By: Jeanne Hoffmann
The Illinois Supreme Court recently issued its opinion in Acuity v. M/I Homes of Chi., LLC, 2023 IL 129087, taking a full about-face from Illinois precedent on the issue of whether CGL coverage for “property” damage” caused by an “occurrence” can be found if the only damage alleged to have occurred is to the construction project itself.
A long line of Illinois Appellate Court cases stemming from the Illinois Supreme Court’s 2001 decision in Traveler’s Insurance Co. v. Eljer Manufacturing (finding that ““physical injury” does not include intangible damage to property, such as economic loss”), routinely held that the CGL insuring agreement’s initial grant of coverage for “property damage” is not met if the only property allegedly damaged is the contractor’s own work/the project itself. The same line of cases also held that such damage to the building or project itself was not caused by an “occurrence” or accident as defined by the CGL policy, because it was the natural consequence of faulty workmanship.
The court in M/I Homes of Chi., LLC rejected these prior decisions for having inserted in their coverage analysis considerations extraneous to the policy language itself:
“We hold that the parties’ premise—that there could be no ‘property damage’ caused by an ‘occurrence’ under the policy unless the underlying complaint alleged property damage to something beyond the townhome construction project—is erroneous; it is not grounded in the language of the initial grant of coverage in the insuring agreement. To the extent that prior appellate court cases relied upon considerations outside the scope of the insuring agreement’s express language, that analysis, which is not tied to the language of the policy, should no longer be relied upon.”
Noting that these prior courts ignored the fact that their way of analyzing faulty construction in the context of “property damage” caused by an “occurrence” made the policy exclusions for “property damage” to “your product” and “your work” superfluous, the court in M/I Homes of Chi., LLC recognized that its reversal on the analysis that is to be applied to the CGL policy’s basic insuring agreement may not ultimately result in a different outcome on coverage. After holding that the allegations in the underlying complaint sufficiently fell within the initial grant of coverage requirement that there be “property damage” caused by an “occurrence”, the court remanded the case to the circuit court for further consideration of whether the exclusions in the CGL policy barred coverage and thus the duty to defend.