Condominium Law FLASHPOINTS November 2022

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

Even Weak Claims Are Sufficient To Trigger Insurer’s Duty To Defend Under D&O Policy

Over the past several months, we have explored insurance policy issues relating to condominium property, particularly focused on the claims adjudication process. This month’s case is a United States district court opinion that explores some of the basic questions associations face in whether the association’s defense or liability is covered under property damage or directors and officers (D&O) liability policies. The district court denied the insurer’s motion for summary judgment, finding that, while the plaintiff unit owners’ amended complaint in an underlying lawsuit did not present claims within the scope of bodily injury, property damage, or personal injury liability coverage, there was a potential basis for D&O coverage. Cambridge Mutual Fire Insurance Co. v. Bell & Arthur Condominium Ass’n, No. 18 C 05951, 2022 WL 13827758 (N.D.Ill. Oct. 21, 2022).


In an underlying lawsuit in state court, two former unit owners sued pro se an association and several directors or former directors. The third amended complaint asserted 27 tort claims against the underlying defendants for mismanagement of the association and misconduct. 2022 WL 13827758 at *1. One of the association’s insurers, Cambridge Mutual Fire Insurance Company, filed a declaratory relief action in federal court to determine whether it had any duty to defend the association or its directors in the underlying action. In his analysis in the instant case, Judge Tharp began with an analysis already performed by Judge Kendall of the Northern District of Illinois in another lawsuit, State Auto Property & Casualty Insurance Co. v. Bell & Arthur Condominium Ass’n, 454 F.Supp.3d 792 (N.D.Ill. 2020), involving the same association and same underlying state court action but a different insurer providing property damage coverage. 2022 WL 13827758 at **2 – 3.

The parties agreed that the underlying action did not involve personal injury claims as defined by the policy. 2022 WL 13827758 at *2.

Analysis: Property Damage and Bodily Injury

Under the policy, property damage and bodily injury claims must have been caused by an “occurrence” or accident. 2022 WL 13827758 at *4. Under Illinois law, an occurrence policy requires that the occurrence happened while the policy was in force. 2022 WL 13827758 at *3, citing Great Lakes Dredge & Dock Co. v. City of Chicago, 260 F.3d 789, 795 (7th Cir. 2001). The plaintiffs alleged in Count 13 of the underlying lawsuit that the association failed to provide hot water meeting Chicago code standards because of “defects in the main pipes.” 2022 WL 13827758 at *4. The cause or timing of these defects was not alleged in the underlying lawsuit, and courts will not read facts into the complaint that were not alleged. Therefore, Count 13 did not allege an occurrence during the years of policy coverage.

Count 16 of the underlying lawsuit alleged that the association breached several contracts to replace the boiler, resulting in “sickness, distress and exposure to cold weather.” 2022 WL 13827758 at *3. No allegation was made regarding the cause of the boiler’s failure. “[A]n accident, by its very nature, contemplates an event that is unforeseen and neither intended nor expected.” 2022 WL 13827758 at *3, quoting Crawford Laboratories, Inc. v. St. Paul Insurance Company of Illinois, 306 Ill.App.3d 538, 715 N.E.2d 653, 658, 239 Ill.Dec. 899 (1st Dist. 1999). Again, absent an occurrence, no claim for bodily injury was alleged.

Furthermore, damage to the property that was intended by a contractor hired by the association could not constitute an accidental occurrence. 2022 WL 13827758 at **11 – 12. Intentional conduct causing property damage cannot constitute an occurrence. 2022 WL 13827758 at *4, citing Pekin Insurance Co. v. McKeown Classic Homes, Inc., 2020 IL App (2d) 190631, ¶38, 161 N.E.3d 1059, 443 Ill.Dec. 407.

Allegations in the underlying lawsuit that the directors breached their fiduciary duties by causing property damage, without showing the cause or timing of the property damage, could not constitute an occurrence under the policy. 2022 WL 13827758 at *4. Here the district court did not address the fact that to plead a breach of fiduciary duty under Illinois law, given the presumption of the business-judgment rule, the directors’ negligence could never be the basis of a viable cause of action.

Analysis: Wrongful Acts of Directors and Officers

The subject insurance policy had a “Condominium Enhancement Endorsement” that essentially contained D&O coverage for “wrongful acts.” 2022 WL 13827758 at *5. The insurer argued that under the “duty to indemnify” provision of the endorsement, if there was any duty to defend, it was limited to the directors. Id. However, the court looked a few lines lower in the policy to note that the duty to defend paragraph described the insurer’s duty to defend the “insured,” which was defined elsewhere in the policy to include both the association and directors. 2022 WL 13827758 at *6. So even if the policy limited the insurer’s duty to indemnify to the directors, the insurer had a duty to defend both the association and its directors.

Under the policy, “wrongful acts” were defined to include “any negligent act, any error, omission or breach of duty.” Id. The district court found that the phrase was ambiguous and that the second “any” could refer to intentional conduct because the second “any” would have no meaning in the sentence. Although the policy specifically excluded “dishonest, fraudulent, criminal, or malicious acts,” it did not exclude intentional acts. 2022 WL 13827758 at *6.

Under Illinois law, courts are required to construe the underlying complaint “liberally” in favor of the insured. 2022 WL 13827758 at *7, quoting General Agents Insurance Company of America, Inc. v. Midwest Sporting Goods Co., 215 Ill.2d 146, 828 N.E.2d 1092, 1098, 293 Ill.Dec. 594 (2005). “Even weak claims implicate an insurer’s duty to defend under Illinois law.” 2022 WL 13827758 at *7. If any one claim in the underlying lawsuit falls within the scope of coverage, the insurer has an obligation to defend all claims. Here, there were sufficient allegations to trigger a duty to defend the association and directors under the D&O endorsement to the insurance policy.

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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