The opinion of the court was delivered by: Judge Virginia M. Kendall
MEMORANDUM OPINION AND ORDER
This insurance dispute arises out of shoddy masonry work overseen by Northern Heritage Builders, LLC ("NHB") on Michael McGrath's house in the Lincoln Park neighborhood in Chicago. Specifically, in the underlying suit, a state court jury found that NHB breached its construction contract with McGrath because masonry leaked and awarded McGrath over $600,000 in damages to repair his house. NHB's general commercial liability insurance carrier, AMCO Insurance Company ("AMCO") filed this declaratory judgment action, asserting that it had no duty to defend NHB in the underlying suit, and has no duty to indemnify NHB now, because NHB's policy does not cover damages for NHB's own faulty workmanship, and McGrath already fully recovered for damages to the contents of his house in a suit against his homeowner's insurance company. For the reasons below, the Court grants AMCO's motion for summary judgment (Doc. 21) with respect to AMCO's duty to indemnify NHB for the underlying verdict, but finds that AMCO had a duty to defend NHB in the underlying suit until McGrath and NHB stipulated, just before trial of the underlying suit, that that McGrath was only seeking damages for NHB's faulty workmanship, not for damage to the contents of his house.
I. MATERIAL UNDISPUTED FACTS*fn1
A. Background and Parties
McGrath owns a house at 1848 North Orchard Street in Chicago. (McGrath Facts ¶ 5.) McGrath and NHB entered into an oral contract for NHB to serve as the general contractor (or builder) overseeing the house's construction. (NHB Facts ¶ 14; McGrath Facts ¶ 7.) In that capacity, NHB did not do any of the work on the house; rather, it only managed and co-ordinated various subcontractors in exchange for a fee. (Id. at ¶¶ 8-10; NHB Facts ¶¶ 21, 26.) NHB hired Rapciak Construction Company ("the mason") as the masonry subcontractor at the Orchard Street house. (McGrath Facts ¶¶ 11-12; NHB Facts ¶¶ 22-24.) The mason, with NHB's knowledge, installed porous block, which allowed water to seep through the walls of the house. (McGrath Facts ¶¶ 13, 15-18.) Seven months after he moved into the house, McGrath noticed water coming in the house and warped millwork, and despite NHB's efforts to repair the damage, additional water damage was later found on all three levels of the house. (McGrath Facts ¶¶ 19-25, 27; NHB Facts ¶ 28.) Neither NHB nor the mason intended the damage to McGrath's house. (NHB Facts ¶ 36.) While the home was being repaired, McGrath and his family moved out to a nearby rental property for three years, paying $92,400 in rent and nearly $15,000 in other storage and moving expenses. (McGrath Facts ¶¶ 29-33; NHB Facts ¶¶ 29-30.)
AMCO issued a primary Commercial General Liability (CGL) policy to NHB as well as an umbrella CGL policy. (NMB Facts ¶¶ 1, 4.) The policies cover amounts NHB becomes obligated to pay because of "property damage;" the insurance only applies to "property damage" if it is caused by an "occurrence" during the policy period. (NMB Facts ¶ 5.) "Property damage" is defined as:
A. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it;
B. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.
(NMB Facts ¶ 7.) "Occurrence," in turn, is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (NMB Facts ¶ 7.) The primary policy also excludes coverage for "'property damage' to 'your work' arising out of it or any part of it and included in the 'products-completed operations hazard'."*fn2 (NMB Facts ¶ 6.) That exclusion, however, includes what the parties call the "subcontractor exception": it "does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontrator." (Id. at ¶¶ 6, 12.) Finally, "property damage" is defined as "physical injury to tangible property, including all resulting loss of use of that property," as well as "loss of use of tangible property that is not physically injured." (NMB Facts ¶ 7.) The umbrella policy includes the same exclusions as the primary policy and defines the relevant terms in the same way. (NMB Facts ¶¶ 8-10.)
In 2007, McGrath sued NHB, among others, in the Circuit Court of Cook County, alleging breach of contract and negligence in connection with the construction of his Orchard Street house. (NHB 56.1 Resp. ¶¶ 5-6; McGrath 56.1 Resp. ¶¶ 6-7.) In August 18, 2008, the state court dismissed McGrath's negligence claim against NHB, reasoning that McGrath was only seeking to recover economic losses as a result of his "disappointed commercial expectations" and he could not recover tort damages under Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 91 (1982). (NHB 56.1 Resp. ¶¶ 7-9; McGrath 56.1 Resp. ¶¶ 8-10.) On February 17, 2009, McGrath filed his operative complaint in the underlying litigation, which alleged that the construction work with respect to the house's walls and roof was faulty, and, as a result, water seeped into the walls of the house. (NHB Facts ¶¶ 13, 15; NHB 56.1 Resp. ¶ 6.) That complaint asserted claims for breach of contract and breach of warranty and sought damages for the repairs needed to correct the problem as well as the expenses associated with McGrath's move to another house while the Orchard house was fixed. (NHB 56.1 Resp. ¶ 6; NHB Facts ¶ 16.) It also, notably, sought damages for McGrath's "expenses to correct, repair, restore, or replace household goods, furnishings and contents, as well as other personal property damaged . . . ." (NHB Facts ¶ 17.) The case went to trial in February 2011. (NHB 56.1 Resp. ¶¶ 11-21; McGrath 56.1 Resp. ¶¶ 11-21.) During the trial, McGrath's expert testified that the leaking was the result of improper masonry work, and McGrath's attorneys argued that NHB was responsible as the general contractor and overseer of the mason's work. (NHB Facts ¶¶ 25, 27; McGrath Facts ¶¶ 36-39.) Before closing arguments, the state court judge proposed, and the parties agreed to, the following stipulation that was read to the jury:
This case does not include any claim of damage to the finished aspects of the home at 1848 Orchard including any materials or repairs related to the drywall, furring wood strips, insulation, vapor barriers or any other internal aspects of the home. (NHB 56.1 Resp. ¶ 22; McGrath 56.1 Resp. ¶ 22.) At closing argument, McGrath's lawyer asked the jury for just under $700,000 in damages with the following breakdown:
Cost of repairing the home (Blackmore invoices): $562,765 Additional Blackmore invoice: $26,640 Rent on temporary residence: $92,400 Moving expenses: $3,548.75 Storage fees: $10,395 Utilities at temporary ...