The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
BRIT UW LIMITED, FOR AND ON
BEHALF OF LLOYD’S SYNDICATE
2987, No. 18-cv-04325
Plaintiff, Judge John F. Kness
v.
1013 N. HONORE, LLC,
ALEKSANDRA DUBOVIK, and DB
HOMES, Inc.,
Defendants.
MEMORANDUM OPINION AND ORDER
Plaintiff Brit UW Limited, an insurer, seeks a declaration that it had no duty
to defend or indemnify Defendants 1013 N. Honore, LLC, Aleksandra Dubovik, and
DB Homes, Inc., in a now-dismissed Illinois state court action alleging property
damage sustained at a condominium unit Defendants built and sold. Both sides have
filed motions seeking summary judgment in their favor based on the relevant
language of the policy Plaintiff issued.
As explained below, because the allegations in the underlying complaint
establish that Defendants are excluded from policy coverage, Plaintiff owed no duty
to defend Defendants in the underlying state litigation. Plaintiff’s motion for
summary judgment is therefore granted, Defendants’ motion for summary judgment
is denied, and the Court enters a separate final declaratory judgment in Plaintiff’s
favor.
I. BACKGROUND
In 2013, Defendants 1013 N. Honore, LLC, Aleksandra Dubovik, and DB
Homes, Inc., developed and built a condominium building in Chicago, Illinois. (Dkt.
1-3 ¶ 1; Dkt. 58 ¶ 9.) Plaintiff Brit UW Limited issued a general liability insurance
policy to Defendant 1013 N. Honore, LLC, in November 2013. (Dkt. 58 ¶¶ 43–44.)
Steven Garner purchased the basement unit of the condominium on September
21, 2014. (Id. at 12.) Construction on the building was completed in October 2014,
before Garner moved into the unit on October 31, 2014. (Dkt. 58 ¶ 10; Dkt. 77 at 8.)
In November 2014, Garner notified Defendants that water had intruded into his unit.
(Dkt. 58 ¶ 4.) Garner complained of numerous instances of water intrusion through
July 2017; Garner reported leaks in the foundation, problems with the drain tile
system, and failure of the sump pump. (Id. ¶¶ 20, 23.)
On March 23, 2018, the Board of Managers of 1013 N. Honore Condominium
Association (the “Board”) sued Defendants in the Circuit Court of Cook County,
Illinois, alleging that, at the time the condominium units were sold, the building
“contained a number of hidden and latent defects.” (Dkt. 1-3 ¶ 21.) According to the
Board’s complaint (referred to here as the “underlying case”),1 Defendants knew of
these issues but engaged in “misrepresentations and acts of concealment.” (Id. ¶ 62.)
1 The parties explain that the underlying case was voluntarily dismissed in November
2022. (Dkt. 88.) This suit remains live, however, because, if Plaintiff had a duty to defend
Defendants in the underlying case, Plaintiff would still be liable for Defendants’ costs of
defense.
Plaintiff then brought the present diversity-jurisdiction action seeking a declaratory
judgment that Plaintiff has no duty to defend Defendants in the underlying case.
(Dkt. 27 at 24.) Plaintiff and Defendants now move for summary judgment. (Dkt. 55,
59.)
II. STANDARD OF REVIEW
A. Summary Judgment
Summary judgment must be granted “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). Rule 56 of the Federal Rules of Civil Procedure
“mandates the entry of summary judgment, after adequate time for discovery and
upon motion, against a party who fails to make a showing sufficient to establish the
existence of an element essential to that party’s case, and on which that party will
bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
All facts, and any inferences to be drawn from them, must be viewed in the light most
favorable to the nonmoving party. See Scott v. Harris, 550 U.S. 372, 378 (2007).
Summary judgment requires a nonmoving party “to respond to the moving party’s
properly supported motion by identifying specific, admissible evidence showing that
there is a genuine dispute of material fact for trial.” Grant v. Trs. Of Ind. Univ., 870
F.3d 562, 568 (7th Cir. 2017) (cleaned up).
B. Duty to Defend
Under Illinois law, “[t]he construction of an insurance policy and a
determination of the rights and obligations thereunder are questions of law for the
court which are appropriate subjects for disposition by way of summary judgment.”
Crum & Forster v. Resolution Trust Corp., 620 N.E.2d 1073, 1077 (Ill. 1993). An
insurer has a duty to defend when “ ‘the facts alleged in the underlying complaint fall
within, or potentially within, the policy’s coverage provisions.’ ” Mkt. St. Bancshares,
Inc. v. Fed. Ins. Co., 962 F.3d 947, 951–52 (7th Cir. 2020) (quoting Crum & Forster,
620 N.E.2d at 1079); see also Westfield Ins. Co. v. Nat’l Decorating Serv., 863 F.3d
690, 695 (7th Cir. 2017). Courts must “liberally construe the underlying complaint
and the insurance policies in favor of the insured.” Westfield, 863 F.3d at 695.
Further, “[t]he duty to defend is triggered . . . even if only one of several theories of
recovery alleged in the complaint falls within the potential coverage of the policy.” Id.
(quoting Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307, 315 (Ill.
2006)).
III. DISCUSSION
Plaintiff argues that the damage in the underlying complaint is not “property
damage” sustained following an “occurrence.” (Dkt. 56 at 3–4.) And even if it is,
Plaintiff says, the policy exclusions preclude coverage. (Id.) These arguments are
addressed in turn.
A. “Property Damage”
Plaintiff argues first that the underlying complaint did not allege “property
damage” as that term is defined in the insurance policy. (Id. at 7.) The policy defines
“property damage,” in part, as “[p]hysical injury to tangible property, including all
resulting loss of use of that property.” (Dkt. 1-2 at 24–25.) Plaintiff’s principal
argument is that the underlying complaint sought the cost of repair or replacement
of defective work, and Illinois law categorizes such relief as a remedy for economic
loss, not property damage. (Id. at 4.) Plaintiff therefore contends that the underlying
complaint alleged economic loss instead of property damage, and economic loss claims
“are not intended to be covered by a general liability insurance policy” like the one in
question. (Id. at 8.)
Defendants disagree that the underlying complaint is cabined to a claim of
economic loss. (Dkt. 77 at 2.) Defendants point to several portions of the underlying
complaint specifically alleging property damage. (Id. at 3–4 (“[T]he Association has
sustained damages to personal property.”).)
It may be true that a portion of the underlying complaint sought a remedy for
economic loss, but the duty to defend is triggered if even one theory of recovery “falls
within the potential coverage of the policy,” and the Court is to construe both the
Complaint and the policy liberally. Westfield, 863 F.3d at 695. Given the portions of
the underlying complaint that Defendants have cited, the underlying complaint
alleges property damage sufficient to trigger a duty to defend.
B. “Occurrence”
Plaintiff next argues that any property damage did not result from an
“occurrence” as defined by the policy. (Dkt. 56 at 5–6.) The policy defines “occurrence”
as “an accident, including continuous or repeated exposure to substantially the same
general harmful conditions.” (Dkt. 1-2 at 24.) Plaintiff contends that the “natural and
ordinary consequences of an act do not constitute an accident,” and because the
flooding and resulting damage was a natural and ordinary consequence of
Defendants’ negligence, any damage did not result from an occurrence. (Id. at 8–9
(citing Stoneridge Dev. Co. Inc. v. Essex Ins. Co., 888 N.E.2d 633, 651 (Ill. App. Ct.
2008).)
Defendants contend that the alleged property damage resulted from an
“occurrence.” (Dkt. 77 at 5.) Defendants argue that “negligently performed work or
defective work can give rise to an ‘occurrence’ under a [comprehensive general
liability] policy.” (Id. at 6–7) (quoting Lyerla v. AMCO Ins. Co., 536 F.3d 684, 690 (7th
Cir. 2008).
In Westfield Ins. Co. v. Nat’l Decorating Serv., Inc., an insured subcontractor
was hired to paint the exterior of a newly constructed condominium building with a
waterproof sealant. 863 F.3d 690, 697 (7th Cir. 2017). The owners of the building sued
the contractor, subcontractor, and others alleging significant water damage to the
property. Id. at 693–94. In turn, the general contractor sued the subcontractor and
alleged, among other things, that the subcontractor’s negligence caused the alleged
water damage. Id. at 694. Separately, the insurance company sought a declaration
that it had no duty to defend or indemnify the subcontractor; one argument of the
insurer was that the policy precluded coverage because the alleged water damage was
not the result of an “occurrence,” which was defined under the policy as “an accident,
including continuous or repeated exposure to substantially the same general harmful
conditions.” Id.
On appeal, the Seventh Circuit rejected the insurer’s argument. As the court
held, negligent or defective work can constitute an “occurrence” if “the policy defines
an ‘occurrence’ to include not only an accident but also ‘continuous or repeated
exposure to conditions.’ ” Id. at 697 (quoting Lyerla v. AMCO Ins. Co., 536 F.3d 684,
690 (7th Cir. 2008)). Given the policy’s definition of “occurrence,” the underlying
complaint’s allegation of negligence was “sufficient to satisfy the policy’s occurrence
requirement when determining whether there is a duty to defend at this juncture in
the litigation.” Id.
In the present case, the underlying complaint alleged negligence or defective
work. (See, e.g., Dkt. 1-3 ¶ 62.) And as in Westfield, the policy in question defines
“occurrence” as “an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.” (Dkt. 1-2 at 24.) Defendants’
alleged negligence leading to the damaging water intrusion is therefore at least
potentially an “occurrence” under the policy.
C. Exclusions
As explained above, the underlying complaint sufficiently alleged that
“property damage” within the meaning of the policy resulted from an “occurrence” as
defined by the policy. Plaintiff argues, however, that at least one of the policy’s
exclusions applies and prevents coverage. (Dkt. 56 at 6.) In particular, Plaintiff
argues that coverage is excluded under the policy’s “products-completed operations
hazard” exclusion. (Id. at 7.) That provision excludes from coverage “all ‘bodily injury’
and ‘property damage’ occurring away from premises you own or rent and arise out
of ‘your product’ or ‘your work’ except: . . . Work that has not yet been completed . . . .”
(Dkt. 1-2 at 24.)
“[Y]our work” will be deemed completed at the earliest of the following
times:
(a) When all of the work called for in your contract has been completed.
(b) When all of the work to be done at the job site has been completed if
your contract calls for work at more than one job site.
(c) When that part of the work done at a job site has been put to its
intended use by any person or organization other that another
contractor or subcontractor working on the same project.
Id.
Plaintiff argues that the property damage alleged in the underlying complaint
occurred after Defendants’ work was completed and therefore is excluded from
coverage under subsections (a) and (c). (Dkt. 56 at 7–8.) Plaintiff first argues that
Defendants’ work was “completed” within the meaning of subsection (a), noting that
Defendant Dubovik testified that construction was completed before the first resident
moved in. (Dkt. 75 ¶ 10.) Contrary to Plaintiff’s argument, Defendants argue that,
when the property damage occurred, “construction of the unit was not complete”
because the general contractor still had to investigate “issues with the unit” and
because “punch-list work and warranty items” remained incomplete. (Dkt. 77 at 8–
9.) A genuine issue of fact remains as to whether “all of [Defendants’] work called for
in [the] contract ha[d] been completed” before the alleged property damage occurred
(Dkt. 1-2 at 24), and that issue is material. As a result, the Court cannot hold at this
juncture that subsection (a) serves to exclude coverage.
Plaintiff also argues that Garner’s moving in constituted the project being put
to its intended use, thus triggering subsection (c) of the exclusion. (Dkt. 56 at 7–8
(citing Nautilus Ins. Co. v. Board of Dir. Of Regal Lofts Condominium Assoc., 764
F.3d 726, 735 (7th Cir. 2014)).) In Nautilus, on which Plaintiff places significant
weight, the Seventh Circuit explained that a resident moving personal property into
a condominium unit “unambiguously establishes” that the unit is put to its intended
use. 764 F.3d at 735. A developer in Nautilus had converted a building into
condominiums; after residents complained of water intrusion, the condominium
owners sued the developer and included a negligence claim. Id. at 728–30. That
developer tendered the suit to its insurer, but the insurance company denied coverage
and instead sought a declaration that it had no duty to defend or indemnify the
developer. Id. at 730. As here, the relevant policy contained a completed-products
exclusion that defined “completion” as occurring “[w]hen that part of the work done
at a job site has been put to its intended use . . . .” Id. at 734. Nautilus concluded that
the condominium’s individual homeowners’ acts of moving into the units constituted
“putting the condominium units . . . to their intended use, thereby taking those units
out of the scope of coverage of [the intended use] subclause.” Id.
Defendants argue that Nautilus does not control because “[t]he facts and
circumstances in Nautilus are sufficiently different than the instant matter and
should not be considered . . . .” (Dkt. 77 at 7.) Defendants first contrast the delay in
Nautilus of approximately eight years between water intrusion and filing of the claim
for insurance coverage with the delay in the present case of approximately one and
half years; Defendants deem the delay in Nautilus “unreasonable” but brand their
delay as reasonable. (Id. at 8, 12.) Defendants also argue that the condominium board
in Nautilus claimed damage only to the building itself, where the board in this case
also alleged damage to personal property. (Id. at 8.)
Those factual distinctions are insufficient to render Nautilus immaterial here.
Although Defendants argue that “unreasonable delay” by the condominium board in
Nautilus was sufficient for the Seventh Circuit to find no coverage (Dkt. 77 at 8), the
opinion did not mention that delay or in any way explicitly base its conclusion on it.
And Defendants’ contention that Nautilus did not involve an allegation of damage to
personal property is misplaced, as the Seventh Circuit noted that the “second
amended complaint . . . alleged that the Developer’s negligence had caused damages
to personal property within the building, in addition to the interior of the building
and the building itself.” Id. at 730.
Plaintiff’s intended-use clause, as interpreted in effectively identical form by
the Seventh Circuit in Nautilus, is controlling and requires a declaration of judgment
in Plaintiff’s favor. All of the damage alleged in the underlying complaint occurred
after the Garner move-in (Dkt. 1-3 ¶ 24)—that is, after the property had been put to
its intended use and Defendants’ work had been completed. Nautilus, 764 F.3d at
735. As a result, the “products-completed operations hazard” exclusion excludes
coverage of the property damage alleged in the underlying complaint, meaning that
Plaintiff had no duty to defend Defendants in the underlying case.2
2 As a separate basis for its contention that no duty to defend arose, Plaintiff argues that
Defendants failed to provide timely notice to Plaintiff of the water intrusion. (Dkt. 56 at 9.)
IV. CONCLUSION
For the foregoing reasons, Plaintiff's motion for summary judgment (Dkt. 55)
is granted and Defendants’ motion for summary judgment (Dkt. 59) is denied.
Plaintiff had no duty to defend Defendants in the underlying case.
SO ORDERED in No. 18-cev-04325.
Date: March 25, 2024 (ete. Yenc
JOHN F. KNESS
United States District Judge
There remain genuine issues of fact, however, as to whether notice was timely, including
when Defendants themselves understood that the water intrusion was a result of
construction defects. (Compare Dkt. 56 at 10, with Dkt. 77 at 11.) But because the policy
exclusions preclude coverage, timeliness of notice is irrelevant to the conclusion that Plaintiff
has no duty to defend.
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