In February 2015, Pelco, through its president, Phil Albert, notified its commercial general liability insurance carrier, Phoenix Insurance Company, of the Exelon claim.

By letter dated March 10, 2015, Phoenix's representative, Laura Pytell, informed Mr. Albert that the policy did not cover the claim. Ms. Pytell's letter stated that, "the cost of repairing and replacing your own product is not 'property damage' and is not deemed to have been caused by an 'occurrence.' . . . The policy only provides coverage if your product has caused damage to Exelon's property. Here, there are no allegations that the Pelco's poles or divet arms physically damaged any of Exelon's cables or other property or that it suffered a loss of use of tangible property not physically injured. Rather, Exelon alleges that Pelco's welds in the arms were defective and it is seeking to be reimbursed for costs associated with inspecting and replacing the allegedly defective divet arms. Consequently, there are no allegations of damages because of 'property damage' caused by an 'occurrence' as required by the insuring agreement."

Exelon sued Pelco in federal court on January 15, 2016, alleging breach of contract and breach of warranty, as well as damage to Exelon equipment.

More than two years later, on March 17, 2018, Pelco re-tendered its claim to Phoenix, noting that Exelon had filed a lawsuit involving property damage. Pelco asked Phoenix to reconsider its decision denying coverage on the grounds that Exelon's claim included damage to Exelon's property. Pelco also asked that Phoenix accept the defense of Pelco from the beginning of the litigation and sought $463,542 in attorneys' fees and costs.

Phoenix filed a declaratory judgment complaint. The trial court concluded that Phoenix had no duty to defend and indemnify Pelco in the Exelon lawsuit "because of the extremely late tendering of the lawsuit."

Pelco appealed. It contended that because the Phoenix insurance policy required notice of a claim or suit and not notice of a claim and suit, it had satisfied the timely notice requirement when it notified Phoenix of Exelon's cost claim in 2014, within a reasonable time after the incident. Pelco asserted that because "or" was disjunctive, not conjunctive, it only needed to give Phoenix notice of a claim or a suit, but not both.

For its part, Phoenix argued that a "claim" and a "suit" were not the same, particularly here, where the claim and the suit did not include the same alleged damages. In addition, depending on when it knew of the claim or suit, Pelco had to provide separate notice of each as soon as practicable.

The Appellate Court's Decision

The appellate court affirmed.

In its decision, the appellate court stated that it did not have to decide whether Pelco should have provided two separate notices – first for the cost claim and then for the lawsuit – because Pelco failed to satisfy its other duties under the policy, which precluded it from coverage.

The appellate court explained that, under the "notice of claim or suit" provision of the policy, Pelco's duties were not limited to providing notice of claim or suit. The policy also provided that in the event of an occurrence, offense, claim, or suit, Pelco had to "[i]mmediately send [Phoenix] copies of any demands, notices, summonses or legal papers received in connection with the claim or suit."

The appellate court then pointed out that Exelon had filed its complaint against Pelco in January 2016 but that Pelco had not "immediately" sent Phoenix a copy of the complaint or any other legal papers it received in connection with the lawsuit. Indeed, the appellate court added, Pelco did not send Phoenix any documents related to the suit until after Phoenix learned, in March 2018, that Exelon had filed a complaint.

According to the appellate court, Pelco's failure to provide Phoenix with documents relevant to the lawsuit until more than two years after Exelon had filed its complaint "was a breach of the insurance agreement." Moreover, the appellate court said, by withholding the documents, Pelco had deprived Phoenix of the opportunity to discover facts, participate in the defense, and control the litigation.

The appellate court concluded, therefore, that Pelco had breached the insurance contract, which was sufficient grounds to affirm the trial court's order granting summary judgment to Phoenix.

The case is Phoenix Ins. Co. v. Pelco Structural, LLC, No. 1-19-0477 (Ill. Ct. App. Dec. 9, 2019).