Tred Eyerly | Insurance Law Hawaii | August 9, 2017
The Seventh Circuit held that the underlying complaint alleged an occurrence by asserting that the painting subcontractor was negligent in causing damage to the building. Westfield Ins. Co. v. Nat’l Decorating Serv., Inc., 2017 U.S. App. LEXIS 12516 (7th Cir. July 13, 2017).
McHugh Construction, the general contractor for construction of a 24 story condominium building in Chicago, retained National Decorating Service, Inc. as a subcontractor to perform all of the painting work. This meant National Decorating would paint the exterior of the building with a protective coating that was a waterproof sealant.
After completion, the building’s board of managers sued McHugh, National Decorating, and others for damages resulting from faulty workmanship. The third amended complaint alleged: (1) significant cracking of the exterior concrete walls, interior walls, and ceilings; (2) significant leakage through the exterior concrete walls, balconies, and windows; (3) defects to the common elements of the building; and (4) damage to the interior ceilings, floors, interior painting, drywall, and furniture in the units.
Westfield was National Decorating’s insurer. McHugh was an additional insured. The policy defined “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Both National Decorating and McHugh tendered to Westfield, who denied the tender. Westfield filed an action for declaratory judgment to determine its coverage obligations. The parties filed cross motions for summary judgment. The district court denied Westfield’s motion and granted the defendants’ motions. Therefore, it was determined Westfield had a duty to defend.
On appeal, Westfield argued National Decorating’s failure to apply a sufficiently thick coat of paint to the exterior of the building did not constitute an “accident” under the policy. Second, Westfield argued that because the damage was to the building itself, the damage was exempted from the policy’s coverage.
The Seventh Circuit disagreed that National Decorating’s actions could not constitute an “occurrence” as a matter of law. Under Illinois law, negligently performed work or defective work could give rise to an “occurrence” under a CGL policy. This was especially true where, as here, the policy defined an “occurrence” to include not only an accident, but also “continuous or repeated exposure to conditions.” Here, the underling complaint alleged that National Decorating was negligent. This was sufficient to satisfy the policy’s occurrence requirement when determining whether there was a duty to defend.
Further, damage to something other than the project itself did constitute an “occurrence.” Here, the parties disputed what constituted the scope of the project. Westfield contended that the project was the entire building and because the damage alleged was to that building, it was excluded from the policy’s scope. The defendants argued that the scope of the project was National Decorating, the Named Insured’s, work. The court agreed with the defendants.
National Decorating was responsible for painting the exterior of the building. The underlying complaint sought to recover for damages incurred to other portions of the building, not just the exterior, which was allegedly coated with an insufficient amount of paint. It would be illogical to conclude that the scope of the project for which National Decorating contracted was the entire building.
Westfield also argued that from a public policy perspective, finding that there was a duty to defend under a subcontractor’s CGL policy would obviate the need for a general contractor or developer to carry its own coverage. The court was not impressed with this argument, noting that coverage would only be available for damage caused to the building as a result of an “occurrence” caused by the Named Insured’s work. Therefore, the policy required a clear connection between the damage and the subcontractor’s work.
Consequently, the district court’s grant of summary judgment for the defendants was affirmed.