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                                                                              of this document
                                                                              Date: 2018.12.28
                                    Appellate Court                           10:35:47 -06'00'




           Central Illinois Compounding, Inc. v. Pharmacists Mutual Insurance Co.,
                                  2018 IL App (3d) 170809



Appellate Court         CENTRAL ILLINOIS COMPOUNDING, INC., d/b/a Preckshot
Caption                 Professional Pharmacy, Plaintiff and Counterdefendant-Appellant, v.
                        PHARMACISTS MUTUAL INSURANCE COMPANY, Defendant
                        and Counterplaintiff-Appellee.



District & No.          Third District
                        Docket No. 3-17-0809


Filed                   September 6, 2018



Decision Under          Appeal from the Circuit Court of Peoria County, No. 17-L-130; the
Review                  Hon. Jodi M. Hoos, Judge, presiding.



Judgment                Affirmed.


Counsel on              Thomas E. Leiter, of The Leiter Group Attorneys & Counselors, of
Appeal                  Peoria, for appellant.

                        Brian H. Sanchez, of Sanchez Daniels & Hoffman, LLP, of Chicago,
                        for appellee.



Panel                   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.”
¶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.

                                                -2-
¶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 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.” 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) ***
                                                    ***

                                                   -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.
¶ 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 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

                                                   -4-
       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.
¶ 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.
¶ 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

                                                   -5-
       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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