By: Samuel Levine
An intensely litigated area of construction law revolves around insurance. When is a complaint sufficient to trigger a duty to defend? What constitutes an occurrence? When can an insured recover for property damage caused by an occurrence? These questions are further complicated by different courts’ interpretations among various state and federal courts.
Acuity Insurance Company v. 950 West Huron Condominium Association, 2019 IL App (1st) 18073, addressed when a complaint filed against a subcontractor on a construction project is sufficient to trigger a duty to defend, under a commercial general liability (CGL) policy. The first district appellate court ruled in favor of the subcontractor, overturning the trial court motion for summary judgment.
The question hinged on what qualified as damage beyond “the project itself”—therefore an occurrence and property damage. In this case, the insured was a subcontractor performing discrete work on a project; the subcontractor had no control over other contractual obligations regarding other aspects of the project. The court held that the complaint’s allegation, that a subcontractor’s negligence caused something to occur to a part of the construction project outside of the subcontractor’s scope of work, caused an occurrence under the CGL policy language. Accordingly, the claims against the insured were potentially within the insurer’s policy coverage, entitling the subcontractor to a defense from the insurer. This is the case notwithstanding that it would not be an occurrence from a general contractor or developer’s perspective.
The Plaintiff, 950 West Huron Condominium Association, filed suit against its general contractor and construction manager (collectively Belgravia) to recover for alleged defects from Belgravia’s construction of the building envelope that allowed water to infiltrate the building and caused damage. The association alleged that it spent a substantial amount of money to identify and correct the damage and that it would incur additional costs for future repairs.
Belgravia in turn filed a third-party complaint against its subcontractors that worked on the building, including its carpentry subcontractor Denk & Roche Builders Inc. (Denk & Roche). Denk & Roche held CGL policies with Acuity Insurance Co. and Cincinnati Insurance Company (Cincinnati). Denk & Roche tendered its defense to both insurers. Cincinnati agreed to defend and represented Denk & Roche to settlement of the construction claims. However, Acuity denied that the allegations of the complaint triggered a duty to defend under its CGL policy.
Finding in favor of the insured, the court relied on language in the policy, existing Illinois law and federal case law interpreting Illinois law. The Acuity policy obligated the insurer to defend Denk & Roche in any suit to recover for “property damages” caused by an occurrence. The court explained that CGL policy is intended to provide coverage for injury or damage to the person or property of others (and not) to pay the costs associated with repairing or replacing the insured’s defective work and products. “Property damage” is defined under the policy as either “physical injury to tangible property, including all resulting loss of use of that property,” or “loss of use of tangible property that is not physically injured.”
The standard-form CGL policy defined an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Illinois courts have defined an accident as an “unforeseen occurrence, usually of an untoward or disastrous character, or an undersigned sudden or unexpected event of an inflictive or unfortunate character. The court noted that a CGL policy does not cover an accident of faulty workmanship but rather faulty workmanship which causes an accident. The court explained that from the eyes of the subcontractor, the “project” is limited to the scope of its own work. They further reasoned that the precise nature of any damage that might occur is outside of that scope, and is as unknown or unforeseeable as damage to something entirely outside of the construction project.
The court reasoned that the subcontractor’s allegedly poor workmanship caused damage to the overall project and individual units within the building – damage that went beyond the scope of its own work. As a result, it appears that a subcontractor potentially has coverage under its CGL policy under Illinois law, if the subcontractor performs defective work that causes damage to the project’s property outside of its own scope of work.