No Coverage For Home Remodeler's 'Improper' Work
July 21, 2010
The 1st District Appellate Court recently held that four complaints for work deficiencies brought against a home remodeler did not contain allegations within the scope of the remodeler's commercial general liability coverage – despite an endorsement adding coverage for "improper home repair and remodeling" – and that the insurer therefore had no duty to defend. West Bend Mutual Insurance Co. v. People of the State of Illinois, 2010 WL 2165177 (1st Dist. May 27, 2010).
The insurer, West Bend, was represented by the law firm of McKenna, Storer, Chicago. Christopher Colon of Riverside represented the insured, Father and Sons Contractors Inc. (F&S).
Four separate underlying actions had been brought against F&S. One was by the Illinois Attorney General which alleged that F&S conducted its home repair business in violation of the Illinois Consumer Fraud Act. The Attorney General's complaint alleged that F&S engaged in various misrepresentations that had the effect of abusing and deceiving home repair customers.
The other three actions were brought by customers of F&S primarily for fraud, breach of contract and failure to obtain the appropriate work permits. These complaints contained a variety of allegations of work deficiencies by F&S, including that its electrical and floor installation was "improper," that its failure to complete construction of a roof resulted in water damage, and that its workmanship otherwise was improper.
West Bend issued CGL policies to F&S for the relevant time period, which policies included an endorsement covering liability for home repair and remodeling. The endorsement's insuring agreement indicated that West Bend would pay sums that F&S became legally obligated to pay for "improper home repair and remodeling." It also indicated that the limit of liability for "property damage" arising out of such home repair work was $10,000 "per occurrence."
F&S tendered defense of all four lawsuits to West Bend, which denied coverage and filed four separate coverage actions for a declaration of rights and obligations. It then moved for summary judgment in each action, and the trial court granted the motions, finding that West Bend had no duty to defend. The decisions were based primarily on the failure of an "occurrence" being alleged in the underlying lawsuits, and the "expected or intended" exclusion contained in the endorsement.
F&S appealed all four decisions, and the four cases were consolidated for appeal.
In an opinion by Justice P. Scott Neville Jr., the 1st District affirmed. He initially addressed F&S's argument that, by applying the "expected or intended" exclusion, the trial court improperly decided an ultimate issue of fact in the underlying actions. Neville acknowledged that it is generally inappropriate for a court in a coverage action to decide issues of ultimate fact in the underlying litigation, but here observed that the underlying complaints contained no counts for negligence, and all the claims required proof of intent. The trial court therefore did not err by applying the "expected or intended" exclusion.
F&S next argued that the trial court erred by reading the term "occurrence" into the insuring agreement of the home repair endorsement, when the insuring agreement itself did not refer to an "occurrence." Neville disagreed, finding that the requirement of an "occurrence" was effectively incorporated into the endorsement by using that term in defining West Bend's limit of liability as $10,000 "per occurrence."
He also observed that none of the underlying complaints alleged an "occurrence," but relied instead on alleged deliberate fraud and intentional acts of faulty workmanship. The trial court therefore was correct in relying on the absence of allegations of an "occurrence."
West Bend contended that, among other reasons for denying coverage, the underlying complaints failed to allege any property damage. Neville agreed that the requirement of "property damage" was incorporated into the home repair endorsement because, just like "occurrence," it was referenced in the endorsement's limit of liability.
He further noted that CGL policies in general are not intended to pay the costs associated with repairing the insured's defective work and products, which are purely economic losses. He then quoted State Farm Fire & Casualty Co. v. Tillerson, 334 Ill. App. 3d 404, 777 N.E.2d 986 (1st Dist. 2002), for the proposition that no coverage is afforded an insured against whom only economic damage is sought. Ultimately, he found that that the underlying complaints alleged only economic loss, and not "property damage," and there was no coverage for this additional reason.
F&S, however, relied on allegations in the underlying complaints, such as that the electrical work it performed contained improper wiring. It contended that the "expected or intended," and apparently the other bases for denying coverage, did not apply with respect to these kinds of allegations.
In response, Neville turned to Steadfast Insurance Co. v. Caremark Rx, Inc., 359 Ill. App. 3d 749, 835 N.E.2d 89 (1st Dist. 2005), which involved underlying allegations of knowingly wrongful acts, but also contained allegations that the insured failed to act with "care, skill, prudence and diligence." The court there held that isolated allegations that an insured failed to act with due care, in a complaint that predicated liability on a theory of intentional conduct, did not give rise to a duty to defend.
Similarly, here, Neville found that the underlying complaints did not allege that F&S acted negligently, but rather that it knowingly performed improper home repair and remodeling. Under these circumstances the "expected or intended" exclusion applied, there was a failure of an occurrence, and the West Bend would have no duty to defend.
The court therefore affirmed the orders granting West Bend summary judgment in all four cases.
