Are Construction Defects Constituted as “Property Damage” or an “Occurence”?
J.P. Larsen, Inc., the insured, was issued a commercial general liability policy by Milwaukee Mutual, the insurer. The insured was subcontracted to apply sealant to windows in the construction of a condominium. After the windows subsequently leaked and the building owner brought suit against the contractor and the insured subcontractor, both tendered defense to the insurer who then brought a declaratory judgment action that it had no duty to defend or indemnify.
At issue was whether “construction defects” constituted “property damage” or an “occurrence.” The court held that the underlying complaint alleged not only construction damage which would constitute economic loss not covered by the policy, but it also alleged costs associated with the “property damage” suffered by individual unit owners in addition to the construction defects, which are not intangible or merely associated with the repair or replacement of the faulty window caulking and sealant. Therefore, the pleadings alleged “property damage” within, or at least potentially within, the insurance policy.
The court next addressed whether there was an “occurrence.” The court noted defective workmanship by a subcontractor would constituted an “occurrence” and be covered if the subcontractor damaged something other than the project itself. The court held that since the pleadings alleged that the insured’s negligent workmanship caused an accident in the form of significant and continuing water damage, which was more an allegation that the window sealant and caulking were defective, an “occurrence” occurred as defined under the policy.
Milwaukee Mutual Ins. Co. v. J.P. Larsen, Inc., 956 N.E.2d 524 (Ill.App. 1 Dist., 2011), No. 1-10-1316
