In yet another recent construction defect case, the Illinois Court of Appeal found for coverage. See Milwaukee Mut. Ins. Co. v. J.P. Larsen, Inc., 2011 Ill. App. Ct. LEXIS 872 (Ill. Ct. App. Aug. 15, 2011).

   Weather-Tite, Inc. hired Larson as a subcontractor to apply sealant to windows installed by Weather-Tite in a condominium building. The windows subsequently leaked and caused water damage. The homeowner's association sued Weather-Tite for breach of express and implied warranties. Weather-Tite filed a third-party complaint against Larsen alleging that, if it was liable to the association for breach of warranty, Larsen was liable for contribution as a joint tortfeasor. Weather-Tite and Larsen both tendered defenses to Milwaukee Insurance. The tenders were denied and Milwaukee Insurance filed suit to determine rights under the policy.

   Cross-motions for summary judgment were filed by all parties. The trial court granted Milwaukee Insurance's summary judgment motion as to Weather-Tite, but granted Larsen's cross-motion against Milwaukee Insurance.

   On appeal, the appellate court considered whether the underlying pleadings alleged facts demonstrating "property damage" resulting from an "occurrence" within the terms of the policy. The association alleged that, due to faulty construction, the condominium common elements, individual units, and the owners' personal property were damaged. The complaint also alleged that "apart from the property damage, the association will have to make repairs to correct the design and/or construction defects." Further, in the breach of warranty counts, the association alleged Weather-Tite's faulty workmanship caused losses to individual unit owners.

   These breach of warranty counts were imputed against Larsen in Weather-Tite's third party complaint.

   The court determined "property damage" was alleged. The damages alleged were not intangible and were more than merely the repair or replacement of the faulty window caulking and sealant. Further, the allegations in the third-party complaint repeatedly stated that Larsen negligently completed the job for which it was hired. Milwaukee Insurance argued the claims arose from breach of contract and did not constitute an occurrence. However, allegations based in contract could invoke a duty to defend as long as the damage was not to the actual property the insured was working on but, rather, to other property.

   Finally, damage to something other than what the insured worked on constituted an "occurrence" under a CGL policy. The association's complaint alleged the installation of a faulty window system resulted "in significant and continuing water leakage into the common elements and residential units." Moreover, "property damage" imputed to Larsen through its negligent workmanship included personal property and water damage throughout a building not constructed by Larsen. 

   Therefore, an occurrence was plead. The appellate court affirmed the trial court's ruling that Milwaukee Insurance had a duty to defend Larsen.