Does A Landlord’s Insurance Company Have To Provide Insurance Coverage To Tenants When The Tenants Are Not Listed As Insureds Under The Policy?

Does an insurance company have to provide and pay for the defense of tenants to property when the tenants are not listed as insureds under the policy? That is the question that the Illinois Supreme Court will decide in Scheckler v. Auto-Owners Ins. Co.

In this lawsuit, two tenants rented an apartment in Pekin, Illinois. The landlord had an insurance policy with Auto-Owners Insurance that covered him against fire and other hazards on the property, while the tenants were responsible for obtaining insurance, if they so desired, for their possessions inside the property.

The rental apartment had a traditional gas stove and range. Under the lease, the landlord was responsible for appliance maintenance and repairs. When the tenants notified the landlord that the oven and a burner on the stove were not working, he placed a service call with a technician. The technician met with the tenants and removed the knob from the burner, but left to find additional replacement parts. The tenants began smelling gas and tried masking the odor with Febreze, but the Febreze could not obscure the smell. Undeterred, one of the tenants then turned on the stove. The stove burst into flames setting the apartment ablaze. The apartment sustained severe fire damage.

Auto-Owners paid the landlord’s claim for the damage to the apartment and then filed a claim against the technician for his repair work. The technician then filed a claim against the tenants for starting the fire. The tenants then submitted that claim to Auto-Owners, but Auto-Owners refused to defend the tenants. The tenants then filed a separate lawsuit seeking an order from the court requiring Auto-Owners to defend them. The technician, named a defendant in that suit, also filed a claim against Auto-Owners, seeking coverage from Auto-Owners for the tenants, and arguing that the tenants were “coinsureds” of the landlord under the Auto-Owners insurance policy.

The trial court sided with Auto-Owners, determining that it did not owe a duty to defend the tenants because the tenants were not being sued for property damage that would have been covered by the Auto-Owners policy. Rather, they were being sued for their own actions in starting the fire.

The technician and tenants appealed this decision, and the appellate court ruled in their favor, finding that the tenants were coinsured under the Auto-Owners insurance policy because they paid rent to the landlord (which accounted for the amount paid for insurance) and the lease stated that the landlord would obtain fire insurance on the premises. This decision was based on an Illinois Supreme Court case from 1992, which, according to the appellate court, “put insurance companies on notice that when issuing a fire policy for a rental property, given certain terms in the lease, the insurance company is also insuring against the negligent act of the tenants that result in fire damage to the structure.”

The appellate court then went on to find that when a tenant is coinsured under a landlord’s insurance policy, the insurer must defend and indemnify the tenant with respect to a claim for negligently causing fire damage to the insured premises. According to the appellate court, the “bottom line” is that the insurance company owes its coinsured not just a duty to refrain from suing it, but also a duty to defend and, if appropriate, indemnify the coinsured when someone else sues the coinsured to recover for fire damage to the insured structure.”

If you have any questions about your insurance policy, the Insurance Contract Litigation team at Mag Mile Law is here to help.  We work on a contingency basis, so we don’t get paid unless we win your case. Give us a call today at 708-576-1624.

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