Westfield Ins. Co. v. Zaremba Builders II LLC

588 F.Supp.3d 858

WESTFIELD INSURANCE COMPANY, Plaintiff,

v.ZAREMBA BUILDERS II LLC, et al., Defendants.

No. 19-cv-00794

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

Signed March 2, 2022

Richard Thomas Valentino, SmithAmundsen LLC, Chicago, IL, for Plaintiff.

Phillip Anthony Luetkehans, Brian J. Armstrong, Luetkehans, Brady, Garner & Armstrong LLC, Itasca, IL, for Defendants Zaremba Builders II LLC, Kevin Zaremba.

Thomas James Kanyock, Andrew Robert Schwartz, Karen Irene Jeffreys Bridges, John Michael Cerney, Schwartz & Kanyock, LLC, Chicago, IL, for Defendant Nancy Eileen Vrdolyak Trust Dated March 15, 2011.

MEMORANDUM OPINION AND ORDER

Andrea R. Wood, United States District Judge

This case concerns an insurance coverage dispute over whether Plaintiff Westfield Insurance Company ("Westfield") has a duty to defend or indemnify Defendants Zaremba Builders II LLC, Kevin Zaremba, and Zaremba Commercial Construction, LLC (collectively, "Zaremba") in connection with a lawsuit filed by Defendant Vrdolyak Trust and 139th Street Holdings ("Vrdolyak Trust"). As alleged in the complaint in that lawsuit ("Vrdolyak Complaint"), Zaremba contracted to build a house for the Vrdolyak Trust but did a poor job, resulting in serious structural and aesthetic issues for which the underlying lawsuit asserts various claims for damages. Westfield insures Zaremba. In response to the Vrdolyak suit, Westfield has filed the present declaratory judgment action seeking a declaration that it owes no duty to defend or indemnify Zaremba with respect to the claims asserted there. Before the Court is Westfield's motion for summary judgment. (Dkt. No. 71.) Zaremba, joined by the Vrdolyak Trust, opposes the motion. For the reasons given below, the Westfield's motion is granted.

BACKGROUND

On June 14, 2018, the Vrdolyak Trust filed suit against Zaremba in the Circuit Court of Cook County, Illinois alleging various claims relating to the construction of a home by Zaremba for the Vrdolyak Trust. (Def.’s Resp. to Pl.’s Statement of Mat. Facts ("DRSMF"), ¶¶ 5–38, Dkt. No. 77.) In February 2019, Westfield filed the present action seeking a declaratory judgment that it owed Zaremba neither a duty to defend nor a duty to indemnify it in connection with the suit. Subsequently, the Vrdolyak Trust twice amended the complaint pending in state court. (DRSMF. ¶¶ 39, 42.) Each time, Westfield filed an amended complaint in this related action. (Am. Compl., Dkt. No. 36; Second Am. Compl., Dkt. No. 56.) For purposes of the present motion, the allegations contained in the Vrdolyak Trust's Second Amended Complaint ("Vrdolyak Complaint") control.¹ The material facts are undisputed.

I. The Underlying Suit

In 2015, Zaremba and the Vrdolyak Trust entered into a contract wherein Zaremba agreed to construct a house for a total of $1,650,102. (DRSMF ¶ 46.) Under the terms of the contract, Zaremba agreed to supervise the construction of a single-family residence at the listed address and provide the labor, materials, tools, and all other costs necessary to finish the project. (Pl.’s Statement of Mat. Facts ("PSMF"), Ex. G at 1, Dkt. No. 73-7.) Additionally, the contract required Zaremba to perform the work in a "workmanlike manner and in strict accordance" with its terms and included a warranty as to the materials used and work performed. (PSMF, Ex. G at 1, 4–5, Dkt. No. 73-7.) Zaremba also agreed to Specifications that, among other things, required Zaremba to provide labor and material for the entire home. (PSMF, Ex. H, Dkt. No. 73-8.) Of particular relevance here, the Specifications explicitly stated that Zaremba was responsible for providing and installing "Appliances" and "Cabinets." (PSMF ¶ 75, Ex. H at 8–9, Dkt. No. 73-8.) Moreover, the Contract stated that the Vrdolyak Trust could send Zaremba a "punch list" of outstanding items and that Zaremba would be required to complete the tasks within thirty days. (PSMF, Ex. G at 1, Dkt. No. 73-7.)

According to the Vrdolyak Trust, the total listed in the contract was already between $200,000 and $300,000 more than the price Zaremba initially quoted. (DRSMF ¶¶ 8, 46.) In fact, the Vrdolyak Trust alleges that it ultimately paid approximately $500,000 to $600,000 over the initial quote of $1,300,000 for the project. (Id. ¶ 49.) The Vrdolyak Complaint lists various reasons for the cost overages, ranging from charges for electrical work that was never completed to failure to recover funds from a subcontractor who walked off the job to increased mortgage interest resulting from construction delays. (Id. ¶¶ 47, 49–50.)

Additionally, the Vrdolyak Complaint sets forth an account of numerous problems with the project. (Id. ¶¶ 47–55; Defs.’ Statement of Add. Mat. Facts ("DSAMF"), ¶ 2, Dkt. No. 79.) Some of the claims relate to various breaches of contract, such as Zaremba's alleged purchase of doors that cost $6,000 less than those called for by the contract, failure to install an elevator, shower doors, and a mirror as specifically required by the contract, and installation of hardwood floors in the incorrect color. (DRSMF ¶¶ 49, 52.) Others relate to the construction of the house; for example, the Vrdolyak Complaint alleges the existence of painting defects, including bubbling and peeling, which caused damage to the woodwork. (Id. ¶ 51.) Similarly, the Vrdolyak Complaint alleges that a subcontractor improperly installed a rubber membrane in the master shower, damaging both the bathroom tiles and kitchen ceiling and leading to mold, the presence of which prevented Nancy Vrdolyak from using the master bathroom until February 2018 and which still prevents the use of the master shower. (Id. ¶ 53.)

Certain of the alleged issues are particularly relevant for purposes of determining the scope of Westfield's coverage. For instance, Zaremba allegedly left the basement full of water for months, causing damage to ductwork, framing, and piping in the home. (Id. ¶ 48.) The presence of standing water also apparently led to a mold issue for which the Vrdolyak Trust demanded that Zaremba hire an expert to remediate. (Id. ) However, according to the Vrdolyak Trust, Zaremba attempted to remediate the mold itself using chlorine, resulting in further damage to the basement. (Id. ) Additionally, the Vrdolyak Trust claims that the house's occupants, who moved into the house in April 2017, suffered significant congestion, difficulty breathing, and allergies resulting from the mold. (DSAMF ¶ 2-A, E, I.) The Vrdolyak Complaint also details an incident in which a pipe that should not have been active burst in the three seasons room of the home, damaging the framing, flooring, trim work, and painting. (DRSMF ¶ 54.) The floor of the room was further damaged by painting tape that was not timely removed. (DSAMF ¶ 2-H.)

Finally, the Vrdolyak Trust asserts that Zaremba damaged tangible property other than the house itself. Specifically, the Vrdolyak Trust alleges that a clothes dryer and kitchen cabinets were damaged—the clothes dryer was allegedly dented in early 2017 as it was moved, while the kitchen cabinets were damaged when the sink was put in place at the end of 2016. (PSMF, Ex. F at 2–3, Dkt. No. 73-6.) The Vrdolyak Trust acknowledges that no other tangible property was damaged, aside from the damage to the structure that is the subject of the current state court litigation. (Id. )

Based on these allegations, the Vrdolyak Complaint asserts seven counts against Zaremba, including claims for breach of contract, breach of fiduciary duties, fraud in the inducement, breach of warranty, breach of the implied warranty of habitability, and breach of promissory note.²

II. The Policy

Westfield issued Policy No. CWP 3 510 692 ("Policy") with Zaremba Commercial Construction LLC as the named insured³ for an initial effective period of December 6, 2014 to December 6, 2015. (DRSMF ¶ 62.) The Policy has been renewed annually and remains in effect. (Id. ) It includes a provision for Commercial General Liability ("CGL") coverage. The Insuring Agreement of Coverage A of the CGL provides that Westfield "will pay those sums that the insured becomes legally obligated to pay as damages because of ‘property damage’ to which this insurance applies." (DRSMF ¶ 66.) Although the Policy states that Westfield will have the "duty to defend the insured against any ‘suit’ seeking those damages," it also provides that Westfield will have "no duty to defend the insured against any ‘suit’ seeking damages for ‘property damage’ to which this insurance does not apply." (Id. ) According to the Policy terms, Coverage A "applies to ... ‘property damage’ only if ... the ... ‘property damage’ is caused by an ‘occurrence.’ " (Id. )

Section V of the Policy defines the relevant terms:

13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

16. "Products-completed operations hazard":

a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except:

(1) Products that are still in your physical possession: or

(2) Work that has not yet been completed or abandoned. However, "your work" will be deemed completed at the earliest of the following times:

(a) When all of the work called for in your contract has been completed.

...

(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project. Work that may need service, maintenance, correction, repair, or replacement, but which is otherwise complete, will be treated as completed.

17. "Property damage" means

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

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