The Illinois Supreme Court issued its opinion in Acuity v. M/I Homes of Chicago, LLC, Docket No. 129087 on November 30, 2023. The case involved commercial genera liability (CGL) coverage for construction defects resulting in water damage to a townhome project. In that context, the Supreme Court responded to the request of the intermediate appellate court to clarify the law as to the existence of property damage or occurrence under a CGL policy in Illinois. That request was supported by an amici curiae brief sponsored by AGC of America, National Association of Home Builders, American Subcontractors Association and local Illinois chapters. The brief was primarily authored and filed by Cokinos | Young Dallas Principal, Patrick J. Wielinski, joined by Clifford Shapiro of Chicago. The Supreme Court answered the call and embarked on a clarification that was extremely favorable to the construction industry.
For over twenty years, courts in Illinois had interpreted the definitions of “property damage” and “occurrence” in the standard CGL policy to deny coverage for property damage arising out of defective construction as to the entire construction project itself. Those courts found coverage only in the unlikely event of damage to other real property, and perhaps to personal property of project owners. In reality this amounted to little, if any, coverage for Illinois insureds and Illinois has lagged behind numerous other jurisdictions in upholding coverage for unexpected and unintended property damage arising out of faulty workmanship by the insured. The Supreme Court of Illinois noted that such a narrow view of coverage is unsupported by the policy language, and it joined the majority of jurisdictions in holding that unexpected and unintended physical injury to tangible property arising out of defective work can amount to an occurrence of property damage under a CGL policy.
The court further opined that once an occurrence of property damage is found, resort must be had to the property damage exclusions within the policy to determine ultimate coverage, including exclusions relating to that particular part of property damage upon which work is being performed out of which the property damage arises; that particular part of real property that must be repaired or replace due to incorrect work by the insured; property damage to the insured’s work subsequent to completion (subject to an exception for work performed by the insured contractor’s subcontractors); or impaired property or property that has not been physically injured. In doing so, the Court rejected the notion that property damage arising out of defective workmanship amounts to an uninsurable “business risk,” the cost of which is to be borne by the insured contractor itself. Aligning itself with the majority of jurisdictions, the Court concluded that uninsured business risks are to be sorted out through application of the property damage exclusions in the policy and not lip service to nebulous business risks. In that regard, the court remanded the case to the trial court to determine issues relating to applicability of those exclusions to the facts before it.
Overall, AGC, NAHB, and ASA members – and the construction industry everywhere – had a good day before the Illinois Supreme Court. Patrick has participated in the filing of such briefs for many years, and this latest success is the culmination of nearly twenty years of advocating before numerous state and federal courts throughout the United States through the filing of amicus curiae briefs on behalf of the construction industry.
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