Court offers primer on coverage for construction defects
In CMK Dev. Corp. v. West Bend Mut. Ins. Co., No. 1-08-1155 (1st Dist., 10-30-09), the court applied the standard but at times unclear rule that a CGL policy does not cover defective workmanship but does provide coverage when the defective workmanship results in damage to the property of others. I say standard because countless opinions state the rule; I say unclear because it is often difficult to determine whether damage to "the property of others" is alleged.
In reversing judgment on the pleadings for the insured, the court helpfully offered lists of cases and facts where damage to the property of others was and was not alleged. In CMK, the insurer- developer built a home for a couple but failed to remedy 58 defects set forth in a punch list. In the developer's declaratory action against West Bend, the court assessed damages of $85,906.60, comprising the arbitration settlement with the couple and attorney fees.
The insured argued 1. that scratches to a toilet bowl and tub could have happened after closing, such that the "property" then belonged to "others"; 2. that the insured's defective work on a nearby home caused water runoff that damaged the home at issue such that the home at issue was "other property"; and 3. that the couple may have installed a damaged cork floor such that, again, damage to the property of others was alleged.
The appellate court rejected the first argument, finding no reason to distinguish between damage done the day after or the day before closing, citing Indiana Ins. Co. v. Hydra Corp., 245 Ill.App.3d 926 (1993), where the court held that post-construction cracks in a floor did not trigger coverage. The court quickly dismissed the insured's other arguments finding, as to argument 2, that both homes were the insured's work covered under the same policy, and that argument 3 was pure speculation.
More interesting is the court's dismissal of Country Mut. Ins. Co. v. Carr, 372 Ill.App.3d 335 (2007), because there the homeowners alleged negligence against the insured builder. Carr involved damage to a home's walls caused by improper backfilling by a subcontractor. The Carr court itself made this distinction in finding coverage. However, the labels a plaintiff uses in a complaint do not control, the allegations do. It is unlikely that the CMK court would have found coverage had the purchasers alleged that CMK caused the defects negligently in addition to breaching its contract. If Carr is correct, there will always be coverage for defective work so long as the plaintiff alleges negligence.
One could distinguish Carr on the basis that a subcontractor caused the damage and the policy's "your work" exclusion had an exception for a sub's work. This, however, begs the question. A court must find coverage, "property damage" caused by an "occurrence," before looking to an exclusion. If there is coverage, there must be allegations of damage to the property of another such that the exclusion would not matter. If there is no coverage, again, the exclusion is irrelevant, and coverage cannot be triggered by an exception to an exclusion.
In other words, the "your work" exclusion is worthless - if it would apply there was no coverage to begin with, and if there is coverage it cannot preclude coverage. Thus, Carr was wrongly decided.
