Allied Property & Casualty Insurance Company, et al., Plaintiffs-Appellees,
Metro North Condominium Association, Defendant-Appellant.
October 27, 2016
from the United States District Court for the Northern
District of Illinois, Eastern Division. No. 15-cv-03925 -
Jorge L. Alonso, Judge.
Wood, Chief Judge, and Bauer and Manion, Circuit Judges.
MANION, CIRCUIT JUDGE.
Property and Casualty Insurance Company issued a commercial
general liability policy insuring a subcontractor who worked
on a multi-unit residential property owned by Metro North
Condominium Association. In 2006 the Metro North property
sustained extensive water damage caused by the
subcontractor's defective window installation. Metro
North and the subcontractor reached a settlement in which the
subcontractor assigned to Metro North its right to any
insurance proceeds covering the damage. The
subcontractor's insurers (Allied and another insurer
named AMCO) then filed this declaratory judgment action
seeking a declaration that they were not required to cover
the losses claimed in the settlement. The district court
found for the insurers, and Metro North appeals. We affirm.
ten years ago, Metro North Condominium Association hired a
developer to build a condominium in Chicago. The developer
used two subcontractors, CSC Glass and CSC Construction
(collectively called CSC), to install the building's
windows. CSC installed the windows defectively, and as a
result the building sustained significant water damage
following a rain storm in October 2006. The condominium unit
owners also incurred personal-property damage.
Metro North sued the developer in Illinois state court for
more than $5 million in damages. The developer apparently
turned out to be insolvent, and in 2013 Metro North filed a
fourth amended complaint that added a claim against CSC for
breach of the implied warranty of habitability Metro North also
brought a negligence claim against CSC, but that claim was
dismissed with prejudice because it was filed after the
statute of limitations had expired.
Metro North and CSC reached a settlement in which Metro North
dismissed its pending lawsuit. In exchange, CSC assigned to
Metro North CSC's rights to payment, if any, of up to
$700, 000 of insurance coverage from Allied Property &
Casualty Insurance Company ("Allied"). The
settlement specified that the right to payment had to
"aris[e] out of the claims asserted against CSC in the
[underlying Illinois] Action or this Settlement
thereof." At the time of the settlement, the only
pending claim against CSC in the underlying lawsuit was Metro
North's claim for breach of the implied warranty of
habitability. The settlement further specified that it was
not intended to compensate Metro North for the cost of
repairing or replacing CSC's defectively installed
windows, but rather for the resultant damage to the remaining
parts of Metro North's condominium and to the unit
owners' personal property.
insured CSC under a standard commercial general liability
policy (CGL policy) effective from March 2006 to March
2007. The policy required Allied to pay CSC for
any covered property damage for which CSC became liable:
"We will pay those sums that the insured becomes legally
obligated to pay as damages because of 'bodily
injury' or 'property damage' to which this
insurance applies." The policy also contained a number
of exclusions identifying damages for which there was no
coverage. For instance, several provisions (collectively
referred to here as the "your work" exclusions),
excluded coverage for damage to the particular part of the
relevant property worked on by CSC, or for the cost of
repairing or replacing CSC's own defective work. Under
Exclusion 2.b, the policy also excluded coverage for damages
arising from "contractual liability" that is,
damages that CSC became obligated to pay "by reason of
the assumption of liability in a contract or agreement."
This exclusion applied only if CSC would not have been liable
"in the absence of the contract or agreement."
Allied learned of CSC's settlement, it brought this
diversity action against Metro North in federal court,
seeking a declaratory judgment that it was not liable for the
damages claimed in the settlement. Metro North filed a
cross-motion for summary judgment to the contrary. In 2016
the district court entered an order denying Metro North's
cross-motion and granting summary judgment for Allied,
finding that the settlement damages were not covered under
Allied's policy. Metro appeals.
review the district court's grant of summary judgment de
novo, construing all facts and reasonable inferences "in
favor of the party against whom the motion under
consideration was made." Nat'l Am. Ins. Co. v.
Artisan & Truckers Cas. Co., 796 F.3d 717, 723 (7th
Cir. 2015). Summary judgment is required if the movant shows
that "there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of
law." Fed.R.Civ.P. 56(a).
parties agree that this dispute is governed by Illinois law.
See Santa's Best Craft, LLC v. St. Paul Fire &
Marine Ins. Co.,611 F.3d 339, 345 (7th Cir. 2010). In
Illinois, an insurer has a duty to indemnify "when the
insured becomes legally obligated to pay damages in the
underlying action that gives rise to a claim under the
policy." Traveler's Ins. Co. v. Eljer Mfg.,
Inc.,757 N.E.2d 481, 491 (Ill. 2001). "Once the
insured has incurred liability as a result of the underlying
claim, an insurer's duty to indemnify arises only if
'the insured's activity and the resulting loss or
damage actually fall within the CGL policy's
coverage.'" Id. at 492. The duty to
indemnify is significantly narrower than the duty to defend,
which applies "if the complaint alleges facts that are
even potentially within the coverage of the insurance
policy." Ohio Cas. Ins. Co. ...