An Illinois construction company that was denied coverage for construction-related damage came up with another way to seek coverage: claiming the insurer was responsible for the negligence of its agent and employee to provide the right coverage. The case is Country Mutual Insurance Co. v. Carr, 2006 WL 1999220 (Ill. App. 4 Dist., July 14, 2006).
The insured, Carr Construction, was sued for allegedly putting improper backfill around the foundation of a home it constructed and operating heavy machinery near the foundation that then damaged the basement walls. Carr’s insurer, Country Mutual, filed a declaratory action seeking a judgment that it had no duty to defend under Carr’s commercial general liability policy. Carr then filed a counterclaim alleging Country Mutual was responsible for the negligence of its agent, Vogelzang, in failing to procure a policy that covered such damage. This is a pretty good counterclaim, because it uses the insurer’s denial of coverage against it. However, the trial court dismissed the negligence counts of the counterclaim, saying the agent, Vogelzang, owed no duty of care to Carr and that the economic-loss doctrine barred recovery in tort.
The Court of Appeals reversed and allowed the negligence counts to proceed (a count of breach of contract in Carr’s counterclaim had remained untouched by the trial court). The appellate court found that an insurance agent falls under an Illinois statute creating a duty of ordinary care for insurance producers, and that the economic-loss doctrine is meant to bar tort claims only when claims sound only in contract and no extra-contractual duty applies. In this instance, the court said, a duty arose outside of contract by statute, and even if the agent’s performance was a breach of contract, tort claims are viable. Hard to argue with the court’s reasoning in this case, and I appreciated the clarity of the court’s writing.