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Failing to put an adequate coat of sealant to a building’s exterior, which led to water damage, can be considered an “occurrence” under a commercial general liability policy, says a federal appeals court in ruling that an insurer is obligated to provide a defense in the case.
Owners of a 24-story condominium in Chicago had filed suit in 2012 against the general contractor, developer and various subcontractors, including Oak Brook, Illinois-based painting contractor National Decorating Service Inc., in connection with the water damage, according to Thursday’s ruling by the 7th U.S. Circuit Court of Appeals in Chicago in Westfield Insurance Co. v. National Decorating Service Inc. et al.
The water damage allegedly was caused by National Decorating’s failure to apply an adequate coat of sealant to the building’s exterior. Its insurer, Westfield Center, Ohio-based Westfield Insurance, sought a declaration it had no duty to defend the defendants in the underlying litigation in the case.
The U.S. District Court in Chicago ruled Westfield was obligated to provide a defense, which a three-judge appeals court panel unanimously affirmed.
Westfield said it had no duty to defend because National Decorating’s failure to apply a thick enough coat of paint to the building’s exterior was not an “accident,” under terms of its CGL policy, said the ruling.
However, “Under Illinois law, negligently performed work or defective work can give rise to an ‘occurrence’ under a CGL policy,” said the ruling.
“This is true where, as is the case here, the policy defines an ‘occurrence’ to include not only an accident, but also ‘continuous or repeated exposure to conditions,’” the ruling said.
“Here, the underlying complaint alleges that National Decorating was negligent. This is sufficient to satisfy the policy’s occurrence requirement when determining whether there is a duty to defend now in the litigation,” said the ruling, in affirming the lower court’s ruling.
The ruling also held the underlying complaint provides coverage for the additional insureds under the policy.
A footnote to the opinion said it agrees with the District Court that the determining indemnification is premature at this point in the litigation.
Evanston Insurance Co. is not obligated to defend an insurance agency in a lawsuit seeking return of premium payments because of an exclusion in its insurance agents and brokers professional liability insurance policy, says a U.S. District Court.