Exclusion for Violation of Consumer Protection Laws Does Not Bar Coverage for Alleged Violation of Landlord-Tenant Law

An Illinois intermediate appellate court has held that an exclusion for claims arising from “unfair or deceptive business practices” including “violations of any local, state or federal consumer protection laws” did not bar coverage against an insured property manager for alleged violations of a city residential landlord-tenant ordinance.  Evergreen Real Estate Servs., LLC v. Hanover Ins. Co., 2019 WL 5704599 (Ill. App. Ct. Nov. 4, 2019).

An insured property manager was sued for alleged violations of the Chicago Residential Landlord Tenant Ordinance.  It sought coverage from its professional liability insurer, which defended it under a reservation of rights.  In ensuing coverage litigation, the trial court ruled in favor of the insured and the insurer appealed.

In substance, the insurer argued that coverage was barred by an exclusion for any claim arising from “unfair or deceptive business practices” including “violations of any local, state or federal consumer protection laws.”  The court found that argument to be “logically sound,” but it was “not persuaded” that the ordinance was a “local consumer protection law” as used in the policy.  According to the court, the ordinance “has the purpose of balancing the rights and obligations of both tenants and landlords.”  By contrast, the court suggested that consumer protection laws, narrowly read in the policy, may refer solely to laws designed protect the public against oppressive practices by merchants.  The court thus ruled that while “landlord and tenants derive direct benefit from the [ordinance], … only purchasers of goods and services derive direct benefit from consumer protection laws.”  For that reason, the court found the exclusion not to apply.  The court also ruled that the exclusion for “unfair or deceptive business practices” did not apply because an insured could violate the ordinance, such as through “innocent inaction or oversight,” without being found to have committed an unfair or deceptive business practice as defined by state consumer protection statutes.