A Commercial General Liability (CGL)Insurance carrier had a duty to defend a property developer who was an additional insured under a subcontractor’s CGL policy in a lawsuit by a homeowner association (HOA).  While a lower court granted the carrier summary judgment holding that the complaint against the developer did not allege facts sufficient to create a duty to defend, this was reversed on appeal, with the court holding that merely general assertions in the complaint alleging that defective construction work by the subcontractor caused damage to “other property” were sufficient to create the duty to defend.  Acuity c. M/I Homes of Chicago, LLC, 2022 Il App (1st) 220023, 2022 WL 4115230).

Townhouse HOA filed suit for breach of contract and implied warranty of habitability against the developer.   Developer asked the subcontractor’s CGL carrier to defend it as an additional insured under the CGL policy.  The carrier refused to do so, and instead filed a declaratory judgment suit asking the court to decide it owed no such duty.

The underlying CGL policy was written on a form commonly used by CGL carriers.  It only applied coverage for bodily injury and property damage caused by an occurrence.  Exclusions in the policy stated that it would not apply coverage to damages to “(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the property damage arises out of those operation; or (6) That particular part of any property that must be restored, repaired or replaced because your work was incorrectly performed on it.”

In the complaint against the developer the HOA asserted that the developer “constructed and sold Townhomes with substantial exterior defects,” including moisture-damages or water-damaged fiber board, water-damaged OSB sheathing, deteriorated brick veneer, poor condition of weather-resistive barrier, improperly installed J-channel and flashing, and prematurely deteriorating support members below the balcony deck boards.   All work was allegedly performed by subcontractors working for the developer.

The complaint alleged that defects “caused substantial damage to the Townhomes and damage to other property.”  It further alleged that the HOA will be required to make “substantial repairs to the Defects and to repair damage to other property.”

The carrier argued, and the trail judge agreed, “the mere mention of damage to other property in the underlying complaint did not trigger its duty to defend because the Association was focused “on recovering for damage to the townhomes, and necessarily “other property.”

The appellate court analyzed the issues and held that the complaint sufficiently alleged damage to “other property” even though the complaint didn’t state what constituted such “other property.”   For this reason, the court held that the developer was entitled to be defended as an additional insured under the CGL policy.

Comment:  It seems somewhat surprising that an additional can be entitled to a defense by a CGL carrier when the complaint fails to include any genuine facts that might tend to show what “other property” was damaged.   This holding might seem to support coverage in situations where no actual damage to property other than the “work itself” was sustained. 


About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 24, No. 10 (December 2022).

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