Insurer Owes No Duty to Defend Because No Occurrence

Insurer Owes No Duty to Defend Because No Occurrence

Morsheda Hashem - Querrey & Harrow, Ltd. – Chicago, Illinois

Morsheda HashemIn a recent suit, the Illinois Appellate Court held that an insurer had no duty to defend its insured, a general contractor, for the underlying claims of damage to real property caused by the insured’s faulty workmanship, because those claims were not an “occurrence” under the commercial general liability policy insuring the contractor. However, it found that the insurer had a duty to defend its insured for damages to personal property because the underlying complaint alleged both an “occurrence” and “property damage” that were each covered under the policy.

In this case, the owner of three properties in Chicago hired the general contractor to perform construction work on the properties. While performing construction on one of the properties, the building collapsed, causing the adjoining property to collapse as well. The owner’s insurer paid for the damage to the adjoining property and then filed a subrogation suit against the general contractor to recover the sum paid for damage to the adjoining property.

The general contractor requested its insurer to defend this lawsuit. However, the insurer denied coverage and file a lawsuit, where it sought a declaration that it did not have a duty to defend the general contractor. In its motion for summary judgment, the insurer argued that although its insurance policy for the general contractor required it to defend the general contractor for claims of liability arising from “property damage” caused by an “occurrence,” the allegations of the underlying complaint did not allege either “property damage” or an “occurrence.” 

When determining whether a duty to defend by the insurer exists, the appellate court stated that an insurer has a duty to defend “if the underlying complaints allege facts within or potentially within policy coverage.” In this case, the underlying complaint alleged damages to real and personal property.

With regard to damage to real property, the court agreed with the insurer. The insurer did not have a duty to defend the claim for damage to real property because that damage was not covered under its policy. The court found that the collapse of the structures was not an “accident” or “occurrence” under the policy, but was, instead, the natural and ordinary consequences of the contractor’s faulty workmanship on its work product. The court noted that the policy did not cover accidents caused by faulty workmanship. Accordingly, the court found that the insurer did not have a duty to defend for real property damage, because the damages alleged related to damage to the real property or project itself.

For the damage to personal property, the court found that the insurer had a duty to defend the contractor, because damage to personal property could be considered damage to something other than the project itself, and thus, a result of an “occurrence” or “accident.” The insured, however, argued that no facts regarding the type or nature of the personal property damage were alleged in the underlying complaint, and therefore, no duty to defend was triggered.  The insurer responded that the complaint in the underlying lawsuit stated that personal property had been damaged, noting that the underlying complaint alleged that the owner’s insurer paid the owner for “other personal expenses.”  The court found that could include payment for damage to personal property Accordingly, the court held that even vague references to damage to the owner’s personal property were enough to allege personal property damage caused by an “occurrence” under the policy. Consequently, the allegations in the underlying complaint were enough to trigger the insurer’s duty to defend.