The Illinois Supreme Court says a landlord’s insurance company doesn’t have to cover a claim against tenants who started a fire that damaged rental property.
According to court documents, in August 2015 Monroe and Dorothy Sheckler rented a property in downstate Pekin from landlord Ronald McIntosh, who had a policy through Auto-Owners Insurance for first-party dwelling and third-party landlord liability. Later that month, after an appliance repairman servicing the oven left to get a part, the Shecklers sprayed deodorizer before turning on the stove, which ignited. The resulting fire caused substantial property damage.
Auto-Owners paid McIntosh’s claim under his dwelling coverage provision, then sued in McIntosh's name against the repairman, Wayne Workman, in a kind of court action called subrogation. He, in turn, filed a third-party complaint against the Shecklers for contribution. In early 2018, Auto-Owners formally declined to defend the Shecklers against Workman, prompting additional litigation over legal liability.
In August 2019, a Tazewell County judge entered summary judgment in favor of Auto-Owners, ruling it had no duty to defend the Shecklers. Although Workman and the Shecklers filed independent appeals, which an appeals panel consolidated, a Tazewell County jury returned a verdict for Workman in the crossing lawsuits, after which he moved to dismiss his appeal.
In a 2021 split ruling, the Illinois Third District Appellate Court reversed the circuit court’s opinion and ruled the Shecklers were co-insured under McIntosh’s policy because they paid rent, which went toward his coverage premiums. That panel also noted the lease stipulated McIntosh would buy fire insurance and not be liable for damage to tenants’ personal property.
The Illinois Supreme Court issued its ruling on Auto-Owners’ appeal on Nov. 28. Justice Lisa Holder White wrote the unanimous opinion which, like the lower court rulings, relied on interpretation of the state high court’s 1992 opinion in Dix Mutual Insurance v. LaFramboise.
“The Shecklers appear to assert an entitlement to some sort of hybrid relief,” Holder White wrote. “They indicate Dix made them additional co-insureds as a matter of law under the lease provisions and the policy at issue. However, they also assert the central issue on appeal is whether this court’s decision in Dix is controlling and, like Dix, this is a subrogation case governed by equitable principles.”
The court said Dix essentially holds that while tenants generally are liable when their negligence causes fire damage, lease language can exonerate tenants from that specific liability, and viewing that lease in full context, “the parties did not intend for the tenant to be responsible for any fire damage to the leased premises,” but only their own personal property.
Justice White continued on to say the Supreme Court agreed with a dissent from Third District Appellate Court Justice Mary McDade, who found Dix didn’t apply to the Shecklers because “the issue in this case does not involve the equitable principles of subrogation.”
Although Auto-Owners filed a subrogation action in McIntosh’s name against Workman, the underlying claim was Workman’s third-party contribution claim against the Shecklers. Furthermore, the Supreme Court noted, the Dix holding was, when it was written, expressly limited to the facts of that dispute.
With that determination made, the court looked at McIntosh’s policy and found only he and his wife were the named clients, not the Shecklers, and that the policy clearly states “only insureds are covered,” White wrote. “Because the Shecklers are not covered insureds under the policy, they are not entitled to the coverage and protection afforded by the policy.”
Auto-Owners was represented by attorneys Krysta K. Gumbiner, Brian J. Talcott and Kathryn W. Bayer, of the firm of Talcott Dinsmore & Shohl, of Chicago and Cincinnati.
The Shecklers were represented by attorneys Mark E. Wertz, of Pekin, and John Robertson, of Statham & Long, of Galesburg.