128 F. Supp. 3d 1053
N.D. Ill.2015Background
- Acuity issued commercial general liability (CGL) policies to Szarek (a carpentry subcontractor) covering 2002–2009 and extended additional-insured status to parties Szarek agreed to insure by contract.
- Mulberry Grove Condominium Association sued developers/contractors (including Szarek and Lennar) for water infiltration and alleged damage to common elements, unit interior finishings, and unit owners’ personal property.
- Cary Woods Condominium Association pursued mandatory ADR (mediation then arbitration) against Cary and Lennar for similar construction-defect water infiltration claims; Cary/Lennar then sued Szarek for breach, indemnity, and declaratory relief.
- Acuity sought declaratory relief that its policies do not cover or obligate it to defend/indemnify Szarek, Lennar, or Cary; Lennar and Szarek counterclaimed that Acuity breached its duty to defend.
- The policies cover "property damage" caused by an "occurrence," define occurrence as an "accident," contain a contractual-liability exclusion, and include an additional-insured endorsement and a later (post-2005) revision to the insured-contract definition.
- The court granted Acuity’s partial Rule 12(c) motion and denied Lennar/Szarek’s cross-motion, holding Acuity had no duty to defend or indemnify under the facts alleged.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to defend for Mulberry Grove underlying complaint | No duty because the association seeks only repair/replacement of common elements (construction defects), which are not covered "property damage" caused by an "occurrence" | Underlying allegations of water damage to personal property and interior finishings potentially bring the claim within coverage; duty to defend should be liberally construed | Held: No duty to defend — the association seeks relief only for noncovered damage to the project itself; stray references to unit personal property do not create a potentially covered theory in that proceeding |
| Whether condominium association can recover for unit owners’ personal property (affecting duty to defend) | Acuity: association did not and cannot seek recovery for individual owners’ personal property in that suit, so no covered theory | Defendants: any allegation of personal-property damage (e.g., water infiltration) suffices to potentially trigger coverage regardless of ownership | Held: Association did not assert and could not obtain recovery for owners’ personal property in that proceeding; mere mention of personal-property damage does not create a covered theory |
| Contractual-liability exclusion for breach-of-contract and indemnity claims | Acuity: breach and failure-to-procure-insurance claims fall within contractual-liability exclusion, so no coverage | Szarek: some indemnity/contribution claims are characterized as negligence/contribution, not pure contract, so exclusion should not bar coverage | Held: Breach-of-contract claims excluded; indemnity/contribution claims arise from subcontracts and, given lack of any potentially covered property-damage allegation, there is no duty to defend or indemnify |
| Effect of post-2005 "insured contract" definition on indemnity coverage | Acuity: pre-2005 definitions exclude Szarek’s indemnity; post-2005 revision possibly narrows gap but coverage still depends on existence of potentially covered property damage | Defendants: post-2005 wording might render subcontracts "insured contracts" and trigger coverage for indemnity | Held: Court did not need to resolve insured-contract issue because underlying complaints alleged no property damage caused by an "occurrence," so no coverage is implicated even if subcontracts fit the insured-contract definition |
Key Cases Cited
- Lyerla v. AMCO Ins. Co., 536 F.3d 684 (7th Cir.) (construction defects are not "occurrences")
- Travelers Ins. Co. v. Eljer Mfg., Inc., 197 Ill.2d 278 (Ill.) (CGLs are not intended to pay to repair insured's defective work; they cover injury to others)
- Pekin Ins. Co. v. Richard Marker Assocs., Inc., 289 Ill.App.3d 819 (Ill. App. Ct.) (leak-caused damage to homeowner’s personal property can be a covered occurrence)
- Viking Constr. Mgmt., Inc. v. Liberty Mut. Ins. Co., 358 Ill.App.3d 34 (Ill. App. Ct.) (duty to defend arises if complaint potentially alleges covered damages)
- Momence Meadows Nursing Ctr., Inc. v. Health Care Indus. Liab. Ins. Program, 566 F.3d 689 (7th Cir.) (insurer has duty to defend if any theory of recovery in complaint potentially falls within coverage)
- Virginia Surety Co. v. Northern Ins. Co. of New York, 224 Ill.2d 550 (Ill.) (interpretation of "insured contract" in indemnity/exclusion context)
- Del Monte Fresh Produce, N.A., Inc. v. Transport Ins. Co., 500 F.3d 640 (7th Cir.) (duty-to-defend analysis looks to the actual underlying complaint, not hypothetical pleadings)