Zimmerman and Torrence Win Summary Judgment for Insurer in Coverage Action Based on Construction Operations Exclusion

Clausen Miller shareholder Mark W. Zimmerman and partner Mitchel D. Torrence recently secured a significant win for their insurer client in an insurance coverage action when a Cook County, Illinois judge granted summary judgment in their favor, finding that the insurer did not act in bad faith and had no duty to defend or indemnify a property owner (the “insured”) against liability arising from bodily injury occurring during renovation of the property.

Facts

The Insured was conducting a “gut-rehab” renovation of the property and requested that a contractor provide an estimate for rehabbing and/or replacing the HVAC system. While at the property to conduct the estimate, the contractor fell and was seriously injured when a temporary staircase at the property collapsed. The insurer denied coverage of the ensuing personal injury lawsuit based upon a construction operations exclusion in the Policy, providing as follows:

Exclusion – Construction Operations
This insurance does not apply to ‘bodily injury,’ ‘property damage,’ or ‘personal and advertising injury,’ and medical expenses arising out of any construction, “construction services,” demolition, renovation, or site preparations.

‘Construction Services’ includes, but is not limited to, surveying, drafting, test borings, or inspections.

The insured initially argued that the exclusion did not apply because the HVAC contractor was not performing actual construction operations at the time he was injured. The insured also maintained that the enforcement of the exclusion would render coverage under the Policy illusory and that when a construction contractor purchases insurance coverage for its business that coverage of construction injuries is required under the law. The insured also asserted that the construction operations exclusion conflicted with a separate Designated Premises or Project endorsement, which the insured claimed provided coverage for the renovation project. Finally, the insured argued that the insurer acted in bad faith by disclaiming coverage and failing to file an affirmative declaratory judgment action.

Analysis

The court rejected the plaintiffs’ arguments, finding that the insurer had no duty to defend or indemnify the underlying action. The court found that there was no conflict between the Construction Operations Exclusion and the Designated Premises Endorsement and that coverage for the underlying action was excluded under the plain and unambiguous language of the Construction Operations Exclusion. The court further rejected plaintiffs’ illusory coverage argument, finding that bodily injury sustained in areas of the subject property which were not being renovated would not fall within the exclusion and that the exclusion therefore did not completely “swallow” the scope of coverage provided.

The court also held that the plaintiffs could not prevail on their Section 155 claim as a matter of law because the insurer had no duty to defend and a bona fide dispute of coverage existed.