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The U.S. Court of Appeals for the Seventh Circuit, affirming a decision by the U.S. District Court for the Northern District of Illinois, has ruled that a subcontractor s alleged negligence was an occurrence for purposes of a commercial general liability ( CGL ) insurance policy.
The Case
The board of managers of 200 North Jefferson Tower Condominium Association filed a lawsuit in an Illinois state court seeking to recover damages as the result of allegedly faulty workmanship on the building. James McHugh Construction Company, the general contractor, and National Decorating Service, Inc., a subcontractor retained by McHugh Construction to perform all of the painting work, were among the defendants. The newly constructed multi-story building allegedly suffered water damage caused by the failure of National Decorating to apply an adequate coat of sealant to the exterior of the building.
Westfield Insurance Company, National Decorating s CGL insurer, went to court for a declaration that it had no duty to defend or to indemnify National Decorating or McHugh Construction.
The district court ruled that Westfield had a duty to defend.
Westfield appealed to the Seventh Circuit, arguing that National Decorating s alleged failure to apply a sufficiently thick coat of paint to the exterior of the building did not constitute an accident under the policy and that, absent an accident, there had been no occurrence.
The Westfield Policy
The Westfield policy provided that the insurer would:
[P]ay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages. However, we will have no duty to defend the insured against any suit seeking damages for bodily injury or property damage to which this insurance does not apply.
It defined:
property damage
as the:
[p]hysical injury to tangible property, including all resulting loss of use of that property.
The policy covered:
property damage
caused by an:
occurrence
, defined as an:
accident, including continuous or repeated exposure to substantially the same general harmful conditions.
The Seventh Circuit s Decision
The Seventh Circuit affirmed.
In its decision, the circuit court explained that an accident was an unforeseen occurrence, usually of an untoward or disastrous character or an undesigned, sudden, or unexpected event of an inflictive or unfortunate character. Therefore, it continued, Illinois courts have determined that damage to a construction project that occured as a result of a construction defect did not constitute an accident or occurrence because it was the natural and ordinary consequence of faulty construction.