Insurance Law Hawaii

Certified Question Asks Hawaii Supreme Court to Determine Coverage for Allegations of Greenhouse Gas Emissions

    The federal district court certified questions to the Hawaii Supreme Court regarding coverage for underlying allegations of greenhouse gas emissions. Aloha Petroleum, Ltd. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 2023 U.S. Dist. LEXIS 156211 (D. Haw. Sept. 5, 2023). 

    Aloha was sued in two lawsuits, one filed by the County of Maui and the second filed by the City and County of Honolulu. The underlying lawsutis alleged that Aloha disregarded known risks of harm to the counties when selling its fuel products that would inevitably combust and produce greenhouse gasses, particularly carbon dioxide, thereby changing the climate and causing harm to the counties. 

    Aloha tendered the suits to AIG. Coverage was denied based on AIG's determination there was no "occurrence" and the pollution exclusion barred coverage. Aloha sued AIG in federal district court seeking a declaratory judgment on AIG's obligations under the policy.

     The parties filed cross-motions for summary judgment. The court found two issues for which it sought guidance from the Hawaii Supreme Court. First, the parties' dispute hinged on whether recklessness could amount to an "accident" as the term has been defined by the Hawaii Supreme Court. If so, were greenhouse gas emissions the release or escape of "pollutants."

    The court noted that in the Hawaii Supreme Court's decision Tri-S Corp. v. Western World Ins. Co., 110 Hawaii 473, 135 P.3d 82 (2006), the court held that an exclusion in an occurrence policy did not exclude coverage for recklessness. The Supreme Court considered whether a "wilful and wanton' misconduct claim was excepted from coverage by a clause exlcuding "expected or intended" injuries. "Wilful and wanton" misconduct comprised recklessness, so the court focused on the recklessness mental state. The court found that the exclusion might not apply to the wilful and wanton claim because the possibility existed that the insured could be found liable for recklessness, which did not involve intent or expectation. Thus, the wilful and wanton act could be an occurrence. 

    On the other hand, some cases from the Hawaii Supreme Court defined an "accident" to require injuries that were neither the "expected nor reasonably foreseeable result of the insured's own intentional acts or omissions." E.g., AIG v. Estate of Caraang, 74 Haw. 620, 636, 851 P.2d 321, 329 (1993). Therefore, a conflict existed between Tri-S implyng that an "accident" could be the result of recklessness and Carrang saying that an "accident cannot be "reasonably foreseeable" from the insured's perspective, a standard almost synonymous with the subjective foreseeability required by recklessness. 

    If the Hawaii Supreme Court found that recklessness could be an "accident", the federal district court then asked whether greenhouse gases were "pollutants," defined in the AIG policies to mean "any gasseous . . . irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." On the one hand, the Hawaii Air Pollution Control statutes defined "air pollutant" to include greenhouse gases. Further, it was reasonable to assume that greenhouse gases were "gaseous" "chemicals" that were known to cause harm to persons and property through climate change. 

    On the other hand, it was also reasonable that greenhouse gases, such as carbon dioxide, were emitted around people daily, but were relatively harmless to immediate health, particularly in limited amounts.

    Therefore, the following questions were certified to the Hawaii Supreme Court:

1) For an insurance policy defining a covered "occurrence" in part as an "accident," can an "accident' include recklessness?

2) For an occurrence insurance policy excluding coverage of "pollution" damages, are greenhouse gasses "pollutants," i.e., "gaseous" "irritants or contaminants, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste"?

 

Insured's Intentional Act Can Lead to an Occurrence Causing Property Damage

    The Wisconsin Court of Appeals determined an occurrence could follow the insured's intentional act when the harm caused was not intentional. Riverbank Farms v. Saukville Feed Supplies, 2023 Wisc. App. LEXIS 813 (Wis. Ct. App. July 26, 2023). 

    Riverback was a dairy farm. It purchased feed mix from Saukville. Riverback's nutritionist recommended a change to the rations fed to the cattle by adding Min-Ad, a source of bioavailable magnesium and calcium. Saukville, however, consulted with its own nutritionist and added Fine Lime instead in the rations. The substitution by Saukville was intentional. But it did not intend or foresee that the substitution would have an adverse impact on the cattle.

    Riverbank alleged that its herd suffered physically when the Fine Lime was added to the rations instead of Min-Ad. Riverbank filed suit against Saukville and its carrier, Secura Insurance. The circuit court found there was no "occurrence" and Secura had no duty to defend. 

    On appeal, Secura contended Saukville's intentional substitution of the feed component was not a covered occurrence because it was not an accident. While it was undisputed Saukville intentionally substituted the feed component, the record showed that the resulting magnesium deficiency that allegedly caused physical harm to the cattle could have been without foresight or exception, and thus an accident/occurrence. A jury could find that Saukville did not reasonably foresee or expect harm to result from the substitution, in which case the harm to the cattle would constitute an accident/occurrence.

    Further, physical damage to the cattle constituted property damage. Saukville's expert testified at her deposition that the Riverbank dairy cattle were physically injured. The cattle suffered physical injury from the ulcers they incurred from the Fine Lime. 

    Therefore, the circuit court erred in granting summary judgment in favor of Secura. The order was reversed and the matter remanded for further proceedings. 

Wisconsin Supreme Court Abandons "Integrated Systems Analysis" for Determining Property Damage

    The Wisconsin Supreme Court departed from its previous mechanism for determining property damage under the "integrated systems analysis" and found the insurers were not entitled to summary judgment as determined by the trial court. 5 Walworth, LLC v. Engerman Contracting, Inc., 2023 Wis. LEXIS 152 (Wis. June 20, 2023).

    5 Walworth LLC hired Engerman as general contractor to construct a swimming pool complex. Engerman subcontracted with Downes Swimming Pool Co., Inc. to construct the pool complex. Otto Jacobs supplied Downes with a ready-mixed concrete called shotcrete, commonly used in swimming poll construction. 

    After the project was completed, 5 Walworth noticed a leak which persisted over the years. Downes attempted to repair the leaks over the years. 5 Walworth hired Wiss Janney Elsiner Associates (WJE) to do an inspection. WJE's final report concluded tha the pool walls cracked because of less than optimal installation, moist conditions due to significant water leakage, and the placement of steel reinforcing bars. It determined that the cracking would continue, with either new cracks forming or existing cracks worsening. The report also mentioned the findings of soil reports from neighbouring properties which indicated that water existed at levels above the normal water table. Ultimately, 5 Walworth hired a new contractor to demolish the old pool and construct a new one.

    5 Walworth then sought damages for the demolition of the old pool and construction of a new one. It sued the subcontractor Downes and its insurer, General Casualty, and the general contractor Engerman and its insurers, West Bend and General Casualty. Downes filed a third-party complaint against shotcrete provider Otto Jacobs and its insurer, Acuity. The insureds tendered defences to their respective insurers. Each moved for summary judgment and requested declarations that they did not have a duty to indemnify or further defend. The trial court granted motions filed by West Bend and General Casualty, concluding that there was no property damage caused by an occurrence - only faulty workmanship - and therefore the insurers owed no coverage. When analysing Acuity's motion against Otto Jacobs, the court applied the integrated systems analysis the Supreme Court had utilized in Wisconsin Pharmacal Co., LLC v. Nebraska Cultures of California, Inc., 876 N.W. 2d 72 (2016). Under this analysis, there was no property damage caused by an occurrence and therefore no coverage. 

    Engerman and Otto Jacobs appealed and the court of appeals reversed. The Wisconsin Supreme Court granted review.

    The integrated systems analysis assessed whether the defective product was part of an integrated whole such that any damage could be ascribed only to the product itself, rather than to other property. Pharmacal therefore incorporated an "other property" analysis that could be relevant to the policy's business exclusions (stage two of a coverage analysis) into the determination of whether an "occurrence" caused "property damage" (stage one of a coverage analysis). Rather than focus its analysis on the policy language, Pharmacal took the integrated systems analysis from tort law and held that such an analysis was necessary when evaluating coverage under a CGL policy. 

    The court overruled Pharmacal's holding incorporating the integrated systems analysis into insurance policy disputes. Also overruled was the incorporation of an "other property" analysis into the initial determination of whether an occurrence had caused "property damage." The proper approach was to interpret and apply the language of the policy. First, the policy was examined to see if it made an initial grant of coverage. Then the policy was analysed to see if any exclusions precluded coverage. Lastly, the policy was reviewed to see if any exceptions to a particular exclusion reinstated coverage.

    Turning to General Casualty's policy, faulty workmanship was not an occurrence, but faulty workmanship could lead to an occurrence that caused property damage.The WJE report concluded that cracks occurred, and therefore water leaked into the surrounding soil. This was the result, according to the report, of less-than-optimal installation of the shotcrete and poor placement of reinforcing bars, among other reasons. These constituted faulty workmanship. But the record could support a conclusion that this faulty work caused the pool to crack and leak and the cracks became worse as the pool leaked and destabilized the surrounding soil. The cracks, leakages and soil damage old constitute accidents - unexpected and unforeseen events - caused by improper installation. And the cracks and the damage to the surrounding soil could also constitute physical injuries to the homeowner's tangible property. Therefore, a trier of fact could conclude that General Casualty's policy provided an initial grant of coverage because there was property damage caused by an occurrence as those terms are defined in the policy. As such, General Casualty was not entitled to summary judgment.

    West Bend's policy applied to the facts in the same way. A fact-finder could conclude based on the facts in the summary judgment record that "property damage" was caused by an "occurrence." West Bend was also not entitled to summary judgment.

    Regarding the policy issued to Otto Jacobs, Acuity argued that the policy did not provide an initial grant of coverage because there was no "property damage" caused by an "occurrence." Acuity's arguments asked the court to see the allegedly defective shotcrete as part of an integrated system, the pool complex. The court declined to do so. Rather, the proper analysis based on the policy language was whether the defective shotcrete (assuming this was proven) led to an accident, which then caused property damage. The water leakage, among other things, was sufficient to constitute an accident. If the shotcrete was defective, a jury could find that it led to an accident (water leakage at the very least) that caused property damage.

    The court concluded that when analyzing if there was "property damage" under a CGL policy in the initial grant of coverage stage, it would not employ the integrated systems analysis nor would the court limit its review of property damage to damage to "other property." Instead, the court would apply the terms of the policy.  

Court Finds Duty To Defend Environmental Claim, But Defense Limited to $100,000

    While agreeing with the insured there was a duty to defend, the court determined the defense of an environmental claims was limited to $100,000. Casa Nido Partnership v. JAE Kwon, 2023 U.S. Dist. LEXIS 97701 (N.D. Calif. June 5, 2023). 

    In 1976, Casa Nido purchased the property and remains the current owner to this day. Catherine O'Hanks owned and operated a dry-cleaning facility at the property from 1960 to 1992. 

    In August 2016, Casa Nido learned of Tetrachloroethylene (PCE) subsurface contamination. Casa Nido stipulated that it did not know, nor had any reason to know, before 2016, of the existence of the subsurface contamination. Casa Nido alleged that due to equipment malfunction or improper usage, there were sudden and accidental spills and equipment overflows of PCE during the 32-year period that defendant O'Hanks operated the dry-cleaning business on the property. Casa Nido spent hundreds of thousands of dollars remediating the environmental damage. 

    Casa Nido was an additional insured under O'Hanks' policy with Sentry Insurance Company. The policies were effective from August 15, 1987 to August 15, 1990. Casa Nido sued O'Hanks and Sentry. Casa Nido alleged it was entitled to indemnification and contribution from O'Hanks under CERCLA.DO'Hanks counter-claimed against Casa Nido. Casa Nido tendere to Sentry, but Sentry determined there was no duty to defend or indemnify. 

    The court noted that whether the pollution occurred within the policy period depended on what the trigger of coverage was under the Sentry policies. Under the Dry-Cleaners Endorsement (DCE), the policies covered pollution-based property damage "[t]hat occurs during the policy period." Property damage occurred when it "first manifests itself." Under Montrose, the manifestation trigger was an objective "should have known" standard. Coverage was triggered at "that point in time when appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that his notification duty under the policy has been triggered." Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal. 4th 645, 674 (1995). 

    The court interpreted the DCE language consistent with Montrose. At the very least, the language of the policy regarding occurrence was ambiguous and had to be read in the insured's favor. Under the policy and the DCE, "property damage" could '"occur" when there was a spill which resulted in contamination of the soil, Such property damage could occur each time there was such a spill. If discharges subsequent to the triggering discharge were continuous or repetitive of the triggering discharge, the subsequent discharges would be covered even if they first manifested outside of the policy period, as they would be considered part of a single occurrence that first manifested during the policy period. There was evidence sufficient to create an issue of fact regarding the nature and timing of the spills. 

    Therefore, Sentry had a duty to defend claims arising out of the discrete discharges and only those discrete discharges for which Casa Nido could establish a possibility of first manifestation during the policy period. If Casa Nido could demonstrate the mere possibility that a reasonable insured should have known of at least some PCE contamination during the policy period, and the contamination included a sufficiently discrete incident as to constitute an "occurrence" within the meaning of the DCE endorsement, there there was a potential for coverage, allowing Casa Nido to prevail on its motion for summary judgment as to Sentry's duty to defend. 

    The defense, however, was limited to the $100,000 limit in the DCE.

    Finally, the court granted Sentry's motion for partial summary judgment on the bad faith claim. It was reasonable for Sentry to rely on Montrose and deny Casa Nido's claims because the the manifestation trigger as defined by Montrose applied to the Sentry policies. 

    

Insurer Has No Obligation to Cover Arbitration Award in Construction Defect Case

    The court determined there was no coverage for an adverse arbitration decision suffered by the insured in a construction defect case. Am. Fire and Cas. Co. v. Unforgettable Coatings, Inc., 2023 U.S. Dist. LEXIS 64846 (D. Nev. April 13, 2023). 

    Unforgettable contracted with Muirfield Village Homeowner's Association for painting and related services. Following completion of the project, Muirfield alleged that Unforgettable's work was defective and filed suit. The parties agreed to arbitration. The arbitrator found that Unforgettable breached the contract and its implied warranty. Damages were awarded to Muirfield. 

    American Fire and Casualty Company (AFCC) was Unforgettable's insurer and defended Unforgettable at the arbitration. AFCC sued for a declaration that it had no obligation to indemnify Unforgettable for the damages awarded. Unforgettable and Murifiled counterclaimed, alleging that AFCC breached the policy by not covering the award, as well as a variety of extracontractual claims related to the investigation process. AFCC moved for judgment on the pleadings. The motion was granted with leave to amend.

    After the counterclaims were amended, AFCC again moved for judgment on the pleadings. The court first found that Unforgettable had assigned all of its rights under the policy to Muirfield. Therefore, Unforgettable had no standing and its counterclaims were dismissed. 

    In the second amended counterclaims, Muirfield provided no allegations that persuaded the court to reconsider its initial analysis. "Occurrence" did not apply to faulty workmanship. Muirfield argued that the word "accident" within the definition of "occurrence" was ambiguous. The court rejected the argument. Regardless of what "accident" meant precisely, the court had already excluded the relevant conduct from the definition. The damage was the poor workmanship itself. 

    The argument for breach of the implied covenant of good faith and fair dealing also failed. The denial of coverage was proper and there was nothing to trigger coverage.

    Muirfield's request for leave to amend was also rejected. Muirfield already had two opportinities to cure its pleading and failed to do so. 

    

 

Insurer Must Defend General Contractor

    Interpreting Massachusetts law, the federal district court determined consequential damage resulting from the insured's faulty work triggered a duty to defend. Capitol Spec. Ins. Corp. v. Dello Russo Enter. LLC, 2023 U.S. Dist. LEXIS 11627 (D. Mass. Jan. 24, 2023). 

    Peta-Gay and Michael Print sued the insured, Dello Russo, who they hired as the general contractor for extensive remodelling and renovation of their building. During the demolition work, certain structural load-bearing walls were removed, including a portion of an exterior bricked masonry wall. Shoring of other parts of the building was inadequate and removal of the masonry wall reduced the structural integrity of the building. Cracks began to appear in the remaining portion of the masonry wall and increased over the next few days. Soon thereafter, the City of Boston determined the building was dangerous and that salvage of the undamaged portions was not feasible. Therefore, the building was demolished.

    Certain Underwriters at Lloyd's, London, filed suit against Dello Russo as subrogee of the Prinns. Dello Russo tendered the complaint to its insurer, Capitol Specialty Insurance Corporation, who defended under a reservation of rights,. Capitol then filed a suit seeking a declaratory judgment that it had no duty to defend or to indemnify. The parties cross-claimed for summary judgment.

    Under Massachusetts law, faulty workmanship was not an accidental occurrence. Coverage was possible, however, when faulty workmanship caused an accident. Here, the home-improvement contract stated that Dello Russo was not hired to demolish the entire building. Therefore, the underlying complaint did not allege that an improperly performed demolition was the accident. Instead, the underlying complaint alleged that as a result of Dello Russo's faulty workmanship during renovations, the building partially collapsed, requiring the demolition of the remaining structure. Therefore, the claims against Dello Russo alleged "property damage" caused by an "occurrence."

    Capitol argued that exclusions (j)(5) and (j)(6) were applicable. These provisions excluded coverage for claims alleging property damage to "[t]hat particular part of real property on which you  . . . are performing operations, if the 'property damage' arises out of those operations," or "[t]hat particular part of any property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." Capitol contended that as the general contractor, Dello Russo had control over the entire premises, and thus that "particular part" of property meant the entire project.

    The court noted that Dello Russo was not hired to construct, renovate or demolish an entire building. He was required to provide "demo shoring equipment," but not responsible for demolishing or removing any of the building's load-bearing walls. Nor was Dello Russo responsible for demolishing the building's exterior, or any other way performing work relating to the building's exterior walls, windows, foundation, or roof. Rather, Dello Russo's tasks included removing all non-load-bearing walls, and demolishing the building's entire interior residential space. In other works, Dello Russo was obligated to work only a "particular part" of the building: its interior. 

    Therefore, Capitol had a duty to defend. Capitol's motion in regards to the duty to indemnify was premature because the underlying action had not determined liability or adjudicated factual disputes. 

 

Reservation of Rights Letter Merely Citing Policy Provisions Inadequate

    In an unpublished opinion, the Fourth Circuit affirmed the district court's finding that the insurers' reservation of rights letters did not provide a basis for denial of coverage. Stoneiedge At Lake Keowee Owners Ass'n Inc. v. Cincinnati Ins. Co., 2022 US. App. LEXIS 34292 (4th Dist. Dec. 13, 2022).

    The Stoneledge AOAO sued the general contractor Marlick Home Builders, LLC and other defendants after construction of 37 units. The complaint alleged construction defects that resulted in water intrusion and other physical damage. Marlick notified its insurers, Cincinnati Insurance Company and Builders Mutual. Various reservation of rights letter were sent by the insurers.

    In the underlying case, a judgment was entered against Marlick totalling approximately $1.6 million. As a judgment creditor of Marlickm, Stoneledge sued Cincinnati and Builders Mutual. The district court granted Stonelege's motion for summary judgment, primarily on the ground that the insurers failed to reserve the right to contest coverage.

    On appeal, the South Carolina Supreme Court's decision in Harleysville Group Insurance v. Heritage Communities, Inc., 803 S.E. 2d 288( S.C. 2017), was controlling. There, the Supreme Court held that "generic denials of coverage coupled with furnishing the insured with a copy of all or most of the policy provisions (through a cut-and-paste method) is not sufficient." In Harleysville, the insurer failed to reserve its rights as to the following issues: whether any damages resulted from acts meeting the definition of occurrence, whether any damages occurred during the applicable policy periods, and what damages were attributable to non-covered faulty workmanship (e.g., the your-work exclusion]. 

    The court found that, at the very least, an insurer should discuss its position as to the various provisions  and explain its reasons for potentially denying coverage. If the reservation of rights was ambiguous, it had to construed against the insurer and liberally in favor of the insured, 

    Here, the letters failed to inform the insureds that the insurers intended to litigate coverage issues and did not apprise the insureds of potential conflicts of interest. Builders Mutual's letter merely referred the insured to certain policy exclusions and summarised the general nature of those exclusions.

    Cincinnatti's letter presented a closer question. It listed certain policy exclusions and noted that "coverage may be limited by several other exclusions and endorsements." The letter continued with respect to whether coverage was triggered in the first place, stating that "it is doubtful that the claim alleges the happening of an 'occurrence'" or the the "claim alleges 'property damage' within the policy definition," and if there is no "occurrence" or "property damage" as defined by the policy, there is "no coverage."

    Under Harleysville, this was still insufficient to reserve the right to dispute coverage as to the policy exclusion. The letter was devoid of any explanation for why Cincinnati found it "doubtful" that there was an "occurrence" or "property damage" within the meaning of the policy. Therefore, the district court's judgment was affirmed. 

    

    

Ninth Circuit Upholds Hawaii District Court Decision Finding Coverage for Employee Theft

    The Ninth Circuit agreed with the Federal District Court, District of Hawaii, in finding multiple limits for occurrences over the years of coverage were applicable. The Arc In Hawaii v. DB Ins. Co., Ltd., 2022 U.S. App. LEXIS 31231 (9th Cir. Nov. 10, 2022). 

    The Arc served persons with disabilities in Hawaii. The Arc filed a claim with DB Insurance when a bookkeeper writing unauthorized checks resulted in a loss of $6,000,000 during five consecutive policy periods. 

    Each policy excluded "loss or damage caused by or resulting from . . . dishonest or cirminal acts by . . . employees." An enhancement extended coverage for forgery of checks "made or drawn by . . . one acting as the insured's agent or claiming to have been so made or drawn." The parties agreed that the checks represented "dishonest or criminal acts by employees." The district court ruled in favor of the Arc because under Hawaii law, the insured had a reasonable expectation that the forgery extension covered forgery by its employees. The court rejected DB Insurance's contention that, in light of the exclusion for employees' criminal or dishonest acts, the foregery extension did not provide coverage for forgeries by employees.

    The Ninth Circuit agreed with the district court. It was difficult to read the forgery extension's reference to an "agent" as excluding an employee. There was at most a ambiguity that had to be interpreted in favor of the Arc. 

    Next, the court considered what policy limits were applicable. The policy's coverage for "employee dishonesty" limited payment for one occurrence for loss or damage to $250,000. The policy further stated that DB Insurance would only "pay for loss or damage [the Arc] sustaines through acts committed or events occurring during the Policy Period." The Arc had five different one-year policys with DB Insurance. Each policy had the same employee dishonesty extension with a $250,000 liability limit. 

    The district court held that the Arc could recover the $250,000 limit for each of the five policy periods. DB Insurance contended that all loss caused by the employee represented one occurrence that was subject to one payment of $250,000 regardless of the number of policy periods.

    The Ninth Circuit found that the district court had properly relied upon relevant case law from California because there was no Hawaii authority on the issue. In a similar case from California, the court held that the term "occurrence" in the provision was ambiguous and was therefore construed in favor of the policyholder. Here, it was reasonable for the insured to expect each policy to be separte and to reocver the $250,000 limit under each of the five policies. 

No Coverage for Subcontractor's Faulty Workmanship

    Finding faulty workmanship that did not cause property damage beyond the subcontractor's work, the court found there was no coverage under the CGL policy. Middlesex Ins. Co. v. Dixie Mech., Inc., 2022 U.S. Dist. LEXIS 175190 (N. D. Ga. Sept. 27, 2022). 

    The case involved a construction project on Elba Island, Georgia. IHI E&C International Corporation (IHI) filed suit against Robinson Mechanical Contractors ("Robinson") for faulty construction work, including a pipe rack and process module installation. The pipe racks allegedly contained defective welds. Robinson filed a third-party complaint against Patriot Modular, Inc. (Patriot), Robinson's subcontractor, for faulty work for IHI. Finally, Patriot filed a fourth-party complaint against Dixie Mechanical, Inc. (Dixie), alleging it subcontracted with Dixie to perform fabrication, welding, testing, and inspection of pipes under Patriot's subcontract with Robinson. Patriot contended that to the extent it was found liable to Robinson for any defective work, delays or breaches of contract for Dixie's work, Patriot was entitled to recover such amounts from Dixie.

    In this case, Dixie's insurer, Middlesex Insurance Company, sought a declaration that it had no duty to defend or to indemnify Dixie. Middlesex contended that the claims of faulty workmanship in the underlying complaints constituted neither an "occurrence" nor "property damage."

    The court agreed. "Occurrence" had to cause "property damage" and the insured had to incur a liability to pay "damages because of such property damage." Coverage for property damage under a CGL policy required damage to property other than the work itself, and the insured' liability for such damage would have to arise from negligence. The only reasonable interpretation of the allegations in the underlying complaints was that the asserted damages resulted from Dixie's allegedly faulty workmanship under the subcontract and affected only the construction project.

    Therefore, judgment was entered in favor of Middlesex. 

Contractor Owed a Defense

    The Illinois Appellate Court reversed the lower court and found that the insured contractor was entitled to a defense for alleged construction defects. Acuity v. M/I Homes of Chicago, LLC, 2022 Ill. App. LEXIS 393 (Ill. Ct. App. Sept. 9, 2022).

    The owners association (AOAO) sued M/I Homes for breach of contract and the implied warranty of habitability due to alleged defects. The AOAO alleged that the defects caused physical injury to the townhomes. There was resulting property damage such as damage to other building materials, windows and patio doors, and water damage to the interior of units. M/I Homes requested a defense from Acuity, but the request was denied. 

   Acuity filed a complaint for declaratory judgment against M/I Homes and the AOAO, seeking a declaration that it had no duty to defend. Cross-motion for summary judgment were filed. Acuity argued that the actual property the insured was working on did not constitute covered property damage caused by an occurrence. M/I Homes contended that there was damage to other property that was beyond repair and replacement of the construction work. 

    The trial court granted summary judgment to Acuity and denied M/I Homes' motion. M/I Homes appealed. M/I Homes argued that the allegations of damage to "other property" in the underlying complaint referred to "property other than the townhomes themselves (i.e. property other than the contractor's work product)" and was sufficient to qualify as property damage. This was also an occurrence because the underlying complaint alleged that damage was an accident caused by the defective work of the subcontractor and was neither expected nor intended by M/I Homes. 

    Acuity argued that the allegations of damage to "other property" were not enough to trigger its duty to defend. The allegations were unconnected to a theory of recovery and the underlying complaint failed to both identify the owner of the "other property' and explain how the AOAO had standing to sue for the damage to that property. 

    The court noted that the underlying complaint simply alleged, in the broadest possible terms, that there was damage to "other property." These allegations were sufficient to trigger Acuity's duty to defend. The case was remanded to enter summary judgment in favor of M/I Homes on the duty to defend.