Violation of Chicago’s municipal tenant ordinance is a covered claim under insurance policy

The insured in Evergreen Real Estate Servs., LLC v. Hanover Ins. Co., 2019 IL App (1st) 181867 (Jan. 4, 2020) sought a declaration that its insurer had a duty to defend it in a class action brought by the insured’s tenants alleging that the insured committed several violations of the Chicago Residential Landlord Tenant Ordinance (“RLTO”). The insurer disclaimed defense and coverage, but an Illinois appellate court held the claims were covered.

The insured managed a rental property and was covered by the insurer under a Private Company Advantage Policy (“Policy”). Among other things, the Policy secured coverage for corporate entity liability and for professional liability. The entity liability insuring agreement, however, excluded coverage for claims arising from the provision of professional services. The “miscellaneous professional liability insurance policy” provided coverage for “any claim made against [insured] arising from a wrongful act in the rendering or failure to render professional services by [insured].” The professional liability policy, however, excluded claims arising from “violations of any local, state or federal consumer protection laws.”

Upon tender of the claim, the insured denied defense or coverage asserting that: (1) it did not owe coverage under the entity liability insuring agreement because the claims were based upon the performance of a professional service which were excluded, and (2) it did not owe coverage under the professional liability policy because the underlying claims were for a willful violation of the RLTO and breach of contract which were also excluded.

The insured sought a declaration of rights. The insurer eventually agreed to defend the insured in the class action, but under a reservation of rights. On the coverage question, the trial court granted summary judgment to the insured because the claims for violations of the RLTO were not analogous to claims under a consumer protection statute. It also said the claims may relate to a ministerial or administrative issue that would not fall into the policy’s professional services exclusion.

The appellate court affirmed. The insurer first argued the RLTO qualifies as a “local consumer protection law” because the RLTO’s stated purpose is to “protect and promote the public health, safety and welfare of its citizens, to establish the rights and obligations of the landlord and the tenant in the rental of dwelling units, and to encourage the landlord and the tenant to maintain and improve the quality of housing.” It pointed to numerous instances where the courts have characterized a tenant as a consumer.

While acknowledging the argument was sound, the court held the RLTO was not a “local consumer protection law” as that term is used in the policy. It noted that consumer protection laws are designed to protect the public, who are the purchasers of goods and services, against oppressive practices by merchants. The purpose of the RLTO, on the other hand, balances the rights of tenants and landlords. They both derive direct benefit from the RLTO, while only consumers receive a benefit under consumer protection laws. Moreover, the RLTO is not found in the section of the municipal code concerning consumer protections. It is found in a section dealing with housing and economic development. Thus, because there was “room for disagreement” about whether the RLTO qualifies as a “consumer protection law” meant the doubt had to be resolved in favor of the insured.

Nor were the claims based on “professional services” excluded under the exclusion of claims for unfair or deceptive business practices. A person can violate the ordinance by innocent action, not only by unfair or deceptive business practices. Because the claims in the complaint are not definitively comprised of claims for unfair or deceptive practices, the policy does not clearly preclude coverage.

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