Westfield Ins. Co. v. Nat'l Decorating Serv., Inc.

147 F.Supp.3d 708

Westfield Insurance Co., Plaintiff,

v.National Decorating Service, Inc., James McHugh Construction Co., 200 North Jefferson, LLC and MCZ/Jameson Development Group, LLC Defendants.

Case No. 14 C 1572

United States District Court, N.D. Illinois, Eastern Division.

Signed November 25, 2015

Christopher James Pickett, David S. Osborne, Justin Keith Seigler, Lauren Elizabeth Rafferty, Joseph Patrick Postel, Lindsay Rappaport & Postel LLC, Chicago, IL, for Plaintiff.

Kent J. Cummings, Kevin R. Sido, Hinshaw & Culbertson, Christopher Michael Cano, Robert J. Franco, II, Scott O. Reed, Franco & Moroney LLC, Charles Henry Wahtola, III, Brandon Christoper Clark, Jean G. Wine, Jonathan David Freilich, Stein Ray LLP, Chicago, IL, for Defendants.

MEMORANDUM OPINION AND ORDER

John Robert Blakey, United States District Judge

This case presents a straightforward, but unsettled, question of Illinois law: Is there an “occurrence” under standard-form comprehensive general liability (“CGL”) policies when the named insured contractor's faulty workmanship causes damage to a building that is beyond the scope of its own work there? The answer to that question determines whether Plaintiff Westfield Insurance owes a duty to defend Defendants—its Named Insured (National Decorating) and Additional Insureds (200 North Jefferson, McHugh Construction and MCZ/Jameson)—in the faulty workmanship case pending in the Circuit Court of Cook County. The underlying case is captioned: Board of Managers of 200 North Jefferson Tower Condominium Association v. 200 Jefferson, LLC , Case No. 12 L 480 (the “Underlying Action”).

The parties now cross-move for summary judgment, disputing which line of conflicting case law this Court should follow. Having reviewed the case law and having considered the CGL policy language here and the purpose behind CGL insurance, this Court grants Defendants' summary judgment motions [65] [73] [76] [123]; and denies Plaintiff's cross-motion [70].

I. Legal Standard

Summary judgment is appropriate if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Spurling v. C & M Fine Pack, Inc. , 739 F.3d 1055, 1060 (7th Cir.2014). A genuine dispute as to any material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In determining whether a genuine issue of material fact exists, this Court must construe all facts and reasonable inferences in the light most favorable to the nonmoving party, here, each party with respect to the other's motion. See CTL ex rel. Trebatoski v. Ashland School District , 743 F.3d 524, 528 (7th Cir.2014).

II. Facts¹

A. The Underlying Action

On January 3, 2012, the Board of Managers of 200 North Jefferson Tower Condominium Association (the “Association”) filed the Underlying Action in the Circuit Court of Cook County, naming 200 North Jefferson, LLC (“200 North Jefferson”), James McHugh Construction Co. (“McHugh Construction”), MCZ/Jameson Development Group, LLC (“MCZ/Jameson”), National Decorating Service, Inc. (“National Decorating”) and others as defendants. Westfield SOF ¶ 10. The Association filed the operative five-count Third Amended Complaint on November 4, 2014. McHugh SOF ¶ 9; Westfield SOF ¶ 12.

The Underlying Action arises from the construction of a 24-story condominium building located at 200 North Jefferson Street, Chicago, Illinois (the “200 North Jefferson Building” or the “Building”). Westfield SOF ¶ 13(a). 200 North Jefferson was the owner and developer of the Building. 200 North SOF ¶ 5. 200 North Jefferson retained McHugh Construction to be its general contractor. 200 North SOF ¶ 6; McHugh SOF ¶ 3; Westfield SOF ¶ 13(d). Pursuant to a May 13, 2005 contract, McHugh Construction retained National Decorating as a subcontractor to perform all painting work at the 200 North Jefferson Building. McHugh SOF ¶ 4; Westfield SOF ¶ 13(e).

In the Association Third Amended Complaint, the Association sought recovery for damages caused by various categories of faulty workmanship at the 200 North Jefferson Building. The damages included: (1) significant cracking of the exterior concrete walls, interior walls and ceilings; (2) significant leakage through the exterior concrete walls, balconies and windows; (3) defects to the common elements of the Building; and (4) damage to the interior ceilings, floors, interior painting, drywall and furniture in the units. McHugh SOF ¶¶ 9-10; National Decorating SOF ¶ 11; Westfield SOF ¶ 13(f). In Count I, the Association brought a claim for breach of the implied warranty of habitability against 200 North Jefferson, McHugh Construction, MCZ/Jameson and National Decorating for, among other things, the cost of investigating and correcting the aforementioned defective work and property damage. 200 North SOF ¶ 19; McHugh SOF ¶ 11; MCZ/Jameson SOF ¶ 4; Westfield SOF ¶ 13.

Also in the Underlying Action, on January 9, 2014, McHugh Construction filed a Third-Party Complaint against National Decorating. Westfield SOF ¶ 19. The operative Amended Third-Party Complaint contains three causes of action against National Decorating based on the Underlying Action: breach of contract (Count I); breach of express contractual defense and indemnity (Count II); and negligence (Count III). Westfield SOF ¶¶ 20-21. There also are two causes of action directed against another party that are not relevant to this coverage dispute. In Counts I to III, McHugh Construction alleged that National Decorating's faulty workmanship damaged “the work of other trades on the project, specifically resulting in the peeling and cracking of drywall.” Westfield SOF ¶¶ 20-21. Count III measured McHugh Construction's damages as the cost of repairing National Decorating's faulty workmanship and “damage to the work of other trades on the project, including the peeling and cracking of drywall.” Westfield SOF ¶ 21.

B. Coverage Dispute

Plaintiff Westfield Insurance Company (“Westfield Insurance”) disputes that it owes Defendants a duty to defend under Policy No. TRA 4 248 979 (the “Westfield Insurance Policy” or the “Policy”). Westfield SOF ¶ 22. The Policy is an “occurrence”-based CGL policy issued to National Decorating as the Named Insured. 200 North SOAF ¶ 43; McHugh SOF ¶ 1; National Decorating SOF ¶ 13; Westfield SOF ¶ 22. The Westfield Insurance Policy was initially effective from February 28, 2008 to February 28, 2009 and was renewed three times, until it expired on November 1, 2011. McHugh SOF ¶ 2; Westfield SOF ¶ 23. The operative policy language remained the same throughout that period.

In the Insuring Agreement, the Westfield Insurance Policy provides that Plaintiff:

... will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result.

McHugh SOF ¶ 14; Westfield SOF ¶ 24. The Insuring Agreement further provides that the insurance applies only to “bodily injury” and “property damage” “caused by an ‘occurrence.’ ” Westfield SOF ¶ 24.

The term “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same harmful conditions.” Westfield SOF ¶ 24. The Policy does not define the word “accident.” The term “property damage” is defined in relevant part as:

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[.]

McHugh SOF ¶ 15; Westfield SOF ¶ 24.

There is no dispute that 200 North Jefferson, McHugh Construction and MCZ/Jameson (as clarified at the November 5, 2015 motion hearing) are Additional Insureds under the Westfield Insurance Policy based on the contracts that they entered into among one another and National Decorating. 200 North SOF ¶¶ 6-9, 12, 14; McHugh SOF ¶¶ 4-6, 8; MCZ/Jameson SOF ¶ 16. The Westfield Insurance Policy includes two Additional Insured Endorsements, and, for purposes of this Court's analysis, there is no significance whether the Additional Insured Defendants are covered by one or both Endorsements. The first standard-form Blanket Additional Insured Endorsement states:

Name of Person or Organization:

ANY PERSON OR ORGANIZATION FOR WHOM YOU ARE PERFORMING OPERATIONS WHEN YOU AND SUCH PERSON OR ORGANIZATION HAVE AGREED IN WRITING ON A CONTRACT OR AGREEMENT THAT SUCH A PERSON OR ORGANIZATION BE ADDED AS AN ADDITIONAL INSURED ON YOUR POLICY.

***

Section II—Who Is An Insured is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of “your work” at the location designated in the schedule of this endorsement performed for that insured and included in the “products-completed operations hazard.”

200 North SOAF ¶ 42; McHugh SOF ¶ 7. The second Additional Insured Endorsement states:

Section II—Who Is An Insured is amended to include as an additional insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured.

200 North SOAF ¶ 41.

The Westfield Insurance Policy defines “your work” as “work or operations performed by you or on your behalf,” and, in turn, “you” and “your” as ...