No. 3–08–0915

______________________________________________________________________________

Filed October 20, 2009

IN THE APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2009

GEORGE and MARTHA ROCK, ) Appeal from the Circuit Court

) for the 12th Judicial Circuit,

Plaintiffs-Appellees, ) Will County, Illinois

)

)

) No. 07–MR–552 

v. )

)

STATE FARM FIRE AND CASUALTY )

COMPANY, a/k/a State Farm Insurance )

Companies, ) Honorable 

) Bobbi Petrungaro,

Defendant-Appellant. ) Judge, Presiding.

______________________________________________________________________________

JUSTICE CARTER delivered the opinion of the court:

______________________________________________________________________________

Plaintiffs George and Martha Rock (the Rocks) brought a declaratory judgment action

against defendant State Farm Fire and Casualty Company (State Farm) seeking a declaration that

State Farm had duties to defend and indemnify the Rocks against a lawsuit brought by a third

party. After judgment in the underlying lawsuit was entered in the Rocks’ favor, the instant

declaratory judgment action proceeded solely on the issue of whether State Farm had a duty to

defend the Rocks. The trial court found that State Farm had a duty to defend the Rocks against

the underlying suit. State Farm appealed. We reverse.

FACTS

The record reveals the following facts. In August 2004, the Rocks sold a home located in
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La Porte, Indiana, to Phillip and Janel Koss (the Kosses). In March 2005, the Kosses filed a

three-count complaint in Indiana state court against the Rocks. In all three counts, the Kosses

alleged that the Rocks had indicated on a residential real estate sales disclosure form that there

were no moisture or water problems in any area of the home, there was no damage due to flood,

there were no hazardous conditions such as mold, and there were no foundation problems. In

count I, the Kosses claimed that these statements were fraudulent misrepresentations as to past

and/or existing material facts and that the Rocks made these false statements knowingly or with

reckless ignorance or indifference of their falsity. Further, the Kosses alleged that the Rocks

made these false statements to induce the Kosses to purchase the property. The Kosses alleged

they relied upon the Rocks’ statements and were injured. The alleged damages were the loss of

their bargain, the loss of value to their property, the loss of use of their property, the cost of

remediation, and emotional distress and anguish.

In count II, the Kosses alleged that the Rocks’ misrepresentations violated the duty of

good faith and fair dealing. The Kosses claimed damages as a result, including the loss of their

bargain, the loss of value to their property, the loss of use of their property, and the cost of

remediation. In count III, the Kosses allege that the misrepresentations made by the Rocks were

negligent misrepresentations and resulted in the loss of their bargain, the loss of value to their

property, the loss of use of their property, and the cost of remediation.

On June 15, 2007, the Rocks filed a petition for declaratory judgment against State Farm

seeking a declaration that State Farm had “an obligation to consider, settle and/or arbitrate” the

suit brought by the Kosses. The Rocks alleged that State Farm had such a duty under a

homeowner’s insurance policy issued by State Farm to the Rocks for the La Porte property that
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was in effect in July 2004. In addition, State Farm had declined the Rocks’ request to tender

defense of the suit to State Farm. 

On August 23, 2007, the Rocks filed an amended petition for declaratory judgment. In

the amended petition, the Rocks stated that the underlying lawsuit against them had been tried

before a jury. A verdict in that suit was entered in favor of the Rocks.

State Farm filed its answer in the instant declaratory judgment action on September 5,

2007. In its answer, State Farm admitted a homeowner’s policy was in effect in July 2004. In

addition, State Farm admitted that it had denied the Rocks’ request for defense of the lawsuit

brought by the Kosses because the liability provision of the insurance policy was not triggered, as

the underlying complaint did not contain allegations of an occurrence that caused property

damage. State Farm also claimed two affirmative defenses not at issue in this appeal.

The homeowners’ policy in question was issued on December 15, 2003, and coverage

ceased on September 14, 2004. Section II, coverage L, of the policy provides that State Farm

will provide a defense “[i]f a claim is made or a suit is brought against an insured for damages

because of bodily injury or property damage to which this coverage applies, caused by an

occurrence.” An “occurrence” is defined as “an accident, including exposure to conditions” that

results in bodily injury or property damage. “Property damage” is defined as “physical damage to

or destruction of tangible property, including loss of use of this property.”

On January 7, 2008, State Farm filed a motion for judgment on the pleadings pursuant to

section 2–615(e) of the Code of Civil Procedure. 735 ILCS 5/2–615(e) (West 2008). State Farm

argued in that motion that it did not owe the Rocks a duty to defend or indemnify because the

underlying complaint did not allege an occurrence that caused property damage. In response, the
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Rocks argued that the underlying complaint did allege property damage, pled as “costs of

remediation” and “loss of use of the property” which was caused by water leaking into the home. 

The Rocks argued that the complaint set forth allegations which were within or potentially within

coverage under the policy and, thus, State Farm’s motion should be denied. 

The court found that the underlying complaint alleged that the Rocks made negligent or

reckless misrepresentations causing property damage in the form of loss of use and cost of

remediation. Thus, the court found that the allegations in the complaint triggered State Farm’s

duty to defend the Rocks and denied State Farm’s motion for judgment on the pleadings. 

Subsequently, the court entered judgment in favor of the Rocks, declaring that State Farm owed

them a duty to defend against the lawsuit brought by the Kosses. That same day, the parties

stipulated that the Rocks paid $29,645.79 defending the suit. State Farm appealed.

ANALYSIS

On appeal, State Farm maintains that the trial court erred by finding that State Farm had a

duty to defend the Rocks against the underlying claims that they failed to disclose problems with

the house. To determine whether an insurer owes a duty to defend to an insured, the court must

compare the allegations in the underlying complaint to the relevant portions of the insurance

policy. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 107-08, 607

N.E.2d 1204, 1212 (1992). “If the facts alleged in the underlying complaint fall within, or

potentially within, the policy's coverage, the insurer's duty to defend arises.” Outboard Marine

Corp., 154 Ill.2d at 108, 607 N.E.2d at 1212. “The factual allegations of the complaint rather

than the legal theory under which the action is brought will determine whether there is a duty to

defend.” Travelers Insurance Cos. v. P.C. Quote, Inc., 211 Ill. App. 3d 719, 729, 570 N.E.2d
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614, 621 (1991). An insurer’s duty to defend is much broader than its duty to indemnify. Crum

& Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 393-94, 620 N.E.2d 1073,

1079 (1993). The construction of an insurance policy is a question of law, which we review de

novo. Outboard Marine Corp., 154 Ill. 2d at 108, 607 N.E.2d at 1212. 

In this case, the homeowners’ policy provides that State Farm has a duty to defend the

Rocks “[i]f a claim is made or a suit is brought against an insured for damages because of bodily

injury or property damage to which this coverage applies, caused by an occurrence.” Thus, we

must determine whether the underlying complaint alleges facts of an occurrence that caused

property damage. State Farm argues that the underlying complaint did not allege facts

constituting an occurrence that caused property damage. State Farm maintains that the basis of

the Kosses’ lawsuit was alleged misrepresentations made by the Rocks and that these

misrepresentations were not an occurrence within the meaning of the policy. Further, State Farm

argues that these representations did not cause property damage to the house. In addition, State

Farm contends that the underlying allegations of loss of use of the house was not property

damage in this case. Rather, State Farm argues that the Kosses’s claimed damages were purely

economic.

The Rocks contend that the underlying complaint included claims of property damage. 

The Rocks argue that the underlying claims for remediation and the loss of use of property are

included within property damage as defined by the insurance policy. Further, the Rocks argue

that these allegations of property damage were caused by a postsale occurrence of water

infiltration to the home.

We conclude that the underlying complaint does not allege an occurrence that caused
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property damage. An occurrence is defined by the policy as an accident that results in property

damage. “The use of the word ‘occurrence’ in insurance policies broadens coverage and

eliminates the need to find an exact cause of damages as long as they are neither intended nor

expected by the insured.” Indiana Insurance Co. v. Hydra Corp., 245 Ill. App. 3d 926, 929, 615

N.E.2d 70, 73 (1993). The occurrence must still be accidental, however. Hydra Corp., 245 Ill.

App. 3d at 929, 615 N.E.2d at 73. An “accident” is “an unforseen occurrence, usually of an

untoward or disastrous character or an undesigned sudden or unexpected event of an inflictive or

unfortunate character.” Aetna Casualty & Surety Co. v. Freyer, 89 Ill. App. 3d 617, 619, 411

N.E.2d 1157, 1159 (1980).

In the underlying complaint, the Kosses allege that the Rocks knowingly, recklessly or

negligently misrepresented in a real estate disclosure form that there were no moisture or water

problems in the home, no damage due to flood and no problems with the home’s foundation. The

Kosses also alleged that they relied upon these misrepresentations and were injured as a result of

their reliance. Contrary to the Rocks’ position on appeal, the underlying complaint does not make

any allegation of postsale water infiltration to the home. Indeed, the underlying complaint alleges

that the Rocks misrepresented “past and/or existing material facts.” Thus, the acts in the

underlying complaint that are alleged to have caused injury, and the only possible “occurrence”

for purposes of this appeal, were the misrepresentations made by the Rocks. The Rocks do not

argue that the misrepresentations are an “occurrence” within the meaning of the policy. We need

not determine whether the alleged misrepresentations meet the definition of “occurrence,”

however, because the underlying complaint does not allege that the misrepresentations caused

property damage. 
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 “Property damage” is defined in the policy as “physical damage to or destruction of

tangible property, including loss of use of this property.” In this case, the underlying complaint

does not allege that the purportedly false statements made by the Rocks caused any physical

damage to or destruction of tangible property. The Kosses alleged that the Rocks made

misrepresentations about past and/or existing facts related to moisture or water problems in the

home, including damage due to flood and problems with the foundation. The underlying

complaint makes no reference to any physical damage to the house incurred after these statements

were made. Any physical damage to the house predated the statements made by the Rocks. 

Logically, misrepresentations concerning past or existing damage could not have caused past or

existing damage. See Allstate Insurance Co. v. Lane, 345 Ill. App. 3d 547, 551, 803 N.E.2d 102,

106 (2003) (stating that failure to disclose defects in real estate disclosure form could not have

caused preexisting damage to home).

Rather, the underlying complaint alleged that the misrepresentations by the Rocks caused

the Kosses to suffer economic losses stemming from their assertions that they relied upon the

allegedly false statements made by the Rocks when purchasing the home and, thus, they did not

receive the value for which they bargained. See Stoneridge Development Co. v. Essex Insurance

Co., 382 Ill. App. 3d 731, 753, 888 N.E.2d 633, 654 (2008) (claims for cost of repair to home

and diminished value of home were economic losses, not property damage); Moorman

Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69, 82, 435 N.E.2d 443, 449 (1982) (damages

for inadequate value and costs of repair generally regarded as economic damages); see also

Qualman v. Bruckmoser, 163 Wis. 2d 361, 364-68, 471 N.W.2d 282, 284-85 (App. 1991)

(finding no duty of insurance company to defend claim against insureds where underlying claims
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for breach of contract and misrepresentation arising out of alleged failure to disclose defects in

home alleged pecuniary damages, not property damages). Although the underlying complaint

contains an allegation that the house had preexisting damage at the time of the sale, this allegation

of preexisting damage does not transform the complaint’s request for economic damages into

claims of liability for causing physical damage to the house. Furthermore, as we have previously

stated, the complaint does not and cannot allege that the Rocks’ misrepresentations caused the

preexisting damage. The Kosses sued the Rocks for making false statements, not for causing

property damage. The Kosses’ lawsuit “pertained to the nondisclosure of the damage, not to the

damage itself.” Lane, 345 Ill. App. 3d at 553, 803 N.E.2d at 108.

The Rocks argue that the complaint does include a claim for property damages, however,

because it includes a claim for the loss of use of property. The Rocks argue that any claim of loss

of use of property is property damage under the policy’s definition of property damage. We

disagree. The policy defines property damage as “physical damage to or destruction of tangible

property, including loss of use of this property.” Under the plain language of this policy

definition, the phrase “loss of use of this property” refers back to the first part of the definition of

property damage as physical damage to tangible property. Thus, the property damage under the

policy is defined as physically damaged or destroyed property, including loss of use of the

physically damaged property. The loss of use of property must accompany the physical damage

or destruction of that property. Mutlu v. State Farm Fire & Casualty Co., 337 Ill. App. 3d 420,

431, 785 N.E.2d 951, 960 (2003). 

In this case, the underlying complaint does not allege that the Rocks caused physical

damage to or destruction of property. Whatever efficient cause, condition or circumstance
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produced the preexisting physical damage to the property, a cause that is not alleged in the

complaint, that condition or circumstance caused the Kosses to suffer the loss of use of the

property. Thus, the Kosses’ claim for damages due to loss of use of property was not a separate

claim for property damages as defined by the homeowners’ policy. See Mutlu, 337 Ill. App. 3d at

431, 785 N.E.2d at 960 (no duty to defend under insurance policy where claim for loss of use of

hot water was unaccompanied by claim for physical damage or destruction of property). 

CONCLUSION

Based upon the above analysis, State Farm did not have a duty to defend the Rocks

against the suit brought by the Kosses, and the trial court erred when it determined that State

Farm owed the Rocks a duty to defend the underlying action. Accordingly, the judgment of the

Will County circuit court is reversed, and judgment is entered in favor of State Farm.

Reversed.

WRIGHT, J. concurring. 

JUSTICE LYTTON, dissenting:

I respectfully dissent from the majority’s opinion in this

case. The allegations contained in the underlying complaint are

sufficient to trigger a duty to defend. Thus, I would affirm the

trial court’s decision. 

To determine if an insurer owes a duty to defend, the court

must compare the allegations in the underlying complaint with the

relevant portions of the insurance policy. Outboard Marine Corp.

v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 107-08, 607 N.E.2d

1204, 1212 (1992). If the facts alleged in the underlying
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complaint fall within, or potentially within, the policy’s

coverage, the insurer has a duty to defend. Outboard Marine Corp.,

154 Ill. 2d at 108, 607 N.E.2d at 1212. 

Here, the underlying complaint against defendants George and

Martha Rock alleged in pertinent part:

"4. *** Mr. and Mrs. Koss were provided with the

Defendants’ Seller’s Residential Real Estate Sales

Disclosure. ***

5. On the disclosure form, the Defendants indicated

that there were no moisture and/or water problems in the

basement, crawl space area, or any other area of the

home, that there was not any damage, due to, inter alia,

flood, that there had not been or were not any hazardous

conditions on the property, such as mold, and that there

were not any foundation problems with the improvements.

***

6. These representations were fraudulent

misrepresentations, as they were false statements of past

and/or existing material facts made by the Defendants,

the Defendants made them knowing that they were false

and/or made them with reckless ignorance or indifference

as to their falsity, and made them to induce Mr. and Mrs.

Koss to purchase the real estate. 

7. Mr. and Mrs. Koss justifiably relied and acted

upon the statements when they purchased the property.

8. Mr. and Mrs. Koss were subsequently injured as a
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result of their reliance upon the fraudulent

misrepresentations contained in the Seller’s Residential

Real Estate Sales Disclosure form.

9. Mr. and Mrs. Koss’ injuries and damages include

the loss of their bargain, the loss of value to their

property, the loss of use of their property, the cost of

remediation, and emotional distress and mental anguish.

 * * * 

15. The aforementioned misrepresentations were

negligent misrepresentations." 

According to the Rocks’ insurance policy, State Farm is

obligated to provide a defense if "a claim is made or a suit is

brought against an insured for damages because of bodily injury or

property damage *** caused by an occurrence." An "occurrence" is

defined as "an accident, including exposure to conditions" that

results in bodily injury or property damage. "Property damage" is

defined as "physical damage to or destruction of tangible property,

including loss of use of this property." 

The majority concludes that the underlying complaint does not

trigger a duty to defend because it "does not allege that the

purportedly false statements made by the Rocks caused any physical

damage to or destruction of tangible property" but, rather, alleges

only "economic losses." Slip op. at ____. I disagree. 

The allegations against the Rocks are similar to those against

the defendants in Jares v. Ullrich, 2003 WI App 56, 266 Wis. 2d

322, 667 N.W.2d 843, where the court found a duty to defend. In
12

that case, the plaintiffs alleged that the defendants were aware of

or should have been aware of animal infestation and failed to

disclose it to the plaintiffs. They further alleged that they

justifiably relied on the defendants’ misrepresentations, which

caused them to be unable to occupy the premises for over two months

and incur costs to repair the property. The court found that the

complaint adequately alleged "property damage" because it referred

to "loss of use" and repair costs. Jares, 2003 WI App 156, ¶2, 266

Wis. 2d 322, ¶2, 667 N.W.2d 843, ¶2. The court also found that the

plaintiffs adequately pled causation by alleging that the

defendants’ misrepresentations resulted in the loss of use of the

property. Jares, 2003 WI App 156, ¶24, 266 Wis. 2d 322, ¶24, 667

N.W.2d 843, ¶24. The court rejected the insurer’s argument that

the plaintiffs’ damages were purely economic because the complaint

specifically alleged physical injury to the property, including

loss of use. Jares, 2003 WI App 156, ¶17, 266 Wis. 2d 322, ¶17,

667 N.W.2d 843, ¶17.

Likewise, in this case, the Kosses’ complaint alleges "the

loss of use of their property" and "the cost of remediation." Thus,

it alleges "property damage." Additionally, the complaint alleges

causation, stating that the Kosses "were injured as a result of

their reliance upon the fraudulent misrepresentations contained in

the Seller’s Residential Real Estate Sales Disclosure form."

Finally, although the complaint alleges that the Kosses suffered

economic damages in the form of "loss of their bargain" and "the

loss of value to their property," it also alleges physical damage
13

to the property through the allegations of "the loss of use of

their property" and "the cost of remediation." Thus, the

majority’s conclusion that the underlying complaint does not allege

property damage caused by the Rocks’ representations is incorrect.

The majority also incorrectly concludes that "[w]e need not

determine whether the alleged misrepresentations meet the

definition of 'occurrence' *** because the underlying complaint

does not allege that the misrepresentations caused property

damage." Slip op. at ___. The complaint adequately alleged both

property damage and causation. 

I also believe that the allegations of the complaint were

sufficient to establish an "occurrence." If a complaint alleges

that the insureds made misrepresentations that they knew were

false, the misrepresentations do not constitute an "occurrence."

See Allstate Insurance Co. v. Lane, 345 Ill. App. 3d 547, 552, 803

N.E.2d 102, 107 (2003). However, allegations that an insured made

"unknowing" misrepresentations or "recklessly disregarded the

truth" adequately allege an "occurrence." See Lane, 345 Ill. App.

3d at 552, 803 N.E.2d at 107, citing Prisco Serena Sturm

Architects, Ltd. v. Liberty Mutual Insurance, 126 F.3d 886 (7th

Cir. 1997); Posing v. Merit Insurance Co., 258 Ill. App. 3d 827,

629 N.E.2d 1179 (1994); TIG Insurance Co. v. Joe Rizza LincolnMercury, Inc., No. 00 C 5182 (N.D. Ill. March 14, 2002). Other

jurisdictions agree that a negligent misrepresentation may be an

"occurrence," thus triggering an insurer’s duty to defend. See

Allstate Insurance Co. v. Bowen, 121 Wash. App. 879, 886, 91 P.3d
14

897, 901 (2004); Lampert v. State Farm Fire & Casualty Co., 85

S.W.3d 90, 93-94 (Mo. App. 2002); Wood v. Safeco Insurance Co. of

America, 980 S.W.2d 43, 53 (Mo. App. 1998); Sheets v. Brethren

Mutual Insurance Co., 342 Md. App. 634, 658, 679 A.2d 540, 551

(1996). 

Here, the Kosses alleged that the Rocks’ misrepresentations

were made with "reckless ignorance or indifference as to their

falsity" and/or negligently. These allegations are sufficient to

establish an "occurrence" under the State Farm policy. 

I find that the facts contained in the underlying complaint

fall potentially within State Farm’s coverage. Thus, the trial

court’s order should be affirmed.