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Trovillion v. U.s. Fidelity & Guaranty Co.





Appeal from the Circuit Court of Franklin County; the Hon. Henry Lewis, Judge, presiding.


This action for declaratory judgment was brought in the circuit court of Franklin County by plaintiffs-insured to determine the rights and duties of the parties under a policy of liability insurance issued by defendant. The trial court held that the defendant, United States Fidelity and Guaranty Company (USF&G), had no duty to defend plaintiffs or to indemnify them for loss because of a judgment entered against them in an action by a third party. Plaintiffs assert on appeal that the complaint filed against them was potentially within the coverage afforded under the policy issued by USF&G and that the insurer breached its contractual duty to defend and is estopped to deny coverage.

The Trovillions, partners in a carpentry and construction business, built a house as general contractors for James and Melissa Williamson. The Williamsons sued the Trovillions and obtained a judgment for breach of contract because of their failure to erect the house in a good and workmanlike manner. Prior to that trial, the Trovillions filed this action, seeking a declaration that USF&G must defend the Williamson suit and indemnify them for any adverse judgment rendered against them. USF&G had theretofore undertaken their defense under a reservation of rights but later withdrew its defense, citing several policy exclusions. The Williamson suit meanwhile proceeded to trial and was defended unsuccessfully by counsel retained by the Trovillions. The judgment was satisfied, and in their instant amended complaint plaintiffs sought to recover that amount plus attorney fees and costs expended in the defense of that suit.

Two weeks after the original complaint was filed, USF&G wrote to Trovillions indicating its belief that several policy exclusions would be effective to preclude coverage and reserving its rights under the policy pending its investigation. The July 5, 1979, letter stated that "there is serious question as to whether this policy provides coverage" and "[i]n view of the foregoing and for other good and sufficient reasons we have referred the complaint to our defense attorney." USF&G's defense counsel subsequently filed interrogatories, a request to produce and a motion to dismiss the complaint, which motion was granted, resulting in Williamson's amended complaint filed in September 1979.

The parties are in agreement that it has long been established that if an action is commenced against an insured alleging claims potentially within the policy coverage, the insurer must either defend the suit under a reservation of rights or seek a declaratory judgment that the policy affords no coverage. (Thornton v. Paul (1978), 74 Ill.2d 132, 384 N.E.2d 335; Maryland Casualty Co. v. Peppers (1976), 64 Ill.2d 187, 355 N.E.2d 24; County of Massac v. United States Fidelity & Guaranty Co. (1983), 113 Ill. App.3d 35, 446 N.E.2d 584; Consolidated Rail Corp. v. Liberty Mutual Insurance Co. (1981), 92 Ill. App.3d 1066, 416 N.E.2d 758; Clemmons v. Travelers Insurance Co. (1980), 88 Ill. App.3d 201, 410 N.E.2d 445; Sims v. Illinois National Casualty Co. (1963), 43 Ill. App.2d 184, 193 N.E.2d 123.) The trial court concluded that "there is no potential or possible coverage afforded to the Plaintiffs under the policy of insurance with respect to the allegations of the [Williamson's] Amended Complaint."

Count I of the amended complaint filed against the plaintiffs by Williamson was based on breach of contract. The complaint alleged that the Trovillions agreed to construct a specified house in reasonably good and workmanlike manner. The complaint alleged that the Trovillions failed to perform in that the floor sagged because of inadequate support and as a result the floor in the bedroom area buckled and in other places became detached from the walls; that the walls cracked and the vinyl kitchen floor cracked. The complaint further alleged that the mortar and bricks in the exterior walls and the concrete footings cracked because of structural defects and that the roof leaked. Numerous other defects resulting from faulty construction of the house were alleged. All of the complained-of defects were laid to faulty construction, inferior materials and failure to supply contracted-for items. Count II is a repetition of count I but based on negligence. Judgment was entered on behalf of Williamson on count I only.

The Trovillions argue that the amended complaint also alleges property damage to products or materials other than those furnished by them, specifically the vinyl kitchen flooring, or at least that it clearly encompasses a claim for compensatory damages for such other property damage; although no such damage was specifically alleged. Such damage would ostensibly not fall within one of the two exclusions relied on by USF&G.

The coverage clause in pertinent part provides:

"The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of * * * property damage to which this insurance applies, caused by an occurrence, and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such * * * property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, * * *."

An occurrence is defined as an accident. USF&G does not contend that the damage to the house did not result from an accident.

The policy exclusions state that the insurance does not apply:

"(n) To property damage to the Named Insured's products arising out of such products or any part of such products;

(o) to property damage to work performed by or on behalf of the Named Insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith; * * *."

In November 1979, USF&G again wrote to the Trovillions and declared, "We are now in position to advise you that your policy does not provide coverage for the allegations made by the Williamsons." Specifically, USF&G cited the policy exclusions (n) and (o), which exclusions ...

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