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Lawsuit Alleging Fraudulent Sale of Home Does Not Constitute an ‘Occurrence’
Insurance Law Update
November 2009
Appellate Court of Illinois, Third District
The Appellate Court of Illinois, Third District, in Rock v. State Farm Fire and Cas. Co., ___ N.E.2d ___, 2009 WL 3417902 (Ill. App. October 20, 2009), held that alleged misrepresentations in the sale of a home did not constitute an "occurrence" under a homeowners' policy. In that case, an insured under a homeowners’ policy issued by State Farm sold a home to buyers. The buyers later sued the insured, alleging that false representations were made in connection with the sale in that the insured incorrectly reported there were no moisture, water, mold or foundation problems with the home. The insured sought a declaratory judgment against State Farm that it had an obligation to consider, settle and/or arbitrate the suit brought by the buyers.
The trial court entered judgment for the insured and State Farm appealed. State Farm contended that the homeowners' policy required State Farm to defend only claims or suits for damages because of bodily injury or property damage caused by an occurrence, and that the underlying complaint did not allege facts constituting an occurrence but instead alleged misrepresentations, which were not an occurrence within the meaning of the policy. State Farm also argued that the alleged misrepresentations did not cause property damage to the house, and that loss of use of the house was not property damage.
The appellate court agreed with State Farm and concluded that the underlying complaint did not allege an occurrence that caused property damage, but instead alleged misrepresentations of past and/or existing material facts. The court found that the only possible “occurrence” was the misrepresentations themselves, and not the physical damage to the property in the form of moisture, water, mold or foundation problems. The court, however, reserved comment on whether the alleged misrepresentations met the definition of “occurrence,” because the underlying complaint did not allege that the misrepresentations caused property damage.
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