Two families ended up in a court dispute over a home sale gone wrong. The Lanes were sued by the Sterns. The Sterns bought a home from the Lanes and then wanted the sale voided! The home's new owner quickly discovered that the home had suffered serious water damage. The home sale included a disclosure agreement certifying that the previous owners were not aware of such damage. However, both the Lanes and their realtor were aware of the problems at the time of the real estate closing, but kept the fact away from the Sterns.

After receiving notice of the lawsuit (based on negligent misrepresentation), the Lanes notified Allstate Insurance Company, the carrier that handled their homeowner insurance. Allstate quickly denied the claim and then filed for summary judgment. The insurer asked the lower court to rule that, since the basis of the claim was ineligible for coverage, it had no obligation to either defend or indemnify the Lanes. The lower court agreed with the carrier and ruled in its favor. The Lanes appealed.

The higher court was not persuaded to see things differently. As it turned out, the Lanes had owned the home for many years and, over the space of 11 years, had replaced most of the home's windows. Unfortunately, due to improper window installation, many of the units allowed rainwater to seep into various areas. The Lanes were aware of damage to wall plaster, frames, flooring and even of pooling in the basement. Besides noticing damage in several areas of the home, the Stearns also alleged that strong sewer odors forced them from the home. The Lanes said that sewage had seeped under the home's foundation.

The Lanes raised the argument that they were, at least, owed a legal defense since the Sterns were alleging negligent misrepresentation. The insurer re-asserted its original argument, that the claim was due to a breached contract and that the damages were not accidental, so there was no "occurrence" to which the HO policy was to respond. The court did review two relevant cases and the policy language. In consideration of the complaint circumstances, it found that the Sterns were aware of water damage that was caused by faulty window installation and that the policy language regarding accidental damage was clear. Further the Lanes' complaint was based on damages they suffered from the Sterns' not telling them about the water damage. The lower court ruling in favor of Allstate was affirmed.

Allstate Insurance Company v. Plaintiff-Appellee v. John J. Lane and Joan M. Lane, Defendants-Appellants, Appellate Court of Illinois, First District, Second Division. No. 1-02-3550. December 23, 2003. Affirmed. 803 North Eastern Reporter. 2d 102.