CHICAGO — A recent federal appeals court decision could reduce future property damage coverage provided by commercial general liability insurers in Illinois and other states, according to an attorney experienced in such cases.

"Although the impact of the decision remains to be seen, it may have the effect of narrowing property damage coverage under a CGL policy in Illinois, and perhaps other states in the Seventh Circuit (Indiana and Wisconsin)," Melissa Brill, a New York-based attorney at Cozen O'Connor, told the Cook County Record.

Melissa Brill
Melissa Brill | Cozen O'Connor

In 2010, ConAgra Foods Inc., a Chicago-based packaged foods company, discovered a hot grain bin or silo filled with wheat pellets generating rising temperatures and a risk of fire at a company plant in downstate Chester, about 60 miles south of St. Louis. The company hired West Side Salvage, an Iowa-based architectural salvage firm, to repair the problem. The silo, which had previously been smoldering and smoking, exploded on April 27, 2010, while work was in progress, injuring three workers.

The injured workers sued West Side and ConAgra. ConAgra filed suit against West Side for property damage to the silo.   

West Side had gotten an $11 million excess insurance policy with RSUI Indemnity Co. and sued the insurer, alleging RSUI had breached its duty to settle ConAgra’s property damage claim.

After a jury trial, West Side and ConAgra were both found liable for the worker injuries, while West Side alone was liable for property damage to the ConAgra grain bin, according to a December 2017 report. Then in a 2014 ruling by the U.S. Seventh Circuit Court of Appeals, West Side was found to be solely liable for both the injury claims and the damage to the grain bin. 

A settlement was eventually achieved between West Side and RSUI to take care of the workers' claims, but not the bin damage.

RSUI moved for a summary judgement, or a decision without a full trial, in federal court in East St. Louis. The court granted summary judgement in favor of RSUI, finding it had not breached its duty to settle. 

West Side appealed.

On Dec. 18, the Seventh Circuit affirmed the summary judgement, stating the policy did not cover the property damage claim. The court held West Side was liable for injuries to the three workers and also for $3 million in property damage to the silo.

The court ruling has the potential to set a trend because it broadly excluded CGL insurance coverage not only to the specific area where the workers were working, but also to other parts of the property that were damaged (the grain silo), Brill said.

A CGL insurance policy is designed to cover certain property damage to others.

“Many courts have held that CGL policy does not apply to the insured’s defective work, but does apply to resulting damage to other property caused by the defective work,” Brill said. “For example, if a contractor builds a wall and it falls on a building next door causing damage, the damage to the building next door would be property damage to others. However, if the wall simply falls and the only damage is to the wall itself, the majority of courts would hold there was no property damage within the meaning of the GCL policy because such a policy normally excludes from coverage that part of the property on which an insured was working.”

Thus, the damage that West Side caused was a typical risk related to the type of business it engaged in, and so it was not covered.

“The U.S. Court of Appeals for the Seventh Circuit held that the damage to property exclusion precluded coverage for property damage not only to the grain, but also to the silo,” Brill said.

Brill said that in light of the ruling, insurance companies should consider the particular law that applies to each property damage claim related to faulty work, and how a court is likely to apply a damage-to-property exclusion. 

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Cozen O'Connor - Chicago U.S. Court of Appeals for the Seventh Circuit

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