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Illinois Supreme Court Sides with Construction Industry in Major Insurance Ruling

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After years of uncertainty, the Supreme Court of Illinois finally resolved a question that had been vexing the Illinois appellate court for years. And the answer—that CGL insurance policies are not limited to damage to “other property”—is not the outcome Illinois insurance companies had been hoping for.

M/I Homes of Chicago, a general contractor, was covered as an “additional insured” under a subcontractor’s CGL insurance policy with Acuity insurance company. A townhome owners’ association sued M/I Homes alleging construction defects. M/I Homes tendered the matter to Acuity. The insurer denied coverage and brought a declaratory judgment action, contending that it had no duty to defend M/I Homes. In both the trial court and the appellate court, the parties focused their briefing on whether the underlying lawsuit sufficiently alleged damage to “other property” beyond the townhomes, given the plethora of Illinois appellate case law holding that coverage would not lie in such situations unless “other property” had been damaged. The trial court held in favor of Acuity, while the appellate court reversed.

The Supreme Court of Illinois, however, took a right turn and challenged the assumption upon which all the parties (and the lower courts) had been operating. The Court highlighted that the notion that damage to “other property” is necessary for there to be any chance of coverage in such situations was based on a variety of policy considerations rather than a textual interpretation of standard CGL policies. Embarking on such an interpretation, the Court held that water damage to interior townhome units would satisfy both the “property damage” and “occurrence” definitions of a CGL policy and, as a result, such an event would lie within a CGL policy’s initial grant of coverage. Because the parties had not sufficiently argued whether any exclusions applied to the facts at bar (or whether any exceptions to the exclusions applied), the Court remanded the matter for the trial court to explore such questions. But, as to the overarching issue, the law in Illinois is now clear: depending on the circumstances, a CGL policy may well provide coverage for a construction defect even in the absence of damage to “other property.”

The case is Acuity v. M/I Homes of Chicago, LLC, 2023 Il 129087 (Il S.C.)

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