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Acuity v. Lenny Szarek, Inc.

United States District Court, N.D. Illinois, Eastern Division

September 2, 2015

ACUITY, a mutual insurance company, Plaintiff,
v.
LENNY SZAREK, INC., MULBERRY GROVE LLC, CONCORD HOMES, INC., LENNAR CHICAGO, INC., CARY WOODS LLC, MULBERRY GROVE CONDOMINIUM ASSOCIATION, and THE BOARD OF DIRECTORS OF MULBERRY GROVE CONDOMINIUM ASSOCIATION, Defendants. LENNAR CHICAGO, INC. and CARY WOODS, LLC, Counter-Claimants,
v.
ACUITY, Counter-Defendant

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          For Acuity, a mutual insurance company, Plaintiff, Counter Defendant: David S. Osborne, LEAD ATTORNEY, Justin Keith Seigler, Lindsay, Rappaport & Postel, LLC, Chicago, IL.

         For Lenny Szarek, Inc., Defendant: Richard M. Waris, LEAD ATTORNEY, Donald Patrick Eckler, Pretzel & Stouffer, Chtd., Chicago, IL.

         For Lennar Chicago, Inc., Cary Woods, LLC, Defendants: Ernest Summers, III, LEAD ATTORNEY, Kevin Lloyd Morrow, Rachel T. Nguyen, Faegre Baker Daniels LLP, Chicago, IL.

         For Cary Woods, LLC, Lennar Chicago, Inc., Cary Woods, LLC, Lennar Chicago, Inc., Cary Woods, LLC, Lennar Chicago, Inc., Counter Claimants: Ernest Summers, III, LEAD ATTORNEY, Kevin Lloyd Morrow, Faegre Baker Daniels LLP, Chicago, IL.

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         MEMORANDUM OPINION AND ORDER

         HON. JORGE ALONSO, United States District Judge.

         In this diversity case, plaintiff Acuity, an insurance company, seeks a declaration that certain commercial general liability (" CGL" ) insurance policies that Acuity issued to Lenny Szarek, Inc. (" Szarek" ) do not cover the underlying claims against defendants Szarek, Lennar Chicago, Inc. (" Lennar" ), and Cary Woods LLC (" Cary" ), which stem from the faulty construction of two condominium projects, the Mulberry Grove Condominium development and the Cary Woods Condominium

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development. Defendants Lennar and Cary have counterclaimed, seeking a declaration that Acuity breached its duty to defend them. Acuity has filed a partial motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). Defendants Lennar and Szarek have filed a cross-motion for judgment on the pleadings regarding Acuity's duty to defend. For the reasons set forth below, Acuity's motion is granted, and Lennar and Szarek's motion is denied.

         BACKGROUND

         Acuity issued Szarek, a carpentry contractor, a series of CGL insurance policies effective from 2002 to 2009. (3d Am. Compl. ¶ 41, ECF No. 51.) Beginning in 2001, Szarek agreed to perform carpentry work on both the Mulberry Grove and Cary Woods condominium projects. ( Id. ¶ ¶ 20, 25, 34.) In approximately 2010, the condominium unit owners began to investigate apparent water infiltration issues, and the Mulberry Grove Condominium Association and the Cary Woods Condominium Association took action against the condominium developers and builders. ( Id. ¶ ¶ 20, 29.) This case concerns whether Acuity's policies provide coverage for the damage allegedly caused by Szarek's work.

         In the Mulberry Grove action, the Mulberry Grove Condominium Association and its board of directors (" the Mulberry Grove plaintiffs" ) filed suit against Mulberry Grove LLC--the developer of the Mulberry Grove Condominium--and its two members, Concord Homes, Inc. (" Concord" ) and Lennar.[1] ( Id. ¶ ¶ 7, 16.) The Mulberry Grove plaintiffs later amended their complaint to add claims against various contractors, including Szarek. ( Id. ¶ ¶ 17-19.) The complaint included allegations that Szarek's improper construction and installation of building materials resulted in water infiltration that " caused substantial damages to common elements, . . . drywall, garage walls and ceilings, and interior finishings of the units, as well as wood floors, carpeting, window coverings and personal property, all located inside the affected unit." (Id. ¶ ¶ 20 (citing Mulberry Grove Compl. Count I ¶ 69, Count II ¶ 76, Count III ¶ 76, Count IV ¶ 41, Count V ¶ 38).)

         In June 2014, Lennar filed a complaint against Szarek in state court (" the Lennar complaint" ), contending that Szarek breached its subcontract by failing to defend Lennar in the Mulberry Grove plaintiffs' lawsuit. (3d Am. Compl. ¶ ¶ 39-40.)

         In the Cary Woods underlying matter, the Cary Woods Condominium Association notified Cary Woods LLC, the developer of the condominium, and Lennar of water infiltration problems at the condominium and alleged that the problems were due to construction defects. In 2012, the Condominium Association submitted a request for mediation under the mandatory alternative dispute resolution process prescribed by its Declaration of Condominium Ownership for Cary Woods Condominium (" Declaration" ) for resolving disputes with the condominium developers and builders.[2] After the mediation concluded unsuccessfully in January 2014, the Condominium Association sought arbitration of its claim,

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again pursuant to the alternative dispute resolution process prescribed by the Declaration. ( Id. ¶ 32.) Cary and Lennar filed a complaint (" the Cary/Lennar complaint" ) against Szarek and other contractors for breach of contract, indemnification and declaratory relief, contending that Szarek failed to provide work " free from defects in workmanship, materials and design," to procure insurance covering Cary and Lennar, and to defend Cary and Lennar from claims arising out of Szarek's defective work, as the subcontract between Szarek and Cary required. (3d Am. Compl. ¶ 34.)

         The Acuity policies issued to Szarek require Acuity to pay " those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies." [3] (3d Am. Compl. ¶ 42, section I.A.1.a.) The policies also confer on Acuity " the right and duty to defend the insured against any suit seeking those damages." ( Id. ) Further, the policies provide that " this 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 . . . ." ( Id. ¶ 42, section I.A.1.b.) The policies define an occurrence as " an accident, including continuous or repeated exposure to substantially the same general harmful conditions," and " property damage" as " [a.] physical injury to tangible property, including all resulting loss of use of that property . . . ; or [b.] loss of use of tangible property that is not physically injured." ( Id. ¶ 46, sections 13, 17.)

         The policies contain an additional insured endorsement that provides that they insure not only Szarek but also " any person or organization for whom you [Szarek] are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as additional insured on your policy." ( Id. ¶ ¶ 49-53.) Szarek's subcontracts with Mulberry Grove LLC and Cary contained provisions requiring Szarek to obtain insurance covering them as additional insureds. ( Id. ¶ ¶ 25, 37-38.)

         Acuity seeks a declaration that it has no duty to defend or indemnify Szarek against the Mulberry Grove complaint (Count I), the Cary/Lennar complaint (Count II), or the Lennar complaint (Count VII); it has no duty to defend or indemnify Mulberry (Count III), Concord or Lennar (Count IV) against the Mulberry Grove complaint as additional insureds; it has no duty to defend or indemnify Cary (Count V) or Lennar (Count VI) against the Cary Woods mediation as additional insureds; and it has no duty to defend or indemnify Cary against the Cary Woods arbitration as an additional insured (Count VIII). Lennar and Cary have filed counterclaims that amount to mirror images of Acuity's claims. (ECF No. 53.) Acuity has filed a motion for judgment on the pleadings (ECF No. 57), although it notes that Acuity, Lennar and Cary have agreed to " hold . . . in abeyance" Acuity's claims in Counts V, VI and VIII, as well as Counts I and II of Cary's amended counterclaim, due to the settlement of the Cary Woods claim during the pendency of this case. (Mem. Supp. Acuity's 12(c) Mot. at 2-3, ECF No. 58.) Lennar and Szarek have filed a cross-motion for judgment on the pleadings as to Acuity's duty to defend. (ECF No. 59.)

         ANALYSIS

         I. LEGAL STANDARDS

         Rule 12(c) permits a party to move for judgment on the pleadings, which consist

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of the " the complaint, the answer, and any written instruments attached as exhibits." N. Ind. Gun & Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 452 (7th Cir. 1998) (citing Fed.R.Civ.P. 10(c)). A motion for judgment on the pleadings under Rule 12(c) is governed by the same standards as a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6). Hayes v. City of Chi., 670 F.3d 810, 813 (7th Cir. 2012).

         " A motion under Rule 12(b)(6) tests whether the complaint states a claim on which relief may be granted." Richards v. Mitcheff, 696 F.3d 635, 637 (7th Cir. 2012). Under Rule 8(a)(2), a complaint must include " a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must " give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (ellipsis omitted).

         Under federal notice-pleading standards, a plaintiff's " [f]actual allegations must be enough to raise a right to relief above the speculative level." Id. Stated differently, " a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). " In reviewing the sufficiency of a complaint under the plausibility standard, [courts must] accept the well-pleaded facts in the complaint as true, but [they] 'need[ ] not accept as true legal conclusions, or threadbare recitals of the elements of a cause of action, supported by mere conclusory statements.'" Alam v. Miller Brewing Co., 709 F.3d 662, 665-66 (7th Cir. 2013) (quoting Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009)).

         II. ...


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