When an insurance company denies coverage, an Illinois condominium association should not assume the denial is correct. In a recent federal court decision, Cincinnati Ins. Co. v. Metropolis Condo. Ass’n, No. 24 C 4328, 2026 WL 891864 (N.D. Ill. Mar. 31, 2026), the United States District Court for the Northern District of Illinois held that Cincinnati Insurance had a duty to defend a condominium association in an underlying lawsuit involving breach of contract and tortious interference with contract claims. The case is important because many directors and officers (D&O) policies contain contract exclusions. However, as this decision shows, an exclusion may not eliminate the insurer’s duty to defend if at least one theory of liability potentially falls within coverage.
Facts of the Condo Insurance Coverage Dispute
The Metropolis Condominium Association operated a high-rise condominium in downtown Chicago. The condominium contains residential units and a parking garage. The condominium association contracted with outside vendors to provide parking services in the garage. From 2012 to 2018, the condominium association entered into a contract with Addis, a company formed by one of the parking garage managers. Under the contract, the condominium association was required to pay Addis for operating expenses, including the salaries, wages, payroll taxes, and fringe benefits for the union workers.
In 2018, Addis and the condominium association entered into a new contract for 2018 to 2020 with similar terms. Five months into the agreement, the condominium association directed Addis to eliminate all fringe benefits for union workers. Addis asked the union for a release from the collective bargaining agreement, but the union refused. The condominium association then instructed the manager of Addis to form a new non-union company to replace Addis, which led to the creation of TBF Parking LLC and ultimately to Addis and TBF Parking LLC stopping their fringe benefit contributions.
In 2019, the union sued Addis and TBF Parking LLC, seeking an order requiring payment of the fringe benefit contributions that should have been paid. In 2021, a federal court judge found Addis and TBF Parking LLC liable for $327,253.16 for failing to make the fringe benefit contribution. One month after the judgment, the condominium association terminated its contract with TBF Parking LLC. The union attempted to collect the judgment against TBF Parking LLC, but the company was insolvent. On April 17, 2023, the union filed a lawsuit against the condominium association in the Cook County Circuit Court for breach of contract and tortious interference with contract. The Cook County lawsuit was settled and dismissed with prejudice on April 7, 2025.
The condominium association submitted an insurance claim to its insurance company, Cincinnati Insurance, for an insurance policy that was in effect from March 1, 2021, to March 1, 2024. Cincinnati Insurance denied coverage and filed an action for declaratory relief seeking an order that it had no duty to defend or indemnify the condominium association in the lawsuit filed in Cook County Circuit Court. The condominium association filed a counterclaim for declaratory relief, asserting that Cincinnati Insurance had an obligation to provide a defense and to pay any judgment under the insurance policy. Both parties filed motions for summary judgment.
The Insurance Carrier Had a Duty to Defend the Condo Association
In reviewing the claims, the court analyzed the condominium association’s Directors and Officers Insurance Policy (“D&O”) to determine whether Cincinnati Insurance had a duty to defend the lawsuit. As indicated by the court, an insurer’s duty to defend arises if the allegations in an “underlying complaint fall within, or potentially within, the policy’s coverage.” Amerisure Mut. Ins. Co. v. Microplastics, Inc., 622 F.3d 806, 810 (7th Cir. 2010).
A. The Contract Exclusion in the Condo Association’s D&O Policy Did Not Apply
Cincinnati Insurance argued that insurance coverage did not exist because it had no duty to defend or indemnify claims for breach of contract. The condominium association argued that the claim for tortious interference was separate from the claim for breach of contract and triggered the insurance company’s duty to defend. The pertinent language of the insurance policy stated as follows:
We are not liable to pay, indemnify or defend any claim for any actual or alleged liability of any insuredsunder the terms, conditions or warranties of any oral or written contract or agreement, except:
- To the extent the liability would have attached to any such insureds in the absence thereof; or
- With respect to defense costs only, any claim brought by or on behalf of any member of the organizationwhich is based upon, arising from, or in consequence of any actual or alleged breach of the organization’scovenants, conditions and restrictions or by-laws; provided, however, that this exclusion shall not apply to defense costs with respect to any claim against any insured persons.
Cincinnati Insurance argued that the term “claim” is determined by reading the entire complaint, not on a count-by-count basis or based on legal labels, and that all the claims related to the breach of a contract. However, the Court held that each theory of liability must be analyzed separately, and that “if even one theory in the complaint falls within the coverage provided by an insurance policy, the insurer has a duty to defend its insured.” Ill. Mun. League Risk Mgmt. Ass’n v. City of Genoa, 2016 IL App (4th) 150550, ¶ 13, 51 N.E.3d 1133, 1136.
In analyzing the claim for tortious interference with contract, the Court held that liability was not established based on the terms of the management agreement. Rather, liability would be established by inducing another party to breach the management agreement, not by the condominium association’s breach of the management agreement. Specifically, the Court held as follows:
The breach of contract count arises from Metropolis’s actions under the terms of a contract, the management agreement. The tortious interference with contract count arises from Metropolis’s actions that are a step removed from the CBA between Addis/TBF and the union. The tortious interference with contract theory of liability does not fall under the terms of any contract.
As such, the Court held that the condominium association’s insurance carrier was obligated to provide a defense, as at least one claim in the complaint was covered under the insurance policy, and the contract exclusion did not apply to the tortious interference claim.
B. The Lawsuit Constituted a “Loss” under the Condo Association’s D&O Policy
Cincinnati Insurance also argued that the lawsuit was not a covered “loss” under the insurance policy. Specifically, the insurance company argued that the complaint sought disgorgement of the employee benefit contributions the condominium association was obligated to pay under the management agreements, civil fines and penalties, and prejudgment interest. The condominium association argued that the lawsuit is a covered “loss” because it sought damages related to its allegedly tortious conduct. The Court analyzed the insurance policy definition of “loss,” which stated as follows:
Loss means defense costs and the total amount of monetary damages which the insured becomes legally obligated to pay on account of any claim for a wrongful act with respect to which coverage hereunder applies, including damages, judgments, settlements, prejudgment and post judgment interest, and punitive or exemplary damages or the multiplied portion of any multiplied damage award if insurable under the applicable law most favorable to the insurability of punitive, exemplary or multiplied damages.
…
Loss shall not include:
- Taxes, criminal or civil fines or penalties imposed by law, except as noted above;
- Any restitution, disgorgement or similar sums; or
- Any matter deemed uninsurable under the law pursuant to which this Coverage Part shall be construed
The Court held that the damages sought in the Cook County lawsuit qualified as a loss, as it sought damages, not a disgorgement of funds. Accordingly, the defense costs and the damages constituted a “Loss” under the insurance policy, which triggered the insurance carrier’s duty to defend.
Key Takeaways for Condo Associations when D&O Insurance Claims are Denied
The decision in Cincinnati Ins. Co. v. Metropolis Condo. Ass’n, No. 24 C 4328, 2026 WL 891864 (N.D. Ill. Mar. 31, 2026) is important for condominium associations for several reasons, which are as follows:
- Condo Association Can Challenge the Invalid Denial of Insurance Claims. One important lesson from this case is that the insurance company is not always right. In this case, the condominium association consulted with a community association attorney and filed claims against Cincinnati Insurance for the improper denial of insurance coverage, which ultimately saved them a great deal of money.
- Condo Insurance Companies Must Defend Lawsuits if any Claim is Covered under the Insurance Policy. Insurance companies may deny claims under various policy exclusions. One common exclusion, depending on the insurance policy, is an exclusion for claims for breach of contract. However, if any claim is covered, just because a lawsuit contains a claim for breach of contract does not mean that the insurance carrier does not have to provide a defense.
The main lesson for Illinois community associations is that a denied insurance claim should be reviewed carefully before the board accepts the insurer’s position. Policy exclusions matter, but they do not always end the analysis. If a lawsuit includes multiple claims, the insurance company may still have a duty to defend when one theory of liability potentially falls within coverage. Community associations should promptly tender claims, preserve coverage correspondence, and consult experienced community association counsel when an insurer denies the defense of a lawsuit.
