Defective Construction Claims: Why Do Illinois Courts Treat Construction Companies Like Criminals?

The year 2016 marks the twenty-fifth anniversary of the Illinois appellate courts’ adoption of the “natural and ordinary consequences” test to determine whether there has been an accident (and therefore an “occurrence”) sufficient to trigger a commercial general liability (CGL) policy for defective construction claims. Under this test, which the courts reserve almost exclusively for inherently harmful or criminal acts and defective construction claims, the natural and ordinary consequences of an act do not constitute an accident. In applying the test to defective construction claims, the appellate courts have concluded that defective construction is merely the natural and ordinary consequence of allegedly faulty workmanship. Defective construction thus can never constitute an accident or an “occurrence” unless faulty workmanship damages something other than the insured’s work. In other words, when determining whether insurance coverage exists for defective construction claims, the appellate courts completely disregard whether the insured contractor expected or intended the injury. Instead, the courts effectively infer intent on the part of the insured by way of the “natural and ordinary consequences” test whenever the underlying complaint contains allegations of faulty workmanship. The Illinois Supreme Court has not yet addressed the issue.

This article examines the history behind the Illinois appellate courts’ use of the “natural and ordinary consequences” test in an attempt to understand why the appellate courts apply a test that takes the extraordinary step of inferring the intent and expectation of the insured on the occurrence issue in essentially only two circumstances: (1) inherently harmful or illegal acts and (2) defective construction claims. The article explains why applying what amounts to a tort-based standard of foreseeability to the CGL policy—or any liability policy—defeats the purpose of the policy and renders it meaningless. The article also examines how the “natural and ordinary consequences” test is significantly at odds with well-established Illinois precedent regarding the judicial interpretation of insurance policies and, furthermore, how the overwhelming majority of state supreme courts have held that allegations of faulty workmanship do constitute an occurrence under a CGL policy. Finally, the article discusses how the “natural and ordinary consequences” test violates basic duty-to-defend principles and operates to deprive the insured of the benefit of the litigation insurance it purchased. The time is long overdue for the Illinois Supreme Court to fix this ongoing, 25-year debacle and bring Illinois within the mainstream of insurance coverage jurisprudence concerning defective construction claims.