobile liability
policy. Id.
¶ 70 The homeowner’s policy language read as follows:
“ ‘[Badger] agrees to pay on behalf of the Insured all sums which the Insured shall
become legally obligated to pay as damages because of bodily injury or property damage,
to which this insurance applies, caused by an occurrence.’ ” (Emphasis added.) Id. at
151.
¶ 71 Badger denied coverage, relying on the following exclusion in the policy, quite similar to
the one in Reis: “ ‘This policy does not apply *** to bodily injury *** arising out of any
premises, other than an insured premises, owned, rented or controlled by any Insured.’ ” Id. at
151-52. Badger argued that the child was hit by a car on the street, and thus the “bodily injury”
did not “arise out of” any insured premises, and the exclusion applied.
¶ 72 This court found the exclusion inapplicable. Relying on Reis, the court echoed Reis’s
reasoning that homeowner’s policies are generally intended to provide liability coverage beyond
the designated insured premises, “protecting the insured nearly everywhere.” (Internal quotation
marks omitted.) Id. at 152. The very broad coverage language was consistent with that norm,
insuring against damages for any bodily injury “ ‘caused by an occurrence.’ ” Id. This court
reasoned that, when a homeowner’s policy contains such broad coverage language “ ‘and
contains no other provision describing what coverage is provided, the insurer is liable for any
accident for which the insured may be legally liable unless coverage is expressly excluded.’ ” Id.
at 153.
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¶ 73 The exclusion had the effect of severely curtailing that broad coverage provision. Id.
Noting that Reis considered “a homeowner’s policy containing provisions similar to those
involved here” (id. at 152), the court adopted Reis’s conclusion, without additional commentary,
that the exclusion only applied when a bodily injury arose from a defect in the premises. Id. at
153. Because the child was hit by a car in the street, and no defect in the street was alleged, the
exclusion was inapplicable, and Green was entitled to coverage. Id.
¶ 74 For the same reasons we have distinguished Reis, we do not believe that Green guides
our decision here.
¶ 75 Like Reis and Green, another case cited by Netherlands, Economy Fire & Casualty Co. v.
Second National Bank of Danville, 91 Ill. App. 3d 406, 408 (1980), involved a policy exclusion
in a homeowner’s policy, with the same language. The coverage language was identical to that in
Green, covering the insured against all liability for damages caused by an “occurrence.” Id. The
exclusion was identical, too, excluding liability for “ ‘bodily injury *** arising out of any
premises, other than an insured premises, owned, rented or controlled by any Insured.’ ” Id.
Because of the difference in language, the difference in types of policies, and the fact that the
court was considering an exclusion, we again find that decision distinguishable.
¶ 76 For the reasons we have given, primarily the significant difference in policy language, we
likewise find distinguishable other case law cited by Netherlands, which turned on terms such as
“use” and “accident.” See, e.g., American Country Insurance Co. v. Chicago Carriage Cab
Corp., 2012 IL App (1st) 110761, ¶¶ 8, 13, 26, 30 (in duty-to-indemnify action, cab driver was
not covered in negligent-entrustment suit for “ ‘ “bodily injury” *** caused by an “accident” and
resulting from the ownership, maintenance or use of a covered “auto” ’ ” when driver lent cab to
his nonlicensed friend, who then picked up passenger who was beaten and robbed inside cab;
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robbery inside cab was not “accident” or traditional “use” of automobile); Mount Vernon Fire
Insurance Co. v. Heaven’s Little Hands Day Care, 343 Ill. App. 3d 309, 313-14, 320 (2003)
(exclusion in policy for “ ‘ “bodily injury” *** arising out of the ownership, maintenance [or]
use’ ” of car did not apply, and thus insured was entitled to coverage, when car was not being
“used” when child was left inside, unattended); State Farm Mutual Automobile Insurance Co. v.
Pfiel, 304 Ill. App. 3d 831, 833, 837 (1999) (when parents’ son killed girl inside their car,
parents were not covered in underlying negligent-entrustment suit for “bodily injury *** caused
by accident resulting from the ownership, maintenance or use of your car”; son’s stabbing of girl
while parked in forest preserve was not part of traditional, legitimate “use” of car, nor could
murder be plausibly construed as “accident”).
¶ 77 So we disagree with Netherlands and the circuit court that the case law requires a defect
in the premises before a lawsuit can be interpreted as alleging “liability arising out of the
premises.” We think it is reasonable, at the very least, to interpret a premises-liability claim as
falling within coverage for “liability arising out of the premises.”
¶ 78 2. Unsafe Condition
¶ 79 Second, even if we were inclined to adopt some form of defective-premises requirement,
as urged by Netherlands, we do not believe our conclusion would change. Netherlands casts this
case as involving criminal acts of third parties, with the “premises” having no more relevance
than serving as the situs of the shooting, the mere ground they stood on. But there is another way
to view this case that is at least reasonable, if not more so—that both the voluntary-undertaking
and premises-liability theories allege an unsafe premises.
¶ 80 Again, the Gallo complaint alleged that Dominick’s had been beset in the past with
“armed robberies, assault and batteries, car jackings, narcotic sales and many incidents of gang
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graffiti” of which Dominick’s was or should have been aware—enough so, at least, that
Dominick’s had hired store security. The complaint alleged that Dominick’s either voluntarily
undertook a duty to keep the premises safe for its patrons and invitees, or that it owed one under
the common law, given its possession and control of the premises. And ultimately, what
Dominick’s is accused of doing is not keeping its premises safe for its patrons and invitee.
¶ 81 If a plaintiff twisted her ankle in a pothole in the lot, slipped on a patch of ice by the
store, or tripped on the store’s sidewalk as a result of poor overhead lighting, even Netherlands
would agree that lawsuits based on these “defective” conditions would trigger coverage. What is
the material difference between the premises being slippery and being unsafe? From being
poorly lit versus being poorly secured? How are nonfunctioning security cameras so different
than nonfunctioning overhead lights? In each of those cases, there is something hazardous about
the “premises” that the owner/occupier failed to remedy, resulting in injury.
¶ 82 Viewed in this light, we do not find it unreasonable to view the allegations of the Gallo
complaint, under either theory of recovery asserted, liberally construed, as alleging “liability,”
having “its origin in,” “growing out of,” “flowing from” (Maryland Casualty Co., 126 Ill. App.
3d at 154), “connected with,” or “incidental to” (Consolidated R. Corp., 92 Ill. App. 3d at 1069)
the premises.
¶ 83 For these reasons, we hold that the Gallo complaint, under either theory of recovery
asserted, alleged facts that triggered Netherlands’s duty to defend Dominick’s.
¶ 84 B. Duty to Indemnify
¶ 85 Dominick’s also claims that Netherlands owed a duty to indemnify Dominick’s for its
settlement payment to the underlying plaintiffs. The indemnification question is ripe for
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determination, as Dominick’s has already incurred liability in the Gallo litigation, settling the
suit for $1.3 million. Outboard Marine Corp., 154 Ill. 2d at 127.
¶ 86 An insurer’s duty to indemnify is narrower than its duty to defend its insured. Id. We no
longer ask whether the allegations of the complaint fall, or potentially fall, within the scope of
coverage. At this stage, “the duty to indemnify arises if the insured’s activity and the resulting
loss or damage actually fall within the *** policy’s coverage.” (Emphasis in original.) Id. at 128.
¶ 87 At the time of settlement, a twelfth amended complaint was pending. The plaintiffs had
upgraded some of their allegations with the benefit of discovery, including that:
* Dominick’s possessed and controlled not only the premises but also the camera
security system there;
* Dominick’s was aware of prior criminal activity in and around its store and had a
manual “to outline procedures to follow during certain criminal activities;”
* the Dominick’s security staff witnessed the confrontation between the gang
members and Ramirez within the store but did not intervene;
* the internal security cameras captured the two gang members entering the store;
* the cameras located on the outside walls of the store were not working;
* after the in-store confrontation, the two gang members left the store but waited
outside by the doors at the southeast entrance, standing directly below one more of the
nonfunctioning security cameras; and
* the gang members stood in precisely the location where the security staff was
supposed to “stand post” to “monitor for suspicious activity and assist store visitors as
they traveled through that entrance and the adjacent parking lot.”
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¶ 88 Those additions aside, the twelfth amended complaint continued to allege both voluntary-
undertaking and premises-liability theories against Dominick’s, and no other theories.
¶ 89 Dominick’s, of course, did not admit liability when it settled, and thus obviously did not
admit to being guilty of any breach of duty, much less that any duty existed in the first place, by
operation of law or by voluntary assumption. But because we have found that either theory of
liability would trigger coverage, there is no need to parse between covered and noncovered
claims to determine which of them was the “ ‘primary focus’ ” of the lawsuit. Rosalind Franklin
University of Medicine & Science v. Lexington Insurance Co., 2014 IL App (1st) 113755, ¶ 81 (if
both covered and noncovered claims are settled, duty to indemnify arises if covered claims were
“ ‘primary focus of litigation’ ”); see also Federal Insurance Co. v. Binney & Smith, Inc., 393 Ill.
App. 3d 277, 288-89 (2009).
¶ 90 For all the reasons previously given, the failure by Dominick’s to keep the premises
safe—in violation of either its common-law duty, its voluntarily-assumed duty, or both—actually
resulted in “liability arising out of the premises.” Netherlands owed Dominick’s a duty to
indemnify.
¶ 91 In light of our holding, we do not need to decide whether Netherlands should be estopped
from denying coverage.
¶ 92 C. Section 155 Sanctions
¶ 93 Finally, Dominick’s seeks damages under section 155 of the Illinois Insurance Code (215
ILCS 5/155 (West 2014)), claiming that Netherlands’s conduct in denying them a defense and
indemnification was vexatious and unreasonable. Whether conduct is vexatious and
unreasonable is determined by examining the totality of the circumstances. Rosalind Franklin,
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2014 IL App (1st) 113755, ¶ 110. “Neither the length of time, the amount of money involved,
nor any other single factor taken by itself is dispositive.” Id.
¶ 94 “[S]ection 155 fees and penalties are not awarded simply because the insurer refuses to
settle or was unsuccessful in litigation.” Id. 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. State Farm Mutual Automobile Insurance Co. v. Smith, 197 Ill. 2d
369, 380 (2001); Dark v. United States Fidelity & Guaranty Co., 175 Ill. App. 3d 26, 31 (1988).
¶ 95 Though we have disagreed with Netherlands’s interpretation of the policy language at
issue, we do not believe that its position was so unreasonable as to warrant damages under
section 155. There 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. We have held that
Netherlands’s position was too narrow to be the only reasonable construction of the policy, in
light of the broad language “arising out of” and the broad term “liability,” but it does not follow
that Netherlands’s position was, itself, unreasonable. The fact that an able and experienced trial
judge agreed with Netherlands is further evidence that Netherlands’s arguments and conduct do
not warrant sanctions.
¶ 96 Thus, we need consider whether this claim was time-barred, as the circuit court ruled.
Summary judgment was properly entered on this bad-faith claim, because a bona fide dispute
over coverage existed.
¶ 97 III. CONCLUSION
¶ 98 In sum, we reverse the grant of summary judgment in favor of Netherlands on the issues
of duty to defend and duty to indemnify. We remand this cause for the entry of summary
judgment in favor of Dominick’s on these coverage questions. We affirm the entry of summary
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judgment in favor of Netherlands on the section 155 claim. We likewise remand for any further
proceedings, if necessary.
¶ 99 Affirmed in part, reversed in part, and remanded.
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