Apartment Tenants Coinsured Under Landlord’s Policy for Fire Damage

The Appellate Court of Illinois, Third District, in an opinion written by Justice Schmidt, applying Illinois law, reversed the judgment of the circuit court, holding instead that tenants of an insured property were coinsured for any fire damage to the property, despite their not being identified as persons insured under the policy itself. As a result, the insurer had a duty to defend the tenants in a contribution claim resulting from the fire damage.

The tenants rented an apartment in Pekin, Illinois. The lease explicitly stated that the landlord “shall maintain fire and other hazard insurance on the premises only” and that the tenants would be “responsible for any insurance they desire on their possessions contained in the leased premises.” After the stove in the apartment broke, the landlord hired a repairman, who briefly visited before leaving the apartment to find additional replacement parts. The tenants began smelling gas, and unfortunately lit the stove, causing severe fire damage to the apartment.

The landlord’s insurer, Auto-Owners Insurance Company (“Auto-Owners”), paid the landlord’s claim and filed a subrogation action against the repairman, who in turn filed a third-party complaint for contribution against the tenants, alleging negligence for lighting the stove despite smelling gas. Auto-Owners denied the defense, arguing that the language of the insurance policy, which did not identify the tenants, precluded a duty to defend.

The Appellate Court disagreed, finding that because a portion of the tenants’ rent went to paying the insurance policy premium and because their lease agreement exempted them from liability for fire damage, they acquired coinsured status under the Auto-Owners policy. The Appellate Court further stated that to allow Auto-Owners to recoup its payment for fire damage from a coinsured would be an inequitable violation of Illinois precedent. As such, the Appellate Court held that Auto-Owners did indeed have a duty to defend the tenants against the contribution action. Sheckler v. Auto-Owners Ins. Co., 2021 IL App (3d) 190500 (Oct. 22, 2021).