Stoneridge Development Co. v. Essex et al. (Doc. No. 2-06-1166 2nd Dist.)
In Stoneridge, the court addressed the issue: Whether an insurance company needs to provide coverage to its insured as well as to an additional insured under the policy.
A company had built townhomes and sold one to the Walskis. Six years after the Walskis bought the home, they sued Stoneridge, the home company, because structural problems in the compaction of the soil underneath the home had cased the home to move, crack and fail. Claims were filed against Stoneridge and an additional warrantor as well as several other parties. Stoneridge tendered the complaint to its insurer and the insurer defended under a reservation of rights. An arbitration award against Stoneridge and in favor of the Walskis, afterward Stoneridge pursued an action for declaration that its insurer had a duty to indemnify it which had been pending.
The parties to the declaratory action all filed motions for summary judgment. Stoneridge and those arguing on its behalf (it has since gone insolvent) argued that the insurer was estopped from denying coverage where it had arguably accepted that coverage for an implied warranty of habitability claim may exist by failing to explicitly deny such coverage in its reservation of rights letter and where the appointed counsel for Stoneridge had sought to have that claim dismissed in the arbitration seven separate times while not failing with such vigor to motion for the dismissal of the uncovered breach of contract claim. The trial court agreed and found that the insurer was estopped from denying coverage to Stoneridge under the policy.
The insurer appealed and the appellate court reversed the trial courts estoppel decision and also found that there was no coverage under the CGL policy for the damage caused to a house by the settling of a house due to improper compaction of the soil.
In the first portion of the opinion regarding estoppel the court determined that the insurer was not estopped from denying coverage because it had never said there would be coverage. The letter had properly categorized both the breach of contract claim and the implied warranty of habitability claims as being contractual in nature and expressed doubt as to the existence of coverage under the policy in its reservation of rights letter.
Note that in reaching this opinion, the court reaches two others:
- A trial court may properly examine a reservation of rights letter in determining whether there is a conflict of interest between an insured and an insurer and is not relegated solely to considering the policy and the underlying complaint.
- The implied warranty of habitability is a contractual claim under Illinois law.
In determining that no coverage existed under the policy the court cited to several other opinions holding that the damage caused directly to a project by faulty work was not an "occurrence" as defined in the policy because it was not accidental in that it could be foreseen that cracks and failures in the project would be the necessary result of faulty workmanship and improper construction techniques. In defining "property damage" the court also held that there was not property damage in this instance that would be covered by a CGL policy because the clause did not apply to damage to the project, but to damage to other property which was not the project. (i.e., if the townhouse fell onto someone else's house or their car, that would be "property damage" as defined under the policy). The court also reiterated the holdings of several other Illinois opinions finding that CGL policies do not include coverage for damage to the project by faulty workmanship and that contrary to other jurisdictions, an exception for subcontractors to an exclusion for faulty work in the standard CGL policy that, in other jurisdictions has been interpreted to provide coverage for damage to the project when the fault work was performed by a subcontractor, is not applicable in Illinois because in Illinois, there is no coverage under a CGL policy for damage to the project from faulty work, period.
