Seventh Circuit Remands Construction Defect Case in Light of Sheehan

January 26, 2011
Tred R. Eyerly - Insurance Law Hawaii

In a prior post, we noted the Indiana Supreme Court held that the CGL policy covers damage to a home structure resulting from shoddy subcontractor work unless the subcontractor work was intentionally faulty. See Sheehan Constr. Co. v. Cont’l Cas. Co., 935 N.E. 2d 160 (Ind. 2010). In a subsequent construction defect case, the Seventh Circuit reversed the district court’s decision in favor of the insurer and remanded for reconsideration in light of Sheehan. See Trinity Homes LLC v. Ohio Cas. Ins. Co., 2010 U.S. App. LEXIS 25983 (7th Cir. Dec. 22, 2010).The insured entered into thousands of contracts to build homes. Each contract provided the insured would be the general contractor and warranted that the homes would be free of defects caused by poor workmanship. The insured hired a number of subcontractors to do the actual home construction. Due to faulty work done by the subcontractors, a number of the homes were plagued with structural problems. These defects allowed water to enter the homes, which in turn resulted in physical damage to the residences and health problems for the occupants. In thirteen different suits, including multiple class actions, the homeowners sued the insured for the costs associated with remedying the subcontractor’s deficient work. The insured had multiple primary CGL policies and an umbrella policy with Cincinnati Insurance Company that covered liability in excess of or not covered by the CGL policies. None of the insurers would defend the insured. When the insured sued, most of the CGL carriers settled for at least 75% of the policy limit, with the insured being responsible for the remainder of the limit, functionally exhausting the CGL policy. Ohio Causality, however, claimed the damage arising from faulty subcontractor work was not "property damage" caused by an "occurrence" within the meaning of its CGL policy. Cincinnati Insurance also argued its umbrella policy was not triggered because a number of the CGL policies were neither completely exhausted nor otherwise unavailable. On cross motions for summary judgment, the district court ruled for the insurers. Ohio Casualty’s policy did not cover the underlying home damage. Read the Full Story...



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