The court states the issue in its first sentence: “This case presents a straightforward, but unsettled, question of Illinois law: Is there an 'occurrence' under standard-form comprehensive general liability ("CGL") policies when the named insured contractor's faulty workmanship causes damage to a building that is beyond the scope of its own work there?” Applying prior Illinois precedent, a District Court judge has answered the question with a “yes.”
The underlying claims were brought by a condo association against the original developer, prime contractor, and at least one subcontractor – a painting company. The prime contractor filed its own claims against the painting sub, as well, for breach of contract, indemnity, and negligence. The painting sub tendered defense of the case to its CGL carrier, which denied coverage and then filed a separate action for declaratory relief. That separate lawsuit gave rise to the decision discussed here.
The court cites several state court decisions on this point. First, the “natural and ordinary consequences of faulty construction," such as the cost to repair and replace the faulty workmanship itself, are not accidental and thus are not a covered ‘occurrence.’” Second, “in order for a construction defect to qualify as an ‘occurrence,’ it must damage something other than the ‘project itself’ or the ‘building itself.’” Third, “CGL insurance is meant to protect the policyholder from liability for damage to the property of others.” Applying these principles to the case at hand, the court noted that the underlying case alleged damage to the building caused by the painting sub that went beyond the scope of the painting sub’s work. Thus, the allegations if proven would result – at least for some of the causes of action – in a covered claim. So the carrier had a duty to defend, and its claims for declaratory relief were denied. The case is Westfield Ins. Co. v. Nat'l Decorating Serv., 2015 U.S. Dist. LEXIS 159140 (Nov. 25, 2015) (subscription required).