Tred Eyerly – Insurance Law Hawaii – September 24, 2014
Applying Illinois law, the Seventh Circuit determined there was no coverage for faulty workmanship causing property damage to the insured’s project. Nautilus Ins. Co. v. Board of Directors of Regal Lofts Condominium Ass’n, 2014 U.S. App. LEXIS 16250 (7th Cir. Aug. 21, 2014).
The developer converted a vacant building into a condominium. The construction was completed in 2000. The Condominium Board took control of the condo association on July 27, 2000. As early as May 2000, one homeowner was aware of water damage problems in the building. Other complaints surfaced. An investigation found that the exterior brick masonry walls were not fully waterproofed, which caused leaks. The investigation further showed that deteriorated conditions had likely developed over many years, even prior to the condominium conversion, but the present water penetration was caused by the inadequate restoration of the walls to a water-tight condition.
The underlying action was filed against the developer for failure to properly construct the exterior walls. The developer’s carrier, Nautilus, denied coverage. In an amended complaint, the Board added a count of negligence. Again, Nautilus denied coverage. The Board’s second amended complaint alleged that the developer’s negligence had caused damage to personal property within the building, in addition to the interior of the building and the building itself. For the third time, Nautilus denied coverage and filed for declaratory relief.
The district court denied the developer’s motion for summary judgment. There was no “occurrence” under Illinois law because there was no damage to something other than the project itself. The damage to the personal property could have been within the scope of the policy’s coverage, but the products-completed operations hazard exclusion applied to the personal property damage alleged in the second amended complaint. Subsequently, the district court granted summary judgment to Nautilus.
The Seventh Circuit affirmed. The first two complaints did not allege facts that would bring the case even potentially within coverage of the policy. The complaints alleged damage only to the building itself. For an incident to constitute an “occurrence” under Illinois law, there had to be damage to something other than the building in order for coverage to exist.
Damage to the personal property was not covered, either. The products-completed operations hazard exclusion removed from coverage property damage that occurred “away from premises [the developer] owns or rents and arising out of” the developer’s product or work, but coverage would be afforded if the work had not yet been completed or abandoned. Here, the owners moving their personal property into the units indicated that the condominium units were being put to their intended use, making the exclusion applicable and the exception inapplicable.
via Insurance Law Hawaii: Illinois Law Bars Coverage for Construction Defects in Insured’s Work.