Illinois Federal District Court Determines Policy Intent Trumps Policy Language

In an interesting decision handed down late last year, an Illinois federal district court in Ohio Security Insurance Company v. Truck Tire Sales, Inc. determined coverage was not available after carefully considering the policy intent and application for insurance. The district court held that irrespective of broad policy language, “the policy reflects that it was sought for the purpose of insuring [the insured’s] activities related only to [one part of its business].”

The dispute arose when an employee of the named insured, Truck Tire Sales, Inc. (Truck Tire), struck two individuals while driving a tractor. Although Truck Tire was one legal entity, its operations were divided into three activities:

  1. Tire sales and services
  2. Weed-cutting operations
  3. Transportation of engineers engaged in water main testing for the City of Chicago

In connection with each of the activities, Truck Tire obtained three separate commercial general (CGL) liability policies. In particular, the CGL policy issued by Ohio Security Insurance Company  described the insured’s business as “tire sales and service,” and the only underwriting classification code indicated was for “Tire Dealers.” Ohio Security denied the tender of the claim. Another insurer, Society Insurance agreed to provide a defense. It was understood the Society policy was to cover Truck Tire’s weed-cutting services. A third insurer, Colony Insurance Company, denied coverage and obtained a declaration from an Illinois state court that it did not have a duty to defend or indemnify the underlying lawsuit. Notably, the Colony policy had an endorsement limiting coverage to water main testing.

Ohio Security and a related entity filed suit, seeking a declaration that they did not owe a duty to defend or indemnify Truck Tire or the city under the CGL policy and a follow-form umbrella policy. For its part, Truck Tire and the other defendants argued there was coverage since neither policy contained language specifically restricting coverage to the classification codes or business descriptions in the declarations.

The court sided with Ohio Security. First, after citing to precedent from the Seventh Circuit, Illinois, and other jurisdictions, the court concluded the declarations pages referring to the insured’s business as “tire sales and service” reflected an intent to insure Truck Tire for only those liabilities. Second, a review of the application for insurance, which was integrated into the CGL policy, provided further evidence that Truck Tire sought coverage only for its tire sales and servicing operations. Indeed, no other business interests or activities were identified in the application for Ohio Security. In light of the restrictions under the CGL and umbrella policies, the court held that Ohio Security did not owe any coverage obligations to Truck Tire or the city.  

This is a noteworthy decision for the court’s willingness to emphasize the limiting properties of language contained in a policy’s declarations pages and application, absent specific provisions restricting coverage.