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ALL AMERICA INS. CO. v. BROEREN RUSSO CONST.
September 14, 2000
ALL AMERICA INSURANCE COMPANY AND CENTRAL MUTUAL INSURANCE COMPANY, PLAINTIFFS,
BROEREN RUSSO CONSTRUCTION, INC., DEFENDANT.
The opinion of the court was delivered by: McCUSKEY, District Judge.
On October 29, 1999, Plaintiffs, All America Insurance Company and
Central Mutual Insurance Company, filed a Complaint for Declaratory
Judgment (#1) against Defendant, Broeren Russo Construction, Inc. This
case is now before the court for ruling on Plaintiffs' Motion for
Judgment on the Pleadings (#6 and Plaintiffs' Motion to Strike
Defendant's Affirmative Defenses (#8).
Following careful review, Plaintiffs' Motion for Judgment on the
Pleadings (#6) is GRANTED. Plaintiffs' Motion to Strike Affirmative
Defenses (#8) is also GRANTED.
Plaintiffs' Complaint for Declaratory Judgment alleged that this court
has jurisdiction over the action based upon diversity of citizenship
(28 U.S.C. § 1332). All America Insurance alleged that it issued a
policy to Defendant for Commercial General Liability Insurance for the
policy period of February 28, 1993, to February 28, 1994. Central Mutual
alleged that it issued a policy to Defendant for Excess Liability
Insurance for the same policy period. 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 All
America Insurance, and All America accepted the tender subject to a
reservation of rights.
In their Complaint, Plaintiffs requested a declaration from this court
that they have no duty to defend Defendant in the action pending in the
circuit court of Champaign County. Plaintiffs argued they had no duty to
defend because: (1) the claimed damage occurred before the first date of
coverage; (2) there were no allegations of an occurrence or property
damage in the underlying action as defined by the insurance policy; and
(3) coverage is precluded by three separate exclusions contained in the
policy. Furthermore, Plaintiffs argued that Defendant is collaterally
estopped by the decision of this court in American Fire & Casualty
Company v. Broeren Russo Construction, Inc., 54 F. Supp.2d 842 (C.D.Ill.
1999), from contending that an occurrence is alleged by the action
pending in the circuit court of Champaign County.
Plaintiffs attached to their Complaint for Declaratory Judgment a copy
of the insurance policy issued to Defendant. The policy issued by All
America provided that "[t]his insurance applies to `bodily injury' and
`property damage' only if (1) [t]he `bodily injury' or `property damage'
is caused by an `occurrence' that takes place in the `coverage
territory;' and (2)[t]he `bodily injury' or `property damage' occurs
during the policy period." The policy defined occurrence as "an
accident, including continuous or repeated exposure to substantially the
same general harmful conditions." Similarly, Central Mutual's excess
insurance policy defined an occurrence as "an accident, or happening or
event, or a continuous or repeated exposure to conditions
which unexpectedly or unintentionally results in `bodily injury' or
Plaintiffs also attached to their 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 had 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
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.
Two separate letters were issued by All America to Defendant to reserve
its rights under the policy. The first of these was issued on June 2,
1998. In this letter, All America indicated that it was reserving its
rights under the policy for the following reasons: (1) the policy applied
to bodily injury and property damage only if such damage occurred during
the policy period; (2) the policy excludes damage being claimed due to
the insured's work product; and (3) "any other material reasons." The
letter went on to state that All America did "not waive any of its rights
or admit any obligation under the policy." A second reservation of rights
letter was issued on October 27, 1999, this time by both All America and
Central Mutual. This second letter more specifically enumerated the
grounds on which Plaintiffs were reserving their rights under the
policy, including reference to the policy provision which explains that
coverage will be provided for bodily injury and property damage only if
it is caused by an "occurrence."
In its answer, Defendant raised the affirmative defenses of waiver,
estoppel, breach of duty of good faith and fair dealing, and laches due
to Plaintiffs failure to specifically enumerate all policy defenses in
the reservation of rights letter dated June 2, 1998. Defendant argued
that by failing to delineate all potential policy defenses until the
October 27, 1999, letter, Plaintiffs failed to exercise ordinary
diligence and prejudiced the Defendant. Defendant argues this prejudice
arose because it surrendered its right to select its own counsel and
control its own defense.
On February 29, 2000. Defendant filed a Response to Plaintiffs' Motion
for Judgment on the Pleadings. Defendant argued that American Fire
involved different issues from the present case, thereby making
collateral estoppel inappropriate. Specifically, Defendant contends that
American Fire properly reserved its rights under the policy by reserving
the "occurrence" issue in its first letter to Defendant dated April 30,
1998. Defendant further argues that because Plaintiffs failed to cite the
"occurrence" provision in a reservation of rights letter until sixteen
months after their initial reservation of rights letter, All America and