Court Finds Ambiguity Over When Property Damage Commenced

Ambiguity surrounding the term “commencing” led a court to deny an insurer’s motion seeking to dismiss an insured’s property damage claim, despite the insured’s inability to state when the property damage at issue first occurred. In a question of first impression, a federal district court in Illinois denied an insurer’s motion for summary judgment earlier this month, ruling that the term “commencing” during the policy period was ambiguous when applied to the circumstances of the case. Temperature Serv. Co. v. Acuity, 2016 U.S. Dist. LEXIS 142377 (N.D. Ill. 2016).

An insurer insured a building for “loss or damage commencing [d]uring the policy period,” under a policy with a policy period of January 1, 2013 through January 1, 2014. In mid-2013, while excavating the surrounding land to build an addition on the building, the insured discovered that adverse soil conditions had caused substantial damage to the building’s foundation and other structural components. The insured sought coverage for structural stabilization and repairs. After the insurer denied the claim, the insured sued.

In its motion for summary judgment, the insurer argued that the policy did not provide coverage because the insured was unable to demonstrate that the property damage “commenced” during the policy period. The insurer interpreted “commencing,” a term that was not defined in the policy, to mean “the single moment in time when all of the alleged damage to the insured property began or originated.” The insured proffered an alternative definition, arguing that the policy provided coverage “if any one portion of the numerous claimed damages ‘commenced’ during the policy period.” Both parties conceded that damage to the building continued to progress during the policy period in 2013.

The court denied the insurer’s motion, holding that, in light of the factual record, the term “commencing” could be interpreted to include several plausible definitions and was therefore ambiguous. The court held that the term was ambiguous in the context of the facts thus far produced in discovery, where there were potentially separate instances of damage to the property, and that insufficient facts existed at the time of the insurer’s motion to rule that the damage did not commence during the policy period. After analyzing several differing definitions of “commencing” from other jurisdictions, the court opined that the “policy may reasonably be read to include each identifiable instance of new damage or loss, regardless of whether similar damage or loss, or damage or loss with a common but chronologically distinguishable cause, commenced prior to the policy period.” The court further explained that additional discovery and/or expert testimony has the potential to shed more light on when the property damage or different types of property damage actually commenced.

This decision is the first time an Illinois court has interpreted the term “commencing” in the context of a first-party property policy. The decision highlights a distinction between liability policies covering property damage, for which there is an ample body of case law on when progressive property damage is deemed to “occur,” and first-party policies covering property damage that commences during the policy period. Without a definition or other policy language clarifying when property damage commences in cases involving progressive property damage, courts may follow the Illinois court in finding that the term “commencing” is ambiguous.

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