Condominium Law FLASHPOINTS May 2022

Kenneth Michaels, Jr., Bauch & Michaels, LLC, Chicago
312-588-5000 | E-Mail Kenneth Michaels, Jr.

Third District Affirms Insurer’s Declaratory Judgment Action Dismissal Against Association After Insurer Declined Appraisal Under Policy

Condominium lawyers frequently must deal with insurance companies declining claims through voluminous denial letters written in a tongue unintelligible to we mere mortals. Of course, if we do not agree to withdraw our client’s claim, then the insurer will threaten us with a declaratory judgment action just to make it more expensive to have the audacity to file a claim in the first place.

A recent Third District affirmation of a condominium association’s motion to dismiss the insurer’s declaratory action may lend light as to the propriety of at least some declaratory judgment actions filed after a claim is denied. Travelers Indemnity Company of America v. Townes of Cedar Ridge Condominium Ass’n, 2022 IL App (3d) 200542. The appellate court affirmed dismissal of an insurer’s declaratory judgment action when the insurer rejected the insured association’s demand for an appraisal under the policy because the insurer’s rejection resulted in no actual controversy existing between the parties.


Travelers Indemnity Company of America provided property insurance to the condominium association’s complex consisting of approximately 40 buildings. 2022 IL App (3d) 200542 at ¶3. The insurance policy provided for an appraisal to be done if the insurer and insured “disagree on the value of the property, the amount of Net Income and operating expense or the amount of loss.” Id. Either party could make a written demand for an appraisal of the loss. The appraisal process involved each party selecting its own appraiser who would in turn select an umpire appraiser for making the final decision in the event the two appraisers could not agree. The insurer retained its right to deny a claim even if there was an appraisal done. The policy excluded claims for wear and tear. Id.

In May 2019, the association filed a claim for hail damage to its buildings. The insurer inspected the property and found one shingle on a roof sustained damage, along with some gutters, downspouts, and air conditioning units. In October 2019, Travelers issued a check for $17,140.88 and denied the rest of the claim. 2022 IL App (3d) 200542 at ¶4. The association responded estimating $2,078,657.08 in required building repairs and demanded an appraisal under the policy. 2022 IL App (3d) 200542 at ¶5. Travelers rejected the appraisal demand because it found no wind or hail damage to the buildings. According to Travelers, the association was disputing coverage, which was precluded under the appraisal provision. Id.

Travelers filed a declaratory judgment action to determine the scope of the appraisal provision. The association moved to dismiss because Travelers had already rejected the appraisal demand, thereby forfeiting its right to have a court adjudicate whether the association’s appraisal request and insurer’s denial were appropriate. The trial court held for the association, and the insurer appealed. 2022 IL App (3d) 200542 at ¶6.


Travelers argued on appeal that the dismissal was erroneous because the dispute between the association and insurer was a coverage dispute and not amenable to the appraisal provision. It argued that the declaratory judgment action is an appropriate means to resolve the dispute. 2022 IL App (3d) 200542 at ¶8. The appellate court noted the standards applied to motions pursuant to §2-615 of the Illinois Code of Civil Procedure, 735 ILCS 5/1-101, et seq., namely “whether the allegations of the complaint, when considered in a light most favorable to the plaintiff, are sufficient to state a cause of action upon which relief can be granted.” 2022 IL App (3d) 200542 at ¶9. If no set of facts exists that the plaintiff may prove to sustain its claim, then dismissal is appropriate. The standard of review on appeal is de novo. Id.

Section 2-701(a) of the Code of Civil Procedure, 735 ILCS 5/2-701(a), provides for declaratory judgment actions “in cases of actual controversy, [to] make binding declarations of rights, have the force of final judgments.” 735 ILCS 5/2-701(a).

The elements of a declaratory judgment action are “(1) a plaintiff with a tangible, legal interest; (2) a defendant with an opposing interest; and (3) an actual controversy between the parties concerning such interests.” 2022 IL App (3d) 200542 at ¶10, quoting Adkins Energy, LLC v. Delta-T Corp., 347 Ill.App.3d 373, 806 N.E.2d 373, 1275, 806 Ill.Dec. 685 (2d Dist. 2004).

Such an action allows the court “to address a controversy one step sooner than normal after a dispute has arisen, but before steps are taken which would give rise to a claim for damages or other relief.” 2022 IL App (3d) 200542 at ¶10, quoting Eyman v. McDonough District Hospital, 245 Ill.App.3d 394, 613 N.E.2d 819, 821, 184 Ill.Dec. 502 (3d Dist. 1993). “The doctrine of nonliability for past conduct bars an action for declaratory judgment when the conduct that makes a party liable, that is, amenable to suit, has already occurred.” 2022 IL App (3d) 200542 at ¶10, quoting Adkins, supra, 806 N.E.2d at 1277.

The appellate court concluded that Travelers “had a tangible legal interest in upholding the provisions of its insurance policy, including rejecting [the association’s] appraisal request.” 2022 IL App (3d) 200542 at ¶11. Additionally, the association had a legal interest in wanting to use the appraisal procedure. Id.

We find, however, that Travelers cannot satisfy the third requirement, that there be an actual controversy between the parties. Once Travelers denied [the association’s] request for an appraisal, there was no longer an actual controversy regarding the applicability of the appraisal provision, and Travelers cannot fulfill the requirements necessary for a declaratory judgment. Id.

One of Travelers’s arguments for the existence of an actual controversy was that the association did not withdraw its appraisal request. The appellate court rejected this argument because the association was never asked to withdraw the request and Travelers had denied the request, so no need existed to withdraw it. The association’s only course of action was to sue Travelers for breach of contract. 2022 IL App (3d) 200542 at ¶12. If Travelers wanted guidance on the scope of the appraisal provision, it should have filed the declaratory judgment action before rejecting the appraisal request. 2022 IL App (3d) 200542 at ¶13.

Travelers also argued that the facts were similar to denials of defense claims (a situation with which condominium lawyers have much more familiarity). Travelers argued that L.A. Connection v. Penn-America Insurance Co., 363 Ill.App.3d 259, 843 N.E.2d 427, 300 Ill.Dec. 169 (3d Dist. 2006), supports a “reasonable time” test for courts to determine a duty to defend issue. In L.A. Connection, the insured, which brought the declaratory judgment action, argued that the insurer was barred from adjudicating coverage because the insurer breached its duty to defend. The appellate court applied an estoppel analysis. The insurer filed a declaratory relief counterclaim within four months of its denial of defense. The appellate court found that the insurer’s policy exclusion applied and had no duty to defend. Furthermore, the insurer had not breached its duty when it filed the counterclaim in a reasonable time. 2022 IL App (3d) 200542 at ¶14.

The appellate court found that the reasonable time test employed in duty to defend cases was not appropriate for property damage cases. In duty to defend cases, the third-party claim is usually still pending. Here, Travelers’s denial of appraisal foreclosed any further action.

Contrary to Travelers’ contention that there was a dispute over the scope of coverage, it terminated the dispute when it denied [the association’s] request to employ the appraisal procedure. Unlike L.A. Connection, where the insured continued the dispute by seeking declaratory relief, Travelers ended the dispute and then sought confirmation that termination was appropriate. L.A. Connection does not aid Travelers. 2022 IL App (3d) 200542 at ¶15.

The appellate court found the situation more aligned with Eyman in which a doctor terminated a recruitment agreement and sought damages and then filed a declaratory judgment action to adjudicate that her termination was proper. Essentially, she was seeking a determination of nonliability for past conduct. 2022 IL App (3d) 200542 at ¶16. The appellate court concluded that the insurer should have first filed a declaratory judgment action before declining the appraisal under the policy.


Without articulating such, in Travelers Indemnity, the Third District has raised issues much deeper than apply on the surface. The Third District probably got it right in recognizing that the L.A. Connection reasonable time estoppel argument was not applicable to the instant case. However, unspoken in the analysis is the precedent on which L.A. Connection was based, namely, the Illinois Supreme Court decisions in Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill.2d 127, 708 N.E.2d 1122, 237 Ill.Dec. 82 (1999), and Clemmons v. Travelers Insurance Co., 88 Ill.2d 469, 430 N.E.2d 1104, 58 Ill.Dec. 853 (1981), when the court held that if an insurer denying a duty to defend fails to defend with a reservation of rights or to file a declaratory judgment action, the insurer is estopped from later arguing policy defenses. When we examine both Ehlco Liquidating Trust and Clemmons, it appears that the court did not explore, in either case, whether the admonition either to defend with reservations or to file a declaratory judgment action breached the elements of a declaratory judgment action. Indeed, in Clemmons, the court’s authority for filing a declaratory judgment action is Sims v. Illinois National Casualty Co., 43 Ill.App.2d 184, 193 N.E.2d 123 (3d Dist. 1983). In Sims, no case authority is given for this choice of courses of action. Rather, Sims provides no authority for the choice. It states: “However, all authorities agree that quite often an insurer is faced with a dilemma as to whether to defend or to refuse to defend. In cases of doubt the answer is simple. It can (1) seek a declaratory judgment as to its obligations and rights or (2) defend under a reservation of rights.” 193 N.E.2d at 130. So, the instant case may have opened the question whether declaratory judgment actions that have become a regular tool of insurers declining to defend cases are in violation of the declaratory judgment remedy.

For more information about condominium law, see CONDOMINIUM LAW: DAILY OPERATION CHALLENGES (IICLE®, 2021). Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit

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