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Westfield Insurance Co. v. National Decorating Service, Inc.

United States Court of Appeals, Seventh Circuit

July 13, 2017

Westfield Insurance Company, Plain tiff-Appellant,
National Decorating Service, Inc., et al., Defendants-Appellees.

          Argued April 12, 2017

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. l:14-cv-01572 - John Robert Blakey, Judge.

          Before Posner, Rovner, and Williams, Circuit Judges.

          Williams, Circuit Judge.

          This is an insurance coverage dispute that resulted after a newly constructed multi-story condominium building suffered water damage. The water damage was allegedly caused by the failure of the painting subcontractor, National Decorating Service, to apply an adequate coat of sealant to the exterior of the building.

          In Illinois state court, the building's condominium association filed suit against the general contractor, developer, and various subcontractors (collectively the "defendants") to recover for the damages incurred. When the defendants tendered the defense to Westfield, National Decorating Service's insurer, Westfield filed this action seeking a declaration that it owes no duty to defend the defendants in the underlying action. After cross-motions for summary judgment were filed and fully briefed, the district court determined that the condominium association's complaint triggered Westfield's duty to defend.

         On appeal, Westfield argues that the district court erred in finding that there was a duty to defend for two reasons. First, we agree with Westfield that the condominium association's allegations of damage to individual unit owners' property are not sufficient to trigger the duty because the condominium association, on behalf of its unit owners, lacks standing to pursue these claims.

         Second, Westfield contends it owes no duty to defend because the condominium association's complaint does not allege a covered incident under its policy. Rather, the complaint alleges that the painting contractor failed to apply an adequate amount of paint, which cannot be said to be an "accident." Absent an "accident, " Westfield asserts that there was not a covered "occurrence" under the policy. Further, West-field argues that because the damage alleged is to the building itself, which was a new construction and not an existing structure, the condominium association has not demonstrated that there was property damage incurred that is subject to its policy.

          Here, we disagree. When the policy defines the term to include the "continuous or repeated exposure to substantially the same harmful conditions/' as it does here, the condominium association's allegation that the painting subcontractor acted negligently is sufficient under Illinois law to constitute an "occurrence." Further, because the painting subcontractor's actions are alleged to have damaged parts of the building that were outside of the scope of the work for which it was engaged, the condominium association's complaint alleges potentially covered property damage sufficient to invoke the duty to defend. Therefore, we affirm the district court's grant of summary judgment to the defendants.

         I. BACKGROUND

         This coverage dispute arises out of the construction of a 24-story condominium building located at 200 North Jefferson Street, Chicago, Illinois ("200 North" or the "Building"). 200 North Jefferson, LLC was the owner and developer of the Building. James McHugh Construction Company ("McHugh Construction") was the general contractor who retained National Decorating Service, Incorporated ("National Decorating") as a subcontractor to perform all of the painting work. Specifically, National Decorating was tasked with painting the exterior of the Building with a protective coating known as Modac, a waterproof sealant.

         A. Underlying Action

         On January 13, 2012, the Board of Managers of 200 North Jefferson Tower Condominium Association (the "Association") filed suit in the Circuit Court of Cook County. See Bd. of Managers of 200 N. Jefferson Tower Condo. Ass'n v. 200 Jefferson LLC, No. 2012-L-000480 (Cir Ct. Cook Cnty. filed January 13, 2012). This action, which we will refer to as the "underlying action/' is currently pending and seeks to recover for damages incurred as the result of faulty workmanship on the Building. 200 North Jefferson, LLC, McHugh Construction, MCZ/Jameson Development Group, LLC, and National Decorating were named as defendants. On September 4, 2014, the Association filed the operative five-count Third Amended Complaint.

         In this Third Amended Complaint, the Association identifies the following damages: (1) significant cracking of the exterior concrete walls, interior walls, and ceilings; (2) significant leakage through the exterior concrete walls, balconies, and windows; (3) defects to the common elements of the Building; and (4) damage to the interior ceilings, floors, interior painting, drywall, and furniture in the units. Although the previous complaint contained similar allegations regarding the damages incurred, it was not until the Third Amended Complaint was filed that damage to furniture was alleged. Further, it was only after the filing of the Third Amended Complaint that any of the named defendants claimed that Westfield had a duty to defend in the underlying action.

         On January 9, 2014, McHugh Construction filed an Amended Third-Party Complaint against National Decorating. It contains three counts: (1) breach of contract; (2) "express contractual defense & indemnity"; and (3) negligence. McHugh alleged that it was National Decorating's actions that caused the alleged damages to 200 North.

          B. ...

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