Court Interprets Subcontractor's Commercial General Liability Policy to Find Duty to Defend

Court Interprets Subcontractor's Commercial General Liability Policy to Find Duty to Defend

Brett Thomaston - Querrey & Harrow, Ltd. - Chicago

The Illinois Appellate Court’s recent opinion in Acuity Ins. Co. v. 950 West Huron Condo. Ass’n, 2019 IL App (1st) 180743 explored the duty to defend in a commercial general liability (“CGL”) insurance policy where a general contractor’s third-party complaint against the insured carpentry subcontractor contained allegations of negligent construction leading to water infiltration and damage to a condominium. The court held that a duty to defend existed because the underlying complaint alleged that the subcontractor’s negligence caused something to occur to a part of the construction project outside of the subcontractor’s scope of work, and thus, qualified as an “occurrence” under the CGL policy.

The underlying complaint, in this case, was filed by the association against its construction manager. The association sought to recover for alleged defects from the construction manager for unworkmanlike construction of the building envelope that allowed water to infiltrate and cause damage to the building. Subsequently, the construction manager filed a third-party complaint against its subcontractors, including the carpentry subcontractor. The carpentry subcontractor held CGL policies with two insurers during the relevant period: one with Cincinnati Insurance Company (“Cincinnati”) effective January 1, 2000, through June 1, 2007, and another with Acuity Insurance Company (“Acuity”) effective June 1, 2007, through December 31, 2007. The subcontractor’s scope of work included all rough and finish carpentry, caulking of all items to be installed except for windows and glass patio doors and installation of doors, frames, and windows and sliding and swinging glass doors.

The subcontractor tendered its defense to both insurers. Cincinnati agreed to defend and represented the subcontractor and settled the construction claims. Acuity denied the tender arguing that the allegations did not trigger a duty to defend.

Acuity filed a declaratory judgment action, seeking a declaration it owed no duty to defend the subcontractor. Cincinnati subsequently intervened, arguing Acuity owed it equitable contribution. Cincinnati alleged that Acuity’s policy obligated it to defend any suit against the subcontractor for “property damages” caused by an “occurrence.”

The appellate court held that Acuity owed a duty to defend. The court stressed the well-established principle that while a CGL policy will not insure a contractor for the cost of correcting construction defects, damages to something other than the project itself constitutes an “occurrence” under a CGL policy. The court relied upon Milwaukee Mut. Ins. Co. v. J.P. Larsen, Inc., 2011 IL App (1st) 101316, as well as several federal court opinions, in rendering its decision. Specifically, the court relied on these opinions in ruling that a duty to defend arises when an underlying complaint alleges that a subcontractor’s negligence caused something to occur to a part of the construction project outside of the subcontractor’s scope of work.