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Ohio Casualty Insurance Co. v. Bazzi Construction Co.

decided: April 9, 1987.

OHIO CASUALTY INSURANCE CO., PLAINTIFF-APPELLANT,
v.
BAZZI CONSTRUCTION CO., INC., ET AL., DEFENDANTS-APPELLEES



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division, No. 86 C 2330, Marvin E. Aspen, Judge.

Author: Cummings

Before Bauer, Chief Judge, Cummings and Easterbrook, Circuit Judges.

CUMMINGS, Circuit Judge. In April 1983, Ohio Casualty Insurance Co. ("Ohio") issued a comprehensive general liability insurance policy to Bazzi Construction Co. ("Bazzi") and its President, John J. Jacobazzi, effective from April 21, 1983, to April 21, 1984. In January 1986, Grant Park Packing Co. and Grant Park Sausage Co. filed an action for damages in Illinois circuit court alleging that Bazzi negligently carried out a construction project which the two companies had hired Bazzi to complete. The complaint alleged that Bazzi performed these negligent acts in January 1984, within the period during which the insurance policy was effective. Believing that any damages awarded to the Grant Park companies would be covered by the policy, Bazzi tendered its defense in the action to Ohio. Ohio proceeded to file this action in district court seeking a declaratory judgment that it did not have a duty to defend Bazzi in the state court suit.*fn1 Ohio appeals the district court's order requiring Ohio to provide Bazzi with a defense.*fn2

Ohio's duty to defend Bazzi under the insurance policy turns on the specific allegations in the underlying state court complaint. Because an insurer's duty to defend is much broader than its duty to indemnify, an insurer owes a duty to defend an insured in an action brought against him if the complaint alleges facts that are even potentially within the coverage of the insurance policy. See Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187, 193, 355 N.E.2d 24, 28 (1976); La Rotunda v. Royal Globe Insurance Co., 87 Ill. App. 3d 446, 451, 408 N.E.2d 928, 933, 42 Ill. Dec. 219 (1980); Maneikis v. St. Paul Insurance Co., 655 F.2d 818, 822 (7th Cir. 1981). Any doubt as to coverage must be resolved in favor of the insured. La Rotunda, 87 Ill. App. 3d at 451, 408 N.E.2d at 933, Maneikis, 655 F.2d at 822. Even if recovery in the underlying suit is premised upon several theories of liability, some of which are excluded from policy coverage, the insurer is still obligated to defend the insured as long as one of the theories advances might possibly fall within the scope of the policy coverage. Maryland Casualty, 64 Ill. 2d at 194, 355 N.E.2d at 28; Maneikis, 655 F.2d at 822.

The comprehensive general liability insurance policy issued to Bazzi provided coverage for damages incurred because of "bodily injury" or "property damage" caused by an "occurrence." "Property damage" is defined by the policy as

(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.

An "occurrence" is defined by the policy as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured."

To determine whether the allegations in the state court complaint potentially fall within the policy's coverage and thus give rise to a duty to defend, it is necessary to summarize briefly the facts of the underlying action. Grant Park Packing Co. and Grant Park Sausage Co. (hereinafter collectively referred to as "Grant Park") filed suit in 1986 against Bazzi, a group of architects, and a corporation that supplied steel joists which were used in a construction project involving the remodeling of Grant Park's garage. Grant Park had hired the architects and Bazzi in 1983 to remodel an existing garage for use as a meat market and to construct a penthouse on top of the new roof of the garage. Prior to the completion of the project, the parties modified the original drawings and specifications to permit the construction of a second story on top of the garage. During the pouring of the concrete for the floor of the second story in January 1984, the supporting joists started to buckle, compromising the structural integrity of the whole building. Grant Park alleged that as a result of the negligent and willful and wanton acts of the architects, Bazzi, and the steel supplier, the entire building was made "unsafe and unusable, the plaintiffs suffered great loss of time in their business and expended large sums of money to completely tear down and rebuild the second floor construction and to reinforce the roof joints and steel columns installed in the interior of the building because the foundation of the existing building was inadequate to support the second floor construction." (Pl. App. 66-67, 71, Complaint Count III, [P]9 and Count IV, [P]9).

We agree with the district court that a liberal reading of the complaint in the Grant Park action reveals that it alleges facts that are potentially within the coverage of the policy. The complaint alleges that the structural integrity of the existing garage building was compromised, and was thus made unsafe and unusable, by the negligent and willful and wanton conduct of Bazzi. These allegations of "physical injury to . . . tangible property [occurring] during the policy period, including the loss of use thereof at any time resulting therefrom" would appear to constitute "property damage" caused by an "occurrence," thereby stating a claim against Bazzi that is potentially within the coverage of the Ohio policy.

Ohio argues that the underlying action seeks recovery not for property damage but for economic losses that are not within the scope of the policy's coverage. It is well established under Illinois insurance law that economic losses sustained as a result of defects in or damage to the insured's own work or product are not covered by a comprehensive general liability insurance policy. See Western Casualty & Surety Co. v. Brochu, 105 Ill. 2d 486, 498, 475 N.E.2d 872, 878, 86 Ill. Dec. 493 (1985); Qualls v. Country Mutual Insurance Co., 123 Ill. App. 3d 831, 833-834, 462 N.E.2d 1288, 1291-1292, 78 Ill. Dec. 934 (1984); Sentry Insurance Co. v. S & L Home Heating Co., 91 Ill. App. 3d 687, 690-691, 414 N.E.2d 1218, 1221, 47 Ill. Dec. 102 (1980); Consumers Construction Co. v. American Motorists Insurance Co., 118 Ill. App. 2d 441, 451, 254 N.E.2d 265, 270 (1969). As the court in Qualls explained:

Comprehensive general liability policies like the one here are intended to protect the insured from liability for injury or damage to the persons or property of others; they are not intended to pay the costs associated with repairing or replacing the insured's defective work and products, which are purely economic losses . . . . Finding coverage for the cost of replacing or repairing defective work would transform the policy into something akin to a performance bond.

123 Ill. App. 3d at 833-834, 462 N.E.2d at 1291.

Grant Park's allegations, however, are not limited to damage to and defects in Bazzi's own work and products. Rather Grant Park alleges damage to the structure of a building already in existence. In construing policy language which Ohio argues is identical to that before us now, the Illinois Supreme Court held:

Damage to property other than the insured's own work or product, arising from breach of a warranty that work will be done in a workmanlike manner, is expressly not excluded under [the policy]. In short, 'the policy in question does not cover an accident of faulty workmanship but rather faulty workmanship which causes an ...


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