Moda Furniture, LLC v. Chicago Title Land Trust Company

2015 IL App (1st) 140501, 35 N.E.3d 1139

• Court: Appellate Court of Illinois
• Decided: June 29, 2015
• Docket: 1-14-0501
• Status: Unpublished

Opinion

2015 IL App (1st) 140501

FIRST DISTRICT JUNE 29, 2015 No. 1-14-0501

MODA FURNITURE, LLC, ) Appeal from the ) Circuit Court of Plaintiff-Appellee, ) Cook County. ) v. ) ) CHICAGO TITLE LAND TRUST COMPANY, Trust ) Number 38759 u/t/a Dated December 12, 1969; GC ) No. 13 L 63001 REALTY AND DEVELOPMENT, LLC; and UNIFIED ) ROOF RESTORATION, INC., ) ) Defendants ) ) (The Travelers Casualty Insurance Company of America, ) Honorable ) Thomas David Roti, Defendant-Appellant). ) Judge Presiding.

JUSTICE CUNNINGHAM delivered the judgment of the court, with opinion. Presiding Justice Delort and Justice Connors concurred in the judgment and opinion.

OPINION

¶1 This appeal arises from a two-part certified question concerning the interpretation of an

insurance policy issued by defendant-appellant The Travelers Casualty Insurance Company of

America (Travelers) to plaintiff-appellee Moda Furniture, LLC (Moda), after the trial court held

that Moda's claim for damages was covered under that policy. For the following reasons, we

answer both parts of the certified question in the affirmative and affirm the judgment of the

circuit court of Cook County.

¶2 BACKGROUND

¶3 Moda owns a business that sells rugs and carpets from inventory stored at a facility in

Arlington Heights, Illinois (the premises). Moda leases the premises from Chicago Title Land 1-14-0501

Trust Company, trust No. 38759, u/t/a dated December 12, 1969, and GC Realty and

Development, LLC (the landlord). Moda alleges that on or about August 1, 2011, the landlord

contracted with Unified Roof Restoration, Inc. (the roofer), to replace the roof at the premises.

According to Moda, neither the landlord nor the roofer notified Moda of the planned work.

¶4 Moda alleges that on August 4, 2011, the landlord and the roofer proceeded "to remove

the roof over the Premises without protecting [Moda's] goods stored in the Premises, causing

damage to and destruction of approximately 20,000 carpets" and other property belonging to

Moda. Specifically, Moda alleges that the roofer "failed to place protective covering in the

Premises" to "prevent the gravel and other dirt and crud from falling upon and damaging

[Moda's] property in the Premises, as a result of which failure, [Moda's] valuable rugs and

antique carpets were damaged." Moda claims that its business suffered more than $450,000 in

resulting damages.

¶5 Moda had purchased an insurance policy from Travelers in July 2011 entitled

"Businessowners Property Coverage Special Form" (the policy), which stated that "[W]e

[Travelers] will pay for direct physical loss of or damage to Covered Property at the premises

*** caused by or resulting from a Covered Cause of Loss." The policy defined "Covered

Property" to include the premises as well as "Business Personal Property," including "property

owned by [Moda] and used in [Moda's] business" located at the premises. The policy defined

"Covered Causes of Loss" as "RISKS OF DIRECT PHYSICAL LOSS unless the loss is: a.

Limited in Paragraph A.5., Limitations; or b. Excluded in Paragraph B., Exclusions."

¶6 On August 5, 2011, the day after the alleged damage to Moda's inventory, Moda

informed Travelers and made a claim under the policy. Travelers responded that the policy did

not cover Moda's alleged loss and thus refused to make any payment to Moda.

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¶7 On April 8, 2013, Moda filed an amended complaint 1 asserting five counts of breach of

contract and tort claims against the landlord and the roofer stemming from the August 4, 2011

incident. Moda also asserted a sixth count, against Travelers, for its alleged breach of the policy

in refusing to pay for Moda's losses, and a seventh count seeking damages and attorney fees

based on Traveler's "unreasonable and vexatious refusal and delay in paying [Moda's] claims."

¶8 Travelers moved to dismiss Moda's claims against it pursuant to sections 2-615 and 2-619

of the Code of Civil Procedure (735 ILCS 5/2-615, 2-619 (West 2012)), arguing that Moda's

claimed losses were excluded under the terms of the policy. Specifically, Travelers argued that

Moda had pleaded that its damages had resulted from the roofer's faulty work, and thus the losses

were excluded under the following policy language:

"B. EXCLUSIONS *** 3. We will not pay for loss or damage caused by or resulting from any of the following under Paragraphs a. through c.

*** c. Faulty, inadequate or defective:

(1) Planning, zoning, development, surveying, siting;

(2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;

(3) Materials used in repair, construction, renovation or remodeling; or

(4) Maintenance;

Of part or all of any property on or off the described premises. 1 The original complaint is not in the record on appeal.

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If an excluded cause of loss that is listed in Paragraphs (1) through (4) above results in a Covered Cause of Loss, we will pay for the resulting loss or damage caused by that Covered Cause of Loss."

¶9 Travelers' motion to dismiss argued that this faulty workmanship exclusion was

implicated because Moda had pleaded that its inventory was damaged by the roofer's negligence

in its work to "repair or replace" the roof at the premises. Moda's response argued that the

policy's exclusion for faulty workmanship did not apply, and that even if that exclusion was

implicated, Moda's loss would nonetheless be covered under the exception in the exclusion that:

"If an excluded cause of loss *** results in a Covered Cause of Loss, we will pay for the

resulting loss or damage caused by that Covered Cause of Loss." Moda argued that this

exception applied because "the results of having gravel, dirt and other crud dumped upon [its]

property *** is a Covered Cause of Loss." Thus, Moda contended that even if the roofer's work

was an "excluded cause of loss," it had nonetheless suffered a resulting "Covered Cause of Loss"

that was covered under the exception to the faulty workmanship exclusion.

¶ 10 Travelers' reply disputed the application of the "resulting loss" exception to the exclusion.

Travelers argued that for this provision to apply, "the covered ensuing loss must be caused by

another non-excluded peril ('covered cause of loss') resulting from the construction defect."

Travelers thus contended that the exception "applies only to secondary nonexcluded losses which

follow as a consequence of the original excluded loss." Travelers claimed that Moda had alleged

no such secondary loss, as its damages were "caused directly by the entry of 'gravel and dirt and

other crud' through the roof opening," and that there was no other covered cause of loss.

Travelers reasoned that although Moda "experienced an excluded cause of loss (faulty

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construction) which resulted in dirt and 'crud' damaging the [inventory]," there was no "resulting

loss or damage" following the damage to its inventory.

¶ 11 Moda filed a further response which argued that there was a "Covered Cause of Loss"

that implicated the "resulting loss" exception. Specifically, Moda argued that "showering

[Moda's] inventory with roofing materials, insulation and other crud" constituted a "Covered

Cause of Loss." Moda emphasized that it did not seek coverage for any defect with respect to

the repaired roof at the premises, but instead sought coverage only for the "resulting loss" to its

separate inventory.

¶ 12 On June 28, 2013, the trial court issued a memorandum opinion and order granting

Travelers' motion to dismiss pursuant to section 2-619(a)(9) of the Code of Civil Procedure (735

ILCS 5/2-619(a)(9) (West 2012)) based upon the faulty workmanship exclusion. The court held

that the roofer's alleged acts implicated the policy's exclusion for faulty, inadequate or defective

"construction" or "repair," noting that Moda's briefing had used the term "repair" in describing

the roofer's work. The trial court thus concluded that Moda’s claimed damages were not covered

by the policy. However, the trial court's June 28, 2013 order did not address the additional

language creating an exception to the faulty workmanship exclusion for a "resulting loss" caused

by a "Covered Cause of Loss." On July 30, 2013, Moda filed a motion to reconsider based on

the court's failure to discuss that portion of the exclusion.

¶ 13 Moda urged that its claim was for a "resulting loss" within the meaning of the exception,

as Moda did not seek recovery for damage to the roof itself but rather claimed damage to its

inventory of rugs and carpets, which it urged was a "Covered Cause of Loss." Moda

acknowledged that it had found "no Illinois case on point" governing the interpretation of such

an "ensuing loss" exception to an exclusion, but cited cases from other states holding that such

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an exception permits coverage for damages separate from the cost of repairing the "faulty

workmanship itself."

¶ 14 Travelers filed a response urging that for the exception to apply, there must be (1) a

construction defect, (2) the "defect must result in loss or damage which, in turn, produced a

"Covered Cause of Loss," and (3) the "Covered Cause of Loss must then cause 'resulting loss or

damage.' " Travelers urged that the exception "applies only to secondary nonexcluded losses"

and that Moda experienced no secondary loss because the damage to its inventory was the direct

result of the roofer's allegedly negligent work. Travelers argued that its position was supported

by Board of Education of Maine Township High School District 207 v. International Insurance

Co., 292 Ill. App. 3d 14, 15 (1997) (Maine Township), in which our court held that a policy's

"latent defect" exclusion barred coverage for asbestos-related damage, notwithstanding the

policy's exception to the exclusion for " 'a loss from covered peril that follows' " such a defect.

¶ 15 Moda filed a reply brief in which it argued that Maine Township was not controlling,

because the exclusion at issue in that case had specifically excluded damage caused by asbestos-

related products, which was the plaintiff's precise claimed loss. Moda asserted that, in contrast,

its policy had no explicit exclusion for damage "resulting from showering the leased premises

with roof crud." Moda also argued that the reasoning of the Maine Township case actually

supported its position that under the "resulting loss" exception to the exclusion, the policy

"cover[s] losses to property other than that upon which the defective work was performed." In

supplemental briefing, Moda emphasized the policy's additional language that Travelers would

not pay for the "cost of correcting *** the fault, inadequacy or defect itself," arguing this

indicated that the policy did provide coverage for damage to other property (such as damage to

Moda's inventory) resulting from such defect.

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¶ 16 In its supplemental briefing, Travelers argued that the "resulting loss clause provided

coverage only in those situations where the excluded loss gives rise to a separate and

independent peril that results in a covered loss." Travelers reasoned that Moda had "experienced

an excluded cause of loss (faulty construction) which resulted in dirt and 'crud' damaging the

furnishings," but that there was "no fire or explosion or any other kind of 'resulting loss or

damage' following the damage" to Moda's inventory. Travelers asserted that the exception to the

faulty workmanship exclusion "unambiguously does not apply to property damage caused

directly by a construction defect, such as damage to carpets caused directly by negligent roof

construction."

¶ 17 On February 7, 2014, the trial court issued a memorandum opinion in which it vacated its

earlier order granting Travelers' motion to dismiss, reinstated Travelers as a defendant, and

certified the question of coverage to this court. The trial court explained that although its prior

order had correctly concluded that Moda's allegations implicated the policy's faulty workmanship

exclusion, its previous order had failed to consider the "resulting loss" exception to the

exclusion. After reviewing the exception, the trial court found that it "clearly gives coverage to

the loss that resulted from the excluded coverage of the roof."

¶ 18 The trial court reasoned that it "must construe the policy as a whole, taking into account

the type of insurance for which the parties have contracted, the risks undertaken and purchased,

the subject matter that is insured and the purposes of the entire contract." The court noted that

Moda had purchased "a business risk policy" for "any risk of direct physical loss of its property

that is not excluded or limited by the policy," and that it was "a reasonable interpretation" that

such a policy would cover damaged inventory and business interruption. Although recognizing

that it "must give effect to the intention of the parties," the court noted that "it is the policy of

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Illinois to interpret insurance policies in favor of coverage" and that it was "the insurer's burden

to show a lack of coverage because of an exclusion." The court concluded that it could not find

"that Travelers has shown that the losses experienced by Moda were not covered" under the

policy.

¶ 19 The trial court noted there was no appellate decision directly on point. The court

acknowledged that our decision in Maine Township "denied coverage for asbestos removal ***

since the policy specifically excluded asbestos removal," but found the instant case

distinguishable. The trial court approvingly cited a Louisiana decision as supporting Moda's

position that although the faulty workmanship exclusion precluded coverage for damage to the

roof, the "resulting loss" exception nevertheless provided coverage for damage to Moda's

inventory. See Dawson Farms, L.L.C. v. Millers Mutual Fire Insurance Co., 34,801 (La. App. 2

Cir. 8/1/01); 794 So. 2d 949.

¶ 20 The trial court noted that the parties had requested the court to certify the question

"whether the excluded cause of loss is negated by the language bringing back into coverage a

'Covered Cause of Loss.' " Thus, the trial court's February 7, 2014 order certified the following

question:

"Where the plaintiff-insured pleads that a roofer 'failed to

place protective covering in the Premises leased to Plaintiff to

prevent the gravel and other dirt and crud from falling upon and

damaging Plaintiff's property in the Premises, as a result of which

failure, Plaintiff's valuable rugs and antique carpets were

damaged,' and Plaintiff seeks damages for the roofer's 'failure to

perform its work in a good workmanlike manner so as not to

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damage the Premises or the property of Plaintiff,' and where

defendant-insurer's policy of insurance contains this provision:

['] B. EXCLUSIONS

3. We will not pay for loss or damage caused by or resulting from any of the following under paragraphs a. through c.

c. Faulty, inadequate or defective:

(2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;

(3) Materials used in repair, construction, renovation or remodeling; or

Of part or all of any property on or off the described premises.

If an excluded cause of loss that is listed in Paragraphs (1) through (4) above results in a Covered Cause of Loss, we will pay for the resulting loss or damage caused by that Covered Cause of Loss. But we will not pay for:

(1) Any cost of correcting or making good the fault, inadequacy or defect itself, including any cost incurred to tear down, tear out, repair or replace any part of any property to correct the fault, inadequacy or defect; or

(2) Any resulting loss or damage by a Covered Cause of Loss to the property that has the fault, inadequacy or defect until the fault, inadequacy or defect is corrected['];

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is the alleged damage excluded from insurance coverage by the

first part of the provision and, if so, does the exception to the

exclusion in the second part of the exclusion apply?"

On February 20, 2014, the trial court amended the February 7, 2014 order to add language

pursuant to Illinois Supreme Court Rule 308(a) in order to submit the certified question to this

court on appeal. 2 Travelers filed a timely petition for leave to appeal pursuant to Rule 308(b) on

February 21, 2014. Ill. S. Ct. R. 308(b) (eff. Feb. 26, 2010). This court allowed that petition in

an order dated April 8, 2014. Thus, we have jurisdiction to decide the certified question.

¶ 21 ANALYSIS

¶ 22 "The construction of an insurance policy's provisions is a question of law," and thus our

review is de novo. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108

(1992). "In construing an insurance policy, the court must ascertain the intent of the parties to

the contract. [Citations.] To ascertain the meaning of the policy's words and the intent of the

parties, the court must construe the policy as a whole [citations], with due regard to the risk

undertaken, the subject matter that is insured and the purposes of the entire contract [citation]."

Id. "If the words in the policy are unambiguous, a court must afford them their plain, ordinary,

and popular meaning. [Citations.] However, if the words in the policy are susceptible to more

than one reasonable interpretation, they are ambiguous [citation] and will be construed in favor

of the insured and against the insurer who drafted the policy [citations]." (Emphasis in original.)

Id. at 108-09.

2 The February 7, 2014 order was supplemented with the following: "This Order involves a question of law as to which there is substantial ground for difference of opinion and an immediate appeal from the Order may materially advance the ultimate termination of the litigation." Thus, the order complies with Rule 308(a). Ill. S. Ct. R. 308(a) (eff. Feb. 26, 2010).

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¶ 23 The certified question in this case has two parts. First, it asks whether the damage

alleged by Moda implicates the exclusion for loss or damage caused by or resulting from "faulty,

inadequate or defective" "workmanship, repair, [or] construction." If so, the second part of the

certified question asks whether the "resulting loss" exception to the exclusion applies so as to

provide coverage for Moda's claimed damage to its inventory.

¶ 24 First, we conclude that Moda's allegations regarding the nature of the roofer's work do

implicate the exclusion at issue, and thus we answer the first part of the certified question in the

affirmative. Moda apparently concedes this point, as its appellate arguments focus on the

exception to the exclusion that is the subject of the second part of the certified question. Even if

Moda had challenged the first part of the certified question, Moda clearly alleged faulty or

inadequate "repair" and "workmanship" with respect to the roof of the premises, implicating the

exclusion. Moda's amended complaint repeatedly characterizes the roofer's work as "repair,"

alleging that the"[l]andlord engaged the Roofer to repair or replace the roof," and that the

"[r]oofer failed to *** warn [Moda] that it would remove the roof for the process of making

repairs thereto." (Emphasis added.) In addition, the amended complaint explicitly "seeks

damages for the Roofer's failure to perform its work in a good workmanlike manner," which

implicates the exclusion's term "workmanship." Indeed, Moda's appellate brief refers to the

roofer's "defective workmanship."

¶ 25 Having determined that the roofer's work fell within the exclusion for faulty

workmanship, we proceed to the second (and more difficult) part of the certified question:

whether the exception to the exclusion applies. We note that the language of the specific

paragraph which is the crux of the dispute between the parties can be described as obscure and

less than clear. This is evidenced by the effort that Travelers has had to put forward to explain

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its meaning in its attempt to prevail upon the trial court, and now this court, to accept its version

of what the exception's language means. We add to this observation the fact that it is Travelers

that drafted the language which it is now struggling to explain.

¶ 26 The exception at issue consists of two sentences. The first sentence of the exception

provides: "If an excluded cause of loss *** results in a Covered Cause of Loss, we will pay for

the resulting loss or damage caused by that Covered Cause of Loss." The exception is further

qualified by the second sentence: "But we will not pay for: (1) Any cost of correcting or making

good the fault, inadequacy or defect itself, including any cost incurred to tear down, tear out,

repair or replace any part of any property to correct the fault, inadequacy or defect; or (2) Any

resulting loss or damage by a Covered Cause of Loss to the property that has the fault,

inadequacy or defect until the fault, inadequacy or defect is corrected."

¶ 27 Under the first sentence, in order for this exception to apply, there must be an "excluded

cause of loss" that results in a "Covered Cause of Loss," and then "resulting loss or damage

caused by that Covered Cause of Loss." The parties do not dispute that the alleged faulty

workmanship of the roofer is an "excluded cause of loss." Rather, the crux of the appeal is

whether the roofer's alleged failures additionally resulted in a "Covered Cause of Loss" and

"resulting loss or damage."

¶ 28 The policy broadly defines "Covered Causes of Loss" as "RISKS OF DIRECT

PHYSICAL LOSS unless the loss" is specifically limited or excluded by the other terms of the

policy. Travelers argues that, since Moda "alleges only faulty, inadequate or defective

workmanship, repair, construction," which is expressly excluded, there is no "Covered Cause of

Loss."

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¶ 29 Travelers relies largely on our 1997 decision in Maine Township, 292 Ill. App. 3d 14,

which appears to be the only published Illinois Appellate Court decision interpreting a similar

exception to a policy exclusion. In Maine Township, the plaintiff school board had purchased a

policy in which the defendant insurer agreed to cover " 'all risks of physical loss or damage to all

property.' " Id. at 15. The policy contained an exclusion that stated the policy " 'does not cover

loss or damage caused by latent defect,' " which was defined to include " 'damage or loss caused,

aggravated by or added to by asbestos-related products.' " Id. at 16. However, the policy further

stated: " 'The only exception to these exclusions is a loss from covered peril that follows; and

then only for the following loss.' " Id. at 17.

¶ 30 The plaintiff sought coverage for property damage related to the release of asbestos fibers

in their school buildings. Id. at 15-16. The plaintiff claimed that the latent defect exclusion did

not bar coverage "because forces external to the asbestos materials themselves caused the

property damage"; specifically, the plaintiff argued "the asbestos materials became harmful only

when, because of damage, disturbance, or deterioration, they released carcinogenic fibers into the

air." Id. at 16.

¶ 31 Following a certified question in that case, we concluded that the latent defect exclusion

encompassed the school board's claim. As the exclusion explicitly applied to damages " 'caused,

aggravated by or added to by asbestos related products,' " we found that the plaintiff's claim was

excluded even if external forces had contributed to the release of asbestos fibers. Id. at 20-21.

¶ 32 We also analyzed whether coverage was otherwise warranted by the policy's exception to

the exclusion for " 'a loss from covered peril that follows; and then only for the following loss.' "

Id. at 21. We held that the "clause may seem confusing," but we found that it was "not

ambiguous." Id. We explained: "Reasonably interpreted, this clause says that if a nonexcluded

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loss is caused by perils that either occur after an excluded peril or are causally related to an

excluded peril, the nonexcluded loss will remain covered. Only the nonexcluded portion of the

loss will be covered, however. The uncovered peril itself will not be covered." Id. Our decision

in Maine Township cited a Texas state court decision that had "disallowed coverage for the

replacement cost of a defective pipe under the policy exclusion for inherent defects but allowed

coverage for ensuing damage to the wall and floor that followed when the defective pipe burst."

Id. (citing Allstate Insurance Co. v. Smith, 450 S.W.2d 957, 959 (Tex. Civ. App. 1970)). The

Maine Township decision concluded that although the exception in the school board's policy

"would bring within coverage a loss from a covered peril that follows an excluded peril, the

clause does not operate in this instance to give back coverage for loss or damage caused by,

aggravated by, or added to by asbestos-related products" because "[s]uch loss or damage is not a

covered peril." Id. at 21-22.

¶ 33 Travelers argues that, just as the exception clause at issue in Maine Township did not

provide coverage for damage caused by asbestos products that was explicitly excluded, the

"resulting loss" clause in this case "does not give back coverage for loss or damage by the faulty

workmanship and repair that Moda alleges." Travelers argues that, just as Maine Township

found that there was "no loss from a covered peril," Moda has not alleged a "resulting loss."

¶ 34 On the other hand, Moda maintains that the reasoning stated in Maine Township actually

supports its argument in favor of coverage. Moda emphasizes Maine Township's recognition that

the exception "would bring within coverage a loss from a covered peril that follows an excluded

peril," and that "if a nonexcluded loss is caused by perils that occur after an excluded peril or are

causally related to an excluded peril, the nonexcluded loss will remain covered." Id. Moda

claims that its allegations fit this scenario.

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¶ 35 Moda also argues that Maine Township's citation of Allstate, 450 S.W.2d 957, supports

its position in favor of coverage. In Allstate, the plaintiffs purchased a homeowner's policy that

covered "all risks of physical loss except as specifically excluded." Id. at 958. Although the

policy contained an exclusion for loss by " 'inherent vice,' " the policy provided that such

exclusion " 'shall not apply to ensuing loss caused by *** Water damage.' " Id. at 959. A water

pipe within the home burst, and water leaking from the ruptured pipe damaged wood in the

home's wall and floors. Id. In the homeowners' suit for coverage, the trial court held that the

plaintiffs could not recover for the cost to replace the defective pipe, but allowed recovery for the

floor and wall damage. Id. The Texas appellate court affirmed, finding the defective pipe was

excluded as an "inherent vice" but that the resulting damage was covered: "The water damage

caused by the unforeseeable bursting of the pipe was a 'risk of physical loss', as contemplated by

the policy; and the 'ensuing loss' from the water damage necessarily included the cost of tearing

out and reconstructing the wall and floor." Id. Moda thus argues that the damage to its inventory

resulting from the roofer's faulty work is akin to the covered water damage flowing from the

defective pipe in Allstate.

¶ 36 The parties' briefs and our research reveal a number of decisions from other jurisdictions

that have interpreted similar exceptions to policy exclusions. Indeed, a number of decisions

describe policies where an explicit exclusion for faulty workmanship is qualified by an exception

stating that the insurer will nevertheless pay for an "ensuing" or "resulting" loss. As in this case,

the insurers in those cases denied the existence of a "resulting loss" distinct from the faulty

workmanship. Courts facing such claims have reached differing conclusions in deciding whether

the claimed damage is covered under such an exception. Although there are varying results in

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application, the case law yields some general principles regarding such "ensuing" or "resulting

loss" clauses.

¶ 37 Courts recognize that "a resulting or ensuing loss clause operates to carve out an

exception to the policy exclusion" and thus "limit[s] the scope of what is otherwise excluded

under the policy." Vision One, LLC v. Philadelphia Indemnity Insurance Co., 276 P.3d 300, 307

(Wash. 2012). That is, "[i]f one of the specific uncovered events takes place, any ensuing loss

which is otherwise covered by the policy will remain covered. The uncovered event itself,

however, is never covered." (Internal quotation marks omitted.) Id. An ensuing loss clause "

'does not reinsert coverage for excluded losses, but reaffirms coverage for secondary losses

ultimately caused by excluded perils.' " Prudential Property & Casualty Insurance Co. v.

Lillard-Roberts, No. CV-01-0362-ST, 2002 WL 31488243, at *8 (D. Or. June 14, 2002) (quoting

Cooper v. American Family Mutual Insurance Co., 184 F. Supp. 2d 960, 964 (D. Ariz. 2002)).

¶ 38 Courts "interpret [an] ensuing loss provision to apply to the situation where there is a

'peril,' i.e., a hazard or occurrence which causes a loss or injury, separate and independent but

resulting from the original excluded peril *** from which loss ensues." (Emphases in original

and internal quotation marks omitted.) Weeks v. Co-Operative Insurance Cos., 817 A.2d 292,

296 (N.H. 2003) (holding no coverage in the absence of a "subsequent ensuing cause of loss

separate and independent from *** the faulty workmanship"). As stated by another court, an

ensuing loss is one "due to an intervening or contributing cause other than the mere passage of

time." Prudential Property, 2002 WL 31488243, at *8. As an illustration, Prudential Property

states: "An example of an ensuing loss is a water leak that causes an electrical short which starts

a fire. [Citation.] The damage caused by the fire is a covered ensuing loss because it is an

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unforeseeable event occurring wholly separate from the defective property ***." (Internal

quotation marks omitted.) Id.

¶ 39 Courts have also defined the scope of the ensuing loss clause with reference to which

property is damaged. That is, " 'an ensuing loss provision *** covers loss caused to other

property wholly separate from the defective property itself.' " Id. (quoting Swire Pacific

Holdings, Inc. v. Zurich Insurance Co., 139 F. Supp. 2d 1374, 1380 (S.D. Fla. 2001)). For

instance, Swire held that an exception to an exclusion for loss " 'resulting from' " construction

design defects did not provide coverage for costs to remedy the defects themselves, but further

noted: "This is not an instance where portions of the building *** collapsed and injured other

property ***. If so, the result may have been different." (Emphasis added.) Swire, 139 F. Supp.

2d at 1382.

¶ 40 "[T]he dispositive question in analyzing ensuing loss clauses is whether the loss that

ensues from the excluded event is covered or excluded. If the ensuing loss is also an excluded

peril or an excluded loss under the policy, there is no coverage. [Citations.] But if the policy

covers the peril or loss that results from the excluded event, then the ensuing loss clause provides

coverage." Vision One, 276 P.3d at 307.

¶ 41 A number of decisions interpreting such exceptions have denied coverage upon finding

that the immediate cause of loss is not a distinct "ensuing loss" because it naturally arose from

the defective work. For example, Travelers cites the decision of the United States Court of

Appeals for the Sixth Circuit in TMW Enterprises, Inc. v. Federal Insurance Co., 619 F.3d 574

(6th Cir. 2010) (interpreting an insurance policy governed by Michigan law). The plaintiffs in

that case claimed coverage for damage that occurred because the insured building's walls were

"improperly constructed ***, leaving them vulnerable to water infiltration." Id. at 575. The

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insurance policy contained an exclusion for faulty workmanship, but stated that the exclusion did

" 'not apply to ensuing loss or damage caused by or resulting from a peril not otherwise

excluded.' " Id. at 576. The plaintiff argued that the intruding water was " 'a peril not otherwise

excluded' " and thus the water damage was covered as an ensuing loss. Id. The Sixth Circuit

disagreed, reasoning that "it should come as no surprise that the botched construction will permit

the elements—water, air, dirt—to enter the structure and inside of the building and eventually

cause damage to both." Id. Although recognizing that water "technically was the final causative

agent of the damage," the court reasoned that "the number of possibilities for last-in-time 'but for'

causes of damage are limited only by the imagination." Id. at 576-77.

¶ 42 The Sixth Circuit in TMW Enterprises further explained that the "ensuing loss" clause

"establish[ed] that independent, non-foreseeable losses caused by faulty construction are

covered." Id. at 578. The court reasoned that if "the damage came natural[ly] and continuous[ly]

from the faulty workmanship, unbroken by any new, independent cause, [citation], the exclusion

applies and the ensuing loss provision does not." (Internal quotation marks omitted.) Id. at 579.

Under the facts of that case, "because defective wall construction naturally and foreseeably leads

to water infiltration," the exception did not apply and coverage was excluded. Id.

¶ 43 The United States Court of Appeals for the Eighth Circuit has reached a similar

conclusion. See Friedberg v. Chubb & Son, Inc., 691 F.3d 948 (8th Cir. 2012) (applying

Minnesota law). In Friedberg, defective construction on the plaintiffs' home had enabled water

to enter and cause damage. Id. at 950. The plaintiffs' insurance policy contained an exclusion

for faulty construction and then stated: " 'But we do insure ensuing covered loss unless another

exclusion applies.' " Id. at 950-51. The court found that the damage was not covered because

"the ensuing-loss provision exclude[s] from coverage the normal results of defective

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construction, and applies only to distinct, separable, ensuing losses." (Internal quotation marks

omitted). Id. at 953. The Friedberg court reasoned that "[o]nce the house was plagued with

faulty construction, it was a foreseeable and natural consequence that water would enter." Id. at

952.

¶ 44 Other courts have reached similar results. See, e.g., Bloom v. Western National Mutual

Insurance Co., No. A05-2093, 2006 WL 1806415, at *5 (Minn. Ct. App. July 3, 2006) (mold

damage resulting from water infiltration due to construction defects was not covered as an

"ensuing loss" because "water intrusion and resulting rot and mold are 'a single phenomenon' "

and "[t]here was no intervening cause other than time"); see also Prudential Property, 2002 WL

31488243, at *8 (where faulty workmanship resulted in a water leak, resulting mold damage was

not covered as an "ensuing loss" because "mold is a natural and foreseeable result of water

damage").

¶ 45 Travelers urges that the logic of these decisions applies here. Under its view, the damage

to Moda's inventory was so closely connected to the roofer's faulty work that there is no

separable "Covered Cause of Loss" or "resulting loss" that implicates the exception to the faulty

workmanship exclusion. However, Travelers overlooks the fact that a number of decisions

interpreting similar factual circumstances have determined that coverage exists under an

"ensuing loss" or "resulting loss" exception.

¶ 46 For example, in a decision cited by both parties, the Court of Appeals of Wisconsin

distinguished between water damage inflicted directly from the faulty work and ensuing

rainwater damage that resulted from that work. See Arnold v. Cincinnati Insurance Co., 2004

WI App 195, 276 Wis. 2d 762, 688 N.W.2d 708. In that case, the plaintiffs held a homeowners'

insurance policy that contained an exclusion for faulty workmanship and materials, but also

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provided that " 'any ensuing loss to property *** not excluded or excepted in this policy is

covered.' " Id. ¶ 19. The claimed damages arose from work performed by contractors hired to

wash and repair the siding of the home. The contractors used a pressure washer, which caused

damage. Id. ¶ 7. There were two possible causes of water damage: the water from the pressure

washer, as well as rainwater that entered the home through leaks created by the contractors'

work. Id. ¶ 10-11.

¶ 47 The plaintiffs argued that the "ensuing loss" exception was ambiguously broad, whereas

the insurer argued that the exception did not apply because all claimed damages were caused by

faulty workmanship and not by a " 'separate and independent' " cause. Id. ¶ 25. The Arnold

court determined that "an ensuing loss is a loss that is not directly caused by faulty workmanship

*** but nonetheless follows as a 'chance, likely, or necessary consequence' of the loss caused by

faulty workmanship or faulty materials." Id. ¶ 28. The court held that damage caused by water

from the contractors' pressure washer was directly caused by "faulty workmanship" and

excluded. Id. ¶ 35. However, the court reached a different conclusion with respect to water

damage "caused by rain leaking in through the damaged caulking," concluding this was an

"ensuing loss." Id. ¶ 40. As rain damage was not otherwise excluded by the policy, the court

held that the policy provided coverage for "damage to the interior of the house that was caused

by rain in conjunction with the damaged caulking." Id. ¶ 54.

¶ 48 Moda also cites a Louisiana appellate court decision (relied upon by the trial court below)

that similarly distinguished between damage to infrastructure caused by faulty workmanship and

damage to other property resulting from the faulty work. See Dawson Farms, L.L.C. v. Millers

Mutual Fire Insurance Co., 34,801-CA (La. App. 2 Cir. 8/1/01); 794 So. 2d 949. The plaintiff in

Dawson Farms was a grower of sweet potatoes who built a storage facility to preserve his

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harvest in the summer months. Id. at 1. Due to faults in the facility's design and construction,

condensation accumulated within the structure and ruined the sweet potato crop. Id. The

plaintiff's insurance policy contained an exclusion for loss caused by faulty design and

workmanship, but also stated: "We will pay for resulting 'loss' caused by a Peril Insured."

(Emphasis omitted.) Id. at 4. The plaintiff claimed coverage for both "the cost to repair the

faulty workmanship and design" and "the resulting damage to the contents of the warehouse."

Id. at 3. The insurer argued that both losses were excluded, and the plaintiff argued that the

exclusionary language was ambiguous. Id.

¶ 49 The Dawson Farms court determined that the accumulation of condensation that

damaged the sweet potatoes was covered under the "resulting loss" clause. Id. at 4. The court

reasoned that the policy's statement that it would cover "resulting loss" from faulty construction

would be rendered "meaningless unless the cost of repairing the poor workmanship and design is

excluded from coverage while any damage resulting from it is covered." Id. Noting that "[a]ll

doubts and ambiguity should be resolved in favor of coverage," the court concluded that

although the policy "excludes coverage for the cost to repair the loss to the warehouse caused by

the faulty design and poor workmanship," it "[did] not clearly exclude coverage for the second

accident, i.e., the losses associated with the damage *** resulting from the accumulation of

condensation that fell on the stored potatoes." Id. at 5-6.

¶ 50 A 2007 case decided by a federal district court—involving policy terms nearly identical

to those in Moda's policy— reached a similar finding of coverage. See Boardwalk Condominium

Ass'n v. Travelers Indemnity Co. of Illinois, No. 03cv505 WQH (WMc), 2007 WL 1989656

(S.D. Cal. July 3, 2007). In Boardwalk, the plaintiffs claimed coverage for water and mold

damage pursuant to two policies (whose relevant terms were identical). See id. at *6. The

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policies at issue stated that the insurer would " 'pay for direct physical loss of or damage to

Covered Property at the premises *** caused by or resulting from a Covered Cause of Loss,' "

and defined " 'Covered Cause of Loss' " as " 'Risks of Direct Physical Loss unless the loss is: a.

Limited in Paragraph A.5., Limitations; or b. Excluded in Section B., Exclusions.' " Id. The

policies excluded coverage for damage caused by design or construction defects, but additionally

provided (as Moda's policy does in this case) that if an excluded cause of loss "result[ed]" in a

"Covered Cause of Loss," the insurer would pay for the "resulting loss or damage." Id. at *8.

¶ 51 The insurer's investigation in Boardwalk identified, among other possible causes of the

mold damage, a lack of ventilation due to defects in design or construction. Id. at *1. The

insurer denied the claim and contended that the "resulting loss" exception did not apply because

the condensation that led to the damage "was part of the loss directly caused by the excluded

design/construction defect (lack of ventilation), not a new hazard or phenomenon." (Internal

quotation marks omitted.) Id. at *9. On the other hand, the plaintiff argued that the "resulting

loss" clause applied because condensation was an independent covered cause of loss, alleging:

"The excluded peril (inadequate ventilation) resulted in a covered peril—i.e., the build up of

condensation," and "[t]he covered peril of condensation resulted in the damage—e.g., water

staining, saturation, and mold." (Internal quotation marks omitted.) Id. The plaintiff argued that

"[b]ecause the damage results from a covered peril, it is covered—even though the covered peril

was caused by an excluded peril." (Internal quotation marks omitted.) Id.

¶ 52 The Boardwalk court agreed with the plaintiff's analysis. The court found that the

condensation, while "resulting from" the excluded peril of lack of ventilation, was nonetheless "a

new hazard or phenomenon, separate and independent from lack of ventilation." Id.

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¶ 53 More recently, the Supreme Court of Washington in 2012 interpreted terms very similar

to those in Moda's policy in finding that coverage existed under a "resulting loss" clause. See

Vision One, 276 P.3d 300. The plaintiffs in that case, condominium developers, held a policy

under which the insurer agreed to "pay for direct physical 'loss' *** caused by or resulting from

any of the Covered Causes of Loss." Id. at 303. As in Moda's policy, the policy in Vision One

defined "Covered Causes of Loss" as "Risks of Direct Physical 'Loss' to Covered Property unless

the 'loss' is excluded." (Internal quotation marks omitted.) Id. The policy specifically excluded

losses caused by defective design or faulty workmanship, but also "contained a resulting loss

clause providing that 'if loss or damage by a Covered Cause of Loss results, [insurer] will pay for

the loss or damage caused by that Covered Cause of Loss.' " Id.

¶ 54 During construction of the first floor of the condominium development, shoring that had

been installed to support newly poured concrete gave way and caused the floor to collapse. Id. at

302. An investigation concluded the collapse was likely the result of inadequate design and

installation problems. Id. at 302-03. The insurer denied the plaintiffs' claim under the faulty

workmanship exclusion, stating that the damage "was a sole and direct result" of the poor design

and installation and that there was "no separate and independent loss." Id. at 303.

¶ 55 In its analysis, the Supreme Court of Washington explained: "Such clauses ensure that if

one of the specified uncovered events takes place, any ensuing loss which is otherwise covered

by the policy will remain covered. The uncovered event itself, however, is never covered."

(Internal quotation marks omitted.) Id. at 307. The court provided an example:

"Suppose a contractor miswires a home's electrical system,

resulting in a fire and significant damage to the home. And

suppose the homeowner's policy excluded losses caused by faulty

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workmanship, but the exclusion contains an ensuing loss clause.

In this situation, the ensuing loss clause would preserve coverage

for damages caused by the fire. But it would not cover losses

caused by the miswiring that the policy otherwise excludes. Nor

would the ensuing loss clause provide coverage for the cost of

correcting the faulty wiring." Id.

The court noted that "the dispositive question in analyzing ensuing loss clauses is whether the

loss that ensues from the excluded event is covered or excluded." Id.

¶ 56 Under Vision One's facts, since the plaintiff sought coverage for "the ensuing loss from

the collapse," the court proceeded to determined that "collapse" was a covered peril because the

policy "did not exclude the peril of collapse." Id. at 308. The court reasoned: "the situation here

is no different than if the shoring had given way, scraped a wall as it fell, and sparked a fire. The

faultily assembled shoring (excluded) would have caused a fire (covered), resulting in damage to

the building—a loss admittedly covered under the ensuing loss clause." Id. Thus, the court held

that the damages from the collapse were a covered "ensuing loss." Id.

¶ 57 Another federal district court has approvingly cited Boardwalk and Vision One in

concluding that water infiltration was covered under a "resulting loss" clause similar to that at

issue in this case. See Association of Apartment Owners of Imperial Plaza v. Fireman's Fund

Insurance Co., 939 F. Supp. 2d 1059, 1071-73 (D. Hawaii 2013). The policy at issue excluded

coverage for defective design but provided: "But if loss or damage from a covered cause of loss

results, we will pay for that resulting loss or damage." Id. at 1071. The court held that the

"moisture [was] a separate and independent event" from the defect and was "a separate agent that

caused damage, even though the design defect may have allowed the agent to enter." Id. at 1073.

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¶ 58 Having considered the above cases and other decisions cited by the parties, we return to

the question of whether Moda's complaint alleged a "Covered Cause of Loss" and "resulting loss

or damage" that implicates the exception to the faulty workmanship exclusion. According to

Travelers, the roofer's alleged faulty workmanship was so directly related to the dirt and debris

that damaged Moda's inventory that there simply is no distinct "Covered Cause of Loss" or

resulting loss. Travelers' view is supported by decisions that have declined to find a distinct

resulting loss where the immediate cause of damage, such as rainwater, is a "foreseeable and

natural consequence" of the faulty work. See Friedberg, 691 F.3d at 952. Under that view, the

dirt and debris that damaged Moda's inventory could be seen as such a natural and foreseeable

consequence of the roofer’s faulty work that there is no independent resulting cause of loss.

¶ 59 However, given the policy’s broad definition of "Covered Cause of Loss," which extends

to any risk of direct physical loss not explicitly excluded, we find there are at least two plausible

ways in which a "Covered Cause of Loss" and "resulting loss" have been alleged so as to

implicate the exception to the faulty workmanship exclusion.

¶ 60 First, the damage to Moda's inventory can be seen as a "Covered Cause of Loss." Under

this reasoning, the exception to the exclusion applies because the roofer's faulty workmanship

(the "excluded cause of loss") caused physical damage to Moda's inventory (the "Covered Cause

of Loss") which led to Moda's economic injury (the "resulting loss or damage caused by that

Covered Cause of Loss.") This view is supported by those "ensuing loss" cases emphasizing the

distinction between whether the claimed damage is to property other than that which was the

subject of the faulty workmanship. See, e.g., Swire, 139 F. Supp. 2d at 1380 ("[A]n ensuing loss

provision *** covers loss caused to other property wholly separate from the defective property

itself." (Emphasis in original.)). That is the case here. As Moda emphasizes, it "seeks no repairs

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to the roof," but "seeks coverage for the separate damage to its inventory and business that came

after and as a result of the Roofer's faulty workmanship."

¶ 61 That view is further supported by the fact that, immediately after the policy states that

"[Travelers] will pay for the resulting loss or damage caused by that Covered Cause of Loss," the

policy qualifies that exception with the statement that Travelers "will not pay for *** [a]ny cost

of correcting or making good the fault, inadequacy or defect itself." We agree with Moda that

the inclusion of the latter sentence evidences Travelers' intent to draw a distinction between a

damage claim to correct the initial faulty construction or other defect (which is not covered) and

a claim for resulting damage to other covered property (which is covered).

¶ 62 Another approach that supports application of the resulting loss exception is to view the

dirt and debris that fell onto Moda's inventory as the "Covered Cause of Loss." Thus, the

roofer's faulty workmanship (the "excluded cause of loss") caused falling dirt and roof debris

within the premises (the "Covered Cause of Loss") resulting in the damage to Moda's inventory

(the "resulting loss or damage caused by that Covered Cause of Loss"). That is, the damage

from the dirt and debris may be viewed as analogous to the damage from rainwater and

condensation in cases upholding coverage under similar ensuing loss clauses. See, e.g., Arnold,

2004 WI App 195, ¶ 40, 276 Wis. 2d 762, 688 N.W.2d 708 (rainwater); Dawson Farms, 34,801-

CA, p. 1 (La. App. 2 Cir. 8/1/01); 794 So. 2d 949 (condensation); Boardwalk, 2007 WL

1989656, at *9 (condensation). While such immediate causes "result from" the faulty work, they

may reasonably be viewed as separate, non-excluded causes of loss. Under either of these

approaches, we find that Moda has alleged a "Covered Cause of Loss" and a "resulting loss"

from that "Covered Cause of Loss," which in turn warrants coverage under the exception to the

policy's faulty workmanship exclusion.

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¶ 63 We note that our view does not conflict with our decision in Maine Township, 292 Ill.

App. 3d 14. In that case, the "latent defect" exclusion in the policy at issue explicitly excluded

"damage or loss caused by, aggravated by, or added to by asbestos-related products." Id. at 15-

16. Thus, it was clear that the plaintiff's asbestos-related claim was expressly excluded. Id. at

21. In contrast, in this case there is no equivalent provision specifically excluding damages

caused by dirt or roof debris. Thus, the fact that the policy at issue in Maine Township denied

coverage under the specific terms of its "latent defect" exclusion is not controlling in this case.

¶ 64 In fact, Maine Township's analysis supports Moda's position. We interpreted the

exception clause in that case to mean "that if a nonexcluded loss is caused by perils that either

occur after an excluded peril or are causally related to an excluded peril, the nonexcluded loss

will remain covered." Id. That interpretation is consistent with Moda's position. The

"nonexcluded loss" —the damage to Moda's inventory—occurred after, and was causally related

to, the "excluded peril" of the roofer's faulty workmanship. Thus, the "nonexcluded loss" to the

inventory remains covered, whereas the cost to correct defects in the roofer's workmanship (that

is, roof repairs) would not be covered. Moreover, Maine Township approvingly cited Allstate

Insurance Co. v. Smith, 450 S.W.2d 957 (Tex. Civ. App. 1970). Allstate's finding that a similar

exception provided coverage for water damage following a burst pipe (but did not cover damage

to the pipe) is consistent with Moda's view that its policy provides coverage for damage to

inventory resulting from the roofer's faulty work (even if it does not provide coverage for

damage to the roof).

¶ 65 We acknowledge the decisions from other jurisdictions supporting Travelers' view, and

recognize that other courts might determine that the damage to Moda's inventory was too closely

connected to the roofer's alleged faulty workmanship to support a distinct "Covered Cause of

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Loss" or "resulting loss." However, even if Travelers' interpretation may be reasonable, an

interpretation in favor of Moda is also reasonable. That is sufficient to render the contract

ambiguous. See Empire Indemnity Insurance Co. v. Chicago Province of the Society of Jesus,

2013 IL App (1st) 112346, ¶ 33 ("[I]f the words in the policy are susceptible to more than one

reasonable interpretation, they will be considered ambiguous and will be strictly construed in

favor of the insured and against the insurer that drafted the policy.").

¶ 66 In turn, our finding of ambiguity compels us to hold in favor of coverage. "[I]nsurance

policies are to be liberally construed in favor of coverage, and where an ambiguity exists in the

insurance contract, it will be resolved in favor of the insured and against the insurer." (Internal

quotation marks omitted). American Economy Insurance Co. v. DePaul University, 383 Ill. App.

3d 172, 178 (2008); see also Maine Township, 292 Ill. App. 3d at 17 ("[I]f a policy provision is

ambiguous and susceptible to more than one reasonable meaning, the policy will be construed in

favor of the insured and against the drafter of the policy.").

¶ 67 Travelers drafted the contract here and had the ability to make it unambiguous. Instead,

Travelers chose to insert the exception to the faulty workmanship exclusion that "[i]f an

excluded cause of loss *** results in a Covered Cause of Loss, we will pay for the resulting loss

or damage caused by that Covered Cause of Loss." Moreover, Travelers broadly defined

"Covered Cause of Loss" to include any "risks of direct physical loss" that were not explicitly

excluded. This resulted in a confusing situation where determining the scope of the faulty

workmanship exclusion requires reference to the meaning of "Covered Cause of Loss," but the

definition of that term simply refers back to the exclusions. Given such ambiguity, we are

compelled to interpret the contract against Travelers and in favor of coverage.

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¶ 68 Accordingly, we determine that the exception to the faulty workmanship exclusion for

"resulting loss or damage caused by [a] Covered Cause of Loss" does apply under the facts

alleged by Moda. Thus, with respect to the second part of the certified question—whether "the

exception to the exclusion in the second part of the exclusion" applies in this case—we also

answer that in the affirmative. We thus affirm the trial court's order of February 7, 2014 that

reinstated Travelers as a named defendant in Moda's lawsuit, and we answer both parts of the

certified question accompanying that order in the affirmative.

¶ 69 For the foregoing reasons, we affirm the judgment of the circuit court of Cook County.

¶ 70 Affirmed.

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