The Townes of Cedar Ridge Condominium Association (“Cedar Ridge”) was damaged as a result of a March 2019 hailstorm. Cedar Ridge informed its insurer, Travelers Indemnity Company of America (“Travelers”), which inspected the complex and concluded that some gutters, downspouts, air conditioning units, and one shingle on one roof had sustained hail damage. As a result, Travelers issued payment for $17,140.88 for the damages it found were covered and denied the remainder of the claim.
Cedar Ridge, disagreeing with the determination by Travelers, provided its estimate of damages in the amount of $2,078.657.08 to repair the damages caused by hail. Thereafter, Cedar Ridge demanded appraisal pursuant to the policy.
Travelers rejected Cedar Ridge’s demand for appraisal and refused to appoint an appraiser or otherwise participate in the appraisal process to determine the amount of the hail loss to the property. Travelers took the position that because it found no hail or wind damages to the buildings, there was no disagreement as to the amount of the loss. Rather, it was a “coverage dispute” among the parties that was inappropriate for appraisal.
Three months later, Travelers filed a two-count petition in Illinois state court seeking a declaration that the hail loss was not subject to appraisal and that it had no further liability for the hail loss beyond its prior payment.
On behalf of Cedar Ridge, we moved to dismiss the declaratory judgment action arguing that Travelers’ action improperly sought declaratory relief for past conduct. The declaratory judgment procedure allows parties to a dispute to learn of the consequences of their actions before acting. In other words, Travelers had already fixed its position by issuing its partial denial of the claim and denying the insured’s request for appraisal. Instead of using the declaratory judgment process as it should be used, before making a decision, Travelers made its decision and then waited three months to file its declaratory judgment action. Additionally, we argued that if allowed to stand, Travelers’ declaratory judgment action would deprive Cedar Ridge of its right to decide if, when, and where to file its action to address Travelers’ conduct. In that regard, we wanted to bring suit to compel appraisal in Illinois federal court.
On appeal, the Appellate Court of Illinois for the Third District agreed with our position and affirmed the lower court’s dismissal of Travelers’ declaratory judgment action.1 The appellate court agreed that if Travelers had wanted guidance on the scope of the appraisal provision, then it should have sought a declaration prior to making a determination about Cedar Ridge’s appraisal request.
The importance of this decision is that insurers in Illinois often seek to file declaratory judgment actions in state court in an effort to avoid litigation in Illinois federal court which supports disputes involving (a) causation (whether the damage was caused by a covered peril), (b) the scope of damage (the extent or scope of the physical damage from the covered peril), (c) the scope of repairing or replacing damage, (d) the cost of repairing or replacing the damage, (e) matching and (f) whether the damage is extensive enough to require employing a general contract are disputes as to the amount of loss, not coverage, all proceeding to appraisal.2 Two recent blogs, Another Illinois Federal District Court Rules That Causation Can Be Determined In Illinois Appraisals, and The Northern District of Illinois Compels Appraisal AGAIN!, addressed these issues. In other words, insurers often hope to avoid Illinois federal court because they will be compelled to proceed to appraisal, whereas in Illinois state court, they may be able to avoid being compelled to appraisal and instead engage in protracted litigation over what they have labeled a purported “coverage dispute.”
1 Travelers Indem. Co. of America v. Townes of Cedar Ridge Condo. Ass’n, 2022 IL App (3d) 200542 (Ill App. Apr. 25, 2022).
2 Khaleel v. AmGuard Ins. Co., 2022 U.S. Dist. LEXIS 24851 (N.D. Ill. Feb. 11, 2022); B&D Investment Group, LLC v. Mid-Century Ins. Co., 2021 WL 6125853 (N.D. Ill. Dec. 28, 2021); Adam Auto Group, Inc. v. Owners Ins. Co., 2019 WL 4934597 (N.D. Ill. Oct. 7, 2019); Windridge of Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co., 2018 WL 1784140 (N.D. Ill. Apr. 13, 2018); Spring Point Condo. Ass’n v. QBE Ins. Corp., 2017 WL 8209085 (N.D. Ill. Dec. 13, 2017); Runaway Bay Condo. Ass’n v. Philadelphia Indem. Ins. Cos., 262 F.Supp.3d 599 (N.D. Ill. Apr. 25, 2017); Windridge of Naperville Condo. Ass’n v. Philadelphia Indem. Ins. Co., 2017 WL 372308 (N.D. Ill. Jan. 26, 2017); Philadelphia Indem. Ins. Co. v. Northstar Condo. Ass’n, 15-cv-10798 (N.D. Ill. Oct. 18, 2016 (D.E. 34)).