Although the insureds disclosed flooding problems in the basement, the buyers purchased their home. USAA Cas. Ins. Co. v. McInerney, 2011 Ill. App. LEXIS 1130 (Ill Ct. App. Oct. 31, 2011). In a supplemental disclosure, the insureds reported that during heavy rains light seepage occurred in the basement.
After moving in, the buyers experienced significant water infiltration and flooding in the basement. The buyers and their children also began to experience mold-related illnesses.
The buyers sued for rescission of the contract or, in the alternative, damages. They alleged breach of contract, fraudulent misrepresentation and negligent misrepresentation. In the claim for negligent misrepresentation, the buyers alleged that the insureds carelessly omitted the fact that there were material defects in the basement and foundation when they should have known of such defects.
The insureds tendered the suit to USAA. The policy covered claims for damages because of bodily injury or property damage caused by an occurrence. USAA contended any alleged occurrence was excluded because it was caused by the intentional acts of the insureds or because the action arose from a contract. The trial court determined USAA had a duty to defend. Both the flooding in the house subsequent to the sale and the negligent misrepresentations constituted property damage and personal injury.
The appellate court affirmed. A claim based on negligent misrepresentation was not necessarily excluded from coverage under a homeowner's general liability policy as long as the insured did not expect or intend the injury. Moreover, the buyer's complaint alleged "property damage" and "bodily injury" as a result of an "occurrence" that was at least potentially covered by the policy. Therefore, USSA had a duty to defend.