                                        2018 IL App (3d) 170809

                               Opinion filed September 6, 2018
     _____________________________________________________________________________

                                                 IN THE

                                  APPELLATE COURT OF ILLINOIS

                                           THIRD DISTRICT

                                                  2018

     CENTRAL ILLINOIS COMPOUNDING,          )     Appeal from the Circuit Court
     INC., d/b/a Preckshot Professional     )     of the 10th Judicial Circuit,
     Pharmacy                               )     Peoria County, Illinois.
                                            )

           Plaintiff and                    )

           Counterdefendant-Appellant,      )

                                            )     Appeal No. 3-17-0809
                                            )     Circuit No. 17-L-130
           v.                               )
                                            )

     PHARMACISTS MUTUAL INSURANCE           )

     COMPANY,                               )

                                            )     Honorable Jodi M. Hoos,
           Defendant and                    )     Judge, Presiding.
           Counterplaintiff-Appellee.       )
     _____________________________________________________________________________

            JUSTICE SCHMIDT delivered the judgment of the court, with opinion.
            Presiding Justice Carter and Justice O’Brien concurred in the judgment and opinion.


                                               OPINION

¶1          Central Illinois Compounding, Inc., d/b/a Preckshot Professional Pharmacy (Preckshot)

     filed suit against Pharmacists Mutual Insurance Company (Pharmacists Mutual), alleging that

     Pharmacists Mutual breached the insurance policy contract between the parties by denying

     Preckshot’s claim. Pharmacists Mutual filed a counterclaim seeking a declaratory judgment that

     Preckshot’s claim was barred by exclusions in the policy. Pharmacists Mutual, in its capacity as
     counterplaintiff, filed a motion for summary judgment, which the circuit court granted. On

     appeal, Preckshot argues that the circuit court’s ruling was erroneous because Pharmacists

     Mutual failed to demonstrate that Preckshot’s claim was excluded by the policy. We affirm.

¶2                                               FACTS

¶3          On December 10, 2015, Preckshot was operating Preckshot Professional Pharmacy in a

     leased space located at 5832 North Knoxville Avenue in Peoria. At that time, a contract of

     insurance was in force between Preckshot and its insurer, Pharmacists Mutual. According to the

     undisputed facts of the case, AT&T and its subcontractor were performing directional boring

     behind Preckshot’s premises. That boring was not related to Preckshot in any way, was not

     performed at the behest of Preckshot, and was not done on Preckshot’s premises. The boring

     damaged a water service line located approximately 18 inches from the Preckshot premises,

     causing a discharge of water that inundated the Preckshot premises above the ground. All direct

     physical loss and damage to the premises occurred above the surface of the ground.

¶4          Preckshot subsequently contacted Pharmacists Mutual to file a claim pursuant to its

     insurance policy. Pharmacists Mutual, in turn, dispatched Steven Little of Dona Engineering to

     Preckshot to determine the precise cause of the damages. Little concluded that the water from the

     struck line flowed through under a concrete slab and came up through the ground to infiltrate the

     Preckshot interior. In a letter dated January 22, 2016, Pharmacists Mutual denied coverage for

     Preckshot’s claim, asserting that the claim was barred by exclusions in the policy. Specifically,

     Pharmacists Mutual stated that the policy excluded perils caused by “water below the surface of

     the ground.” Pharmacists Mutual also pointed out that the claim was subject to an exclusion for

     “Defects, Errors, or Omissions.”




                                                    2

¶5          Preckshot filed suit against Pharmacists Mutual, claiming breach of the insurance policy.

     Count II of the suit alleged that Pharmacist Mutual’s denial of the claim was vexatious and

     unreasonable and therefore made in bad faith under section 155(1) of the Illinois Insurance Code.

     See 215 ILCS 5/155(1) (West 2016). Pharmacists Mutual filed a counterclaim for declaratory

     judgment. Citing the same exclusions it had referenced in its letter to Preckshot (see supra ¶ 4),

     Pharmacists Mutual prayed for a declaration that it was “not obligated to provide coverage or

     pay benefits under the Policy.” The counterclaim did not reference the claim of bad faith raised

     in count II of Preckshot’s original suit.

¶6          Preckshot subsequently filed a motion for summary judgment with respect to Pharmacists

     Mutual’s counterclaim. Pharmacists Mutual then filed a combined motion for summary

     judgment, seeking summary judgment in its capacity as defendant with regard to the two counts

     of Preckshot’s original suit, as well as seeking summary judgment in its capacity as

     counterplaintiff with regard to its counterclaim for declaratory relief.

¶7          Following briefing and oral arguments, the circuit court denied Preckshot’s motion for

     summary judgment, granted Pharmacists Mutual’s motion for summary judgment, and declared

     that Pharmacists Mutual “is not obligated to provide coverage or pay benefits under the Policy.”

     Specifically, the circuit court found that coverage was excluded under both the “water below the

     surface of the ground” exclusion and the “Defects, Errors, or Omissions” exclusion.

¶8                                               ANALYSIS

¶9          On appeal, Preckshot argues that the plain language of the insurance policy shows that

     the two exclusions cited by Pharmacists Mutual were inapplicable to its claim and that the circuit

     court therefore erred in granting summary judgment in favor of Pharmacists Mutual. Preckshot

     also argues that since Pharmacists Mutual’s denial of the claim was done in bad faith, the circuit


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       court also erred in granting summary judgment as to count II of Preckshot’s suit. We find that the

       damage to Preckshot’s property was caused by “water below the surface of the ground,” as

       contemplated by the exclusion in question, and that Pharmacists Mutual was therefore not

       obligated to provide coverage or pay benefits under the policy.

¶ 10          Summary judgment is proper only where the materials on the record—including

       pleadings, depositions, admissions, or affidavits—when construed in the light most favorable to

       the nonmoving party demonstrate that there is no issue as to any genuine material fact and that

       the moving party is entitled to judgment as a matter of law. Shannon v. Boise Cascade Corp.,

       208 Ill. 2d 517, 523-24 (2004). In the present case, the parties do not dispute that the insurance

       policy was in full force at the time in question, nor is there a dispute concerning the underlying

       facts of Preckshot’s claim. The only issue is whether the language of the insurance policy entitles

       Pharmacists Mutual to judgment as a matter of law. We review that issue de novo. Founders

       Insurance Co. v. Munoz, 237 Ill. 2d 424, 432 (2010).

¶ 11          An insurance policy is a contract, and the rules of contract interpretation apply to the

       interpretation of an insurance policy. Id. at 433. The primary function of the court is to ascertain

       and give effect to the intent of the parties, as expressed in the plain language of the policy. Id.

       Where the policy contains an ambiguity, that ambiguity must be construed liberally in favor of

       coverage. Id. An ambiguity will be found where a portion of the policy is subject to multiple

       reasonable interpretations; an ambiguity does not exist simply because the parties disagree as to

       its meaning. Id. In determining whether an ambiguity exists, it is improper to read additional

       language or terms into the agreement. Barth v. State Farm Fire & Casualty Co., 228 Ill. 2d 163,

       174 (2008). Finally, “an insurance policy must be considered as a whole; all of the provisions,

       rather than an isolated part, should be examined to determine whether an ambiguity exists.”


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       Munoz, 237 Ill. 2d at 433. With those principles in mind, we turn to the insurance policy in

       question.

¶ 12          The policy in force between Preckshot and Pharmacists Mutual contains a section labeled

       “Additional Exclusions.” Subsection 9 is simply titled “Water,” and reads as follows:

                      “ ‘We’ do not pay for loss or damage caused by:

                              1) ***

                              2) ***

                              3) ***

                                                       ***

                              4) water below the surface of the ground. This includes water that

                      exerts pressure on or flows, seeps, or leaks through or into:

                                       a) basements, whether paved or not;

                                       b) doors, windows, or other openings;

                                       c) foundations, floors, walls, or paved surfaces; or

                                       d) swimming pools, septic tanks, or other structures[.]”

       Preckshot insists that “[t]he plain and ordinary meaning of this exclusion makes it clear that the

       exclusion only applies to loss or damage and water which is below the surface of the ground.”

¶ 13          The grammatical structure of the policy renders the portion of Preckshot’s argument

       relating to the location of the loss or damage plainly incorrect. In short form, the policy indicates

       that Pharmacists Mutual does “not pay for loss or damage caused by: *** water below the

       surface of the ground.” The presence of the colon—as well as three intervening paragraphs—

       makes clear that the clause, “below the surface of the ground,” applies only to the origination of

       the “water.” The actual loss or damage need not be below the surface of the ground.
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¶ 14          Still, Preckshot argues that the water that seeped up through its floor was no longer

       “water below the surface of the ground” at the time that it caused damage or loss. Thus,

       Preckshot concludes, the damage was not caused by water below the surface of the ground, but

       by water above the surface of the ground. Pharmacists Mutual contends that the exclusion

       references the origin of the water, not its eventual destination.

¶ 15          Preckshot maintains that a contextual analysis of the policy supports its position.

       Specifically, it contends that subsections (a) through (d) refer primarily “to below-ground

       structures or ground-level structures that could suffer below-ground damage.” Preckshot notes

       that subsection (a), basements, clearly refers to below-ground structures and that subsection (d),

       “swimming pools, septic tanks, or other structures,” does as well. Preckshot next asserts that

       “Category (c), foundations, floors, walls, or paved surfaces, reasonably interpreted refers to

       structures which typically have surfaces that protrude below ground level or are located below

       ground level like basements and foundation walls, floors or paved surfaces.” Finally, Preckshot

       concludes that those three subsections make clear that subsection (b) must be referring to

       structures such as “doors leading into basements, and basement windows built into below

       ground-level window wells.”

¶ 16          We agree with Preckshot that contextual analysis of subsections (a) through (d) is

       necessary, but we disagree with its conclusions. To be sure, basements are necessarily

       underground. Pools and septic tanks, however, while they may be underground, are not

       inherently so. Similarly, while foundations are underground, “floors, walls, or paved surfaces”

       need not be. Finally, and most tellingly, doors need not be underground and windows are almost

       always above ground. Preckshot strains to argue that because of context, the simple word

       “doors” should be construed as “doors leading into basements,” and the straightforward concept


                                                         6

       of “windows” should be construed as “basement windows built into below ground-level window

       wells.” This is an attempt to read language into the policy that simply is not there. See Barth, 228

       Ill. 2d at 174 (finding that the court “may not properly read into that language any additional

       terms”).

¶ 17          Furthermore, the listing of “basements” in subsection (a) tends to indicate that the floors,

       windows, doors, and walls listed elsewhere would include those not found in basements, lest

       those additional subsections be rendered wholly unnecessary. See Dowd & Dowd, Ltd. v.

       Gleason, 181 Ill. 2d 460, 479 (1998) (“Courts will generally avoid interpretations that render

       contract terms surplusage ***.”); Central Illinois Light Co. v. Home Insurance Co., 213 Ill. 2d

       141, 154 (2004) (applying rule against surplusage in context of insurance policy construction).

       For example, water that seeps through basement floors or basements walls would be excluded

       under subsection (a). For subsection (c) to have any effect then, it must be construed to include

       floors or walls that are not in a basement.

¶ 18          While there are no Illinois cases directly addressing the present issue, certain cases from

       outside of our jurisdiction are persuasive. The policies at issue in Bull v. Nationwide Mutual Fire

       Insurance Co., 824 F.3d 722, 724 (8th Cir. 2016), and Colella v. State Farm Fire & Casualty

       Co., 407 F. App’x 616, 618 (3d Cir. 2011), each excluded loss or damage caused by water or

       water-borne material “below the surface of the ground.” In Bull, the damaging water originated

       in a pipe underneath a basement slab, and the loss included damage to a brick walkway and

       interior walls. Bull, 824 F.3d at 724. In Colella, a leaking drain line underneath the slab of a

       house caused damage to, inter alia, areas on the first floor of the home. Colella, 407 F. App’x at

       618. Thus, each case, like that before us here, contemplated the situation in which water

       originating below the ground caused damage above the ground.


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¶ 19          In each case, the circuit court held that coverage was excluded. Id. at 622; Bull, 824 F.3d

       at 725. Notably, the insureds in each case argued only that the exclusions referred to natural

       water below the surface of the ground, rather than water in pipes. While both courts rejected that

       argument and found in favor of exclusion, neither was forced to directly consider the location of

       the damage and its interplay with the policy. The same was not true, however, in Carver v.

       Allstate Insurance Co., 76 S.W.3d 901, 902-03 (Ark. Ct. App. 2002), in which a broken water

       main created a geyser that damaged, inter alia, the ceilings and roof of a home. The insured

       argued that the exclusion for “ ‘[w]ater *** on or below the surface of the ground’ ” was

       inapplicable because the water in the geyser was well above the surface of the ground when it

       caused the damage in question. Id. at 903. The court rejected the argument outright, stating:

       “[T]he water from the broken water line was still ‘water below the surface of the ground’ within

       the meaning of the exclusion because it originated underground.” Id. at 905. We reach the same

       conclusion here.

¶ 20          We note that Preckshot argues that each of the three above cases is inapplicable because

       of comparative differences in the policy language. Specifically, Preckshot points out that the

       policies in question in those cases explicitly referenced water that flows, seeps, or leaks

       “ ‘through a building’ ” (Bull, 824 F.3d at 724; Colella, 407 F. App’x at 618) or “ ‘through any

       part of the residence premises.’ ” Carver, 76 S.W.3d at 903. Preckshot insists that because those

       particular phrases do not appear in the present policy, we should not consider those cases. In

       making this argument, Preckshot neglects to recognize that the policy in question specifies that

       “water that exerts pressure on or flows, seeps, or leaks through or into” doors, windows,

       foundations, floors, or walls is excluded. These are, of course, the constituent parts of a building.

       Preckshot has merely identified a distinction without a difference.


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¶ 21          In summary, the structures listed in subsections (a) through (d) of the policy are not

       limited to those that are exclusively or inherently underground. Indeed, the listing of

       “basements” in subsection (a) makes clear that the structures listed elsewhere must not be limited

       to those in a basement. Accordingly, where water below the surface of the ground “seeps ***

       through” a floor, that water is necessarily no longer presently below the surface of the ground.

       The policy thus expressly contemplates the present scenario, where “water below the surface of

       the ground” seeped through the Preckshot floor and caused damage. Under the terms of the

       policy, that damage was excluded.

¶ 22          The second exclusion cited by Pharmacists Mutual, listed under “Defects, Errors, or

       Omissions,” provided that Pharmacists Mutual does not pay for loss or damage resulting from

       “an act, error, or omission (negligent or not) relating to *** construction, repair, modification,

       [or] workmanship *** of property.” Pharmacists Mutual insisted at the trial level, as it does on

       appeal, that the term “property” in that exclusion is not limited to Preckshot’s property. While

       we are skeptical that this specific exclusion would apply, we need not address the argument

       directly, having already concluded that coverage was excluded. Similarly, because we find that

       an exclusion did apply, we need not consider the argument that Pharmacists Mutual acted in bad

       faith. We therefore affirm in full the circuit court’s grant of summary judgment in favor of

       Pharmacists Mutual.

¶ 23                                           CONCLUSION

¶ 24          For the foregoing reasons, we affirm the judgment of the circuit court of Peoria County.

¶ 25          Affirmed.




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