In Nautilus Ins. Co. v. 1452 N. Milwaukee Avenue, LLC, No. 07-3147 (7th Cir. April 7, 2009) [here], the Seventh Circuit found there was no duty to defend a land owner causing property damage based on the contractor-subcontractor exclusion.
When excavating its property and demolishing a building thereon, 1452 LLC damaged a neighboring building. Suit was filed against 1452 LLC, the general contractor, project manager and subcontractor hired by 1452 LLC to perform the excavation. The suit alleged the general contractor, project manager and subcontractor failed to properly reinforce the neighboring property; ran a backhoe into the side of a restaurant, causing structural damage; and committed various other errors and omissions during the course of the work. The complaint asserted various claims against the general contractor, project manager and subcontractor. Moreover, claims asserted against 1452 LLC included negligence, negligent hiring and supervision, res ipsa loquitur, and violation of a state statute requiring notice to the owner of neighboring land before excavation.
1452 LLC tendered the suit to its CGL carrier, Nautilus, who denied coverage and filed a declaratory relief action. The district court rejected arguments that Nautilus had no duty to defend based on the policy's contractors and subcontractors exclusion or the "classification limitation" exclusion. Although the alleged property damage was caused by 1452 LLC's contractors' operations, the statutory notice claim fell outside the exclusion. 1452 LLC could be liable based on its own conduct, not that of contractors or subcontractors. Further, the classification-limitation exclusion, which limited coverage to "vacant Land' and a "vacant building" was not applicable. Although Nautilus argued it was possible the building was being used in some capacity, the underlying complaint did not support this speculation. Therefore, Nautilus had a duty to defend.
The Seventh Circuit reversed on the basis of the contractor-subcontractor exclusion. The claims against 1452 LLC did not allege any property damage independent of the property damage caused by the contractors and subcontractor. Instead, there were allegations that 1452 LLC was liable for the sameproperty damage by virtue of having failed to give the statutorily required notice. Because the alleged property damage fell within the terms of the contractor-subcontractor exclusion, the alternative theory of relief against 1452 LLC did not trigger coverage.
Finally, the applicability of the classifications limitation was academic. Nevertheless, the court noted Nautilus' arguments were weak. The underlying compliant did not allege that the building was being used or was anything but vacant. Describing excavation of the property in the complaint suggested the building was consistent with the "vacant land" and "vacant building" classification in the policy.
No Hawai`i appellate court has considered either the contractor-subcontractor exclusion or the classification limitation exclusion.
