I’m Covered by Insurance When the Roof Leaks- Right?

Assume these facts:

  • An owner of a building, factory or facility decides to build a new facility or expand an existing facility
  • The owner carefully selects a design professional to design the project and carefully selects a general contractor
  • The facility is designed and built and six months later, the roof leaks
  • The owner calls the general contractor and states: “Please fix my roof immediately”
  • The general contractor calls the roofing subcontractor and says: “you need to fix this”
  • The roofing subcontractor tries to fix the problem, but is unsuccessful.
  • The owner hires a new design professional and the engineer discovers the roofer used nails instead of bolts to anchor the roof edge detail.
  • Both the general contractor and the roofer say “it is too bad, we do not have the financial resources to fix your problem”

The owner sues the general contractor who intern tenders the defense of the owner’s suit to the general contractor’s insurance carrier.  The President of the general contractor says “I’m covered by insurance when the roof leaks, right?”  The carrier denies coverage and sues the general contractor seeking a declaration by the court there is no insurance coverage. The general contractor must defend itself and pay the Owner for any repairs.

Illinois Law is unlike other states, like for example Wisconsin [1] and Indiana[2].  In those states the general contractor would be covered for this claim.  The Law of Illinois is that there is no comprehensive general liability (“CGL”) insurance coverage for construction defects.  The recent Seventh Circuit Court of Appeals decision Lagestee-Mulder, Inc. v. Consolidated Insurance Company 682 Fed. 2d 1054 (C.A. 7 2012) states:

“The rules governing application of CGL policy provisions are settled. Where the underlying suit alleges damage to the construction project itself because of a construction defect, there is no coverage.  By contrast, where the complaint alleges that a construction defect damaged something other than the project, coverage exists.”

In many construction defect cases the allegations of the complaint merely seek repair and replacement costs to correct the construction defect i.e. in this case fix the leaky roof, or fix the leaky curtain wall, or reattach sagging balconies etc.  Under Illinois Law there is no coverage.  The reason is that insurance coverage is not intended to be a performance bond guaranteeing contractor workmanship.  The Seventh Circuit stated the reason for this rule as follows:

“Comprehensive general liability policies… are intended to protect the insured from liability for injury or damage to the persons or property of others; they are not intended to pay the costs associated with repairing or replacing the insured’s defective work and products, which are purely economic losses. [Citations] Finding coverage for the cost of replacing or repairing defective work would transform the policy into something akin to a performance bond.”

That is not to say all construction defect cases are not covered.  If the allegations of the complaint allege damage to the property not the building itself, like for example, the personal property of the occupants, then there is insurance coverage for the damage to the other property.

[1] American Girl, Inc. v. American Family Mutual Insurance, 268 Wis.2d 16, 673 N.W.2d 65(Wisc. 2004)

[2] Sheehan Construction Company v. Continental Insurance Company, 935 N.E.2d 160 (Ind.2010)

Chicago, Illinois 312-377-1501 | Crown Point, Indiana 219-488-2590
Indianapolis, Indiana 219-488-2590 | Milwaukee, Wisconsin 312-377-1501

Chicago, Illinois


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Indianapolis, Indiana


Milwaukee, Wisconsin