IL Sup. Ct. / Construction
Inadvertent Construction Defects are an Occurrence
The Illinois Supreme Court, in an opinion written by Chief Justice Theis, issued a landmark decision under Illinois law and held property damage that results from inadvertent faulty work can be caused by an “accident” and therefore constitute an “occurrence” for purposes of the initial grant of coverage under a CGL insuring agreement.
The coverage dispute stemmed from alleged construction defects in a residential townhome development. Acuity denied that it had a duty to defend M/I Homes and filed this coverage action. Acuity asserted several bases for its denial, including that the underlying complaint only alleged “property damage” to the townhomes and not any other property beyond the project. According to Acuity, this meant there was no “occurrence” under controlling Illinois law.
The Illinois Supreme Court rejected the argument that unless the complaint alleged damage to “other property” beyond the project, there can be no “property damage” caused by an “occurrence.” It stated that coverage analysis should follow the rules of contract interpretation, which starts with the plain language of the policy. The Illinois Supreme Court held that the policy’s definitions of “property damage” and “occurrence” do not suggest that damage to the insured’s own work cannot be an occurrence or property damage. “To hold otherwise would be to interpret ‘property damage’ as ‘property damage to something other than the project’ and ‘occurrence’ as ‘an accident to something other than the project.’”
The Illinois Supreme Court made it clear that while damage to the insured’s own work may be an occurrence, that does not mean that the policy will necessarily provide coverage for the loss. A court must then look to the policy exclusions (such as the “your work” and “your business property” exclusions) to see if coverage is otherwise precluded. The Court then remanded the case to the trial court to determine whether any exclusions applied to bar coverage. Acuity v. M/I Homes of Chicago, LLC, 2023 IL 129087 (Ill. Sup. Ct. 2023).