863 F.3d 690
7th Cir.2017Background
- 24‑story condominium at 200 North Jefferson in Chicago; National Decorating was subcontracted to apply Modac waterproof sealant to the building exterior.
- Board of Managers of the condominium association filed suit against developer, general contractor (McHugh), National Decorating, and others alleging widespread cracking, leakage, defects to common elements, and damage to unit interiors and furniture.
- National Decorating tendered defense to its insurer, Westfield; Westfield sued for a declaratory judgment that it had no duty to defend or indemnify under the CGL policy it issued to National Decorating.
- Policy covers "property damage" caused by an "occurrence" defined as an "accident, including continuous or repeated exposure to substantially the same general harmful conditions."
- District court granted summary judgment for the insureds, holding Westfield had a duty to defend; Westfield appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing for unit‑owner property claims | Association may represent unit owners and their allegations should trigger coverage | Association lacks authority under Illinois Condominium Property Act to sue for individual unit owners' personal property damage | Association lacks standing for unit owners' furniture claims; those allegations do not trigger duty to defend |
| Does negligent failure to apply sufficient sealant constitute an "occurrence" | Alleged negligent workmanship and resulting damage can be an "occurrence," especially where policy includes continuous/repeated exposure language | Failure to apply adequate paint is not an "accident," thus no "occurrence" and no coverage | Allegations of negligent, repeated exposure are sufficient to potentially allege an "occurrence" and trigger duty to defend |
| Is damage to the building itself excluded because it was new construction or within the project scope | Damage goes beyond National Decorating's work and affects parts outside its subcontracted scope | Project scope is the entire building; damage to the building (new construction) is excluded as economic loss to the insured's own work | Scope of the project is what National Decorating contracted to do; allegations of damage beyond its work potentially covered, so duty to defend exists |
| Duty to indemnify now | (Plaintiffs) If occurrence and covered damage proved, insurer must indemnify | (Defendant Westfield) No covered occurrence shown; indemnity not owed | Indemnification issue is premature; duty to defend resolved in insureds' favor but indemnity left for later determination |
Key Cases Cited
- Nautilus Ins. Co. v. Bd. of Dirs. of Regal Lofts Condo. Ass'n, 764 F.3d 726 (7th Cir.) (framework for duty to defend analysis)
- Lyerla v. AMCO Ins. Co., 536 F.3d 684 (7th Cir.) (construction defects often not "accidents," but context matters)
- Prisco Serena Sturm Architects, Ltd. v. Liberty Mut. Ins. Co., 126 F.3d 886 (7th Cir.) (negligent workmanship can constitute an "occurrence" under policies with continuous‑exposure language)
- Ohio Cas. Ins. Co. v. Bazzi Constr. Co., 815 F.2d 1146 (7th Cir.) (duty to defend where complaint alleges damage beyond the insured's own work)
- Milwaukee Mut. Ins. Co. v. J.P. Larsen, Inc., 956 N.E.2d 524 (Ill.) (damage to something other than the project itself can be an "occurrence" warranting coverage)