Pekin Insurance Co. v. Richard Marker Associates, Inc.

No. 2--96--0624

________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT
________________________________________________________________

PEKIN INSURANCE COMPANY, ) Appeal from the Circuit Court
) of Du Page County.
Plaintiff-Appellee, )
) No. 94--MR--0792
)
v. )
)
RICHARD MARKER ASSOCIATES, )
INC., and RICHARD MARKER, )
)
Defendants-Appellants )
)
(Leon Yuan, Angela Yuan, and ) Honorable
Leon Yuan, Ph.D., D.D.S. Ltd., ) Bonnie M. Wheaton,
Defendants). ) Judge, Presiding.
________________________________________________________________

JUSTICE COLWELL delivered the opinion of the court:

Defendants, Richard Marker Associates, Inc., and Richard
Marker, appeal the trial court's entry of judgment on the pleadings
for plaintiff, Pekin Insurance Company, in its action for a
declaration that it had no duty to defend defendants in an action
by Leon Yuan, Angela Yuan, and Leon Yuan, Ph.D., D.D.S. Ltd.
(Yuans). The sole issue for review is whether the trial court
erred in finding that plaintiff had no duty to defend its insured
when the underlying complaint alleged damage to other property.
Plaintiff filed a complaint seeking a declaration that it had
no duty to defend defendants in the underlying suit. The Yuans'
fourth amended complaint alleged that the Yuans hired defendants to
construct a new building to contain the Yuans' residence and dental
offices and laboratory. In count I, for breach of the
architectural services agreement, the Yuans also alleged that
defendants' failure to design proper location and insulation of
plumbing pipes and failure to insulate exterior facing areas caused
the water pipes to burst, which resulted in significant property
damage to "carpeting, drywall, antique furniture, clothing,
personal mementoes [sic] and pictures." In count II, for breach
of the construction contract, the Yuans alleged that the HVAC
system did not operate properly in that condensation in the atrium
caused extensive water damage to window trim, furniture, carpeting,
flooring, and walls. Counts V and VI alleged fraud. The remaining
counts were dismissed.
Plaintiff alleged that there was no coverage for any of the
allegations in the Yuans' complaint because the fraud counts
alleged intentional acts, which are excluded from coverage, and the
breach of contract and breach of architectural services agreement
counts failed to allege a covered "occurrence" as defined in the
Pekin insurance policy. The policy provided that plaintiff would
pay for damages because of bodily injury or property damages which
was caused by an "occurrence." It excluded property damage to
"[t]hat particular part of any property that must be restored,
repaired or replaced because [the insured's work] was incorrectly
performed on it," and to the insured's "product." An "occurrence"
was defined as "an accident, including continuous or repeated
exposure to substantially the same general harmful conditions."
The policy defined "property damage" as "[p]hysical injury to
tangible property, including all resulting loss of use of that
property; or [l]oss of use of tangible property that is not
physically injured." The insurance did not apply to property
damage that was "expected or intended from the standpoint of the
insured."
Plaintiff therefore sought a declaration that the insurance
did not apply to the underlying complaint and that plaintiff had no
duty to defend defendants in the Yuans' suit. Defendants filed an
answer denying the material allegations of the complaint.
Plaintiff moved for judgment on the pleadings. Plaintiff
argued that the Yuans' complaint failed to allege that they
suffered an "accident" so that there was no "occurrence" that would
trigger plaintiff's duty to defend. According to plaintiff, the
Yuans merely alleged that they were victims of poor workmanship.
Defendants responded that the Yuans' complaint alleged
property damage caused by condensation in the atrium. According to
defendants, this constituted an "accident" within the meaning of
the policy. Plaintiff countered that defendants focused on the
"incidental allegations" of personal property damage rather than on
what caused the damage, defendants' allegedly unworkmanlike
construction.
The trial court found that the situation was similar to that
in Indiana Insurance Co. v. Hydra Corp., 245 Ill. App. 3d 926
(1993), and it noted that, even though there were allegations of
damage to personal property, the damages resulted from a breach of
contract and, as such, were not covered under the policy. The
court therefore granted plaintiff judgment on the pleadings.
Defendants timely appealed.
Judgment on the pleadings is proper if there are no factual
questions and the only dispute concerns questions of law.
Granville National Bank v. Alleman, 237 Ill. App. 3d 890, 894
(1992). In reviewing the entry of judgment on the pleadings, we
must determine whether, if no genuine issue of material fact
exists, the prevailing party was entitled to judgment as a matter
of law. Millers Mutual Insurance Ass'n v. Graham Oil Co., 282 Ill.
App. 3d 129, 134 (1996). Here, there are no factual disputes, so
our review is limited to the interpretation of the pleadings and
the insurance policy.
An insurer's duty to defend its insured is determined by
comparing the allegations of the underlying complaint with the
relevant provisions of the insurance policy. Dixon Distributing
Co. v. Hanover Insurance Co., 161 Ill. 2d 433, 438 (1994). If the
underlying complaint alleges facts within or potentially within the
coverage, the insurer has a duty to defend the insured. United
States Fidelity & Guaranty Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 73 (1991). The duty to defend is broader than the duty to
indemnify. Crum & Forster Managers Corp. v. Resolution Trust
Corp., 156 Ill. 2d 384, 393-94 (1993). The allegations of the
underlying complaint must be liberally construed in favor of the
insured (Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 125 (1992)), and any doubt about coverage should be
resolved in favor of the insured (Western Casualty & Surety Co. v.
Adams County, 179 Ill. App. 3d 752, 757 (1989)). If recovery is
premised on several theories of liability, some of which are
excluded from coverage, the insurer is still obligated to defend as
long as one theory might possibly fall within the scope of the
policy coverage. Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187,
194 (1976).
The type of policy here is a comprehensive general liability
(CGL) policy. Such policies are intended to provide coverage for
injury or damage to the person or property of others; they are not
intended to pay the costs associated with repairing or replacing
the insured's defective work and products, which are purely
economic losses. Western Casualty & Surety Co. v. Brochu, 105 Ill. 2d 486, 496 (1985). Consequently, when the underlying complaint
alleges only damage to the structure itself, courts have found that
there was no coverage.
For example, in Hydra Corp., on which the trial court relied,
the underlying complaint for breach of contract sought damages for
cracks in the concrete floor of the building and for the unsightly
appearance of the building's exterior, due to loose paint. The
court there ruled that the underlying complaint did not allege an
occurrence as required by the insurance policy. Hydra Corp., 245
Ill. App. 3d at 929.
Similarly, in Monticello Insurance Co. v. Wil-Freds
Construction, Inc., 277 Ill. App. 3d 697 (1996), the underlying
complaint sought damages for construction defects. The court ruled
that the underlying complaint failed to allege an accident, as a
defective structure is the natural and ordinary consequence of
faulty workmanship. Wil-Freds, 277 Ill. App. 3d at 703-04. As the
court noted, the underlying complaint did not include a claim for
damage to other property. However, if the underlying plaintiff
"had sued Wil-Freds for the water damage suffered by cars in the
parking garage, or a pedestrian sued Wil-Freds for an injury caused
by falling concrete, there can be little doubt that [the insurer]
would be required to defend Wil-Freds under the CGL policy, because
there would have been 'negligent manufacture that results in "an
occurrence." ' [Citation.]" Wil-Freds, 277 Ill. App. 3d at 705.
Because the underlying complaint only alleged property damage to
the project itself, there was only an occurrence of negligent
manufacture, so that no coverage existed. Wil-Freds, 277 Ill. App.
3d at 705-06.
Both Wil-Freds and Hydra Corp. are distinguishable from the
present cause as the complaint in each of those cases did not
allege damage to other property, only to the building itself, so
that there was no "accident" or "occurrence." This cause is more
like Trovillion v. United States Fidelity & Guaranty Co., 130 Ill.
App. 3d 694 (1985), overruled on other grounds by Bonnie Owen
Realty, Inc. v. Cincinnati Insurance Co., 283 Ill. App. 3d 812, 820
(1996), in which the underlying complaint alleged not only damage
to the building from faulty workmanship, but also encompassed
damage to other materials not furnished by the insured. The court
noted that the insurer conceded that it would be required to defend
if the underlying complaint alleged that other tangible property
was damaged. The court could not conclude that such a claim was
not potentially asserted under the damage allegations of the
underlying complaint. Trovillion, 130 Ill. App. 3d at 699. The
court reversed the judgment for the insurer, finding that damage to
other tangible property could be covered by the policy.
Trovillion, 130 Ill. App. 3d at 699-700.
In Ohio Casualty Insurance Co. v. Bazzi Construction Co., 815 F.2d 1146 (7th Cir. 1987), the owner of a garage sued the insured
for damages caused by steel joists which were used in remodeling
the garage. The joists started to buckle during the pouring of the
concrete floor, compromising the structural integrity of the entire
building. The insurer argued that it had no duty to defend because
the underlying action sought recovery not for property damage but
for economic losses, which were not covered. The court found
distinguishable the cases relying on the general rule that there is
no coverage for damage to and defects in the insured's own work.
Instead, the court relied on the Illinois Supreme Court's statement
in Brochu that " '[d]amage to property other than the insured's own
work or product, arising from breach of a warranty that work will
be done in a workmanlike manner, is expressly not excluded ***.' "
(Emphasis in original.) Ohio Casualty Co., 815 F.2d at 1148,
quoting Brochu, 105 Ill. 2d at 498.
A CGL policy " 'does not cover an accident of faulty
workmanship but rather faulty workmanship which causes an
accident.' " Brochu, 105 Ill. 2d at 498, quoting Weedo v. Stone-
E-Brick, Inc., 81 N.J. 233, 239-40, 405 A.2d 788, 796 (1979). That
is what the Yuans' complaint alleged: that faulty workmanship
caused an accident in the form of continuous or repeated
condensation which dripped and damaged furniture. This is more
than an allegation that the building itself was defective.
Although not mentioned by the parties, we also note that the Yuans'
complaint alleged that they sustained damage to furniture,
clothing, and antiques when uninsulated pipes froze and burst.
This allegation also falls within the meaning of an accident and an
occurrence. As such, the allegations of the underlying complaint
potentially fall within the policy coverage so that plaintiff has
a duty to defend defendants in the Yuans' suit. We therefore
reverse the judgment of the circuit court.
The judgment of the circuit court of Du Page County is
reversed.
Reversed.
BOWMAN and DOYLE, JJ., concur.