ILLINOIS OFFICIAL REPORTS

Appellate Court

Area Erectors, Inc. v. Travelers Property Casualty Co. of America,

2012 IL App (1st) 111764

Appellate Court

Caption

AREA ERECTORS, INC., an Illinois Corporation, Plaintiff-Appellant,

v.TRAVELERSPROPERTYCASUALTYCOMPANYOFAMERICA,

a Connecticut Insurance Company, Defendant-Appellee.

 District & No. First District, Fifth Division

Docket No. 1-11-1764

Rule 23 Order filed

Rule 23 Order

withdrawn

Opinion filed

October 12, 2012

December 4, 2012

December 7, 2012

Held

(Note: This syllabus

constitutes no part of

the opinion of the court

but has been prepared

by the Reporter of

Decisions for the

convenience of the

reader.)

In an action seeking a declaration that plaintiff was entitled to the

replacement cost of its damaged cranes and statutory penalties for its

insurer’s vexatious refusal to settle the claim, the grant of the insurer’s

motion for judgment on the pleadings was affirmed, since the insurer was

not vexatious or unreasonable and the policy unambiguously provided

only for the payment of the cranes’ actual cash value, not their

replacement costs.

Decision Under 

Review

Appeal from the Circuit Court of Cook County, No.10-CH-13192; the

Hon. Kathleen M. Pantle, Judge, presiding.
Judgment Affirmed.

Counsel on

Appeal

Jennifer L. Turiello and Kevin J. Caplis, both of Querrey& Harrow, Ltd.,

of Chicago, for appellant.

Jean M. Golden, and Melissa A. Anderson, both of CassidaySchade LLP,

of Chicago, for appellee.

Panel JUSTICE HOWSE delivered the judgment of the court, with opinion.

Justices Palmer and Taylor concurred in the judgment and opinion.

OPINION

¶ 1 Plaintiff Area Erectors, Inc., appeals from a circuit court order granting defendant

Travelers Property Casualty Company of America’s motion for judgment on the pleadings.

For the reasons set forth below, we affirm the judgment of the circuit court.

¶ 2 BACKGROUND

¶ 3 Plaintiff Area Erectors, Inc. (AEI), filed a complaint for declaratory judgment in the

circuit court of Cook County, against defendant Travelers Property Casualty Company of

America (Travelers), seeking a declaration that it is entitled to recover the replacement costs

of its damaged property and seeking statutory penalties from Travelers for its vexatious

refusal to settle its claim. At issue is the measure of the valuation of the property under the

policy.

¶ 4 In its complaint for declaratoryjudgment, AEI alleges that on July21, 2008, an American

7150 crane it owned was damaged when an unexpected microburst storm came through a

construction site and toppled concrete walls onto the crane. Two days later, on July 23, 2008,

a Link-Belt crane owned by AEI was damaged in an unrelated incident when the boom hoist

cable snapped and fell onto the manlift.

¶ 5 AEI is the insured under a commercial inland marine insurance policy issued by

Travelers. AEI filed claims under the policy for the two damaged cranes.

¶ 6 AEI argues it is entitled to recover the replacement cost for the loss of the American 7150

crane. Travelers argues AEI is entitled to recover the actual cash value of the equipment

under the policy, a lesser sum than replacement cost.

¶ 7 On September 19, 2008, Travelers determined the 7150 crane to be a total loss. In a letter

dated October 2, 2008, Travelers offered $379,868.75 in settlement of AEI’s claim on the

American 7150 crane. This sum represented what Travelers calculated as the actual cash

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value of the crane less a $25,000 deductible.

¶ 8 Travelers alleged it tendered the proper amount due under the policy, which is the actual

cash value of the crane as specified under paragraphs A and B of the “ ‘Contractors

Equipment’ Coinsurance and Valuation” endorsement.

¶ 9 AEI claims it is entitled to recover the replacement cost of the damaged American 7150

crane, not actual cash value. AEI argues that the policy is ambiguous as to whether

replacement cost or actual cash value applies to a loss of the property. Therefore, the policy

should be construed against Travelers and AEIseeks a declaration that Travelers is liable to

pay replacement costs.

¶ 10 In count I of AEI’s complaint for declaratory judgment, AEIis seeking a declaration that

the proper method of valuation for the loss of the American 7150 crane is the replacement

value, not the actual cash value.

¶ 11 In count II of AEI’s complaint, AEI is seeking a declaration that Travelers acted in a

vexatious and unreasonable manner in handling the claim on the American 7150 crane and

breached the implied duty of good faith and fair dealing pursuant to sections 154.6 and 155

of the Illinois Insurance Code (215 ILCS 5/154.6, 155 (West 2006)) and section 919.50 of

title 50 of the Illinois Administrative Code (50 Ill. Adm. Code 919.50 (2004)). AEI is

seeking to recover attorney fees, costs and expenses incurred in seeking coverage from

Travelers.

¶ 12 In count III of its complaint for declaratory judgment, AEI is seeking statutory penalties

and attorney fees, alleging it should be awarded such penalties because: (1) Travelers failed

to acknowledge its liability for the Link-Belt crane claim within a reasonable time period;

(2) Travelers failed to respond with reasonable promptness to communications from AEI;

and (3) Travelers failed to effectuate a prompt, fair and equitable settlement of the Link-Belt

crane.

¶ 13 Travelers filed an answer and affirmative defenses and a motion for judgment on the

pleadings. In granting Travelers motion for judgment on the pleadings, the trial court

determined that the actual cash value was the proper valuation under the policy.

¶ 14 The trial court found:

“There is no ambiguity in this policy. It is clear from the plain reading of the policy

that replacement costs is applicable to items less than five years old from the date of

manufacture and actual cash value is applicable to items that are more than five years old

from the date of manufacture. As the American 7150 crane was manufactured in 1993,

it was over five years old.”

¶ 15 The trial court found that penalties under the Illinois Insurance Code are not warranted

for Travelers’ response to either claim because Travelers did not knowinglyviolate the Code,

a bona fide dispute existed between the parties, and the provisions of sections 919.50 and

919.20 of title 50 of the Illinois Administrative Code do not apply to inland marine policies.

¶ 16 AEI filed this timely appeal from the trial court’s order granting Travelers’ motion for

judgment on the pleadings.

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¶ 17 ANALYSIS

¶ 18 “Judgment on the pleadings is proper where the pleadings disclose no genuine issue of

material fact and the movant is entitled to judgment as a matter of law, i.e., similar to a

motion for summary judgment but limited to the pleadings.” Parkway Bank & Trust Co. v.

Meseljevic, 406 Ill. App. 3d 435, 442 (2010).

¶ 19 In ruling on a motion for judgment on the pleadings, the court must consider only those

facts apparent from the face of the pleadings, judicial admissions in the record and matters

subject to judicial notice. Illinois Tool Works, Inc. v. Commerce & Industry Insurance Co.,

2011 IL App (1st) 093084. We review the circuit court’s grant of judgment on the pleadings

de novo. State Farm Fire & Casualty Co. v. Young, 2012 IL App (1st) 103736, ¶ 11.

¶ 20 “To ascertain the meaning of the policy’s words and the intent of the parties, the court

must construe the policy as a whole [citation], with due regard to the risk undertaken, the

subject matter that is insured and the purposes of the entire contract [citation].” Outboard

Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108 (1992). “If the words in

the policy are unambiguous, a court must afford them their plain, ordinary, and popular

meaning.” (Emphasis omitted.) Id. Words are ambiguous if they are reasonably susceptible

to more than one meaning. Inland Construction Co. v. Home Indemnity Co., 113 Ill. App. 3d

558, 559 (1983). Contract interpretation is a question of law, which we review de novo.

Illinois Tool Works, Inc. v. Commerce &Industry InsuranceCo., 2011 IL App (1st) 093084,

¶ 20.

¶ 21 AEI first claims that replacement costs of the American 7150 crane is the appropriate

valuation for loss of the crane. We must look to the endorsement titled “ ‘Contractors

Equipment’ Coinsurance and Valuation,” which is at the center of the dispute between the

parties. The relevant portion of the insurance policy at issue reads as follows:

“ ‘CONTRACTORS EQUIPMENT’ COINSURANCE AND VALUATION This

endorsement modifies insurance provided under the IM PAK COVERAGE FORM.

A. Listed Items

The Coinsurance Additional Coverage Condition applicable to ‘Contractors

Equipment’ in Section E–ADDITIONAL COVERAGE CONDITIONS is replaced

by the following:

‘Contractors Equipment’ Coinsurance

a. Listed Items

The Limit of Insurance for each item shown on the list on file at our premises

must equal at least the percentage of its value shown below at the time of ‘loss’

or you will incur a penalty:

(1) Applicable to items less than 5 years old from the date of

manufacture: 80% of its replacement cost; and

(2) Applicable to items over 5 years old from the date of manufacture:

80% of its actual cash value.

The Penalty is that we will pay only the proportion of any ‘loss’ to each item

that the Limit of Insurance for the item bears to the percentage of its applicable

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value.

(2) Unlisted Items

The Unlisted Limit of Insurance shown in the Declarations must equal at least

80% of the actual cash value of all Unlisted Items at the time of ‘loss’ or you will

incur a penalty.

The Penalty is that we will pay only the proportion of any ‘loss’ that the Limit of

Insurance for Unlisted Items bears 80% of the actual cash value of all Unlisted Items

at the time of ‘loss’.

The coinsurance penalty does not apply to items leased, rented or borrowed from

others unless they are shown as Listed Items.

B. The Valuation Additional Coverage Condition applicable to ‘Contractors

Equipment’ in Section E–ADDITIONAL COVERAGE CONDITIONS is replaced by

the following:

‘Contractors Equipment’ Valuation

In the event of ‘loss’, the value of your ‘Contractors Equipment’ as of the time

of ‘loss’ will be determined as shown below:

(1) Items to which Replacement Cost applies at the time of loss or damage

will be the least of the following:

(1) The cost to replace the property (without deduction for depreciation)

with other property:

(a) of comparable material and quality; and

(b) used for the same purpose.

(2) The cost of reasonably restoring that property to its condition

immediately before loss or damage; or

(3) The amount you actually spend that is necessary to repair or replace

the property.

We will not pay on a replacement cost basis until the property has

actually been repaired or replaced. If the property is not repaired or replaced,

we will pay on an actual cash value basis.

(2) Items to which Actual Cash Value applies at the time of loss or damage

will be the least of the following:

(1) The actual cash value of that property;

But in the event of partial ‘loss’, not exceeding 20% of the Limit of

Insurance applicable to the Covered Property, no depreciation will be applied

in the settlement of the claim;

(2) The cost of reasonably restoring that property to its condition

immediately before loss or damage; or

(3) The cost of replacing that property with substantially identical

property.”

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¶ 22 Paragraph A of the endorsement establishes the minimum amount of insurance AEI was

required to maintain on its equipment before a coinsurance penalty is incurred. Regardless

of the age of the equipment, AEI was required to insure its property for at least 80% of its

value to avoid the penalty in the event of a loss. The value of “listed” items less than five

years old is the replacement cost. The value of listed items over five years old and unlisted

items is the actual cash value. Here it is undisputed that both cranes were more than five

years old at the time of the loss.

¶ 23 Paragraph B of the endorsement discusses the valuation of “Contractors Equipment” in

the event of a loss. Paragraph B provides two formulas to calculate the value of lost property

depending upon which of two valuations applies: “(1) Items to which Replacement Cost

applies” and “(2) items to which Actual Cash Value applies.” AEI alleges that paragraph B

does not provide guidelines for when replacement costs valuation applies or when actual cash

value applies and, therefore, the endorsement creates an ambiguity, which we should

construe against Travelers.

¶ 24 To ascertain the meaning of the policy’s words and the intent of the parties, we must

construe the policy as a whole. Outboard Marine Corp., 154 Ill. 2d at 108. We acknowledge

subparagraphs 1 and 2 of paragraph B, standing alone, do not provide guidance for the reader

for when the replacement cost or actual cash value method applies. Paragraph B presumes

the guidelines have already been provided. When we read the entire “ ‘Contractors

Equipment’ Coinsurance and Valuation” endorsement, we conclude that guidance has been

provided in paragraph A of the endorsement, which immediately precedes paragraph B.

¶ 25 In the event of a loss, paragraph A requires AEI’s equipment to be insured for at least

80% of its value to avoid a coinsurance penalty. As we noted earlier, the value of “listed”

items less than five years old is the replacement cost and the value for “listed” equipment

more than five years old and “unlisted” items is the actual cash value.

¶ 26 There is nothing in the “ ‘Contractors Equipment’ Coinsurance and Valuation”

endorsement that would reasonably lead us to conclude that the provisions in paragraph A

of the endorsement should be read in a vacuum and not considered when reading paragraph

B of the very same endorsement.

¶ 27 If we were to adopt AEI’s interpretation of the policy, the result would be the American

7150 crane would be valued at actual cash value for purposes of determining whether AEI

carried the minimum amount of insurance to avoid the coinsurance penalty and valuing the

same crane at replacement cost to determine the loss. We agree with the trial court that when

the policy is read as a whole, including paragraphs A and B of the “ ‘Contractor’s

Equipment’ Coinsurance and Valuation,” the endorsement is not ambiguous and the actual

cash value is the proper method of valuation for the damaged American 7150 crane.

¶ 28 AEI next claims the trial court erred when it granted judgement on the pleadings on the

allegations of counts II and III that Travelers acted in a vexatious or unreasonable manner in

handling AEI’s claims under sections 154.6 and 155 of the Insurance Code (215 ILCS

5/154.6, 155 (West 2006)). AEI claims the allegations of the complaint, if taken as true, are

sufficient to defeat a motion for judgment on the pleadings.

¶ 29 In ruling on a motion for judgment on the pleadings, the court must consider only those

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facts apparent from the face of the pleadings, judicial admissions in the record and matters

subject to judicial notice. Illinois Tool Works, Inc. v. Commerce & Industry Insurance Co.,

2011 IL App (1st) 093084. In this case, AEI attached exhibits to the complaint that AEI

alleged accurately documented the communication that took place between the parties

relative to the losses. Since AEI alleged in the complaint that the exhibits constitute an

accurate account of the negotiations, they constitute a judicial admission and we will

consider the pleadings as well as the exhibits to determine whether judgment on the

pleadings was appropriate here. Bank of Chicago v. Park National Bank, 277 Ill. App. 3d

167, 172 (1995).

¶ 30 In respect to AEI’s claims under section 154.6 of the Insurance Code, we find that section

154.6 does not give rise to a private remedy or cause of action by a policyholder against an

insurer but is instead regulatory in nature. American Service InsuranceCo. v. Passarelli, 323

Ill. App. 3d 587, 590 (2001). Section 154.6 lists acts committed by an insurance company

that constitute improper claims practices. Id. Under section 154.7, the State Director of

Insurance is vested with the authority to charge a company with section 154.6 improper

claims practices and serve the company with notice of a hearing date. Id. “If a company is

found at the hearing to have engaged in improper claims practices, the Director is required

to orderthe company to cease such practices and has the discretion to suspend the company’s

certificate of authority and/or impose a civil penalty of up to $250,000.” Id. AEI, therefore,

cannot personally seek damages from Travelers under section 154.6. Id.

¶ 31 However, a private cause of action does exist under section 155 when “there is in issue

the liability of a company on a policy or policies of insurance or the amount of the loss

payable thereunder, or for unreasonable delay in settling a claim, and it appears to the court

that such action or delay is vexatious and unreasonable.” 215 ILCS 5/155 (West 2006).

¶ 32 “Section 155 was enacted by the legislature to provide a remedy to an insured who

encounters unnecessary difficulties when an insurer withholds policy benefits.” Uhlich

Children’s Advantage Network v. National Union Fire Co. of Pittsburgh, 398 Ill. App. 3d

710, 722 (2010). “ ‘The attorney fees, costs, and limited penalty provisions of section 155

are an extracontractual remedyintended to make suits bypolicyholders economicallyfeasible

and punish insurance companies for misconduct.’ ” Id. at 722-23 (quoting McGee v. State

Farm Fire & Casualty Co., 315 Ill. App. 3d 673, 681 (2000)).

¶ 33 “A court should consider the totality of the circumstances when deciding whether an

insurer’s conduct is vexatious and unreasonable, including the insurer’s attitude, *** and

whether the insured was deprived of the use of his property.” Statewide Insurance Co. v.

Houston General Insurance Co., 397 Ill. App. 3d 410, 426 (2009). “If a bona fide coverage

dispute exists, an insurer’s delay in settling a claim will not be deemed vexatious or

unreasonable for purposes of section 155 sanctions.” Id.

¶ 34 “The granting of attorney fees and penalties pursuant to section 155 is usually entrusted

to the sound discretion of the trial court [citation].” Id. at 425. However, when section 155

fees and costs are awarded as a judgment on the pleadings, the standard of review is de novo.

Id.

¶ 35 Based on the record, we cannot say Travelers acted in a vexatious and unreasonable

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manner in settling the claim on the American 7150 crane because a bona fide coverage

dispute exists. According to the record, Travelers offered AEI the actual cash value of the

American 7150 crane shortly after it was damaged. AEIresponded by disputing whether the

actual cash value was the proper method of valuation for the claim, claiming replacement

cost is the proper method. This bona fide coverage dispute ultimately resulted in the instant

action. Therefore, we find the trial court did not err in denying AEI’s claims for section 155

penalties on the American 7150 crane claim.

¶ 36 In respect to the Link-Belt crane, AEI claims in its appellate brief that it is disputing the

coinsurance penalty assessed by Travelers. However, in its complaint for declaratory

judgment, AEI did not request a declaration that the imposition of the coinsurance penalty

was improper. The trial court did not rule on this issue. “A trial court cannot err in failing to

decide an issue not presented to it for decision.” Shilli Leasing, Inc. v. Forum InsuranceCo.,

254 Ill. App. 3d 731, 736 (1993). AEI has forfeited the issue on appeal.

¶ 37 Next, AEI claims it should be awarded section 155 penalties because Travelers failed to

affirm or deny liability on the Link-Belt crane within a reasonable time.

¶ 38 The record shows AEIreported the claim on July 23, 2008. Travelers inspected the crane

on August 4, 2008, then sent a repair estimate on August 29, 2008, in the amount of

$104,166.37, and advised that it would pay 89% of that estimate ($92,708.07) due to a

coinsurance provision in the insurance policy.

¶ 39 AEI obtained alternate repair information and submitted its findings to Travelers on

January 12, 2009. Travelers issued a check to AEI on January 20, 2009, in the amount of

$92,708.07. AEI responded on February 26, 2009, claiming the check was insufficient

because the repair cost was $235,422.62. Travelers responded by email the same day

indicating it would revise its offer based on the information provided by AEI. Travelers

revised its offer from $92,708.07 to $202,597.30. To arrive at this amount, Travelers

deducted $7,785.20 as depreciation from the AEI repair estimate of $235,422.62, then

assessed an 11% coinsurance penalty, thereby, reducing the net amount to 89% of the costs.

¶ 40 Travelers paid an additional portion of the claim on the Link-Belt crane on May 22, 2008,

in the amount of $142,890.23. Travelers made supplemental payments on the claim on

October 26, 2010, and January 14, 2010.

¶ 41 Thus, in approximately five weeks from the date the crane was damaged, Travelers

informed AEI of its repair estimate and the amount it would pay under the policy. We cannot

say this action by Travelers was vexatious or unreasonable.

¶ 42 The record shows that Travelers responded in a reasonable time to AEI’s initial claim on

the Link-Belt claim. It also responded accordinglywhen AEI disputed the amounts Travelers

offered in settlement of the claim and provided documentation that the repairs were more

costly than Travelers estimated. They ultimately settled the claim after receiving the

additional information. Based on the record before us, we cannot say Travelers refused to

recognize liability or acted in a vexatious and unreasonable manner. The record shows a

bona fide coverage dispute existed; therefore, section 155 penalties are not warranted for

Travelers’ handling of the Link-Belt crane.

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¶ 43 CONCLUSION

¶ 44 For the foregoing reasons, we affirm the judgment of the trial court.

¶ 45 Affirmed.

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