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AMERICAN FIRE & CASUALTY COMPANY v. BROEREN RUSSO CONST.

July 12, 1999

AMERICAN FIRE & CASUALTY COMPANY, PLAINTIFF,
v.
BROEREN RUSSO CONSTRUCTION, INC., AN ILLINOIS CORPORATION, DEFENDANT.



The opinion of the court was delivered by: McCUSKEY, District Judge.

ORDER

On May 11, 1998, Plaintiff, American Fire & Casualty Company, filed a Complaint for Declaratory Judgment (# 1) against Defendant, Broeren Russo Construction, Inc. This case is now before the court for ruling on Plaintiff's Motion for Judgment on the Pleadings (# 14), Plaintiff's Motion to Strike (# 19) and an Agreed Motion for Enlargement of Time (# 25) seeking to extend the discovery deadlines if this court denies Plaintiff's Motion for Judgment on the Pleadings.

Following careful review, Plaintiff's Motion for Judgment on the Pleadings (# 14) is GRANTED. Accordingly, Plaintiff's Motion to Strike (# 19) and the parties' Agreed Motion for Enlargement of Time (# 25) are DENIED as moot.

FACTS

Plaintiff's Complaint for Declaratory Judgment alleged that this court has jurisdiction over the action based upon diversity of citizenship ( 28 U.S.C. § 1332). Plaintiff alleged that it issued a policy to Defendant for Commercial General Liability Insurance for the policy period of February 28, 1996, to February 27, 1997. On March 16, 1998, KDB III Enterprises, L.L.P. (KDB), filed a complaint against Defendant in the circuit court of Champaign County. Defendant tendered its defense to Plaintiff, and Plaintiff accepted the tender subject to a reservation of rights. In its Complaint, Plaintiff requested a declaration from this court that it has no duty to defend Defendant in the action pending in the circuit court of Champaign County. Plaintiff argued that it had no duty to defend because: (1) the claimed damage occurred before the first date of coverage; (2) the policy did not provide coverage for the claims in the underlying action; and (3) Defendant knew or had reason to know of the loss prior to the inception of the policy on February 28, 1996, so that the risk was a "known loss" and not covered by the policy.

Plaintiff also attached to its Complaint a copy of the underlying KDB complaint and attachments. In the underlying complaint, KDB alleged that Defendant entered into a contract on February 26, 1990, to furnish, install and deliver an Exterior Insulation Finish System (System) during the construction of the Trade Centre South Building (Building) in Champaign, Illinois. The purpose of the System was to prevent water from leaking to the interior of the Building. The contract specified that Defendant was responsible for providing a proper and complete installation of the System. Work ceased on the Building in 1991, and KDB rented space in the Building to tenants. The System was warranted by Defendant for a period of one year. KDB alleged that water has leaked into the Building from the time tenants rented the Building to the present date. KDB alleged that Defendant attempted to remedy the defective installation of the System but Defendant's efforts did not stop the leaking.

KDB further alleged that it entered into an agreement with Defendant in April 1995 to remedy the defective installation of the System. Defendant completed the remedial repair work on June 30, 1995. Defendant provided a 15-month warranty for the remedial work. KDB notified Defendant on May 29, 1996, that the remedial work did not stop the leaking. In this letter, KDB also stated that Defendant failed to repair the interior drywall and ceiling tile as agreed. KDB alleged that Defendant has made no further efforts to remedy the problem. KDB alleged that "Defendant has been and continues to be in breach of the Contract and the Agreement." KDB alleged that, "as a direct and proximate result of these breaches of contract by Defendant, [KDB] has incurred extensive structural and aesthetic damage to the exterior and interior" of the Building. KDB sought damages in the amount of $685,908.41 based on Defendant's breach of contract. KDB alleged that these damages were for money expended in its attempt to stop the leaking, the cost of complete and proper reinstallation of the System and related water damage repairs.

On November 3, 1998, Plaintiff filed a Motion for Judgment on the Pleadings (# 14). In its Memorandum of Law in support of the Motion, Plaintiff contended that it does not have a duty to defend Defendant with respect to the breach of contract action filed by KDB. Plaintiff argued that the allegations of the underlying KDB complaint are not within, or even potentially within, the coverage provided by the policy. Plaintiff argued that this is because: (1) the KDB complaint does not allege an "occurrence" as defined by the policy; (2) there are no allegations of "property damage" as defined by the policy; and (3) coverage is precluded by three separate exclusions contained in the policy. Plaintiff contended that the sole issue before the court is the purely legal question of whether the underlying KDB complaint raises a duty to defend under the policy issued by Plaintiff.

On November 17, 1998, Defendant filed a Memorandum in Opposition to Plaintiff's Motion (# 16). Defendant argued that Plaintiff has a duty to defend under the terms of the policy. Defendant contended that the KDB complaint is at least potentially within the coverage of the policy because the complaint clearly alleges damage to property other than that supplied by Defendant. Defendant also argued that it cannot be assumed that the cause of the damage was faulty workmanship on the part of Defendant. In support of this argument, Defendant attached a copy of a Third-Party Complaint it filed in the circuit court of Champaign County in the underlying cause of action. In the Third-Party Complaint, Defendant alleged that the negligence of other subcontractors involved in the construction of the Building proximately caused or contributed to the damages allegedly incurred by KDB.

On December 14, 1998, Plaintiff filed a Motion to Strike (# 19). Plaintiff asserted that Defendant's reference to the Third-Party Complaint and the attached Third-Party Complaint should be stricken from Defendant's Memorandum. On June 28, 1999, the parties filed an Agreed Motion for Enlargement of Time (# 25), seeking to extend the discovery deadlines if this court denies Plaintiff's Motion for Judgment on the Pleadings.

ANALYSIS

A Rule 12(c) judgment on the pleadings is "`designed to provide a means of disposing of cases when the material facts are not in dispute and a judgment on the merits can be achieved by focusing on the content of the pleadings and any facts of which the court will take judicial notice.'" Continental X-Ray Corp. v. Home Indem. Co., 1997 WL 102537, at *2 (N.D.Ill. 1997)(quoting 5A Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure § 1367 (1990)). A Rule 12(c) motion is subject to the same standard as a Rule 12(b)(6) motion to dismiss and "`should not be granted unless it appears beyond doubt that the plaintiff cannot prove any facts that would support his claim for relief.'" GATX Leasing Corp. v. National Union Fire Ins. Co., 64 F.3d 1112, 1114 (7th Cir. 1995)(quoting Thomason v. Nachtrieb, 888 F.2d 1202, 1204 (7th Cir. 1989)); Continental X-Ray Corp., 1997 WL 102537, at *2. When the plaintiff is the moving party, the motion should not be granted unless it appears beyond doubt that the non-moving party cannot prove facts sufficient to support his position. See Continental X-Ray Corp., 1997 WL 102537, at *5-6. In ruling on a Rule 12(c) motion, this court must view the facts in a light most favorable to the non-moving party. Flenner v. Sheahan, 107 F.3d 459, 461 (7th Cir. 1997); Continental X-Ray Corp., 1997 WL 102537, at *2. A judgment on the pleadings is proper when only questions of law, and not questions of fact, exist after the pleadings have been filed. Indiana Ins. Co. v. Hydra Corp., 245 Ill. App.3d 926, 185 Ill.Dec. 775, 615 N.E.2d 70, 72 (1993), appeal denied, 152 Ill.2d 559, 190 Ill.Dec. 889, 622 N.E.2d 1206 (1993).

Both parties agree that Illinois law governs the policy at issue in this diversity case. See Prisco Serena Sturm Architects, Ltd. v. Liberty Mut. Ins. Co., 126 F.3d 886, 890 (7th Cir. 1997). To determine whether the insurer has a duty to defend the insured, the court must look to the allegations included in the underlying complaint and compare those allegations to the relevant provisions of the insurance policy. Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill.2d 90, 180 Ill.Dec. 691, 607 N.E.2d 1204, 1212 (1992). An insurer's duty to defend is much broader than its duty to indemnify. Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 189 Ill.Dec. 756, 620 N.E.2d 1073, 1079 (1993); see also Nationwide Ins. v. Board of Trustees of Univ. of Illinois, 116 F.3d 1154, 1155 n. 2 (7th Cir. 1997). If the facts alleged in the underlying complaint fall within, or even potentially within, the policy's coverage, the insurer has a duty to defend. Outboard Marine Corp., 180 Ill.Dec. 691, ...


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