Vague Use of Term “Damages” Does Not Trigger Duty to Defend
In Lagestee-Mulder Inc. v. Consolidated Insurance Co., Lagestee-Mulder Inc. (“LMI”) was hired by Crown Centre, LLC (“Crown”) to construct a multistory office building in Frankfort, Illinois. LMI then subcontracted the supply and installation of the needed windows and doors to Frontrunner Glass & Metal, Inc. Pursuant to the subcontract, Frontrunner was required to purchase and maintain insurance that named LMI as an additional insured. Frontrunner complied with the obligation and purchased an occurrence-based commercial general liability policy from Consolidated Insurance Company. The policy required Consolidated to cover sums that its insureds (Frontrunner as primary policy holder and LMI as an additional insured) became legally obligated to pay because of property damage caused by an occurrence which took place within the coverage territory during the policy period. The Policy also required Consolidated to defend any suit seeking damages for covered property. During the later stages of construction, Crown experienced water infiltration at numerous locations, as well as other construction defects, which prompted Crown to file suit in an Illinois state court. LMI tendered the defense of its claim to Consolidated on March 6, 2009, but Consolidated made no coverage decision during the subsequent six months. Consolidated denied coverage for Crown’s claim against LMI and rejected LMI’s tender of defense. LMI brought an instant lawsuit against Consolidated in which it alleged a breach of its duties under the policy.
The question before the court is whether the complaint triggered the insurer’s duty to defend under the Policy. Specifically, the court must determine whether the complaint alleged “property damage” covered by the policy. The policy is a standard occurrence-based CGL policy, which provides coverage for property damage caused by an occurrence during the policy period. In addition to providing coverage, Consolidated was required to defend any suit seeking damages for covered property.
To determine whether an insurer’s duty to defend has been triggered, a court must compare the allegations in the underlying complaint with the language of the insurance policy. However, “[a]n insurer may not justifiably refuse to defend an action against its insured unless it is clear from the face of the underlying complaint that the allegations fail to state facts which bring the case within, or potentially within, the policy’s coverage.” Because an insurance company must defend its insured in actions that are even potentially within coverage, its duty to defend is broader than its duty to indemnify. However, comprehensive general liability policies … are intended to protect the insured from liability for injury or damage to the persons or property of others; they are not intended to pay the costs associated with repairing or replacing the insured’s defective work and products, which are purely economic losses. Finding coverage for the cost of replacing or repairing defective work would transform the policy into something akin to a performance bond. The underlying complaint does not clarify what explicit damages Crown sustained, nor does it specify whether anything other than the building itself was damaged. Since the complaint exclusively alleged damage to the structure itself, that, in itself, is insufficient to trigger Consolidated’s duty to defend. Here, the factual allegations of the complaint cannot support LMI’s assertion that Crown alleged anything other than defective construction, because the complaint is devoid of any facts that would support this construction. Because the complaint only alleged damage to the structure itself, Consolidated’s duty to defend was not triggered.
The court therefore held that the underlying complaint’s vague use of term, “damages,” did not trigger duty to defend.
Lagestee-Mulder Inc. v. Consolidated Insurance Co., 682 F.3d 1054 (7th Cir., 2012).
