Illinois Court Reaffirms that Negligence is an Occurrence in a CGL policy

 

July 24, 2017

 

Last week, the United States Court of Appeals for the Seventh Circuit determined that for the purposes of a commercial general liability policy, a subcontractor's alleged negligence counted as an “occurrence”. The case is Westfield Ins. Co. v. National Decorating Service, Inc., No. 16-1439 (7th Cir. July 13, 2017).

 

Westfield Insurance Company provided a commercial general liability policy to the defendant, National Decorating Service, Inc. National Decorating Service Inc. was a subcontractor working to perform painting work on a brand new twenty-four-story condominium building in Chicago on behalf of the general contractor, James McHugh Construction Company. The newly constructed twenty-four-story condo allegedly suffered water damage caused by the failure of National Decorating to apply an adequate coat of sealant to the exterior of the new building. Westfield, as National Decorating's insurer, went to court seeking a declaration that it had no duty to defend. The district court disagreed with the insurance company, stating that they did have a duty to defend. This appeal was brought by Westfield alleging that the failure to apply sealant was not an accident and that absent an accident there was no “occurrence”.

 

The policy provided that the insurer would “pay those sums the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage””. As the policy states, the insurance covers “property damage” caused by an “occurrence” defined as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions”. Under the policy, the general contractor, McHugh Construction Company, is considered to be an additional insured.

 

According to Westfield, applying an insufficient layer of paint cannot constitute an accident, and without an accident there can be no “occurrence”. The Court determined that the underlying complaint alleges that National Decorating was negligent, which is sufficient to satisfy the policy's occurrence requirement when determining whether or not there was a duty to defend. This is because, under Illinois law, “negligently performed work or defective work” could give rise to an “occurrence” under the CGL policy.

 

Editor's Note: This decision relies specifically on the interpretation of certain terms by the Illinois courts. The definitions of occurrence and accident are generally interpreted pretty broadly in order to allow the benefit to befall the insured.