Vague Allegations Of Damage To Other Property Caused By Improperly Installed Building Components Triggers Duty To Defend

An Illinois Appellate Court, applying Illinois law, held that an insurer had a duty to defend a contractor in an underlying action filed by a homeowners association. The insurer argued that it had no duty to defend, because the underlying action only alleged property damage to improperly installed siding and gutters. Thus, according to the insurer, there was no “occurrence” or “property damage” under the CGL policy. The court disagreed, finding that allegations of “other damage” resulting from the defective installations triggered the duty to defend.

Pulte Home Corporation (“Pulte”) is a real estate developer who built “The Reserve of Elgin.” Pulte subcontracted with G.H. Siding, LLC, to install exterior siding on the Reserve. The Reserve HOA, on behalf of the unit owners, filed a complaint against Pulte and the manufacturer of the siding, alleging that Pulte had “developed, designed, constructed and sold” the Reserve and, in doing so, installed defective siding. The Reserve HOA also alleged that the “exterior envelope” of the residential units and common areas had defects in design and workmanship, including improper design of the gutter system and improper installation of the siding.” As a result of these alleged defects and failures, the Reserve HOA claimed that the unit owners “will be required to make substantial repair and/or replacement of the common area Building exterior envelopes and resultant damage.” In addition to repair and replacement costs, the Reserve HOA also sought recovery for “such other damage resulting from the defective materials and above defective conditions determined at trial[].”

Pulte tendered the claim to its insurer, West Bend Mutual Insurance Company (“West Bend”). West Bend denied the claim, arguing: the claim did not allege damage to property other than to the defectively installed property; the claim only sought damages for repair and replacement costs relating to Pulte’s defective work; and, therefore, the claim does not allege an “occurrence” or “property damage” under the policy.

The Appellate Court disagreed with West Bend, and affirmed the trial court’s grant of judgment on the pleadings in favor of Pulte. The court observed that the underlying complaint did not specifically identify damage to property other than the defective property.  But, the court held that the underlying allegations of “resultant damage” and “other damage” resulting from the defective installation were sufficient to trigger the duty to defend: “As this court has recently recognized, ‘vague, ambiguous allegations against an insured should be resolved in favor of a duty to defend…The question of coverage should not hinge on the draftsmanship skills or whims of the plaintiff in the underlying action.” “Rather, ‘an insurer may not justifiably refuse to defend a lawsuit against an insured unless it is clear from the face of the underlying complaint that the allegations set forth in the complaint fail to state facts that bring the case within, or potentially within, the coverage of the policy.” West Bend Mutual Ins. Co. v. Pulte Home Corporation, et al., Case No. 1-14-0355 (Ill. App. Ct. May 15, 2015).