The Illinois Appellate Court determined the general contractor was not covered for construction defects despite allegations of damage to personal property. Wesfield Ins. Co. v. West Van Buren, LLC, 59 N.E. 2d 877, (Ill. Ct. App. 2016).
The developer constructed a condominium development in Chicago. The installation of the roof was contracted to Total Roofing. Total Roofing agreed to insure and indemnify the developer against liability for Total Roofing's work. Total Roofing obtained a CGL policy with Westfield Insurance Company listing the developer as an additional insured.
After it took possession, the Van Buren Condominium Association claimed construction defects in the roof caused water to infiltrate into the building and individual condominium units, causing damage to personal and other property in the units. When the developer refused to correct the roofing problems, the Association spent $309,000 for repairs.
The Association then sued the developer and Total Roofing. The developer notified Westfield and tendered the defense. Westfield denied the tender, but defended Total Roofing under a reservation of rights. Westfield filed an action for declaratory judgment against the developer for a determination that there was no duty to defend or indemnify. The developer filed a counterclaim alleging a duty to defend because the underlying complaint contained allegations of personal property damage that were within the policy's coverage.
The parties cross-moved for summary judgment. At the hearing Westfield acknowledged the underlying complaint alleged personal property damage but argued the Association lacked standing to assert such claims on behalf of individual unit owners. The trial court granted summary judgment to the developer, but on a motion for reconsideration, the court vacated its judgment and granted summary judgment to Westfield.
On appeal, the judgment was affirmed. First, the underlying complaint either focused on the intentional bad acts of the developer or nonfortuitous events. Such events included the resulting damage to the condo building due to shoddy workmanship, of which the developer was allegedly aware.
Second, the allegations did not constitute property damage under the policy. Under Illinois law, "physical" injury occurred when property was altered in appearance, shape, color, or in other ways that did not take place when an economic injury occurred, such as diminution in value. The complaint alleged that had the unit owners known of the defects, they would not have purchased the units or would have negotiated the price. Therefore, these damages and the allegations related only to diminished value and economic harm. Defective work and products were purely economic losses.
Third, while construction defects that damage something other than the project itself could constitute an occurrence and property damage, the allegations of damage to personal property were meant to bolster the contention that water infiltration generally occurred and caused damages. Moreover, the Association's allegations of personal property damage were not offered for the purposes of recovery. These allegations were purely tangential to the Association's claim for damages for repair and remediation of the roof.
Having determined there was not duty to defend, the court also affirmed the trial court's ruling that there was no duty to indemnify.
