Construction Defect & Equitable Contribution/IL App. 1st Dist.

Subcontractor Entitled to Defense Even if Contractor Would Not Be

The First District Appellate Court of Illinois, in an opinion written by Judge Mikva, reversed the trial court and found that when a complaint alleges an insured subcontractor’s faulty workmanship caused damage to other property outside the scope of the subcontractor’s work, there is a duty to defend.  Because the appellate court found a duty to defend, it also addressed the equitable contribution claim at issue and held that two insurers’ policies did not need to cover identical policy periods or overlap in order to cover the same risk.

The condominium association for a building located at 950 West Huron Street in Chicago, Illinois sued its general contractor and construction manager due to alleged defects from unworkmanlike construction of the building envelope that allowed water to infiltrate and cause damage.  The general contractor filed a third-party complaint against its subcontractors that worked on the building, including the carpentry subcontractor Denk & Roche Builders, Inc. (“Denk & Roche”).  During the relevant time period, Denk & Roche was insured under commercial general liability (“CGL”) insurance policies with two insurance companies – Cincinnati Insurance Company (“Cincinnati”) from January 1, 2000 through June 1, 2007 and Acuity Insurance Company (“Acuity”) from June 1, 2007 through December 31, 2007, with Acuity renewal policies through December 31, 2013. 

Acuity filed an action seeking a declaration that it owed Denk & Roche no duty to defend in the construction suit.  Cincinnati defended Denk & Roche, and ultimately settled all claims against it.  Cincinnati then intervened in Acuity’s declaratory judgment action to seek equitable contribution from Acuity.  Acuity and Cincinnati filed cross motions for summary judgment.  The trial court granted summary judgment in favor of Acuity finding that “the allegations of the underlying complaints did not allege damages caused by an occurrence” and “[a]s Acuity did not owe a duty to defend, Cincinnati is not entitled to equitable contribution.” 

The Acuity policy obligated Acuity to defend Denk & Roche in any suit to recover for “property damages” caused by an “occurrence.”  According to the appellate court, a CGL policy does not provide coverage for the cost of correcting construction defects because such defects are not an “occurrence”.  However, “damages to something other than the project itself does constitute an ‘occurrence’ under a CGL policy.”  According to the appellate court, the duty to defend Denk & Roche depended on “what qualifies as damage beyond ‘the project itself’ and therefore as an occurrence and property damage, where the insured is a subcontractor performing discrete work on a project and that subcontractor has no control over or contractual obligation regarding other aspects of the projects.”  From the subcontractor’s perspective, the “project” is limited to the scope of its own work – the precise nature of any damage that might occur to something outside of that scope is unknown or unforeseeable as damage to something entirely outside of the construction project.  The appellate court found that “when an underlying complaint alleges that a subcontractor’s negligence caused something to occur to a part of the construction project outside of the subcontractor’s scope of work, this alleges an occurrence under [the] CGL policy language, notwithstanding that it would not be an occurrence from a general contractor or developer’s perspective.”  Therefore, based on the allegations which alleged construction defects outside of the scope of Denk & Roche’s carpentry work, the appellate court held that Acuity had a duty to defend Denk & Roche in the construction litigation.

On appeal, Acuity argued that even if it did have a duty to defend, Cincinnati had no right to equitable contribution because the policies did not cover the same risks since their respective coverage periods did not overlap.  The appellate court disagreed.  Under Illinois law, insurance policies need not temporally overlap in order to cover the same risk for purposes of equitable contribution.  Thus, because Denk & Roche was entitled to a defense from Acuity, Cincinnati was entitled to equitable contribution from Acuity for undertaking Denk & Roche’s defense.  The case was remanded for further proceedings to allow Cincinnati to have a chance to prove-up the amount of contribution to which it is entitled.  2019 IL App (1st) 180743 (Mar. 29, 2019).