A bitter pill
Central Illinois Compounding, Inc., d/b/a Preckshot Professional Pharmacy, operated in a leased space in Peoria, Illinois.
On December 10, 2015, AT&T and its subcontractor were performing directional boring behind Preckshot’s premises. The 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 premises above the ground. All direct physical loss and damage to the premises occurred above the surface of the ground.
Preckshot filed a claim with its insurer, Pharmacists Mutual Insurance Company. The insurer sent 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, the insurer stated that the policy excluded perils caused by “water below the surface of the ground.” The insurer also pointed out that the claim was subject to an exclusion for “Defects, Errors, or Omissions.”
Preckshot filed suit against Pharmacists Mutual, claiming breach of the policy. Count II of the suit alleged that Pharmacist [sic] Mutual’s denial of the claim was vexatious and unreasonable and therefore made in bad faith under the Illinois insurance code. Pharmacists Mutual filed a counterclaim for declaratory judgment, citing the same exclusions it had referenced in its letter to Preckshot.
Pharmacists Mutual sought 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.
Preckshot subsequently filed a motion for summary judgment with respect to Pharmacists Mutual’s counterclaim. Pharmacists Mutual then filed a combined motion, seeking summary judgment (1) in its capacity as defendant with regard to the two counts of Preckshot’s original suit and (2) in its capacity as counterplaintiff with regard to its counterclaim for declaratory relief.
The 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 court found that coverage was excluded under both the “water below the surface of the ground” exclusion and the “Defects, Errors, or Omissions” exclusion.
On appeal, Preckshot argued that the plain language of the policy showed 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 argued that because 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.
The appellate court found 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 therefore was not obligated to provide coverage or pay benefits under the policy. The judgment of the circuit court was affirmed.
Central Illinois Compounding, Inc., d/b/a Preckshot Professional Pharmacy v. Pharmacists Mutual Insurance Company-Appellate Court of Illinois, Third District-September 6, 2018-No. 3-17-0809.