July 17, 2001

No. 2--00--0936

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

JUSTICE BOWMAN delivered the opinion of the court:

Plaintiffs, Warren and Joyce Smith, filed suit againstdefendant, Union Automobile Indemnity Company (Union), followingUnion's denial of a claim plaintiffs submitted under theirhomeowner's policy. The circuit court of Kane County grantedsummary judgment in Union's favor. Plaintiffs appeal, arguing thatthe trial court (1) should have denied Union's motion for summaryjudgment and granted plaintiffs' cross-motion for partial summaryjudgment pursuant to the "mend the hold" doctrine; (2) incorrectlydetermined that the damage to plaintiffs' home was caused bysurface water and was thus excluded from coverage; (3) misallocatedthe burden of proof; and (4) should have barred Union from filingits counterclaim for declaratory judgment.

BACKGROUND

During a 24-hour period on July 17 and 18, 1996, northeasternIllinois was deluged with 17 inches of rain. During this storm,the window wells in the basement of plaintiffs' Aurora home filledwith water, causing the windows to break and the basement to fillwith five feet of water. Water also came into the basement throughthe sewer drain. At the time of the storm, plaintiffs had ahomeowner's policy with Union. The policy included a specialendorsement with a policy limit of $5,000 that provided coveragefor loss caused by sewer or drain backup. Plaintiffs did notpurchase flood insurance from Union. When plaintiffs filed a claimwith Union for the damage caused by the water that flooded theirbasement, Union paid them $5,000 pursuant to the specialendorsement but denied full coverage for plaintiffs' loss pursuantto the following exclusion:

"1. We do not insure for loss caused directly orindirectly by any of the following. Such loss is excludedregardless of any other cause or event contributingconcurrently or in any sequence to the loss

* * *

c. Water Damage, meaning:

(1) flood, surface water, waves, tidal water,overflow of a body of water, or spray from any of these,whether or not driven by wind[.]"

In the letter denying coverage, Union's representative, FredericLauher, set forth the water damage exclusion and stated thatUnion's understanding was that the damage to plaintiffs' home wascaused "when sewage backed up through the drains of your house; thesump pump was not capable of handling the subsurface water causingwater to back up through the sump; and surface water entered thedwelling from flooding of Blackberry Creek."

After Union denied full coverage, plaintiffs filed suitagainst Union. Count I of plaintiffs' first amended complaintalleged breach of contract and count II sought attorney fees,costs, and damages under section 155 of the Illinois Insurance Code(215 ILCS 5/155 (West 1998)). Following discovery, Union moved forsummary judgment. The basis of the motion was that the damage toplaintiffs' home was caused by flood and surface water so nocoverage existed pursuant to the policy's water damage exclusion. Union also filed a counterclaim for declaratory judgment based uponthe water damage exclusion. Plaintiffs filed a cross-motion forpartial summary judgment that argued that (1) Union should bebarred, pursuant to the "mend the hold" doctrine, from assertingthat surface water caused plaintiffs' loss because it had notpreviously specified that part of the exclusion as a defense; and(2) the water that flooded plaintiffs' basement was not surfacewater.

The trial court rejected plaintiffs' arguments and grantedsummary judgment in Union's favor as to count I of the firstamended complaint. The court also denied plaintiffs' cross-motionfor partial summary judgment and dismissed Union's counterclaim. Subsequently, the trial court denied plaintiffs' motion toreconsider and dismissed count II of the first amended complaintwith prejudice. This appeal followed.

ANALYSIS

We begin by noting the appropriate standard for reviewing atrial court's decision to grant a motion for summary judgment. Summary judgment is appropriate if the pleadings, depositions, andadmissions on file, together with any affidavits, demonstrate thatthere is no genuine issue of material fact and that the movingparty is entitled to judgment as a matter of law. 735 ILCS 5/2--1005(c) (West 1998). A court considering a motion for summaryjudgment must construe the pleadings, depositions, admissions, andaffidavits strictly against the moving party and liberally in favorof the nonmoving party. Outboard Marine Corp. v. Liberty MutualInsurance Co., 154 Ill. 2d 90, 131-32 (1992). A court should grantsummary judgment only when the movant's right to judgment is clearand free from doubt. When reasonable people could draw divergentinferences from undisputed facts, summary judgment should bedenied. Outboard Marine, 154 Ill. 2d at 102. Our review of atrial court's summary judgment ruling is de novo. Outboard Marine,154 Ill. 2d at 102.

First, we address plaintiffs' assertion that the "mend thehold" doctrine precluded Union from presenting the defense that thewater that entered plaintiffs' basement was surface water. Thedoctrine's name, which is derived from a nineteenth-centurywrestling term (Harbor Insurance Co. v. Continental Bank Corp., 922F.2d 357, 362 (7th Cir. 1990)), prohibits a party who hasrepudiated a contract on one ground from changing his ground afterlitigation has begun and thus " 'mend[ing] his hold.' " Larson v.Johnson, 1 Ill. App. 2d 36, 39-40 (1953), quoting Ohio &Mississippi Ry. Co. v. McCarthy, 96 U.S. 258, 267-68, 24 L. Ed.693, 696 (1878).

During discovery, Union's expert, T. Michael Toole, gave theopinion that the water that damaged plaintiffs' home was acombination of "flood surface waters associated with theoverflowing of Blackberry Creek and accumulated surface waters fromthe field located just west of the property." Plaintiffs' expert,Eugene Holland, disagreed that any part of the water came fromBlackberry Creek. Holland concluded as follows:

"The water that entered Mr. and Mrs. Smith's basementwindows was rain water or water on land whose naturalabsorption was prevented by and/or whose flow was altered anddiverted from its natural flow by manmade objects andconstructions to the east of the insured premises, includingwithout limitation streets, other paved surfaces, houses andassociated construction and landscaping."

In its motion for summary judgment Union asserted that floodand surface water caused the damage to plaintiffs' home and thatsuch losses were excluded under the water damage exclusion. Similarly, in its counterclaim Union alleged that the water damagewas caused by one or more of the events excluded under the waterdamage exclusion, "i.e., 'flood, surface water,' etc." Plaintiffscontend, as they did in the trial court, that, because Unioninitially stated that it based its denial of coverage on theunderstanding that the water in plaintiffs' basement was overflowfrom Blackberry Creek, it cannot change its position and assertthat the water was surface water from another location. Weconclude that the "mend the hold" doctrine is inapplicable in thiscase for two reasons.

First, the cases that have applied the doctrine involvesituations in which the offending party changed the initial reasonfor not performing a contract to a completely different reasonduring litigation. In Larson, for example, the defendant initiallyrelied upon the defense that the contract at issue had beenprocured through connivance, fraud, and misrepresentation. Larson,1 Ill. App. 2d at 38. Later, the defendant altered its positionand argued that a lease provision in the contract was indefiniteand therefore unenforceable. Larson, 1 Ill. App. 2d at 39.

In the insurance context, courts have precluded insurers fromdenying a claim on one basis and then changing the basis for denialduring litigation. In Coulter v. American Employers' InsuranceCo., 333 Ill. App. 631 (1948), the court declined to consider thedefendant insurer's argument that the insured failed to give propernotice of an accident when it had previously based its denial ofcoverage solely upon the contention that the accident at issue wasoutside the scope of the policy's coverage. Coulter, 333 Ill. App.at 634, 641. Similarly, in Townsend v. Postal Benefit Ass'n, 262Ill. App. 483 (1931), the defendant initially claimed that theplaintiff was not a member of the insured group at the time of herdeath but later asserted a completely different defense--thefailure to give proper notice of the insured's death. The courtbarred the defendant from asserting the latter defense.

Here, Union has consistently asserted that plaintiffs' claimwas not covered because of the water damage exclusion. Unlike theinsurers in the cases cited by plaintiffs, Union has nevercompletely changed the reason for its denial of coverage. Rather,it changed the factual basis for the defense on which it had alwaysrelied. Initially, Union stated that the water in plaintiffs'basement was flood water from Blackberry Creek. Union subsequentlyasserted that the water was a combination of flood water fromBlackberry Creek and surface water. In our view, the "mend thehold" doctrine does not extend to a situation where the insurerrelies upon the same defense but with a different factual basis. At all times plaintiffs were aware that Union was relying on thewater damage exclusion. Union did not switch positions midstream.

Second, plaintiffs have not demonstrated that they weresurprised or prejudiced in any way by Union's assertion that surface water, rather than overflow from Blackberry Creek, causedthe damage. Courts have refused to apply the "mend the hold"doctrine in the absence of unfair surprise or arbitrariness. William J. Templeman Co. v. United States Fidelity & Guaranty Co.,317 Ill. App. 3d 764, 771-72 (2000). Union asserted in its answersto plaintiffs' complaints that the water was surface water. Moreover, plaintiffs' expert specifically addressed the surfacewater issue. Therefore we cannot say that plaintiffs weresurprised or prejudiced in any way. For this reason, we concludethat the trial court properly declined to apply the "mend the hold"doctrine with respect to Union's motion for summary judgment andplaintiffs' cross-motion for partial summary judgment.

Next, we turn to plaintiffs' argument that the trial courterroneously concluded that the damage to plaintiffs' home wascaused by surface water. The resolution of this issue turns uponthe definition of the policy term "surface water." Plaintiffscontend that the term refers to water flowing naturally whose flowhas not been altered in any way by man-made structures. Unionmaintains that surface water is simply rainwater that has fallen tothe ground, without regard to whether its flow has been affected byman-made objects. We do not find either party's definition to besufficiently precise.

The construction of an insurance policy's provisions is aquestion of law. Outboard Marine, 154 Ill. 2d at 108. Whenconstruing an insurance policy, a court must determine the intentof the parties to the contract. Outboard Marine, 154 Ill. 2d at108. To accomplish this task, the court must construe the policyas a whole, considering the risk undertaken, the subject matterthat is insured, and the purposes of the entire contract. OutboardMarine, 154 Ill. 2d at 108. If the policy's words are unambiguous,"a court must afford them their plain, ordinary, and popularmeaning." (Emphasis in original.) Outboard Marine, 154 Ill. 2d at108. A word's plain, ordinary, and popular meaning is " 'thatmeaning which the particular language conveys to the popular mind,to most people, to the average, ordinary, normal [person], to areasonable [person], to persons with usual and ordinaryunderstanding, to a business[person], or to a lay[person].' " Outboard Marine, 154 Ill. 2d at 115, quoting 2 Couch on Insurance