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Northern District of Illinois Ruled that Insurance Company did not have to Provide Coverage for a Window Installer’s Settlement of Claims Stemming from Poor Workmanship – Recent Blog Posting by Nick Stewart

May 12, 2016

Recent Blog Posting by Nick Stewart.

In a recent decision coming from the Northern District of Illinois, a federal judge ruled that Allied Property & Casualty Co. (“Allied”) and Amco Insurance Co. (“Amco”) did not have to provide coverage for a window installer’s settlement of claims stemming from its poor workmanship which caused extensive water intrusion into the Metro North Condominium complex (“Metro North”). The judge found the policies did not cover damages included in the settlement agreement.

The judge granted Allied and Amco’s motion for summary judgment finding that most of the damages caused by water intrusion in Metro North were not recoverable under the policy.

CSC Construction, Inc. (CSC Construction) entered into a subcontract to provide window and glazing services for Metro North during original construction. Metro North is a condominium building located in Chicago, which is governed by Metro North Condominium Association. Allied and Amco provided commercial liability policies to CSC Construction from March 30, 2006 to March 30, 2007.

On October 2006, during original construction a rainstorm began to cause water intrusion issues. Metro North claimed the water intrusion caused damage to the building and to the unit owners’ personal property and brought claims against CSC Construction for breach of the implied warranty of habitability.

Allied and Amco provided CSC Construction with an independent defense in the underlying lawsuit under a reservation of rights. Ultimately, Metro North settled its claims with CSC Construction for $700,000 and accepted an assignment of the subcontractor’s rights against Allied and Amco.

Next, Allied and Amco sued Metro North requesting a ruling that their policies do not cover Metro North’s claims against CSC Construction because the damages sought are not recoverable based on a claim of breach of the implied warranty of habitability. The court looked at Illinois case law and determined in Illinois consequential damages tied to the breach of the implied warranty of habitability are not recoverable unless the property is rendered uninhabitable. The judge found Metro North was not rendered uninhabitable as a result of the water infiltration.

In concluding the opinion, the judge looked to make a determination regarding whether or not the defective work of CSC Construction was an accidental occurrence triggering coverage under the policies. He found, “when a subcontractor who installs windows performs defective work, the natural and ordinary consequence is water infiltration that will damage the rest of the building.” thus “there is no accident, so there is no occurrence, so there is no coverage.”

This case is an example of how a court may be hesitant to find consequential damages from the breach of implied warranty of habitability when construction defects are serviceable and do not render a building truly uninhabitable. Further in this case, the court held a CGL policy is not meant to cover “an accident of faulty workmanship but rather faulty workmanship which causes an accident.” In conclusion, this opinion serves as an example of the way jurisdictions can differ on their interpretation of CGL policies and how the consequential damages from the implied warranty of habitability are understood.

This case is Allied Property & Casualty Insurance Co. et al. v. Metro North Condominium Association, case number 1:15-cv-03925, in the U.S. District Court for the Northern District of Illinois. Please contact us if you would like a copy of the case or have any questions.

Please click here for more information on Carlock Copeland’s Insurance Coverage Corner Blog.

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