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You are here: Home / Construction/Builder's Risk / Illinois Appellate Court Finds No CGL Coverage for Defective Elevator Suit

Illinois Appellate Court Finds No CGL Coverage for Defective Elevator Suit

March 25, 2022 by Andrew Daechsel

In the recent decision of Korte & Luitjohan Contractors Inc. v. Erie Insurance Exchange, the Fifth District Appellate Court of Illinois reaffirmed that, under Illinois law: (1) construction defects generally do not trigger coverage under commercial general liability insurance policies; (2) such policies generally do not cover the cost to repair construction defects or economic losses resulting from construction defects; and (3) parol evidence is irrelevant to the interpretation of an unambiguous insurance policy.

image of a pair of elevatorsThe case involved Korte & Luitjohan Contractors Inc.’s claim for coverage under its commercial general liability policy issued by Erie Insurance Exchange for an underlying lawsuit filed against K&L by a library. In the underlying lawsuit, the library alleged that it hired K&L to complete a construction project at its building, which included the installation of two elevators. The elevators allegedly failed to perform properly. For example, the library alleged that the elevators occasionally trapped individuals, failed to go to the correct floors, failed to close, and failed to respond when called. Additionally, one of the elevators allegedly was out of order for approximately one month. The library alleged that it “incurred damages as a result of the failure of [K&L] to provide reliable, functioning elevators.” Based on these allegations, the library asserted claims against K&L for breach of contract, breach of implied warranty of merchantability, breach of warranty of fitness for a particular purpose, and breach of an express, written warranty.

In the coverage action, the trial court entered summary judgment in favor of Erie, holding that Erie had no duty to defend or indemnify K&L as to the underlying lawsuit. The appellate court affirmed. The appellate court explained that, for the underlying lawsuit to trigger the policy’s insuring agreement, it needed to allege “property damage” caused by an “occurrence.” Like many CGL policies, the policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions,” and the policy defined “property damage” as:

  1. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
  2. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

The appellate court explained, “Although the policy does not define ‘accident,’ it has been defined throughout Illinois case law as ‘an unforeseen occurrence, usually of an untoward or disastrous character or an undesigned sudden or unexpected event of an inflictive or unfortunate character.’” Furthermore, “under Illinois law, construction defects do not constitute an accident or occurrence necessary to trigger coverage under commercial general liability policies.” The appellate court also stated: “[T]he policy at issue contains the standard policy definition of property damage … and ‘differentiates between physical damage to tangible property and intangible property losses, such as economic interests.’ ‘Courts do not consider the latter types of losses to be ‘property damage.’”

Based on this legal framework, the appellate court held that the policy did not provide coverage for the underlying lawsuit, explaining as follows:

[T]he underlying complaint alleges that [K&L] breached its contract by providing, through its subcontractor, elevators that were faulty and/or installed ineffectively. The complaint does not allege that any of the [library’s] property was damaged because of the faulty elevators. The complaint does not seek money damages for any property damage, but rather, seeks compensation for correctly completing the installation of the elevators, and for economic losses the [library] sustained because of having to use the faulty elevators until they could be repaired. Accordingly, we find that the underlying complaint does not allege “property damage” caused by “an occurrence” as required by the policy to trigger coverage.

The appellate court also affirmed the trial court’s order denying K&L’s motion to compel discovery of information regarding Erie’s correspondence with the Insurance Service Office (ISO) and other ISO information. The appellate court stated that this information was parol evidence, which was irrelevant because the policy was unambiguous and “[p]arol evidence is not appropriate to interpret policy language that is facially unambiguous.”

Furthermore, in the trial court, K&L had attempted to introduce expert testimony regarding the correct interpretation of the policy. The appellate court affirmed the trial court’s decision to bar this expert testimony because the policy was unambiguous and, “[i]n the absence of ambiguity, expert testimony is inappropriate.”

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About Andrew Daechsel

Andrew Daechsel is an associate at Carlton Fields in West Palm Beach, Florida. Connect with Andrew on LinkedIn.

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