Building Chicago -Fall/Winter 2012 - (Page 7)
I’m Covered by Insurance When the Roof Leaks – Right?
The carrier denies coverage and sues the general contractor seeking a declaration by the court that there is no insurance coverage. The general contractor must defend himself and pay the owner for any repairs. Illinois Law is unlike certain other states, such as Wisconsin1 and Indiana2. In those states the general contractor would be covered for this claim. The Law of Illinois is that there is no comprehensive general liability (“CGL”) insurance coverage for construction defects. The recent Seventh Circuit Court of Appeals decision Lagestee-Mulder, Inc. v. Consolidated Insurance Company 682 Fed. 2d 1054 (C.A. 7 2012) states: “The rules governing application of CGL policy provisions are settled. Where the underlying suit alleges damage to the construction project itself because of a construction defect, there is no coverage. By contrast, where the complaint alleges that a construction defect damaged something other than the project, coverage exists”. In many construction defect cases, the allegations of the complaint merely seek repair and replacement costs to correct the construction defect, for example in this case, ﬁx the leaky roof, ﬁx the leaky curtain wall, or reattach sagging balconies. Under Illinois Law there is no coverage of this kind. The reason is that insurance coverage is not intended to be a performance bond guaranteeing contractor workmanship. The Seventh Circuit stated the reason for this rule as follows: “Comprehensive general liability policies… are intended to protect the insured from liability for injury or damage to the persons or property of
By Geoffrey A. Bryce Bryce Downey & Lenkov LLC
Assume these facts: • An owner of a building, factory or other workplace decides to build a new facility or expand an existing facility • The owner carefully selects a general contractor and a design professional to work on the project • The facility is designed and built and six months later, the roof leaks • The owner calls the general contractor and states, “Please ﬁx my roof immediately” • The general contractor calls the rooﬁng subcontractor and says, “You need to ﬁx this” • The rooﬁng subcontractor tries to ﬁx the problem, but is unsuccessful • The owner hires a new design professional and the engineer discovers the roofer used nails instead of bolts to anchor the roof edge detail Both the general contractor and the roofer say, “It is too bad, we do not have the ﬁnancial resources to ﬁx your problem”. The owner sues the general contractor who in turn tenders the defense of the owner’s suit to the general contractor’s insurance carrier. The President of the general contractor says, “I’m covered by insurance for these roof leaks, right?”
others; they are not intended to pay the costs associated with repairing or replacing the insured’s defective work and products, which are purely economic losses. [Citations] Finding coverage for the cost of replacing or repairing defective work would transform the policy into something akin to a performance bond”. That is not to say all construction defect cases are not covered. If the allegations of the complaint allege damage to the property but not the building itself, for example, if damage is done to the personal property of the occupants, then insurance will cover that damage. A Geoffrey A. Bryce concentrates in commercial and construction transactions and litigation. He represents developers, owners, facility management companies, architects, general contractors, subcontractors, developers, engineers and material suppliers. His litigation practice includes, but is not limited to, product liability, insurance coverage, personal injury, property damage, real estate, mechanics liens, bankruptcy, landowner contractor disputes, annexation, condemnation, zoning, scope of work disputes, breach of contract, extra work compensation, restrictive covenant, construction defect, architectural/engineering malpractice, breach of surety agreement, employer defense and delay claims. He has tried cases to conclusion in Illinois, California, Oklahoma, Virginia and Wisconsin. Building Chicago Fall/Winter 2012 • 7
Table of Contents for the Digital Edition of Building Chicago -Fall/Winter 2012
A Message from the Builders Association President
A Bag of Mixed Greens
I’m Covered by Insurance when the Roof Leaks, Right?
A Method to No Madness
Index of Advertisers
Building Chicago -Fall/Winter 2012