Nautilus Insurance v. Board of Directors of Regal Lofts Condominium Ass'n
764 F.3d 726
7th Cir.2014Background
- Developer renovated the Regal Lofts building and purchased two Nautilus policies for 1998–1999 and 1999–2000.
- Policies cover bodily injury and property damage but include exclusions for work-related damage and products-completed operations hazards.
- Water damage and construction defects were alleged in state court, initially to the building itself, not to personal property.
- Nautilus denied coverage and later filed a federal declaratory judgment action; the Developer countered and the Board assigned its rights after settlement.
- District court granted Nautilus summary judgment, holding no duty to defend or indemnify due to lack of an applicable occurrence and product-completed operations exclusion applying to personal property.
- On appeal, the Seventh Circuit affirms, addressing duty to defend, estoppel, and the completed operations exclusion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the underlying water damage constitutes an occurrence under the policies. | Board contends it is an occurrence. | Nautilus contends damage to the building from faulty workmanship is not an occurrence. | No; damage to the building itself is not an occurrence under Illinois law. |
| Whether Nautilus is estopped from raising coverage defenses due to delay. | Board argues Nautilus waited 23 months. | Nautilus acted within a reasonable time after the second amended complaint. | Not estopped; delay was within a reasonable period because no duty to defend existed until the second amended complaint alleged personal property damage. |
| Whether the personal property damage in the second amended complaint falls within the products-completed operations hazard exclusion. | Damage to residents' personal property may be covered. | Exclusion applies once units are completed and used for their intended purpose. | Exclusion applies; the units were completed and personal property damage occurred after completion thus outside coverage. |
Key Cases Cited
- Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307 (Ill. 2006) (duty to defend depends on potential coverage in underlying complaint)
- Westfield Nat’l Ins. Co. v. Cont’l Cmty. Bank & Trust Co., 804 N.E.2d 605 (Ill. App. Ct. 2003) (accident definition and construction defect cases determine ‘occurrence’)
- Stoneridge Dev. Co. v. Essex Ins. Co., 888 N.E.2d 633 (Ill. App. Ct. 2008) (damages from faulty workmanship generally not an ‘occurrence’)
- Travelers Ins. Co. v. Eljer Mfg., Inc., 757 N.E.2d 481 (Ill. 2001) (premature expansion of coverage for defective work rejected)
- Lagestee-Mulder, Inc. v. Consol. Ins. Co., 682 F.3d 1054 (Ill. App. Ct. 2009) (Illinois rule: ordinary consequences of defective workmanship not an occurrence)
- CMK Dev. Corp. v. W. Bend Mut. Ins. Co., 917 N.E.2d 1155 (Ill. App. Ct. 2009) (completed operations exclusions control coverage for post-completion damages)
- Country Mut. Ins. Co. v. Carr, 867 N.E.2d 1157 (Ill. Ct. App. 2007) (outlier cited against the majority view on coverage)
- Westchester Fire Ins. Co. v. G. Heileman Brewing Co., 747 N.E.2d 955 (Ill. App. Ct. 2001) (estoppel assessment in insurance defense context)
- Emp’rs Ins. of Wausau v. Ehlco Liquidating Trust, 708 N.E.2d 1122 (Ill. 1999) (limits on insurer’s defense duties and timing)