delivered the opinion of the court:
At issue in this case is whether Essex Insurance Company (Essex) is required to provide coverage to its insured, Stoneridge Development Company, Inc., as well as to an additional insured under the policy, Highland Glen Associates (collectively Stoneridge). The policy came into play after homeowners John and Marie Walski brought suit against Stoneridge for damage to their townhome, allegedly caused by Stoneridge’s construction of the residence on and/or near improperly compacted soil. The Walskis also sought relief from Residential Warranty Corporation and its underwriter, Western Pacific Mutual Insurance Company (collectively WPIC), which had provided a warranty against structural defects to the home. In the instant case, Essex appeals from the trial court’s grant of summary judgment in favor of Stoneridge, WPIC, and the Walskis. The trial court ruled that Essex had an undisclosed conflict of interest with Stoneridge and was therefore estopped from denying coverage. We reverse, concluding that Essex did not have a conflict of interest and that the policy does not otherwise cover Stoneridge’s liability.
I. BACKGROUND
Stoneridge is a general contractor in the business of developing and constructing new residential dwellings. Essex insured Stoneridge under a commercial general liability (CGL) policy effective between April 5, 1995, and April 5, 1996. The policy had a general aggregate limit of $2 million, a “Products/Completed Operations Aggregate Limit” of $1 million, and a per-occurrence limit of $1 million. The policy coverage relevant here is contained in the following portions of the policy:
“COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend any ‘suit’ seeking those damages.
b. This insurance applies to ‘bodily injury’ and ‘property damage’ only if:
(1) The ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory;’ and
(2) The ‘bodily injury’ or ‘property damage’ occurs during the policy period.”
The policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” It defines “properly damage” as:
“a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the ‘occurrеnce’ that caused it.”
The policy excludes “ ‘ [pjroperty damage’ to ‘your work’ 1 arising out of it or any part of it and included in the ‘products-completed operations hazard,’ ” 2 but the exclusion is inapplicable “if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.”
The Walskis bought a new townhome from Stoneridge in August 1995 for $146,163. In conjunction with the sale, the Walskis and Stoneridge enrolled in a warranty program through WPIC. The warranty insured against major structural defects for 10 years. Stoneridge was the warrantor for the first two years, and WPIC was the warrantor for years 3 through 10. Stoneridge further warranted that the home complied with certain building codes and that, if it did not, Stoneridge would be responsible for the entire 10-year period for warranty claims stemming from noncompliance. Under a membership agreement between Stoneridge and WPIC, if Stoneridge refused or was unable to fulfill its warranty obligations, WPIC was required to do so, and Stoneridge agreed to then indemnify WPIC for such expenses.
On August 6, 2001, the Walskis brought suit against Stoneridge, in McHenry County. They alleged that their house had structural problems because the land underneath it and in portions of the common area “consistís] of unsuitable structural bearing soils and earth retention” and that “soil movement has caused and is causing the load bearing elements of [the] townhome to move, crack and fail, such that, without substantial repair, [the] townhome will in the very near future become dangerous and uninhabitable.” The Walskis alleged claims of breach of the purchase contract and breach of the implied warranty of habitability. On their motion, the action was stayed in November 2001.
In January 2002, the Walskis brought an arbitration action against WPIC, under an arbitration clause in the warranty agreement. They alleged that the “footings” of their townhome had “failed due to unstable subsurface soils causing significant damage to the home.” The Walskis sought to recover the home’s purchase price.
In October 2002, WPIC brought a third-party action against Stoneridge within the arbitration action. WPIC alleged that the Walskis notified Stoneridge of structural problems in 1996 and notified WPIC of the soil problem in 2000. WPIC further alleged that soil testing revealed that Stoneridge had failed to properly compact the soil “on common property adjacent at or adjacent to” the Walskis’ town-home. WPIC claimed that Stoneridge breached the warranty program and membership agreements by failing to properly compact the soil; comply with building codes; properly repair the damage; and obtain a WPIC compliance inspection. WPIC also asserted claims of equitable contribution, subrogation, and partnership indemnificаtion. WPIC sought indemnification for any amounts it paid out and expenses it incurred under the warranty agreement.
In January 2003, the Walskis brought a complaint against Stone-ridge within the arbitration action. As in their McHenry County action, the Walskis alleged that Stoneridge had breached the purchase contract and the implied warranty of habitability.
Stoneridge was initially defended in the McHenry County and arbitration actions by its private attorney, Thomas Scherschel of O’Hagan, Smith & Amundsen. Essex then agreed to defend Stone-ridge under a reservation of rights, and in February 2003, it retained Jack Riley of Johnson & Bell to defend Stoneridge. Riley substituted his appearance for Scherschel.
On April 10, 2003, Essex sent to Stoneridge a letter discussing Essex’s coverage position and reiterating its reservation of rights. In discussing the Walskis’ arbitration complaint, Essex stated that the Walskis were alleging that Stoneridge “breached [its] contract to convey a ‘Unit’ as that term is ‘understood’ by the parties and allegedly breached the implied warranty of habitability.” After reciting some of the policy provisions, Essex stated:
“None of the complaints cited above alleges any ‘bodily injury’ within the definition cited above. To the extent, however, the Walski Complaint, both in law and arbitration, and the Highland Glen Counter-Complaint 3 potentially allege[ ] ‘property damage,’ Essex agrеes to participate in the defense of Stone Ridge [sic] under a full and complete reservation of rights. Moreover, we are unable at this point to determine factually whether the potential ‘property damage’ arises out of an ‘occurrence’ as the term is defined by the policy. In the event that our investigation or discovery reveals that the alleged damages did not arise out of an ‘occurrence’ Essex reserves the right to withdraw from the defense of this matter if appropriate.”
In relation to WPIC’s arbitration third-party complaint against Stoneridge, Essex stated that it similarly did not allege any “bodily injury” under the policy. Essex then stated:
“Moreover, the complaint does not allege ‘property damage’ as that term is defined. The allegations of the complaint clearly indicate that [WPIC is] seeking indemnity and other damages from Stone Ridge [sic] based upon Stone Ridge’s [sic] alleged breach of contract. We have determined that this alleged conduct does not fall within the definitions of ‘bodily injury’ or ‘property damage,’ as the claims against Stone Ridge [sic] are contractual in nature. Furthermore, [WPIC’s] claim for indemnity does not allege an ‘occurrence’ as that term is defined by the Policy. It is our understanding that [WPIC’s] claim arises out of the alleged failure of Stone Ridge [sic] to meet alleged contractual obligations. Accordingly, this alleged breach of contract is not the consequence of any type of ‘accident’ as is required by the Policy.” (Emphasis added.)
Essex stated that it would still defend Stoneridge, under a reservation of rights, on these matters but that it reserved the right to withdraw from the defense if it determined that WPIC’s allegations did not fall within the policy.
A few months later, on July 29, 2003, the arbitrator entered an interim award. It stated:
“Shortly after closing, cracks developed in the foundation of the residence and have continued to develop in other parts of the residence causing varying amounts of damage. It is undisputed that a cause of this cracking is related to the fact that the house was constructed on a slope and with improperly compacted soils.
% Sji sji
*** The cracking condition was made known to [Stoneridge] in the first year after closing in a manner sufficient to trigger the Builder’s warranty obligation.”
The arbitrator ruled that Stoneridge was liable to the Walskis for breach of express warranties contained in the purchase agreement and the warranty agreement. Based on this ruling, the arbitrator further determined that he did “not have to reach the question whether any implied warranty of habitability applies or was waived.” The arbitrator ordered Stoneridge to rеpurchase the property for $200,000, which represented the original purchase price plus diminished market value. WPIC was ordered to financially guarantee this obligation up to $147,773. Stoneridge was further liable to WPIC under the warranty agreement for any amount paid under this guarantee. Moreover, Stoneridge was responsible for the Walskis’ attorney fees and costs; Stoneridge and WPIC were jointly and severally liable for the arbitration expenses; and Stoneridge was liable to WPIC under the warranty agreement for costs from the Walskis’ claims.
The arbitrator’s final award, issued on December 18, 2003, ordered Stoneridge to pay $291,537.04 to the Walskis for their award plus attorney fees and costs and $176,353.51 to WPIC for costs from the Walskis’ claims. The McHenry County circuit court subsequently confirmed the arbitration award. 4
Stoneridge is now insolvent and unable to satisfy the judgment against it. The Walskis have thus far received $153,848 from WPIC and $3,750 from Stoneridge pursuant to a turnover order.
Stoneridge brought the instant action against Essex on January 22, 2003, while the arbitration action was still pending. Stoneridge sought a declaration that Essex had a duty to defend and indemnify it against the Walskis’ claims. During the course of the proceedings, Stoneridge submitted an affidavit from its principal, James Madden, stating that all the work performed on and around the Walskis’ home was done by subcontractors hirеd through Stoneridge, as Stoneridge did not employ any carpenters or tradesmen.
After the final arbitration award was entered in December 2003, Stoneridge amended its complaint to seek indemnification for the award and to add WPIC and the Walskis as defendants. In turn, Essex filed a counterclaim for a declaratory judgment against Stoneridge, WPIC, and the Walskis. Thereafter, WPIC filed counterclaims against Essex for indemnity and estoppel. WPIC alleged that Essex was estopped from denying coverage to Stoneridge, because Essex had a conflict of interest with Stoneridge in its defense of the Walskis’ claims. WPIC based this allegation on Essex’s reservation of rights letter, which WPIC argued left Stoneridge facing a covered implied warranty of habitability claim as well as uncovered contract claims. According to WPIC, Essex failed to inform Stoneridge of this conflict of interest. The Walskis also filed counterclaims against Essex on these grounds. Correspondingly, Stoneridge amended its second amended complaint to include an estoppel count based on this alleged conflict of interest.
All parties then filed cross-motions for summary judgment. The trial court issued a letter opinion on July 6, 2006. It stated:
“All parties alleging Estoppel assert that in Essex’s communications with Stoneridge *** in anticipation of the above-referenced arbitrаtion [Essex] failed to disclose a potential conflict of interest in Essex’s representation of its insureds. The parties argue that in light of this lack of disclosure Essex now should be estopped from denying indemnity to Stoneridge ***.”
The trial court found that, based on Stoneridge’s insolvency and the final judgment against it, WPIC and the Walskis had standing to assert estoppel.
The trial court further stated that the “conflict claimed arises as a result of the tension between the different types of claims asserted in the underlying suit and the incentives Essex had in defending against those underlying claims.” The trial court affirmatively quoted the following passage from WPIC’s counterclaim:
“ ‘Essex’s [April 10, 2003,] Reservation of Rights letter recognized the potential for coverage under the implied warranty of habitability claim and rejected coverage for the contract claims. The effect of the reservation of rights was to leave Stoneridge *** facing both covered and uncovered claims. Essex never informed Stone-ridge *** that an attorney who was selected, retained, paid, and controlled by Essex could have an incentive to structure the defense so that Stoneridge *** [was] found liable on the uncovered contract/ indemnity claims rather than on the covered implied warranty of habitability claim.’ ”
The trial court further found that, in addition to failing to decline to defend due to the conflict of interest, Essex also induced Stoneridge to surrender its own defense, which, under case law, amounted to prejudice sufficient to support estoppel. The trial court ruled that Essex was estopped from denying coverage, and it granted the motions for summary judgment in favor of Stoneridge, WPIC, and the Walskis.
In the letter opinion, the trial court also directed the “prevailing party [to] prepare, circulate, and present for signature any appropriate order.” On August 7, 2006, Essex moved for the trial court to reconsider its ruling as set forth in its letter opinion, which Essex stated it was treating “as though it were the order entered” for purposes of the motion to reconsider.
On August 15, 2006, the trial court entered a judgment order pursuant to its July 6 letter opinion. In a separate order, the court entered and continued Essex’s motion to reconsider and set a briefing schedule on the matter.
On October 20, 2006, WPIC objected to the trial court’s jurisdiction to hear Essex’s motion to reconsider, and Stoneridge and the Walskis joined in the objection. They argued that the trial court lacked jurisdiction because Essex’s motion to reconsider was filed before the entry of the trial court’s final judgment and that a premature motion to reconsider could not suspend or toll the finality or enforcеment of the August 15, 2006, judgment. The trial court overruled the objection and denied Essex’s motion to reconsider. Essex filed its notice of appeal on November 17, 2006.
On appeal, Essex argues that: (1) the trial court erred in holding that it was estopped from denying coverage, and (2) there is no coverage under the policy for Stoneridge’s liability to the Walskis and WPIC because the damage to the Walskis’ home was not caused by an “occurrence,” as defined by the policy, and because contractual liability for economic damages does not constitute “property damage” under the policy.
II. ANALYSIS
A. Jurisdiction
We first address appellees’
5
argument that we lack jurisdiction over this appeal. Appellees previously moved to dismiss the appeal for lack of jurisdiction, and this court denied the motion. However, we have an independent duty to determine whether we have jurisdiction, and we may reconsider our ruling on a motion to dismiss an appeal at any time before the disposition of the appeal. See In re Marriage of Waddick,
Appellees contend that Essex’s motion to reconsider was premature and did not toll the time for appeal, resulting in Essex’s notice of appeal being untimely. Appellees note that, under Illinois Suрreme Court Rule 303(a)(1) (eff. May 1, 2007), a party must file a notice of appeal either (1) within 30 days after the entry of a final judgment, or (2) if a timely postjudgment motion “directed against the judgment” is filed, within 30 days of the order disposing of the postjudgment motion. Appellees also note that, under Supreme Court Rule 272 (137 Ill. 2d R. 272), if a trial court announces a final judgment but requires the prevailing party to draft an order, the judgment becomes final only when the signed judgment is filed. In this case, the trial court’s July 6, 2006, letter opinion explicitly directed the prevailing parties to draft an order. Appellees therefore reason that the trial court’s ruling granting summary judgment in their favor became final and appealable only upon the entry of the August 15, 2006, judgment order.
Appellees further argue that Essex’s notice of appeal was then due to be filed within 30 days after the date of the judgment, in mid-September, absent a timely filed postjudgment motion. Appellees argue, with support, that, while a timely filed motion to reconsider tolls the time for filing an appeal (see Ill. S. Ct. R. 303(a)(1) (eff. May 1, 2007)), a motion to reconsider that is filed before the final judgment is entered is not timely and does not extend the time for filing a notice of appeal. See Archer Daniels Midland Co. v. Barth,
Essex counters with the following four arguments: (1) the August 15, 2006, order was not a final order, because Essex’s August 7 motion to reconsider remained pending at the time the order was entered; (2) if the August 15 order was final, the time to appeal was tolled because the trial court entered and continued Essex’s motion to reconsider after it entered the August 15 order; (3) appellees’ active participation, without objection, in posttrial proceedings on the merits revested jurisdiction in the trial court; and (4) appellees are estopped from challenging the timeliness of its motion to reconsider, because they did not object to the procedure set by the trial court for briefing and hearing the motion.
We agree with Essex’s second argument. While Essex filed its motion to reconsider on August 7, 2006, after the trial court’s letter opinion but before the filing of the final judgment, the final judgment corresponded to the letter opinion, and Essex’s motion therefore also attacked or “was directed against” the substance of the judgment. Immediately after the trial court entered the August 15, 2006, final judgment, it “entered and continued” Essex’s motion to reconsider. When a trial court enters and continues a motion, the result is that the motion is left pending. See Yazzin v. Meadox Surgimed, Inc.,
B. Estoppel
Turning to the merits, Essex first argues that the trial court erred by granting appellees summary judgment based on estoppel. Summary judgment is appropriate only where the pleadings, affidavits, depositions, admissions, and exhibits on file, when viewed in the light most favorable to the nonmoving party, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Zekman v. Direct American Marketers, Inc.,
We begin by discussing the relevant case law on an insurer’s duty to defend. An insurer’s duty to defend its insured is much broader than its duty to indemnify the insured. Outboard Marine Corp. v. Liberty Mutual Insurance Co.,
In such circumstances, the insurer must either defend the suit under a reservation of rights or seek a declaratory judgment that there is no coverage. Midwest Sporting Goods Co.,
An insurer’s duty to defend typically includes the right to control the defense so that the insurer may protect its financial interest in the litigation’s outcome and minimize unwarranted liability claims. Illinois Masonic Medical Center,
This court recently explained the test for determining whether there is a conflict of interest:
“[W]e must compare the allegations of the underlying complaint against the insured to the terms of the policy at issue. *** If, after comparing the complaint to the insurance policy, it appears that factuаl issues will be resolved in the underlying suit that would allow insurer-retained counsel to ‘lay the groundwork’ for a later denial of coverage, then there is a conflict between the interests of the insurer and those of the insured. [Citation.] Put another way, if, in the underlying suit, insurer-retained counsel would have the opportunity to shift facts in a way that takes the case outside the scope of policy coverage, then the insured is not required to defend the underlying suit with insurer-retained counsel. [Citations.] Rather, the insured is entitled to defend the suit with counsel of its choosing at the insurer’s expense.” W.H. McNaughton Builders, Inc.,363 Ill. App. 3d at 511 .
The appellate court has also articulated the test as whether, when comparing the complaint’s allegations to the policy’s terms, the insurer’s interest “would be furthered by providing a less than vigorous defense to those allegations.” Royal Insurance Co.,
Examples of cases where courts found conflicts of interest between insurers and their insureds are Peppers, Murphy, and W.H. McNaughton Builders, Inc. In Peppers, the insured shot someone whom he thought was trying to break into his store. Peppers,
In Murphy, a woman was injured while riding as a passenger in a preschool van. The woman sued the van’s driver and the van’s owners, the latter on the basis that the driver was acting as an agent of the owners. Murphy,
In W.H. McNaughton Builders, Inc., this court held that a conflict of interest existed between an insurer and the insured builder because, although they had a mutual interest in a finding that the builder was not liable for mold damage, the insurer was equally protected if the damage were found to have occurred before the policy’s inception. W.H. McNaughton Builders, Inc.,
Essex argues that there is no conflict of interest in this case because the Walskis’ claims alleged only one underlying theory of liability, breach of contract, and the policy did not cover that type of liability. Essex argues that the claims also alleged only one type of damages, economic damages arising from construction defects due to faulty workmanship, and that there was no potential for coverage. Additionally, Essex maintains that this case does not present the type of situation, present in W.H. McNaughton Builders, Inc., where there was an issue as to whether the damage occurred during or outside the policy period.
Essex further argues that the trial court erred in relying on the reservation of rights letter in finding estoppel, because any conflict must appear on the face of the complaint and because Essex never stated in the letter that the brеach of implied warranty of habitability claim would be covered while the breach of contract claim would not. Essex maintains that it “did not parse coverage by claims but by damages.” (Emphasis in original.) According to Essex, it recognized with respect to the Walskis’ claims that only “property damage” caused by an “occurrence” would be covered. It argues that the same is true with respect to WPIC’s claims, in that it did not state that WPIC’s breach of contract “claim” was not covered but rather explained that breach of contract did not constitute an “occurrence” and that the ensuing damages were not “property damage.” Essex also argues that both of the theories that the Walskis relied on, breach of contract and breach of implied warranty of habitability, are grounded in contract.
Appellees argue as follows. Only two types of claims were addressed in Essex’s reservation of rights letter, contract and implied warranty of habitability. Essex’s letter specifically ruled out coverage for the contract claims, thereby recognizing the potential for coverage under the implied warranty of habitability claim. The implied warranty of habitability is a creature of public policy that is independent of contract law. Appellees further maintain that, while prejudice is presumed under Peppers when the insured has been induced to surrender its right to control its own defense, in this case there was actual prejudice. Appellees state that Essex’s retained counsel filed with the arbitrator seven briefs seeking dismissal of the implied warranty of habitability claim, the potentially covered claim, and asking that damages be limited to the contract’s remedy provisions, the uncovered contract claims. Appellees contend that Essex’s strategy succeeded because the arbitrator stated that, having found against Stoneridge on the breach of contract claims, he did not have to address the implied warranty of habitability claim. According to appellees, Essex then used the arbitrator’s decision to support its motion for summary judgment that there was no coverage, wherein Essex stated that “[i]t is significant that the arbitrator found that Stone-ridge’s obligations to the Walskis arise from the purchase contract.”
In analyzing this issue, we first address whether the conflict of interest must appear on the face of the complaint, as Essex argues, or whether the trial court could properly rely on Essex’s reservation of rights letter. Essex points out that the test for determining whether there is a conflict of interest is to “compare the allegations of the underlying cоmplaint against the insured to the terms of the policy at issue.” W.H. McNaughton Builders, Inc.,
We next look to the nature of an implied warranty of habitability claim. The doctrine of implied warranty of habitability was originally created to provide some parity in landlord-tenant relationships, because tenants have much less bargaining power in such relationships and lack the same capacity to inspect and maintain the premises. Board of Directors of Bloomfield Club Recreation Ass’n v. The Hoffman Group, Inc.,
The implied warranty of habitability “is implied as a separate covenant between the builder-vendor and the vendee.” Petersen,
Appellees argue that an implied warranty of habitability claim is not a contract-type claim. They focus on the above-quoted language that the implied warranty of habitability is a “creature of public policy” and a “judicial innovation” independent of the contract of sale. Essex argues that the implied warranty of habitability is contractual because, although the covenant itself exists independently of the purchase contract, liability is still tied to the contract because that is the instrument from which the covenant is implied. Essex argues that its position is further supported by courts’ treatment of claims for breach of the implied warranty of habitability. Essex cites Cooper v. United Development Co.,
We agree with Essex’s argument. While the doctrine is a judicial construct that exists apart from the contract of sale (Naiditch,
We now focus our attention on Essex’s reservation of rights letter. As mentioned, Essex recognized in the letter that the Walskis were alleging claims of breach of contract and breach of the implied warranty of habitability. Essex quoted some of its policy provisions and then stated:
“None of the complaints cited above alleges any ‘bodily injury’ within the definition cited above. To the extent, however, the Whiski Complaint, both in law and arbitration *** potentially alleges ‘property damage,’ Essex agrees to participate in the defense of Stone Ridge [stc] under a full and complete reservation of rights. Moreover, we are unable at this point to determine factually whether the potential ‘property damage’ arises out of an ‘occurrence’ as the term is defined by the policy. In the event that our investigation or discovery reveals that the alleged damages did not arise out of an ‘occurrence’ Essex reserves the right to withdraw from the defense of this matter if appropriate.”
Essex next discussed WPIC’s arbitration third-party complaint against Stoneridge, concluding that it did not allege any “bodily injury” under the policy. Essex then stated:
“Moreover, the complaint does not allege ‘property damage’ as that term is defined. The allegations of the complaint clearly indicate that [WPIC is] seeking indemnity and other damages from Stone Ridge [stc] based upon Stone Ridge’s [sic] alleged breach of contract. We have determined that this alleged conduct does not fall within the definitions of ‘bodily injury’ or ‘property damage,’ as the claims against Stone Ridge [sic] are contractual in nature. Furthermore, [WPIC’s] claim for indemnity does not allege an ‘occurrence’ as that term is defined by the Policy. It is our understanding that [WPIC’s] claim аrises out of the alleged failure of Stone Ridge [sic] to meet alleged contractual obligations. Accordingly, this alleged breach of contract is not the consequence of any type of ‘accident’ as is required by the Policy.” (Emphasis added.)
Nevertheless, Essex agreed to defend Stoneridge, under a reservation of rights, on WPIC’s claims.
We conclude that appellees have failed to show that Essex had a conflict of interest. In its letter, Essex stated that it would defend Stoneridge under a reservation of rights because the Walskis’ claims potentially alleged “property damage.” It further stated that it reserved the right to withdraw from the defense if the “property damage” did not constitute an “occurrence” under the policy. Therefore, Essex was focusing on whether the factual allegations of the Walskis’ claims fit within its policy, rather than focusing on the Walskis’ two theories of liability. A few paragraphs later, Essex stated that WPIC’s complaint did not allege “property damage,” an “occurrence,” or an “accident,” because WPIC was seeking indemnity based on breach of contract.
Contrary to appellees’ argument, Essex never stated that it would potentially cover the Walskis’ implied warranty of habitability claim but not their contract claim. Though it emphasized that WPIC’s claims wеre not covered, citing their “contractual” nature, as discussed the implied warranty of habitability is also fairly characterized as “contractual in nature.” Tellingly, in their alternative argument that the insurance policy itself provides coverage, appellees do not distinguish the Walskis’ claim of breach of the implied warranty from their claim of breach of contract. Instead, they focus on whether the facts alleged by the Walskis show “property damage” from an “occurrence,” which was the same approach Essex took to the Walskis’ claims in its reservation of rights letter.
In sum, to accept appellees’ argument that the letter shows a conflict of interest would require adopting a strained and disjointed interpretation of the reservation of rights letter, with little, if any, support in case law. This case stands in stark contrast to Peppers, Murphy, W.H. McNaughton Builders, Inc., and Royal Insurance Co., where examinations of the complaints, policies, and any relevant memos or letters revealed clear conflicts of interest. Accordingly, we conclude that the trial court erred in granting summary judgment for appellees on the basis that Essex was estopped from asserting policy defenses.
Our inquiry does not end here, however, because we may affirm the trial court’s ruling on аny basis supported by the record, regardless of the trial court’s reasoning. Bell Leasing Brokerage, LLC v. Roger Auto Service, Inc.,
C. Coverage Under Policy
The construction of an insurance policy is a question of law that can be appropriately disposed of through summary judgment. Crum & Forster Managers Corp. v. Resolution Trust Corp.,
The insured has the burden of establishing that a claim falls within the policy’s terms. Addison Insurance Co. v. Fay,
Essex argues that there is no policy coverage, because the damage to the Walskis’ home was not caused by an “occurrence” and because contractual liability for economic damages does not constitute “property damage.” We first explore the definition of “occurrence.” The policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policy does not define “accident,” but this court has defined the term as “an unforeseen occurrence, usually of an untoward or disastrous character or an undesigned, sudden, or unexpected event of an inflictive or unfortunate character.” Westfield National Insurance Co. v. Continental Community Bank & Trust Co.,
However, this definition of “accident” has not been universally accepted. In Country Mutual Insurance Co. v. Carr,
“The Supreme Court of Illinois has stated a court should not determine whether something is an accident by looking at whether the actions leading to the damage were intentionally done. According to the court, the real question is whether the person performing the acts leading to the result intended or expected the result. If the person did not intend or expect the result, then the result was the product of an accident.” Carr,372 Ill. App. 3d at 341 , citing United States Fidelity & Guaranty Co. v. Wilkin Insulation Co.,144 Ill. 2d 64 , 77-78 (1991).
In a situation where the actor did not intend or expect the result, a strict application of this definition would seem to negate the previously mentioned principle that an act’s natural and ordinary consequences do not constitute an accident. However, Carr itself distinguished Viking, Tillerson, and Wil-Freds, which mentioned this principle, on the basis that those cases alleged contractual or warranty breaches, unlike the negligence alleged in Carr. Carr,
We also note that, while Carr held itself out as relying on our supreme court’s definition of “accident,” Freyer, on which many cases rely for the proposition that the natural and ordinary consequences of an act do not constitute an accident, relied on another appellate court case, Farmers Elevator Mutual Insurance Co. v. Burch,
“Under the rule promulgated in the Barry case [sic], if an act is performed with the intention of accomplishing a certain result, and if, in the attempt to accomplish that result, another result, unintended and unexpected, and not the rational and probable consequence of the intended act, in fact, occurs, such unintended result is deemed to be caused by accidental means.” (Emphasis added.) Yates,415 Ill. at 19 .
Thus, we believe that, even if the person performing the act did not intend or expect the result, if the result is the “rational and probable” consequence of the act (Yates,
In Tillerson, a case similar to this one, the court held that damage to a home caused by a contractor’s faulty soil compaction did not qualify as an “occurrence” or “accident.” There, the insured contractor built a new room addition on a house and converted the existing carport into a garage. The homeowners later sued the contractor for breach of express and implied warranties. Tillerson,
The appellate court reversed. It stated that the homeowners’ allegations did not fall within the meaning of an accident or an occurrence, because there were no allegations of an unforeseen, sudden, or unexpected event. Tillerson,
In Viking, the court recognized that the question of whether faulty construction is covered under CGL policies is “in grеat dispute” across jurisdictions. Viking,
“ ‘[C]omprehensive general liability policies *** are intended to protect the insured from liability for injury or damage to the persons or property of others; they are not intended to pay the costs associated with repairing or replacing the insured’s defective work and products, which are purely economic losses. [Citations.] Finding coverage for the cost of replacing or repairing defective work would transform the policy into something akin to a performance bond.’ ” Travelers Insurance Co. v. Eljer Manufacturing, Inc.,197 Ill. 2d 278 , 314 (2001), quoting Qualls v. Country Mutual Insurance Co.,123 Ill. App. 3d 831 , 833-34 (1984).
The Wil-Freds court elaborated on this principle by explaining that, if insurance proceeds could be used for damages from defective workmanship, a contractor could be initially paid by the customer for its work and then by the insurance company to repair or replace the work. Wil-Freds,
Keeping in mind the definition of “occurrence,” we now examine the definition of “property damage.” The policy defines “property damage” as, in relevant part, “[p]hysical injury to tangible property, including all resulting loss of use of that property.” Tangible property suffers a physical injury if the property “is altered in appearance, shape, color or in other material dimension.” Eljer Manufacturing,
As the Tillerson court explained, “[c] overage under contractor general liability policies is for tort liability for damage to other property, not for the insured’s contractual liability for economic loss.” Tillerson,
Applying these principles to the instant case, we conclude that the damage to the Walskis’ home did not constitute an “occurrence” or “property damage.” The cracks that developed in the Walskis’ home were not an unforeseen occurrence that would qualify as an “accident,” because they were natural and ordinary consequences of defective workmanship, namely, the faulty soil compaction. While defective workmanship could be covered if it damaged something other than the project itself (see Richard Marker Associates, Inc.,
Appellees counter that three supreme court cases, Western Casualty & Surety Co. v. Brochu,
We agree with Essex that Brochu is of little guidance here because it did not analyze the terms “occurrence” and “property damage,” instead focusing on policy exclusions that are not at issue in this case. See also Hydra Corp.,
In Wilkin Insulation Co., the second case cited by appellees, our supreme court held that the continuous release of toxic asbestos fibers into the air from insulation constituted an “accident” or “occurrence” damaging the buildings, because the damage was neither expected nor intended from the standpoint of the insured. Wilkin Insulation Co.,
Appellees argue that Essex’s definition of “property damage” ignores the supreme court’s definition of the term in the last case in this series, Eljer Manufacturing. As mentioned, Eljer Manufacturing stated that there is physical injury to tangible property if the property “is altered in appearance, shape, color or in other material dimension.” Eljer Manufacturing,
Appellees further argue that Essex’s CGL policy could never be transformed into a performance bond, because it provides coverage for faulty work performed by a subcontractor. As mentioned, while the policy excludes “ ‘[pjroperty damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard,’ ” there is an exception to the exclusion “if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” It is undisputed in this case that a subcontractor failed to properly compact the sоil and that Stoneridge had in fact subcontracted all of the work on the project.
Appellees maintain that National Underwriter Company, Fire Casualty & Surety Bulletins, show that the insurance industry interprets Essex’s subcontractor exception to the “damage to your work exclusion” to provide coverage for damage resulting from the work of subcontractors. However, such bulletins are not legal authority binding on this court, nor are the bulletins tailored to Illinois law.
Appellees also argue that the cases cited in our analysis are distinguishable because they involve insureds who performed the defective work at issue and attempted to use their CGL policies to correct their own poor workmanship. However, the Wil-Freds court stated that the improper construction techniques of the contractor and its subcontractors did not constitute an “occurrence.” Wil-Freds,
To be fair, the aforementioned cases did not specifically discuss the subcontractor provision relied on by appellees, and we recognize that there is case law in other jurisdictions that supports appellees’ position. See Auto Owners Insurance Co. v. Newman, No. 26450, slip op. at 4 (S.C. March 10, 2008) (subcontractor’s exception to “your work” exclusion meant that damage to other parts of the project from subcontractor’s faulty workmanship was covered by CGL policy). However, such a position does not take into account the principle that an exception to an exclusion does not create coverage or provide an additional basis for coverage (JG Industries, Inc. v. National Union Fire Insurance Co. of Pittsburgh,
In any event, the subcontractor exception cannot negate the lack of an “occurrence” here, as the damage arose from the natural and ordinary consequence of defective workmanship rather than from an “accident.” 5 Therefore, the subcontractor exception does not alter our conclusion that appellees have failed to meet their burden of showing that Stoneridge’s liability falls within the policy’s terms, because they have failed to show that the damage to the Walskis’ home was “property damage” caused by an “occurrence.”
III. CONCLUSION
We have determined that the trial court erred by granting summary judgment for appellees based on estoppel. We have also determined that appellees’ assertion that the policy provides coverage is incorrect and does not provide an alternative basis for affirming the trial court’s grant of summary judgment in their favor. Rather, based on our conclusion that the policy does not cover Stoneridge’s liability, we reverse the trial cоurt’s ruling and, pursuant to our authority under Supreme Court Rule 366 (155 Ill. 2d R. 366), we enter summary judgment in Essex’s favor.
Reversed; judgment entered.
CALLUM and GILLERAN JOHNSON, JJ., concur.
Notes
“Your work” is defined as “[w]ork or operations performed by you or on your behalf,” and “[mjaterials, parts or equipment furnished in connection with such work or operations.”
“Products-Completed Operations Hazard” is defined as “all ‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work,’ ” with the exceptions of “[plroducts that are still in your physical possession” and “[w]ork that has not yet been completed or abandoned.”
The Highland Glen Townhome Association (Association) was named as a defendant in the Walskis’ McHenry County action, and the Association filed a countercomplaint against Stoneridge. The Association is not a party to this appeal.
The copy of the McHenry County circuit court’s order that appears in the record is unsigned and undated, but the parties do not dispute its contents.
Stoneridge, WPIC, and Marie Walski filed a combined appellees’ brief in this appeal. John Walski is no longer living.
Such an interpretation does not necessarily render the subcontractor exception mere surplusage, as it could arguably still be applicable in certain situations, such as if the building were damaged because a subcontractor had confused job orders and worked on the wrong portion of the project. Millers Capital Insurance Co. v. Gambone Brothers Development Co.,