Damage to the insureds' property caused by construction undertaken on the adjacent lot was covered under the insureds' property policy. Chubb Indem. Ins Co. v. 21 E. Cedar, 2014 U.S. Dist. LEXIS 79906 (N.D. Ill. June 12, 2014).
The insureds' home sustained damage contemporaneous with demolition, excavation, and construction taking place on a adjacent lot. Chubb paid benefits to the insureds for their loss, and then sought to recover as subrogee from the defendants who performed the construction.
The defendants argued there was no coverage under Chubb's policy. Faulty planning, construction or maintenance were excluded. An exception to the exclusion stated, however, "we do insure ensuing covered loss unless another exclusion applies." Defendants argued characterizing the damages as ensuing losses was purely semantic and self-serving, designed to involve the ensuing loss provision in order to protect Chubb's coverage determination. Chubb contended the exclusion applied only to the specific property being insured and not to a neighbor's property where work is being performed. Therefore, the faulty construction exclusion did not apply and the ensuing loss provision was triggered.
The court agreed with Chubb. It was reasonable to interpret the exclusion as applying only to faulty construction related to the insured property. All-risk policies were intended to cover fortuitous losses, not brought about by an insured's own misconduct, unless the losses were expressly excluded. It would not make sense to exclude coverage for mishaps entirely outside of the insured's knowledge or control merely because they occurred as a result of a neighbor's construction project.
