Opinion ID: 1253175
Heading Depth: 2
Heading Rank: 2

Heading: The Classification-limitation Exclusion

Text: Nautilus also maintains that the policy's classification-limitation exclusion operates to exclude coverage here. However, our conclusion that the contractor-subcontractor exclusion applies makes any discussion of the applicability of another exclusion academic. We will say only that this argument seems weak. The classification-limitation clause excludes coverage if 1452 LLC used its property in a way that wasn't disclosed in the policy's declarations, endorsements, or supplements, and those indicated that the insured property was vacant. Nautilus argues that 1452 LLC might have been storing property in its building or otherwise using it in some capacity, making the building not vacant. At this stage of the proceedings, only the allegations in the underlying complaints are relevant, and they do not mention that any property was being stored in 1452 LLC's building or that the building was anything but vacant. The complaints describe an excavation on 1452 LLC's property, suggesting that 1452 LLC's building was demolished; this is fully consistent with the vacant land and vacant building classification in the policy. Nautilus points out that the Illinois appellate courts have sometimes permitted consideration of extrinsic evidence in a duty-to-defend case if that evidence relates to issues that are unlikely to be addressed in the underlying lawsuit. See, e.g., State Farm Fire & Cas. Co. v. Shelton, 176 Ill.App.3d 858, 126 Ill.Dec. 286, 531 N.E.2d 913, 919 (1988); Fid. & Cas. Co. of N.Y. v. Envirodyne Eng'rs, Inc., 122 Ill.App.3d 301, 77 Ill.Dec. 848, 461 N.E.2d 471, 473-74 (1983). Whether 1452 LLC's building was vacant is unlikely to be relevant in the underlying lawsuit, so Illinois courts might consider evidence addressing that issue in determining whether there is a duty to defend. Even assuming extrinsic evidence could be considered, however, Nautilus has offered nothing but its own speculation that 1452 LLC's building might not have been vacant. That would ordinarily be the end of the matter because Nautilus has the burden of proving that the exclusion applies. Sokol, 430 F.3d at 423; see also U.S. Fid. & Guar. Co. v. Brennan, 88 Ill.App.3d 467, 43 Ill.Dec. 613, 410 N.E.2d 613, 615 (1980). This case was decided at the pleadings stage, however, and Nautilus argues on appeal that it is entitled to discovery on the issue of the classification-limitation exclusion. We need not resolve these questions. The contractor-subcontractor exclusion applies, and therefore Nautilus has no duty to defend 1452 LLC in the underlying lawsuits. Because the duty to defend is broader than the duty to indemnify, Nautilus is entitled to a declaratory judgment that it has no duty to defend or indemnify 1452 LLC. See Sokol, 430 F.3d at 421 (citing Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 189 Ill.Dec. 756, 620 N.E.2d 1073, 1081 (1993)). The judgment of the district court is REVERSED, and the case is REMANDED for entry of judgment for Nautilus consistent with this opinion.