2016 IL App (1st) 140862
THIRD DIVISION July 20, 2016
No. 1-14-0862
IN THE
APPELLATE COURT OF ILLINOIS
FIRST JUDICIAL DISTRICT
WESTFIELD INSURANCE COMPANY, ) Appeal from the ) Circuit Court of Plaintiff and Counterdefendant-Appellee, ) Cook County. ) v. ) ) WEST VAN BUREN, LLC, an Illinois Limited Liability ) Company, and 933 VAN BUREN CONDOMINIUM ) No. 12 CH 2654 ASSOCIATION, an Illinois Not-For-Profit Corporation, ) ) Defendants ) ) (West Van Buren, LLC, an Illinois Limited Liability ) Company, Defendant and Counterplaintiff-Appellant). ) The Honorable ) Rodolfo Garcia, ) Judge Presiding. )
JUSTICE LAVIN delivered the judgment of the court, with opinion. * Presiding Justice Mason concurred in the judgment and opinion. Justice Pucinski dissented from the judgment, with opinion.
OPINION
¶1 This case involves an insurance coverage dispute. The insurance company filed a
declaratory judgment action seeking a determination that it had no duty to defend the additional
insured in an underlying lawsuit. The parties filed cross-motions for summary judgment, and the
trial court ultimately ruled in favor of the insurance company. The additional insured now
* This case was reassigned to Justice Lavin in mid-March 2016. No. 1-14-0862
appeals contending the insurance company had a duty to defend it in the underlying lawsuit. We
disagree and therefore affirm the trial court’s judgment in favor of the insurance company.
¶2 BACKGROUND
¶3 In 2002, West Van Buren LLC (Developer) constructed a condominium development at
933 W. Van Buren Street, Chicago, Illinois. The Developer subcontracted installation of the roof
to Total Roofing and Construction Services, Inc. (Total Roofing). The subcontract provided that
Total Roofing would insure and indemnify the Developer against liability for Total Roofing’s
work. Total Roofing, which constructed the roof in 2002, obtained a commercial general liability
policy through Westfield Insurance Company for occurrence-based coverage (between February
6, 2001, and February 15, 2005). 1 The policy offered coverage for “occurrences,” defined as
accidents, and also for “property damage.” In addition, the policies also provided for a duty to
defend in the event of a lawsuit. Consistent with the subcontract, the relevant policies listed the
Developer as an additional insured.
¶4 About a year after construction, the 933 Van Buren Condominium Association (Condo
Association) took charge of the building. Shortly thereafter, the Condo Association claimed
construction defects in the roof caused water to infiltrate into the building and individual
condominium units and also caused damage to personal and other property in the condominium
units. The Condo Association demanded that the Developer reconstruct the roof. The Developer
refused, and the Condo Association then paid for the repair work that cost in excess of $309,000.
1 West Van Buren concedes that the first and fourth policies are not implicated in this case. The second policy was in effect during Total Roofing’s construction of the roof at the development. The third policy was in effect during the date of loss assigned by Westfield Insurance. The parties have not made clear which policy applies. It is of no moment because the policies both define “property damage” and “occurrence” in the same manner, and those definitions are at the heart of this appeal. For the sake of simplicity, we refer to these two policies as the “policy” unless otherwise indicated.
¶5 The Condo Association subsequently sought reimbursement for those expenses. In
October 2010, the Developer received a mediation request for the aforementioned alleged repair
work. The Developer, claiming it was an additional insured under the policy, notified Westfield
Insurance and requested a defense for the mediation. Westfield Insurance declined to offer a
defense, citing a number of reasons under the policy.
¶6 The mediation fell through, and on August 8, 2011, the Condo Association sued the
Developer and Total Roofing, 2 among others, in a multi-count complaint 3 for breach of
warranty, violating the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1
et seq. (West [Insert Year])), fraud, and breach of the implied warranty of habitability. The
complaint asserted that water infiltrated the common elements and individual units. It noted that
each condominium purchase agreement provided by the Developer warranted against any defects
in material and workmanship in the common elements of the building. Yet, when these units
were sold, they allegedly “contained a number of hidden and latent defects that West Van Buren
[the Developer] intentionally failed to disclose, including but not limited to: a) defects in the
roofing system and the individual roofing components so as to allow water infiltration into the
Condo Building *** and b) West Van Buren’s failure to construct the Condo Building in
substantial conformity with the plans and specifications.” (Emphasis added.) The complaint also
asserted the Developer fraudulently covered up hidden and latent defects, also alleging:
2 The initial complaint named “Total Roofing Control” as a defendant. In an amended complaint the Condo Association corrected the named party as “Total Roofing & Construction Services, Inc.” For the sake of simplicity, we refer to the initial complaint, as the two are identical. See Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317, 329 (1998) (generally, an insurer’s duty to defend is triggered by actual notice of the underlying suit). Moreover, both parties on appeal rely on the initial complaint in determining whether a duty to defend arose. We note that the Condo Association also filed a second-amended complaint on October 11, 2012, adding a negligence count against only a roof consulting firm. 3 The complaint actually included five counts. Count III, however, was for breach of fiduciary duty only against three members of the Developer’s board.
“Moreover, individual unit owners experienced damage to personal and other property as a result
of the water infiltration.” The complaint asserted that the defendants were responsible for
$300,000 in damages and that had the unit owners been aware of the concealed defects, they
would not have purchased their units or at least would have negotiated a better purchase price.
¶7 Within days of this lawsuit, the Developer notified Westfield Insurance and tendered the
defense, but Westfield declined to undertake it. Westfield Insurance nonetheless agreed to defend
Total Roofing under a reservation of rights. Westfield Insurance subsequently filed the present
declaratory action for a determination that it owed no duty to defend or indemnify the Developer
as the additional insured in the underlying case. 4 The Developer, in turn, filed a counterclaim
alleging a duty to defend because the underlying complaint contained allegations of personal
property damage that were within the policy’s coverage, and based on estoppel. Westfield
Insurance denied that the underlying complaint alleged a covered occurrence.
¶8 The parties filed cross-motions for summary judgment in the declaratory judgment
action. 5 At the hearing on the motions, Westfield Insurance acknowledged the underlying
complaint alleged personal property damage but argued that the Condo Association lacked
standing to assert such claims on behalf of individual unit owners.
¶9 The circuit court initially granted summary judgment for this declaratory action to the
Developer, but upon a motion to reconsider by Westfield Insurance, the court subsequently
vacated its judgment and granted summary judgment to Westfield Insurance. The court
concluded that since there was no duty to defend, then there was no duty to indemnify. The
Developer filed this timely appeal.
4 Westfield Insurance filed the present declaratory action against the Developer on January 25, 2012. More than a year later, on September 10, 2013, Westfield Insurance also filed a declaratory judgment action against Total Roofing claiming it owed no duty to defend or indemnify its insured. 5 The Condo Association filed a response that adopted the Developer’s arguments and requested that the court grant the Developer’s summary judgment motion.
¶ 10 ANALYSIS
¶ 11 Summary judgment is properly granted when the pleadings, depositions, and admissions
on file, together with the affidavits, if any, show that there is no genuine issue of material fact
and the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2-1005(c) (West
2014). Where parties file cross-motions for summary judgment, they agree the case presents only
questions of law, and they invite the trial court to decide these legal questions on the basis of the
record. Pielet v. Pielet, 2012 IL 112064, ¶ 28. Our standard of review is de novo, and we may
affirm on any basis in the record regardless of whether the trial court relied on that basis or its
reasoning was correct. Id. ¶ 30; Chicago Title Insurance Co. v. Bass, 2015 IL App (1st) 140948,
¶ 13. The construction of an insurance policy, which presents a question of law, is likewise
subject to de novo review. Valley Forge Insurance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d
352, 360 (2006).
¶ 12 The Developer argues in the main that Westfield Insurance had a duty to defend the
Developer in the underlying action 6 and the trial court therefore erred in granting summary
judgment in favor of Westfield Insurance. An insurance company’s obligation to represent its
insured depends on the allegations of the underlying complaint and the provisions of the
insurance policy. Diamond State Insurance Co. v. Chester-Jensen Co., 243 Ill. App. 3d 471, 476
(1993). The complaint must be liberally construed and all doubts resolved in favor of coverage
6 Westfield Insurance notes in its statement of facts that the underlying lawsuit was dismissed on October 20, 2014. We have reviewed the Cook County circuit court clerk’s records, of which we may take judicial notice (see In re Application of the County Treasurer and ex officio county collector, 356 Ill. App. 3d 1102, 1111 (2005)), but they do not make clear what happened between the multiple parties in the underlying lawsuit. Nonetheless, our records show there is currently a case pending in the appellate court between the Developer (the appellant and cross-appellee) and Total Roofing (the appellee and cross- appellant), arising from cross-claims filed in the underlying litigation. According to their briefs, the underlying lawsuit by the Condo Association is currently no longer being actively litigated. The Condo Association claims were dismissed, some with prejudice and some without.
for the insured. Id. A duty to defend will arise when the allegations of the underlying complaint
may potentially come within the coverage of the policy. Id. at 476-77.
¶ 13 Thus, in order to address this matter, we turn to both the underlying complaint and the
language of the insurance policy itself. The general rules governing the interpretation of
contracts also govern the interpretation of insurance policies. Standard Mutual Insurance Co. v.
Lay, 2013 IL 114617, ¶ 24. As such, a court’s primary objective in analyzing an insurance policy
is to ascertain and give effect to the parties’ intentions as expressed by the policy language,
which we construe in its plain and ordinary meaning. Swiderski Electronics, Inc., 223 Ill. 2d at
362-63. We view the policy as a whole so as to give effect to every provision if possible. Id. at
362. As a result, if the policy language is unambiguous, generally the policy will be applied as
written. Lay, 2013 IL 114617, ¶ 24.
¶ 14 At the outset, we observe that throughout its brief, the Developer cites a copy of the
underlying complaint attached to the appendix. Rules 341(h)(6) and (7), however, require that an
appellant cite the record. See Ill. S. Ct. R. 341(h)(6), (7) (eff. eff. Jan. 1, 2016). The Illinois
Supreme Court Rules are not suggestions; they have the force of law and must be complied with.
Estate of Prather v. Sherman Hospital Systems, 2015 IL App (2d) 140723, ¶ 32. Where a brief
has failed to comply with the rules, we may strike portions of the brief or dismiss the appeal
should the circumstances warrant. Id. Given the force that the underlying complaint carries in
this case, it would behoove the Developer to accurately cite it in the record on appeal.
Nonetheless, we conclude the location of the complaint is easily ascertainable and thus we
proceed in our review.
¶ 15 We also must note that it is questionable whether the appellant was even an additional
insured under the policy. The policy stated, “To the extent of the Named Insured’s ongoing
operations, the coverage afforded to the Additional Insured which may be imputed to the
Additional Insured.” This sentence is unclear. We find the only reasonable construction is that
the policy provided that the additional insured would be covered “to the extent of the Named
Insured’s ongoing operations.” Here, according to the underlying complaint, the Condo
Association discovered the water infiltration and leaking in 2003, which was about one year after
the roofing was installed. The fact that the roof was seemingly complete at the time of the
discovered leak would mean the subcontractor’s “operations” had ended and so too had the
Developer’s status as an additional insured. This has been perhaps left unexplored because
discovery was stayed during the declaratory action. We proceed in our review because even
assuming the Developer was an additional insured, we conclude the complaint and policy
unequivocally authorize the trial court’s result.
¶ 16 Here, the policy at issue defined “occurrence” as “an accident, including continuous or
repeated exposure to substantially the same general harmful conditions.” The policy also defined
“property damage” as “a. Physical injury to tangible property, including all resulting loss of use
of that property. All such loss of use shall be deemed to occur at the time of the physical injury
that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss
of use shall be deemed to occur at the time of the ‘occurrence’ that caused it.”
¶ 17 As stated, the complaint alleges the Developer breached contractual warranties and also
committed fraud in selling the condo units because it intentionally concealed hidden defects in
the roofing system and the individual roofing components “so as to allow water infiltration into
the Condo Building.” See Stoneridge Development Co. v. Essex Insurance Co., 382 Ill. App. 3d
731, 747 (2008) (implied warranty of habitability is contractual in character). In other words,
according to the complaint, the Developer failed to properly install the roof system and failed to
correct the defect. The allegation of intentional conduct was incorporated in all counts of the
complaint, and general negligence of the Developer was not alleged.
¶ 18 Analyzing the complaint in light of the policy, we conclude Westfield Insurance had no
duty to defend the Developer in the Condo Association’s underlying action for the following
three reasons. First, the policy essentially requires an accidental event to trigger coverage, yet
there is nothing accidental alleged in the complaint. The complaint either focuses on the
intentional bad acts of the Developer or nonfortuitous events, like the resulting damage to the
condo building due to shoddy workmanship, of which the Developer was allegedly aware. See
Viking Construction Management, Inc. v. Liberty Mutual Insurance Co., 358 Ill. App. 3d 34, 42,
54 (2005) (there is no occurrence when a subcontractor’s defective workmanship necessitates
removing and repairing work and where the damages claimed are the natural and ordinary
consequences of defective workmanship); see also Stoneridge Development Co., 382 Ill. App. 3d
at 752 (same); Crawford Laboratories, Inc. v. St. Paul Insurance Co. of Illinois, 306 Ill. App. 3d
538, 544 (1999) (an accident by its very nature contemplates an event that is unforeseen and
neither intended nor expected). Although the dissent states the failure to do something (like
properly construct a roof) can constitute an accident, this is not supported by the bulk of case
law. See Viking Construction Management, Inc. v. Liberty Mutual Insurance Co., 358 Ill. App.
3d 34, 42, 54 (2005) (there is no occurrence when a subcontractor’s defective workmanship
necessitates removing and repairing work and where the damages claimed are the natural and
ordinary consequences of defective workmanship); see also Stoneridge Development Co., 382 Ill.
App. 3d at 752 (same); Crawford Laboratories, Inc. v. St. Paul Insurance Co. of Illinois, 306 Ill.
App. 3d 538, 544 (1999) (an accident by its very nature contemplates an event that is unforeseen
and neither intended nor expected); but see Milwaukee Mutual Insurance Co. v. Larsen, 2011 IL
App (1st) 101316, ¶ 28 (faulty window system that allegedly damaged personal property deemed
possible occurrence, in part due to negligence). Any alleged damage to the common or personal
property was not an accident and therefore not the result of any occurrence. Thus, those
allegations in the underlying complaint do not potentially fall within the policy coverage. See
State Farm Fire & Casualty Co. v. Tillerson, 334 Ill. App. 3d 404, 409 (2002).
¶ 19 Second, the allegations of the complaint likewise do not fall within the definition of
property damage under the policy’s plain language. In the seminal case, Traveler’s Insurance
Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 308 (2001), our Illinois Supreme Court held
that “physical” injury occurs when property is altered in appearance, shape, color or in other
material dimension, and does not take place when an economic injury occurs, such as the
diminution in value. Yet, the allegations in the Condo Association’s underlying complaint sought
only to hold the Developer responsible for the shoddy workmanship of its roofing subcontractor.
The complaint sought damages of some $300,000 for repair and remediation of the roof and also
alleged that had the unit owners known of the defects, they either would not have purchased the
condo units or would have negotiated the price. As such, these damages and the allegations
related only to diminished value and economic harm. However, as the court in Eljer observed,
where the language of an insurance policy explicitly requires physical injury, it cannot be
construed to provide coverage on the basis of loss or diminished use simply resulting from the
failure of a component to perform as promised. Id. at 311. Defective work and products are
purely economic losses. Id. at 314; see also CMK Development Corp. v. West Bend Mutual
Insurance Co., 395 Ill. App. 3d 830, 841 (2009) (no coverage for homeowners pursuing a breach
of contract claim for loss due to repair or replacement of defective work or diminished home
value); Viking Construction Management, Inc., 358 Ill. App. 3d at 54-56 (no property damage
where allegations in underlying complaint point to repair and replacement of defective product
or construction). Otherwise, the policy would function as a performance bond. Eljer
Manufacturing, Inc., 197 Ill. 2d at 311.
¶ 20 Third, in reaching the above-stated conclusions, we must reject the Developer’s argument
that the underlying complaint triggered a duty to defend because the complaint alleged actual
physical harm to personal property. While construction defects that damage something other than
the project itself can constitute an occurrence and property damage (see Stoneridge Development
Co., 382 Ill. App. 3d at 752-53), they do not in this case. We agree with the trial court that these
allegations were meant to simply bolster the contention that water infiltration generally occurred
and caused damages. They do not trigger potential coverage under the policy. The individual
condo unit owners themselves were not parties to the complaint, and the Condo Association did
not purport to act on behalf of any individual condo unit owners. See 765 ILCS 605/9.1(b) (West
2002) (condo board can act in representative capacity as to matters involving “the common
elements or more than one unit”). Contrary to the dissent’s assertion, the complaint did not seek
damages for any personal property damage. In addition, we note that while we confine our
analysis to the allegations in the initial complaint, we find it instructive that even the second-
amended complaint (and third complaint filed) did not add as parties the individual condo unit
owners or identify these owners and their specific claims for damages. As Westfield Insurance
notes, “factual allegations certainly are important to a coverage determination, but only if those
allegations are directed to a theory of recovery.” ISMIE Mutual Insurance Co. v. Michaelis
Jackson & Associates, LLC, 397 Ill. App. 3d 964, 971 (2009). Moreover, we cannot read into the
complaint something that is not there, but rather we are confined to what was actually alleged.
See Pekin Insurance Co. v. Roszak/ADC, LLC, 402 Ill. App. 3d 1055, 1063 (2010). We do not
believe a free-standing reference to a fact, that is not attached to any particular theory of
recovery or particular party in the complaint, can trigger a duty to defend. See Acuity v. Lenny
Szarek, Inc., 128 F. Supp. 3d 1053, 1059-62 (2015) (analogous facts and finding same); cf.
Larsen, 2011 IL App (1st) 101316, ¶ 20-21 (duty to defend in defective construction even
though complaint did not expressly describe damages to personal property).
¶ 21 This case is similar to Diamond State. There, the State’s underlying complaint against
Chester-Jensen (a refrigeration and heating manufacturer) sought damages for Chester-Jensen’s
role in a failed air-conditioning system installed in the Thompson Center building. The State’s
complaint alleged breaches of contract and warranty, claiming economic damages and that the
defective system injured the employees who became ill or otherwise lost time from work because
of the excessive heat in the building. In affirming that there was no duty to defend and in
analyzing the aforementioned allegations under the policy provision on bodily injury, the
appellate court stated:
“[Chester-Jensen’s] proposed interpretation would distort the meaning of this
provision and extend its reach so as to provide coverage for any liability where bodily
injury is a tangential factor. It is manifest that the core of the State’s claim for damages
against Chester-Jensen is a claim for its economic losses. The fact that the State’s claim
for its economic losses as a result of diminished productivity may have been occasioned
in part by the illness of its employees does not transmute its economic claim for which it
seeks recovery from Chester-Jensen into one for ‘bodily injury.’ ” Diamond State, 243 Ill.
App. at 477-78.
This court noted the State did not bring the action on behalf of the employees or seek recovery
for them on account of their illness or bodily injury and held there was no property damage
either. See also Bituminous Casualty Corp. v. Gust K. Newberg Construction Co., 218 Ill. App.
3d 956, 964 (1991) (finding same, and that allegations regarding injured employees not offered
for recovery but as evidence of failed air system).
¶ 22 Likewise, in this case the Condo Association’s allegations of personal property damage
were not offered for the purposes of recovery. These allegations were purely tangential to the
Condo Association’s claim for damages for repair and remediation of the roof. Further, even if
the Condo Association sought to recover amounts attributed to property damage sustained by
individual unit owners, 7 such amounts, vis-a-vis the Condo Association, are economic losses and
not property damage. As a result, the trial court properly disregarded these allegations in
determining Westfield Insurance’s duty to defend. See also id. For the reasons stated, the
underlying complaint, even liberally construed in the Developer’s favor, does not offer
allegations towards a theory of recovery that fits within the potential coverage of the policy. In
affirming that there was no potential coverage, we find no need to examine the exclusions in this
case. See id. at 966.
¶ 23 In an effort to save itself, the Developer appears to argue that Westfield Insurance should
have raised the issue of “standing” as an affirmative defense in the underlying lawsuit by the
Condo Association. Had there been a duty to defend, the Developer’s argument might make
sense. See Express Valet, Inc. v. City of Chicago, 373 Ill. App. 3d 838, 855 (2007) (a reviewing
court is entitled to have the issues on appeal clearly defined and cohesive legal argument
presented). As there was no duty to defend, we must disregard this circular argument. Moreover,
the analysis above makes clear that the issue does not necessarily involve standing but the more
nuanced consideration of whether the underlying complaint sufficiently raised a theory of
recovery together with supporting facts that trigger potential coverage under the insurance 7 Tellingly, counsel for the Condo Association refused to answer the trial court’s question on this point.
policy. While the Condo Association might have had the capacity to represent the individual unit
owners, nowhere in the complaint did it purport to do so.
¶ 24 Therefore, we must also reject the Developer’s related argument that our determination
about “standing” has a preclusive effect as to the underlying lawsuit. The Developer cites legal
principles from Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187 (1976), which was also a duty
to defend case in which an underlying lawsuit alleged alternative counts of intentional and
negligent conduct. The court for the declaratory action in Peppers had concluded the injury at
issue was intentionally inflicted, but the supreme court determined this finding on an “ultimate
fact” was premature and might preclude recovery under other theories in the underlying lawsuit.
Id. at 197. The Developer appears to draw an analogy here as to “standing.” We repeat that the
issue in this case is more nuanced than the Developer acknowledges, and determining whether a
complaint triggers a duty to defend with its allegations is far different from drawing a conclusion
on an issue of fact. This argument is also questionable given that the underlying complaint is no
longer being actively litigated. Regardless, “standing” is not a factual issue but a legal one, and
thus the Peppers principle cited by the Developer is demonstrably inapplicable.
¶ 25 Based on the foregoing, we also conclude the trial court did not err in granting Westfield
Insurance’s motion to reconsider the trial court’s initial judgment in favor of the Developer. The
Developer argues the trial court granted the motion to reconsider on a basis not raised in the
motion. We disagree. The motion to reconsider raised a number of issues, but significantly
incorporated Westfield Insurance’s legal memorandum supporting summary judgment. The
initial trial court judgment in favor of the Developer clearly was the product of a misapplication
of the law, and the trial court also expressed on the record that it did not fully analyze the present
case when it granted the initial summary judgment, thus warranting correction. Stevens v. Village
of Oak Brook, 2013 IL App (2d) 120456, ¶ 37 (a court has the inherent authority to reconsider
and correct its rulings, and this power extends to interlocutory rulings as well as to final
judgments); Pence v. Northeast Illinois Regional Commuter R.R. Corp., 398 Ill. App. 3d 13, 16
(2010) (noting standards for motions to reconsider, and further that a trial court may deny a
motion for summary judgment and later change its position and grant the same motion).
¶ 26 Having determined there was no duty to defend the Developer in the underlying action,
we also affirm the trial court’s determination that there was no duty to indemnify. See Gust K.
Newberg Construction Co., 218 Ill. App. 3d at 966. We disregard the Developer’s request to stay
the indemnity issue. The Developer offered no legal citation to support its request, thus waiving
it. See Ill. S. Ct. R. 341(h)(7) (eff. Jan. 1, 2016) (points not argued are waived). Furthermore,
although a court should refrain from adjudicating issues of fact in an insurance declaratory action
that will have a preclusive effect in the underlying case (see United States Fidelity & Guaranty
Insurance Co. v. Jiffy Cab Co., 265 Ill. App. 3d 533, 537 (1994) (citing Murphy v. Urso, 88 Ill.
2d 444, 455 (1981))), nothing in the trial court’s determination that the Condo Association’s
complaint did not allege “property damage” within the meaning of the policy foreclosed the
litigation of any issue of fact relevant to the Developer’s liability for faulty workmanship. And,
in any event, because the Condo Association’s claims are no longer pending, the request is moot.
¶ 27 CONCLUSION
¶ 28 We affirm the judgment of the circuit court granting summary judgment in favor of
Westfield Insurance.
¶ 29 Affirmed.
¶ 30 JUSTICE PUCINSKI, dissenting.
¶ 31 Regretfully, I cannot join in the majority’s decision, as the majority’s rationale and
holding are against several well-established principles and rules of law in the area of insurance
defense.
¶ 32 First, the majority analyzes the underlying complaint and the policies to determine
whether there is in fact coverage, which is appropriate only at a later stage when determining
indemnity. In reviewing the threshold matter whether there is a duty to defend, we examine the
underlying complaint and the insurance policies to determine whether there is the possibility of
recovery under the policies, not whether in fact there is indeed coverage. As has been long
established, the duty to defend is much broader than the duty to indemnify. Outboard Marine
Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 125 (1992). The duty-to-defend threshold
is “minimal”; the complaint need present only “a possibility,” not probability, of recovery under
the policy. Bituminous Casualty Corp. v. Gust K. Newberg Construction Co., 218 Ill. App. 3d
956, 960 (1991). “The duty to defend is much broader than the duty to indemnify because the
duty to defend is triggered if the complaint potentially falls within a policy’s coverage, whereas
the duty to indemnify is triggered only when the resulting loss or damage actually comes within
a policy’s coverage.” (Emphases omitted.) Country Mutual Insurance Co. v. Bible Pork, Inc.,
2015 IL App (5th) 140211, ¶ 16 (citing Stoneridge Development Co. v. Essex Insurance Co., 382
Ill. App. 3d 731, 741 (2008)).
¶ 33 The majority closely parses the underlying complaint and construes the insurance policy
not only narrowly but also against the insured to conclude there is no duty to defend. The correct
analysis actually is to do the opposite.
¶ 34 According to the majority, “the policy essentially requires an accidental event to trigger
coverage, yet there is nothing accidental alleged in the complaint,” thus ostensibly arguing that
the allegations of the underlying complaint are not potentially within coverage for an
“occurrence.” Supra ¶ 18. The majority reasons that “[a]ny alleged damage to the common or
personal property was not an accident and therefore not the result of any occurrence.” Actually,
the policies define “occurrence” as “an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.” The second amended complaint in the
underlying Association lawsuit alleges that there were construction defects in the roofing of the
development, which over time resulted in water infiltrating into the building, individual
condominium units, “and other property,” including damage to “personal and other property”
within the condominium units. The Association’s second amended complaint also alleges that
the water infiltration was caused by “the failure to complete the roofing system under the patio
concrete pavers and the failure to coat the top layer of fiberglass with hot asphalt.” As a result of
that failure, “any water that accumulated over the roof membrane for a long period of time
caused water to bleed through the existing roof membrane.” I do not read the word “accident” in
the policy definition of an occurrence as to exclude failures to perform certain acts. Further, the
policy definition of an occurrence explicitly includes “continuous or repeated exposure to
substantially the same general harmful conditions,” which is what is alleged.
¶ 35 The majority also concludes that the allegations of the Association lawsuit “do not fall
within the definition of property damage under the policy’s plain language,” and instead “sought
only to hold the Developer responsible for the shoddy workmanship of its roofing
subcontractor.” Supra ¶ 19. The majority further finds that the Association lawsuit alleged only
economic damages for the repair of the roof, and not property damage. But the Association’s
second amended complaint does allege property damage under the policies. The policy defines
“property damage” as “[p]hysical injury to tangible property, including all resulting loss of use
of that property. All such loss of use shall be deemed to occur at the time of the physical injury
that caused it.” The second amended complaint in the underlying Association lawsuit alleges that
the construction defects in the roofing resulted in water infiltrating into the building into
individual condominium units, “and other property,” including damage to “personal and other
property” within the condominium units. The complaint thus alleged “[p]hysical injury to
tangible property” that is within primary coverage of Westfield’s policies. I note that at the
hearing on the motions below, Westfield acknowledged that the Association complaint alleged
damage to personal property. Westfield chose to argue instead that the Association did not have
standing to assert these claims for damage to the personal property of the condominium unit
owners.
¶ 36 The majority finds that the allegations in the Association lawsuit “were meant to simply
bolster the contention that water infiltration generally occurred and caused damages,” meanwhile
conceding that allegations of construction defects that damage something other than the project
itself can constitute an occurrence and property damage. The majority minimizes the allegations
of property damage to the personal and other property of the unit owners as “purely tangential”
to the Association’s claim for damages for repair and remediation of the roof. The majority’s
only citation to support this “purely tangential” analysis of the allegations in the underlying
complaint is to Diamond State, but Diamond State did not cite any authority for this lone
statement. See Diamond State, 243 Ill. App. 3d at 477 (“Appellant’s proposed interpretation
would distort the meaning of this provision and extend its reach so as to provide coverage for
any liability where bodily injury is a tangential factor.”). I can find no other reported Illinois case
that has used such an analysis. Also, Diamond State is not even on point because it involved
purely economic losses as a result of the diminished productivity of the insured’s workers under
a claim for bodily injury. In this case we are presented with a claim for property damage, not
bodily injury, and we are presented with allegations seeking damages for property damage, not
purely economic loss. The fact that monetary damages are sought to also repair the roof does not
transform this case into an economic loss case. The damages alleged are property damages,
which include alleged property damage to the personal and other property of the individual
condominium unit owners.
¶ 37 An insurer’s duty to defend does not hinge on the draftsmanship in the underlying
complaint of the relative amount of damages sought for particular injuries, and clearly alleged
allegations of property damages are not disregarded as “purely tangential” to other allegations.
“ ‘The question of coverage should not hinge on the draftsmanship skills or whims of the
plaintiff in the underlying action.’ ” Illinois Emcasco Insurance Co. v. Northwestern National
Casualty Co., 337 Ill. App. 3d 356, 361 (2003) (quoting International Insurance Co. v. Rollprint
Packaging Products, Inc., 312 Ill. App. 3d 998, 1007 (2000)). “[T]he duty to defend does not
require that the complaint allege or use language affirmatively bringing the claims within the
scope of the policy.” Rollprint Packaging Products, Inc., 312 Ill. App. 3d at 1007. “ ‘The
insurer’s duty to defend does not depend upon a sufficient suggestion of liability raised in the
complaint; instead, the insurer has the duty to defend unless the allegations of the underlying
complaint demonstrate that the plaintiff in the underlying suit will not be able to prove the
insured liable, under any theory supported by the complaint, without also proving facts that show
the loss falls outside the coverage of the insurance policy.’ ” American Economy Insurance Co.
v. Holabird & Root, 382 Ill. App. 3d 1017, 1022 (2008) (quoting Illinois Emcasco Insurance
Co., 337 Ill. App. 3d at 361). See also Farmers Automobile Insurance Ass’n v. Danner, 2012 IL
App (4th) 110461.
¶ 38 Further, “ ‘[a]s the threshold for pleading a duty to defend is low, any doubt with regard
to such duty is to be resolved in favor of the insured.’ ” Holabird & Root, 382 Ill. App. 3d at
1023 (quoting United Services Automobile Ass’n v. Dare, 357 Ill. App. 3d 955, 963 (2005)).
Under Illinois law, even one potentially viable theory of recovery is enough to trigger the duty to
defend. See Pekin Insurance Co. v. XData Solutions, Inc., 2011 IL App (1st) 102769, ¶ 7 (there
is a duty to defend even if only one of several alleged theories of recovery falls within potential
coverage).
¶ 39 I also disagree with the majority’s analysis of the standing issue. The majority dismisses
the Developer’s argument regarding standing as “circular” and contends that the real issue is the
“more nuanced consideration of whether the underlying complaint sufficiently raised a theory of
recovery.” Supra ¶ 23. But the majority makes the same argument as Westfield, that the
individual unit owners were not parties to the Association lawsuit and that the Association did
not purport to act on behalf of the individual unit owners. Whether an individual or entity is a
proper party to assert rights is indeed an issue regarding standing, and the Association did not
have to plead or prove its own standing. See Lebron v. Gottlieb Memorial Hospital, 237 Ill. 2d
217, 252 (2010) (“[L]ack of standing is an affirmative defense, which is the defendant’s burden
to plead and prove.”). Section 9.1(b) of the Illinois Condominium Property Act explicitly
provides that the board of managers of a condominium association “shall have standing and
capacity to act in a representative capacity in relation to matters involving the common elements
or more than one unit, on behalf of the unit owners, as their interests may appear.” 765 ILCS
605/9.1(b) (West 2002). This issue is thus a red herring. While the majority uses the issue of
proper parties and standing as a coverage issue, as Westfield does, it is in fact an affirmative
defense to be raised in the underlying litigation, and not either an exclusion in the policy or a
basis to decline a tender of defense.
¶ 40 In Milwaukee Mutual Insurance Co. v. J.P. Larsen, Inc., 2011 IL App (1st) 101316, this
court held that the insurer had a duty to defend a construction defect claim based upon
allegations of damage to the personal property of condominium unit owners. Unlike the cases
cited by the majority, Milwaukee Mutual is on all fours with this case and should govern the
outcome here.
¶ 41 There is no ground for an insurer to reject a tender of defense where there is potential
liability on the basis of an affirmative defense available to its insured. The only appropriate
action for an insurer in such a circumstance is to defend its insured and then raise that affirmative
defense on behalf of its insured. See Illinois Emcasco Insurance Co., 2013 IL App (1st) 120735,
¶ 22. In Illinois Emcasco Insurance Co., this court rejected an attempt by the insurer to limit its
insured’s right to a defense based on a defense in the underlying action. The plaintiff insurer
argued in a declaratory judgment action that the court should rule it had no duty to defend its
insured by arguing that the general contractor may not have retained sufficient control so as to be
vicariously liable for the subcontractor’s negligence. This court held, however, that “at this
juncture, the question is not whether Waukegan is vicariously liable. Rather, the issue is whether
Emcasco has a duty to defend Waukegan because it could potentially be found vicariously liable
for Walls’ injuries.” (Emphasis in original.) Illinois Emcasco Insurance Co., 2013 IL App (1st)
120735, ¶ 22. I agree with the Developer that if there is a potentially meritorious defense to the
Association lawsuit, such as standing, Westfield should have defended the claim and raised the
¶ 42 Finally, I find it instructive that Westfield chose to defend Total Roofing in the
Association lawsuit, as Westfield must have determined that the complaint triggered its duty to
defend Total Roofing. The circuit court below initially also found this fact instructive in its first
ruling in favor of the Developer, before it granted Westfield’s motion to reconsider and entered
judgment in favor of Westfield. Why Westfield accepted Total Roofing’s tender of defense but
rejected the Developer’s tender of defense is inexplicable, as the same allegations are involved,
in the same complaint, under the same policies, and the Developer was an additional insured
under the same policies. While the majority questions whether the Developer was an additional
insured after the operations were completed, the policy contained an additional insured
endorsement that did not terminate the Developer’s additional insured status upon completed
operations. I believe the circuit court had it right the first time. I would reverse.