Central Illinois Compounding v. Pharmacists Mutual Insurance — Affirming Denial of Pharmacy’s Claim That Insurance Policy Covered Flood Damage Caused by Utility — Best DuPage County Breach of Contract Attorney Near Elmhurst and Hinsdale

When a water main was damaged by work performed by a telecommunications company, causing a pharmacy to flood and sustain damage, the circuit court did not err in granting summary judgment to the insurance company. The Illinois appellate court found that the policy’s exclusion of coverage for damages relating to water from under the surface of the ground applied to water that originated underground, even if the damage caused by that water occurred above ground.

In December 2015, Prekshot Professional Pharmacy was operating in leased space in Peoria, Illinois. Preckshot had a contract of insurance with its insurer, Pharmacists Mutual. AT&T and its subcontractor were performing directional boring behind Preckshot’s premises. The boring damaged a water service line near the Preckshot premises, causing a discharge of water that flooded the Preckshot pharmacy above the ground.

Preckshot subsequently filed a claim with Pharmacists Mutual pursuant to its insurance policy. Pharmacists dispatched an investigator to determine the precise cause of the damages. The inspector concluded that the water from the ruptured line flowed through under a concrete slab and came up through the ground to infiltrate the interior of the pharmacy. Pharmacists then denied Preckshot’s claim, stating that coverage was excluded by a provision in the policy which excluded perils caused by water below the surface of the ground.

Preckshot then filed suit against Pharmacists, claiming breach of the insurance policy. The parties subsequently filed cross-motions for summary judgment. The circuit court denied Preckshot’s motion for summary judgment, granted Pharmacists Mutual’s motion, and declared that Pharmacists was not obligated to provide coverage or pay benefits under the policy. Preckshot then appealed.

On appeal, Preckshot argued that the plain language of the insurance policy indicated that the two exclusions cited by Pharmacists were inapplicable to Preckshot’s claim and that the circuit court therefore erred. The appellate panel began by stating that an insurance policy is a contract, and the rules of contract interpretation thus apply to the interpretation of an insurance policy. The panel noted that when an insurance contract contains an ambiguity, it must be construed liberally in favor of coverage. The panel then found that the plain language of the policy excluded coverage for water that originated below ground and that, contrary to Preckshot’s argument, this exclusion was not limited to damage to structures that themselves were below ground, such as basements, foundations, or in-ground pools and septic tanks.

The panel then noted that there were no Illinois cases that directly addressed the issue in the instant case. The panel then cited Carver v. Allstate Insurance Co., of the Arkansas Court of Appeals, finding it to be persuasive. The panel stated that in Carver, the Arkansas court had confronted the question of whether water from a broken water main that damaged the ceilings and roof of a home counted as water on or below the surface of the ground. The panel stated that the Arkansas court had concluded that the water from the broken water line was still “water below the surface of the ground” within the meaning of the policy because it originated underground. The panel stated that it agreed with the Arkansas court and would interpret the policy in the instant case similarly. The panel, therefore, affirmed the decision of the circuit court.

You can read the opinion here.

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