Insurance Law Hawaii

No Coverage for Defects in Subcontrator's Own Work

    Damage to the concrete floor installed by the insured subcontractor was not property damage and thus not covered under the insured's CGL policy. Kalman Floor Co. v. Old Republic Gen. Ins. Corp., 2019 U.S. Dist. LEXIS 3319 (D. Colo Jan. 8, 2019). 

    In 2007, Kalman Floor Co. was subcontracted to construct over 158,000 square feet of concrete flooring for a cold storage facility. The concrete floor was completed in late 2008. In late 2009, the contractor notified Kalman that pockmarks, or "pop-outs," were visible on the concrete flooring. The only damage to tangible property in the facility caused by the pop-outs was the concrete flooring itself.

    On January 31, 2009, Old Republic issued a general liability policy to Kalman for one year. The policy excluded for damage to "your work," defined as "work or operations performed by you or on your behalf." Old Republic denied coverage for damage to the concrete floor. Kalman sued, seeking a declaration that the exclusions did not bar coverage. 

    Under Tenth Circuit law, as established in Greystone Const, Inc. v. Nat'l Fire & Marine Ins. Co., 661 F.3d 1272 (10th Cir. 2011), the term "occurrence" in a CGL policy encompassed unforeseeable damage to non-defective property arising from faulty workmanship. The policy was intended to protect the insured business from claims by third parties concerning personal injury or property damage resulting from accidents. In discovery, Kalman admitted the pop-outs in the concrete floor "did not physically injure or damage any tangible property other than the floor system it installed." Thus, under the terms of the policy, property damage did not occur. 

    Consequently, Old Republic's motion for summary judgment was granted and the case dismissed with prejudice.

Insurer Must Defend Subcontractor For Claims Alleging Faulty Workmanship

    Interpreting Florida law, the federal district court found that the insurer must defend the subcontractor for claims based upon faulty workmanship. S. Owners Ins. Co. v. Gallo Bldg. Servs., 2018 U.S. Dist. LEXIS 212961 (M.D. Fla. Dec. 18, 2018).

    Gallo Building Services entered a subcontract with KB Homes, developer, related to the construction of a condominium project. All of the work was subcontracted by KB Homes to subcontractors, suppliers and material men. After completion of the project, the Condominium Association found a number of alleged construction defects at the project. KB Homes notified the subcontractors and tendered its defense. The subcontractors rejected the tender. 

    KB Homes filed suit against Gallo and other subcontractors. Claims against Gallo included breach of contract, breach of express and implied warranty, negligence and indemnity. Specific allegations against Gallo included failing to install all necessary control joints, installing incorrect mid-wall flashing, installing stucco in direct contact with dissimilar materials, etc. 

    Southern Owners Insurance Company filed suit for declaratory judgment that it had no duty to defend or indemnify its insured, Gallo. Gallo was subsequently dissolved. A default judgment was entered against Gallo, but KB Homes moved to set the default judgment aside, which was granted. KB Homes then moved for summary judgment in favor of Gallo. 

    The court noted that under Florida law, there was no property damage if there was no damage beyond the faulty workmanship, unless the faulty workmanship damaged some otherwise nondefective component of the project. Here, the court found that the underlying complaint alleged physical injury to tangible property by claiming that, in addition to faulty workmanship, defects in Gallo's work caused damage to other building components, damage to other property, and property damage to the work of KB Homes and other subcontractors. 

    Nevertheless, Southern argued two exclusions barred coverage. The Your Work Exclusion excluded coverage for "property damage" to "[Gallo's] work arising out of it or any part of it and included in the 'products-completed operations hazard.'" The policy defined "your work" to included "work or operations performed by [Gallo] or on [Gallo's] behalf. The "products-completed operations hazard" meant Gallo's completed work. Southern argued that the alleged construction defects arouse out of Gallo's own work and the policy contained no subcontractor exception. Typically, a CGL policy included an exception to the Your Work Exclusion for work performed by the insured's subcontractor.

    Here, Gallo was a subcontractor responsible for a limited scope of work within the much larger general condominium project. The underlying complaint did not allege that Gallo's scope of work encompassed construction of the overall project. Rather, the underlying complaint alleged Gallo's limited scope of work. Further, the underlying complaint alleged that alleged defects "caused damage to other building components, damage to other property, loss of use, and required relocation of residents." Thus, damage beyond the scope of Gallo's work was alleged in the underlying complaint and the exclusion did not bar coverage.

    Southern also argued there was not duty to defend because the allegations in the underlying complaint fell within the Stucco Exclusion. This exclusion barred coverage for any suit for property damage which "is in any way related to or arising out of an exterior finishing system or exterior stucco application." KB Homes argued that Gallo performed multiple scopes of work unrelated to stucco or an exterior finishing system and the underlying complaint contained allegations entirely unrelated to the application of either exterior. Consequently, this exclusion did not apply, either.

    Finally, although Southern had a duty to defend, it was premature to determine whether there was a duty to indemnify because there had been no factual determination as to liability in the underlying case.

"Occurrence" Viewed From Eyes of Insured

    The court determined that a young girl's suicide prompted by the insured's text messages constituted an occurrence under the homeowner's policy. State Farm Fire and Cas. Co. v. Motta, 2018 U.S. Dist. LEXIS 208472 (E.D. Pa. Dec. 11, 2018).

    High school student Zach Trimbur harassed and cyberbullied classmate Julia Morath. When the boy's parents, Walter Trimbur and Stephanie Moota, were informed, they assured school administrators they would supervise, discipline and control their son. Yet, the boy continued his conduct. The boy was suspended by the school, but still continued his cyberbullying after his suspension. Julia subsequently committed suicide.

    The Moraths sued Zach and his parents, alleging negligence, wrongful death, and survival. Stephanie Motta sought coverage under her homeowners policy with State Farm. State Farm defended under a reservation of rights.

    State Farm filed suit for a declaratory judgment that it had no duty to defend or indemnify the Trimbur boy in the underlying case. State Farm argued the suicide did not arise from an "occurrence" because the cyberbullying was non-accidental. The court determined there was an "occurrence" and State Farm had to provide a defense for Zach. 

    The underlying complaint alleged that Zach's actions were wanton and willful. State Farm argued that Zach intentionally cyberbullied and harassed Julia Morath, meaning there was no "accident" to trigger the policy. Zach countered by arguing that intentional acts can have unintended consequences, and Pennsylvania courts considered whether an insured could have reasonably foreseen the resulting injury. Julia Morath's death by suicide was an extraordinary intervening event unforeseeable to him. 

    The court noted that when properly focused on the entire occurrence, the fact that Julia Morath, not Zach Trimbur, inflicted the only alleged bodily injury was material. Further, the Moraths alleged a negligence theory against Zach. Though the underlying complaint used the words "harassment," "bulling," and "intentional," the Moraths alleged not a single intentional tort against Zach.

    Viewing these events from Zach's perspective, the court could not conclusively find death by suicide was foreseeable from his cyberbullying. From the boy's perspective, his classmate's death by suicide was an accident. Therefore, State Farm had a duty to defend.

Insured's Striking Multiple Vehicles Constitutes One Occurrence under Texas Law

    Reversing the district court, the Fifth Circuit found one occurrence after the insured's truck struck multiple vehicles. Evanston Ins. Co. v. Mid-Contenint Cas. Co., 2018 U.S. App. LEXIS 32722 (5th Cir. Nov. 19, 2018).

    An employee of Global Waste Services, LLC, Marlon Diggs, lost control of his Mack truck. At 11:04 a.m., the Mack truck hit a Dodge Ram. Three minutes later, the Mack truck struck a Ford F150. Two minutes after that, the Mack truck approached a toll plaza and caused the series of collisions which were at issue. 

    At 11:09 a.m., the Mack Truck struck a Honda Accord that was waiting in line at the toll plaza. The Mack truck pushed the Accord forward for more than 100 feet into the crash barrels separating two toll lanes, where the Accord came to rest. One passenger in the Accord was seriously injured. The Mack truck continued to travel through the automatic toll lane for 66 feet before striking a Dodge Charger. The Mack truck then struck a tollbooth, causing significant damage. The Mack truck continued pushing the Charger until it crashed into a retaining wall, pinning the Charger between the Mack truck and the wall. The driver of the Charger and Diggs both died. 

    Wrongful death cases were filed in state court against Global. The County made demands for the cleanup and repair of the toll plaza. All claims ultimately settled with contributions from Global's insurers. Mid-Continent insured Global under a commercial auto insurance policy with limits of $1 million per accident. Global had an excess liability policy from Evanston with a $5 million per-accident liability limit. Evanston paid over $5.6 million on various claims. Mid-Continent paid $1 million on one claim. 

    Evanston filed suit seeking reimbursement from Mid-Continent for a portion of the payments Evanston made on behalf of Global. Evanston also sought to recover the entirety of its defense costs. Evanston argued that Mid-Continent incorrectly construed all the collisions occurring after the Mack truck's impact with the Accord to be a single accident. Evanston argued that each separate impact between the Mack truck and another vehicle or object constituted a separate accident subject to separate liability limits. 

    The district court found that two accidents occurred. The collisions between the Mack truck and the Accord and between the Mack truck and the Dodge Charger were separate accidents because they occurred independently, and the former did not lead to the occurrence of the latter. The district court ordered that Mid-Continent, who only paid one million, should have paid $2,045,000 under the various settlements.  Therefore, Mid-Continent was ordered to pay Evanston $1,045,000 plus the costs of defense. 

    On appeal, the issue was whether the Mack truck's collisions near the toll plaza constituted one accident or multiple accidents under the language of Mid-Continent's policy. The policy defined "accident" to include "continuous or repeated exposure to the same conditions resulting in 'bodily injury' or 'property damage.'" Under the "Limit of Insurance" provision, the policy stated that "regardless of the number of covered autos, insureds, premiums paid, claims made or vehicles involved in the accident, the most Mid-Continent would pay for the total of all damages resulting from any one accident was the policy limit of one million dollars. 

    Under Texas law, the court applied the "cause" approach in interpreting the policy. In interpreting the meaning of an "occurrence, Texas courts focused on the events that caused the injuries and gave rise to the insured's liability, rather than on the number of injurious effects. Other jurisdictions adopted an "effects" approach in which each separate claim arising from the insured' negligence was considered a separate occurrence. 

    Under the cause test, the appropriate inquiry was whether there was one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage. If so, then there was a single occurrence. If the chain of the proximate causation was broken by a pause in the negligent conduct or by some intervening cause, then there were multiple occurrences, even if the insured's negligent conduct which caused each of the injuries was the same kind of negligent conduct. 

    Here, the chain of causation remained unbroken. the ongoing negligence of the runaway Mack truck was the single "proximate, uninterrupted, and continuing cause" of all the collisions. The language of the policy provided that all injuries - no matter the number of vehicles involved or the number of claims made - arising from continuous or repeated exposure to substantially the same conditions were considered a single accident. The broad language of the policy had to be given effect. There was one accident under the policy.

    Therefore, the district court was reversed and judgment was rendered in favor of Mid-Continent. 

Forest Fire Constitutes One Occurrence

    The Wisconsin Supreme Court determined that a fire damaging several properties arose from one occurrence. Secura Ins. v. Lyme St. Croix Forest Company, LLC., 2018 Wis. LEXIS 579 Oct. 30, 2018). 

    A fire broke out on forest land owned by Lyme St. Croix Forest Company. Known as the "Germann Road Fire," it burned 7, 442 acres over three days. Real and personal property belonging to many individuals and businesses were damaged. The fire allegedly began while equipment owned by Ray Duerr Logging, LLC was being repaired. Flames quickly spread from dry grass to a pile of recently felled trees and spread to the surrounding forest. 

    Secura insured Duerr under a CGL policy. The policy had a $2 million general aggregate policy limit and a $1 million per-occurrence limit. The policy also had a "Logging and Lumbering Operations Endorsement" with a $500,000 per-occurrence limit for property damage due to fire. 

    Secura filed suit for a declaratory judgment to determine its coverage obligations. Secura argued in its motion for partial summary judgment that the Germann Road Fire was a single occurrence. Therefore, the $500,000 policy limit from the endorsement applied rather than the $2 million aggregate limit. The circuit court rejected Secura's argument, finding that "each 'seepage' of fire onto another's property constituted a separate occurrence for purposes of the policy." The court of appeals affirmed, finding there was an occurrence each time the fire spead to a new piece of property and caused damage.

    On appeal, the Supreme Court noted that Wisconsin followed the "cause theory" in determining whether there was a single occurrence or multiple occurrences. Under the cause theory, where a single, uninterrupted cause resulted in all of the injuries and damage, there was one occurrence. Some jurisdictions followed the effect theory where each accident must be construed from the point of the view of the person whose property was damaged. Pursuant to the effect theory, there would be an occurrence when the separate property of each claimant was damaged. 

    The Supreme Court disagreed with the analysis of the court of appeals. If there was an occurrence each time a fire refueled and expanded, then a fire, which is constantly refueling and expanding, would result in an unfathomably large number of occurrences regardless of how many property lines it crossed. Therefore, the court concluded the Germann Road Fire constituted a single occurrence and the $500,000 per-occurrence limit applied to the property damage. 

Ohio Supreme Court Holds No Occurence Arises from Subcontractor's Faulty Workmanship

    The Ohio Supreme Court bucked the modern trend by finding that there was no coverage under CGL policy's the subcontractor's exception for faulty workmanship claimed against the insured. Ohio N. Univ. v. Charles Constr. Servs. 2018 Ohio LEXIS 2375 (Ohio Oct. 9, 2018).

    The University contracted with Charles Construction Services, Inc. to build a new luxury hotel and conference center on campus. After work was completed, the University discovered extensive water damage from hidden leaks that it believed were caused by the defective work of Charles Construction and its subcontractors. Repairs were made at the cost of $6 million. 

    The University sued Charles Construction for breach of contract and other claims related to the damage. Charles Construction answered and filed third-party complaints against its subcontractors. Charles Construction tendered to its insurer, Cincinnati Insurance Company (CIC), seeking a defense. CIC agreed to defend under a reservation of rights. CIC intervened in the lawsuit and sought a declaratory judgment that it did not have a duty to defend or indemnify. CIC then filed a motion for summary judgment.

    CIC relied upon a prior decision from the Ohio Supreme Court, Westfield Ins. Co. v Custom Agri. Sys., Inc., 979 N.E. 2d 269 (Ohio 2012), which held that property damage caused by a contractor's own faulty work was not accidental and therefore not covered. The issue currently before the court was whether the general contractor's policy covered claims for property damage caused by a subcontractor's faulty work. 

    The trial court found in favor of CIC. The court of appeals reversed, noting that Custom Argi. had not addressed issues raised by the policy's products-completed operations hazard coverage or subcontractor specific policy terms. 

    Those provisions can be summarized as follows. The policy excluded property damage to:

(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard."

The policy defined "products-completed operations hazard" as including,

"property damage" occurring away from premises you own or rent and arising out of . . . "your work" except:

. . .

(2) Work that has not yet been completed or abandoned.

    Despite these provisions, a subcontractor's faulty work did not meet the definition of an "occurrence" because it was not based upon fortuity. The insuring agreement agreed to pay for property damage under certain circumstances. But the damage must be due to an "occurrence." There was no question that the water-related damage was "property damage" and was discovered after the work had been completed. But unless there was an "occurrence," the products-operations completed hazard provision and subcontractor exception had no effect, despite the fact that Charles Construction had paid additional money for it. 

    The court was aware that is reasoning was at odds with recent decisions of other courts. But the language requiring that "property damage" be caused by an "occurrence" remained a constant in the policies. Under the court's precedence, faulty workmanship was not an occurrence as defined in CGL policies. 

    The court therefore reverted to reasoning used before changes to the standard CGL policy in 1986, finding that inadvertent faulty workmanship could never be fortuitous or an accident. The CGL policy was altered in 1986 to provide coverage for certain kinds of property damage caused by inadvertent faulty work. The exclusions were modified to narrow the scope of coverage that was provided when property damage was caused by faulty workmanship. The subcontractor exception was intended to provide coverage for a general contractor when property damage was caused by the faulty work of a subcontractor. This was particularly the case when the property damage occurred after the general contractor had completed the project and the damage was to something other where the allegedly defective work was done. This history was neither addressed nor reconciled by the Ohio Supreme Court's decision. 

 

Coverage Denied Where Occurrence Takes Place Outside Coverage Territory

    The court held there was no coverage for construction defect claims that occurred outside the coverage territory. Foremost Signature Ins. Co. v. Silverboys, 2018 U.S. Dist. LEXIS 154524 (S.D. Fla. Sept. 11, 2018).

    Solo Design, LLC, a Miami-based design company, entered into a contract with Silverboys, LLC (Owner) to provide interior design services in conjunction with the renovation of the Owner's vacation home in the Bahamas. Solo retained Whittingham, a Bahamian architect, as a subcontractor to serve as project manager. 

    Owner sued Solo, Whittingham and others in Florida for breach of contract, fraud, conversion and negligence when the project did not go as planned. The underlying complaint alleged intentional misconduct, lying about qualifications and the progress of the project, submitting false invoices, requesting money for services that were not performed, etc. Owner alleged that the damages included: (a) the cost to repair substandard work; (b) loss of use of the home due to delay; and (c) overcharges for furnishings, contract fees, and expenses. The underlying complaint set forth only a few instances of physical injury to the home, including mold on the ceiling in the master shower, faulty millwork on the children's playroom bookshelf, and a defective front door and resysta facade. 

    Solo had three CGL policies with Foremost that covered "property damage" caused by an "occurrence" that took place in the "coverage territory" during the policy period. 

    Foremost brought suit for a declaratory judgment that the policies did not cover the Owner's claims and there was no duty to defend or to indemnify. Both parties moved for summary judgment. 

    The court first found that allegations regarding mold in the shower and the damaged resysta façade - injuries to otherwise nondefective property caused by defendants' failure to properly perform their job - could be read to fall within the definition of covered property damage so long defendants' failures were not intentional. Therefore, in the context of a duty to defend, the underlying complaint sufficiently alleged property damage caused by an occurrence. 

    The policies' coverage territory included " the United States . . . or all parts of the world if the damages arises out of . . . good or products made or sold by [Solo] in the United States; or activities of a person whose home is in the United States, but is away for a short time on your business." Foremost argued there was no duty to defend because all alleged property damage was caused by an occurrence in the Bahamas, outside the coverage territory. Defendants argued that the alleged negligent conduct that caused the damage occurred in the coverage territory since Solo failed to supervise Whittingham, made billing mistakes, and drafted the designs in Miami. The court determined that the location of the injuries, not of some precipitating cause, determined the location of the event for purposes of coverage. Here, the alleged property damage was in the Bahamas, outside of the coverage territory. There was no indication that Solo employees traveled to the Bahamas for a short or long period of time. 

    Accordingly, there was no property damage caused by an occurrence in the coverage area, and not duty to defend. 

    

 

Intentional Mining Neighbor's Property is Not an Occurrence

    The Kentucky Supreme Court determined there was no coverage when the insured was sued for mineral trespass. Am. Mining Ins. Co. v. Peters Farms, LLC, 2018 Ky. LEXIS 287 (Ky. Aug. 16, 2018). 

    Beginning in 2007, Ikerd Mining. LLC removed 20,212 toms of coal from land belonging to Peters Farms, LLC. Of that amount, 10,012 tons were wrongfully mined under Ikerd's alleged mistaken belief as to the correct location of Peters' boundaries. The other 1,200 tons were mined by Ikerd knowing that the land thereunder belonged to Peters, but pursuant to a disputed oral lease agreement between the two. Peters claimed that the lease was an ongoing negotiation that was never finalized. 

    In 2010, Peters sued Ikerd and Ikerd's insurer, American Mining Insurance Company, Inc. (AMIC) for Ikerd's "willful and wanton trespass" onto Peters' property and conversion of coal. AMIC argued that the losses claimed by Peters from the mining activities were not an "occurrence," and thus not covered by the policy. The trial court determined that Ikerd's mistake in mining Peters' property was an "accident," which meant it was an "occurrence" under the CGL policy. The court also determined that the removal of coal and foliage from Peters' property constituted "property damage" that triggered insurance coverage under the policy. On appeal the Court of Appeals affirmed the trial court. 

    The Kentucky Supreme Court considered under the fortuity doctrine the extent of Ikerd's intent and control regarding its excavation and conversion of Peters' coal. Although it may not have been Ikerd's intent to mine Peters' coal specifically, Ikerd did intend to mine and sell the coal it extracted. Regardless of whether its trespass was willful or innocent, Ikerd intended to act. 

    Further, Ikerd had complete control over its employees and any subcontractors who extracted the coal from Peters' property. Ikerd directed its employees to excavate coal from Peters' property for several months. Therefore, because the actions taken by Ikerd, which led to property damage, were entirely under its control, and Ikerd fully intended to execute the excavation plan as it did, the resulting damage was not an accident. Accordingly, there was no coverage under the policy. The Court of Appeals' decision was reversed. 

Hawaii Federal District Court Rejects Insurer's Motion for Summary Judgment on Construction Defect Claims

    Taking into consideration a "Revised Occurrence Endorsement," the federal district court determined the insurer had a duty to defend. Gemini Ins Co. v. Constrx Ltd., 2018 U.S. Dist. LEXIS 163453 (D. Haw. Sept. 24, 2018).

    Constrx Ltd. (CRX) contracted with the AOAO to perform remedial construction repairs to condominium buildings and apartment units. CRX asserted that it completed all work, including charge orders and punch list items and it left the site. CRX was paid less that the contract amount and demanded arbitration against the AOAO. In the arbitration the AOAO relied upon a report by Posard Brock & Associates (PBA) Report which set forth the AOAO's claims against CRX, including corrective work, remaining punch list work, construction delay costs, cost overruns, and other items justifying its payment than less that the contract amount. 

    At the arbitration, a Final Award was issued in favor of CRX. When it sought to confirm the Final Award, the AOAO sought to vacate the award. The circuit court granted the AOAO's motion to vacate, and CRX appealed.

    Gemini had issued a CGL policy to CRX. Gemini defended CRX in  the arbitration under a reservation of rights. Gemini later sued for a declaratory judgment, requesting a declaration that it had no duty to defend or indemnify CRX for claims asserted in the underlying arbitration. Gemini moved for summary judgment. The motion was denied because the possibility for coverage existed, particularly in light of the Revised Occurrence Endorsement. The Endorsement contained a modified definition of "occurrence" which expressly included within coverage "property damage" caused by CRX as long as the damage was not to CRX's own work. Because the standard term "occurrence" was modified in the Gemini policy, cases from the Hawaii federal district court holding that contract and contract-based tort claims were not within the scope of typical CGL policies did not bar coverage under the circumstances alleged here.

    In the underlying arbitration, the PBA Report alleged that work performed by CRX or on its behalf caused damage to property to other than "your work,' including damage for "corrective work that was performed by CRX to correct construction defects as a result of their self-performed work or that of their subcontractors." This included window leaks and flashing, plumbing leaks, damage to unit interiors and belongings, and carpet cutting. Moreover, remaining punch list items to be completed included miscellaneous corrective work at each building. 

    Neither CRX nor its subcontractors performed work involving the owners' belongings, refrigerators, furniture, glass and hardware items. Nor did CRX or its subcontractors perform any work on window or door screens. Therefore, there was a possibility that this property damage was not accidental and coverage existed based upon the claims in the PBA Report. 

    Gemini argued that all of the claims made in the PBA Report described corrective work and punch list items that reflected repairs or outstanding matters relating to CRX and its subcontractors' actual work. While Gemini might ultimately be correct about the cause of the damage, the AOAO's claims asserted in the underlying arbitration were not so clear and created the potential for coverage. 

   None of the exclusions raised by Gemini were applicable to bar coverage. Therefore, Gemini had a duty to defend and its motion for summary judgment was denied. As far as the duty to indemnify, Gemini's motion was premature and was dismissed without prejudice to refile its motion after the appeal in state court determined whether CRX had liability for the AOAO's claims. 

Insurer's Judgment on the Pleadings Based Upon Expected Injury Exclusion Reversed

    The appellate court reversed the trial court's granting of a judgment on the pleadings based upon the expected injury exclusion in a homeowner's policy. Allstate Indemn. Co. v. Contreras, 2018 Ill. App. LEXIS 170964 (Ill. Ct. App. July 20, 2018).

    Alejandra Contreras owned Jasmine's Day Care. Her husband, Adan Contreras, was not an employee of the Day Care. Alejandra and Adan had a homeowner's policy which provided day care liability coverage through an endorsement. 

    Jane Doe's children, Janie Doe and Janet Doe, were enrolled in the Day Care. Jane sued the Day Care and Alejandra, alleging Adan had abused Janie and Janet. Jane's complaint alleged that as the owner and operator of the Day Care, Alejandra was obligated to supervise Janie and Janet while they were under her care. The complaint alleged Alejandra was negligent in failing to provide adequate supervision and allowing her husband to be alone with Janie and Janet. 

    Allstate filed a complaint for declaratory judgment against Alejandra, Adan, the Day Care, and Jane. The policy excluded "bodily injury intended by, or which may reasonably be expected to result from intentional or criminal acts or omissions of any insured person." Allstate argued that the injuries that Janie and Janet suffered did not arise out of an accident but were instead the reasonably expected result of the repeated sexual abuse by Adan.

    Allstate filed a motion for judgment on the pleadings. The court agreed there was no duty to defend based upon the "expected injury" exclusion and granted the motion.

    On appeal, Jane argued that she did not name Adan as a defendant in the underlying action. It was necessary to distinguish between Adan's intentional acts and the independent negligent acts of the Day Care and Alejandra. The court considered whether Adan's intent to injury Janie and Janet precluded coverage for his co-insureds, the Day Care and Alejandra, where they were allegedly negligent for failing to prevent the sexual abuse. 

    The court decided that under Illinois law, it could not simply impute Adan's intentional conduct to the Day Care and Alejandra for purposes of the "expected injury" exclusion. Allstate argued that Jane would be required to plead and prove in the underlying case more specific facts, including Adan's intent to harm her daughters, and this would preclude coverage for the Day Care and Alejandra. 

    But the absence of any specific factual allegations in the underlying complaint that would trigger the "expected injury" exclusion with respect to the Day Care or Alejandra meant that Allstate did not meet its burden of demonstrating that it owed no duty to defend. Accordingly, Allstate was not entitled to judgment on the pleadings.