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

Illinois Occurrence Law in the Defective Construction Context 

Before proceeding further into an examination of the “natural and ordinary consequences” test, it is worth taking a brief look at the current state of Illinois law on the occurrence issue in the defective construction context. In the recent case of Nautilus Insurance Co. v. Board of Directors of Regal Lofts Condominium Ass’n, the U.S. Court of Appeals for the Seventh Circuit provided a concise summary:

Accordingly, under the current state of Illinois law, defective construction is the natural and ordinary consequence of faulty workmanship and therefore is not an accident or an occurrence. Notwithstanding that broad and frequently articulated rule, faulty workmanship can constitute an occurrence depending on the nature of the property damaged. Damage to the project, the structure, or the building is not an occurrence, but damage to other property is an occurrence.[3] Under Richard Marker and its progeny, the definition of “occurrence” in a CGL policy is dependent on the nature of the property that was damaged. Generally speaking, unless the underlying complaint contains allegations of damage to property to something other than the construction project, Illinois courts will hold that the insurer has no duty to defend because the plaintiff has not alleged an occurrence. In light of this framework, the more recent cases tend to address (with mixed results) whether there is an occurrence when the damaged property is outside the scope of the contractor’s work, even if the damage is to the project, structure, or building.[4]

The Illinois Supreme Court has not yet addressed the issue of whether faulty workmanship can constitute an occurrence under a CGL policy.[5] However, the overwhelming majority of state supreme courts have concluded that faulty workmanship constitutes an occurrence under a CGL policy, regardless of the nature of the property damaged.[6]

Interpreting the Undefined Term “Accident”

The insuring agreement of the CGL policy provides that the insurer “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 insurance “applies to ‘bodily injury’ and ‘property damage’ only if . . . caused by an ‘occurrence.’”[7] The same CGL policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The CGL policy definition of “property damage” is, in relevant part, “[p]hysical injury to tangible property, including all resulting loss of use of that property.”

Notably, the term “accident” is not defined in the CGL policy. Illinois courts generally agree that an accident is “an unforeseen occurrence, usually . . . an undesigned sudden or unexpected event of an inflictive or unfortunate character.”[8] The Illinois Supreme Court has held (in the context of a CGL policy) that a court should not determine whether something is an accident by looking at whether the actions leading to the damage were intentionally done. According to the court, the real question is whether the person performing the acts leading to the result intended or expected the result. If the person did not intend or expect the result, then the result was the product of an accident.[9]

Illinois courts thus typically focus on the subjective intent or expectation of the insured when determining whether there has been an “occurrence.” In construction defect cases, however, Illinois appellate courts ignore the insured’s subjective intent and instead infer intent based on a foreseeability standard. As discussed in the next section, the appellate courts hold that defective construction is the “natural and ordinary” (i.e., foreseeable) consequence of faulty workmanship and therefore cannot constitute an accident or an “occurrence” under a CGL policy.

Equating Construction Work with Inherently Harmful or Illegal Acts

For about 25 years, Illinois appellate courts repeatedly have applied the “natural and ordinary consequences” test to the “occurrence” issue in defective construction cases.[10] As the court in Stoneridge acknowledged, the “natural and ordinary consequences” test traces back to the First District Appellate Court’s 1980 decision in Aetna Casualty & Surety Co. v. Freyer.[11] The overwhelming majority of the defective construction cases decided by the Illinois appellate courts since 1991 have cited Freyer when holding that defective construction is the natural and ordinary consequence of faulty workmanship.[12]

In Freyer, the insured, Lewis Freyer, was a defendant in an underlying lawsuit brought by Shirley Kleinman. Kleinman’s suit alleged that Freyer had wrongfully and violently assaulted Kleinman, struck her with his fists in the face and on the body, gave her a black eye, injured her head and face, and tore out some of her hair. There were allegations of a similar violent assault five months later as well as allegations that Freyer had destroyed some property in Kleinman’s home. Each of the two counts of the complaint alleged violent, wanton, willful, and wrongful conduct by Freyer. Freyer tendered the suit to his insurer, Aetna, which filed a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify Freyer for the Kleinman action.

The Aetna policy[13] insured Freyer against liability caused by an occurrence, which was defined as “an accident including injurious exposure to conditions, which results, during the policy term, in bodily injury or property damage.” According to the court,

Illinois appellate courts have used Freyer’s “natural and ordinary consequences” test to determine the “occurrence” issue almost exclusively in two narrow contexts: (1) in what one commentator has characterized as cases involving “inherently harmful or illegal acts”[15] and (2) defective construction cases. In the former context, intent similarly is inferred by the court in the natural and ordinary consequences test regardless of the insured’s subjective intent.[16]

So what exactly is the common thread, if any, between insurance coverage cases involving inherently harmful or criminal acts, on the one hand, and faulty workmanship by a construction contractor, on the other, that justifies abandoning any examination of the subjective intent of the insured when determining whether there has been an “occurrence”? In the inherently harmful or criminal act context, the cases evidence the notion that an insurance company should be under no duty to defend or indemnify an insured who commits assault and battery, sexual assault, child molestation, and similar acts “because the nature of the conduct itself conclusively establishes as a matter of law that the insured expected or intended to injure the victims.”[17] But can a similar argument really be made that the nature of a contractor’s role at a construction project is such that the mere allegation of faulty workmanship conclusively establishes that the contractor expected or intended to cause defective construction–related damages?

Illinois appellate courts seem to think so. The First District Appellate Court has stated that the “rationale” for applying the natural and ordinary consequences test to construction cases is “the requirement implicit in every liability insurance policy—specifically, that coverage is provided only for fortuitous losses.”[18] According to the court,

The court’s justification for using the “natural and ordinary consequences” test seems greatly at odds with the realities of the modern construction industry. It presumes that every contractor alleged to have performed faulty work has done so in the context of taking a “calculated business risk,” weighing the likelihood damage will occur against the presumptive cost savings associated with using inadequate building materials or performing substandard work. Such a position assumes that the contractor “deliberately sabotaged the very same construction project it worked so diligently to obtain at the risk of jeopardizing its professional name and business reputation in the process.”[20] As the Texas Supreme Court has held, “[t]he determination of whether an insured’s faulty workmanship was intended or accidental is dependent on the facts and circumstances of the particular case. For purposes of the duty to defend, those facts and circumstances must generally be gleaned from the plaintiffs’ complaint.”[21]

The specter of moral hazard—of the insured somehow profiting from its own loss by collecting insurance—also pervades many of the appellate courts’ defective construction cases. According to one court, “if insurance proceeds could be used to pay for the repair or replacement of poorly constructed buildings, a contractor could receive initial payment for its work and then receive subsequent payment from the insurance company to repair or replace it[,]” transforming the CGL policy into something akin to a performance bond.[22] As one commentator has noted,

In sum, the case for a need to infer the insured’s intent in claims involving defective construction in the same manner as those involving inherently harmful or illegal acts seems remarkably thin. Courts need only apply the policy language to the facts of the case.

Defeating the Purpose of a Liability Policy

One major problem with applying a tort-based foreseeability standard like the “natural and ordinary consequences” test to liability insurance policies is that “the negligent acts of the insured will almost never be ‘accidents’ because, by definition, negligence requires that damages be foreseeable.”[24] Accordingly, “[c]onstruing ‘accident’ in a manner that does not cover the insured’s negligence would render a CGL policy almost meaningless.”[25]

Indeed, virtually any liability policy would be rendered meaningless under the “natural and ordinary consequences” test. If defective construction is the natural and ordinary consequence of faulty workmanship and therefore not an “accident,” could it not be said that automobile collisions are merely the natural and ordinary consequence of faulty driving? Or that a slip and fall in a grocery store resulting in bodily injury is the natural and ordinary consequence of faulty mopping? Alternatively, if the natural and ordinary consequences of an act do not constitute an accident, exactly what consequences must be present in order for there to be an accident?

The “natural and ordinary consequences” test is virtually indistinguishable from the test Illinois courts use to determine the existence of proximate cause in a negligence action. Under Illinois law, proximate cause exists “if the injury is the natural and probable result of the negligent act or omission and is of such a character that an ordinarily prudent person would have foreseen it as a result of such negligence.”[26] The following discussion from the Florida Supreme Court is instructive on this issue:

Ironically, in light of its defective construction jurisprudence, the First District Appellate Court similarly has severely criticized as “problematic” on . . . [a] fundamental level” what it termed “the assimilation of principles from tort law into the analysis of an insurance contract.”[28]

Liability insurance policies provide coverage for the foreseeable risks of an insured’s business, many or most of which are addressed in the insurance policy. For example, one foreseeable risk—or “natural and ordinary consequence”—of operating a long-haul commercial trucking fleet is collisions with automobiles and pedestrians. No insurer would ever take the position that the foreseeable nature of that risk requires a court to infer the insured’s intent to cause those collisions whenever they occur and thereby deprive the insured of defense or indemnity coverage. Insurance company underwriters decide whether to write a policy and, if so, the price and terms of the policy, depending on what they perceive to be the likelihood that foreseeable risks will occur or claims will be made during the policy period. Clearly, any losses must be fortuitous, i.e., “happening by chance or accident, or occurring unexpectedly or without known cause.”[29] Mere foreseeability, however,is not a bar to an accident under a liability policy. In Viking Construction Management, Inc. v. Liberty Mutual Insurance Co.,[30] the court appears to have confused fortuity with foreseeability and improperly conflated the two related, yet distinct concepts.

The Appellate Courts’ Formulation of “Occurrence” Violates Basic Principles of Policy Interpretation

Illinois appellate courts’ use of the “natural and ordinary consequences” test to determine whether there has been an accident violates basic tenets of policy construction under Illinois law.

Ignoring the usual and ordinary meaning of “accident.” A court’s primary objective in construing the language of the policy is to ascertain and give effect to the intentions of the parties as expressed in their agreement.[31] To ascertain the intent of the parties and the meaning of the words used in the insurance policy, a court must construe the policy as a whole and take into account the type of insurance purchased, the nature of the risks involved, and the overall purpose of the contract.[32]

Because a CGL policy does not define the term “accident,” a court must interpret the term “by affording it its plain, ordinary, and popular meaning.”[33] In ascertaining the plain and ordinary meaning of words, courts often consult dictionaries.[34] In its plain and ordinary usage, “accident” refers to “an unexpected happening without intention or design,”[35] an “event or change occurring without intent or volition through carelessness, unawareness, ignorance, or a combination of causes and producing an unfortunate result,”[36] or “[s]omething that occurs unexpectedly or unintentionally.”[37] There is nothing in the above definitions remotely suggesting that the natural and ordinary consequences of an act do not constitute an accident. To the contrary, it seems clear that, in its plain, ordinary, and popular meaning, “accident” conveys information about the extent to which a happening was intended or expected, which is entirely consistent with the Illinois Supreme Court’s holding in U.S. Fidelity & Guaranty Co. v. Wilken Insulation Co.[38] and the appellate courts rulings in the non-construction defect cases of Insurance Corp. of Hanover v. Shelborne Associates[39] and Lyons v. State Farm Fire & Casualty Co.[40] Moreover, “[s]tanding alone, the word [“accident”] is not used usually and commonly to convey information about the nature or extent of injuries worked by such a happening, much less the identity of the person whose interests are injured.”[41] As the Florida Supreme Court stated,

Unfortunately, in their dogged application of the “natural and ordinary consequences” test, Illinois appellate courts have failed to apply the “usual and ordinary meaning” of the term “accident.”

Rendering the “Your Work” Exclusion Meaningless. Another tenet of policy construction is that a court must strive to give each term in the policy meaning unless to do so would render the clause or policy inconsistent or inherently contradictory.[43] Effect should be given to every provision, if possible, because it must be assumed that every provision was intended to serve a purpose.[44]

Exclusion l of the CGL policy (the “your work” exclusion) provides that the policy does not apply to the following:

The reason for the subcontractor exception to the “your work” exclusion has been explained as follows:

Thirty years ago, the Insurance Services Office provided guidance regarding the subcontractor’s exception by making clear that the policy “cover[ed] damage caused by faulty workmanship to other parts of work in progress; and damage to, or caused by, a subcontractor’s work after the insured’s operations are completed.”[47] This evidence of insurance industry intent to treat faulty workmanship as an occurrence is particularly damning and would have to be considered—regardless of the existence of an ambiguity[48] —as part of any inquiry into the “overall purpose of the contract.”[49]

The Second District Appellate Court examined the subcontractor exception to the “your work” exclusion in Stoneridge and determined that “an exception to an exclusion does not create coverage or provide an additional basis for coverage.”[50] The court further concluded that the subcontractor exception “cannot negate the lack of an ‘occurrence’ . . . as the damage arose from the natural and ordinary consequence of defective workmanship rather than an ‘accident.’”[51] Neither of the court’s rationalizations for its holding interprets the CGL policy as a whole.[52] As the Wisconsin Supreme Court has stated,

The Appellate Court’s interpretation of “accident” in Stoneridge clearly renders the “your work” exclusion mere surplusage in violation of basic principles of policy interpretation.

Depriving the Insured of the Litigation Insurance It Purchased. Under Illinois law, a court must compare the allegations in the underlying complaint to the policy language in order to determine whether the insurer’s duty to defend has arisen.[54] If the underlying complaint alleges facts within or potentially within policy coverage, an insurer is obligated to defend its insured even if the allegations are groundless, false, or fraudulent.[55]

Under this standard, the question of whether a plaintiff has alleged an occurrence is determined from the facts and circumstances contained in the complaint. Generally speaking, when a complaint alleges defective construction as the result of the insured’s negligence, it has alleged an occurrence under a CGL policy.[56] As long as the complaint also alleges “property damage” (i.e., “physical injury to tangible property”)[57] during the policy period caused by an occurrence, the insured has met its burden of proving that the claim falls within the insuring agreement of the insurance policy.[58] Once the insured has demonstrated coverage under the insuring agreement, the burden then shifts to the insurer to prove that a limitation or exclusion applies.[59] When an exclusionary clause is relied on to deny coverage, its applicability must be clear and free from doubt because any doubts as to coverage will be resolved in favor of the insured.[60]

Illinois courts’ application of the “natural and ordinary consequences” test in defective construction cases subverts the above paradigm to the insured’s substantial detriment. By ignoring the allegations of the complaint and holding that faulty workmanship can never constitute an occurrence unless it damages property other than the project—even when the work was performed by a subcontractor—Illinois courts greatly increase the likelihood that there will be no potential for coverage and therefore no duty on the part of the insurer to provide a defense. Insureds lose the benefit of the litigation insurance they purchased and often find themselves simultaneously fighting a two-front war with the plaintiff and their insurance company.

Conclusion

The “natural and ordinary consequences” test—a tort-based method of inferring intent that is otherwise applied by Illinois courts almost exclusively to inherently harmful and criminal acts—should have no role whatsoever in the interpretation of a CGL policy. To the contrary, the question of whether defective construction has been caused by an occurrence should not hinge on whether damage has been alleged to property other than the construction project; rather, it should turn on whether the facts pled in the underlying complaint allege that the insured expected or intended the injury. Illinois appellate courts’ long-standing practice of inferring the insured’s intent or expectation whenever the two words “faulty workmanship” appear in an underlying complaint is inconsistent with the purpose of the CGL policy and at odds with both well-established tenets of policy interpretation and the rulings of the overwhelming majority of state supreme courts that have examined the issue. It has been said that “[w]isdom too often never comes, and so one ought not to reject it merely because it comes late.”[61] It is time for the Illinois Supreme Court to apply that adage to the question of whether faulty workmanship resulting in defective construction constitutes an occurrence under a CGL policy and bring Illinois within the mainstream of jurisprudence throughout the United States.[62]

Keywords: litigation, insurance coverage, CGL policy, Illinois, “natural and ordinary consequences” test

David H. Anderson is a partner at Hoke Attorneys at Law LLC, Chicago.

[1] David H. Anderson is a partner at Hoke Attorneys at Law LLC in Chicago, where he represents policyholders in insurance coverage disputes and counsels them in risk management matters. The views expressed in this article are the author’s own.
[2] 764 F.3d 726, 731–32 (7th Cir. 2014).
[3] Pekin Ins. Co. v. Richard Marker, 289 Ill. App. 3d 819, 823 (2d Dist. 1997) (finding an “occurrence” where the contractor’s work damaged building owner’s “furniture, clothing, and antiques”).
[4] See, e.g., Allied Prop. & Cas. Ins. Co. v. Metro N. Condo. Ass’n, No. 15 C 3925, 2016 WL 1270480, at *7 (N.D. Ill. Mar. 31, 2016) (“[R]egardless of who performed the work and what the subcontractor’s scope of work was, damage to a structure due a subcontractor’s faulty work is not ‘property damage’ caused by an ‘occurrence’”); Westfield Ins. Co. v. Nat’l Decorating Serv., Inc., No. 14 C 1572, 2015 U.S. Dist. LEXIS 159140, at *7-8 (N.D. Ill. Nov. 25, 2015) (holding that damage beyond the scope of the named insured’s work at a building is “property damage” resulting from an “occurrence”); Empire Fire & Marine Ins. Co. v. HLL Corp., No. 05 CH 7565, slip op. at 13–14 (Cir. Ct. of Cook Cty., Ch. Div., Nov. 9, 2015) (finding no “occurrence” despite damage to steel columns and footings that were not part of building renovation project); West Bend Mut. Ins. Co. v. Pulte Home Corp., 2015 IL App (1st) 140355 (vague allegations of “resultant damage” and “other damage” were sufficient to trigger duty to defend), appeal denied, 39 N.E.3d 1012 (Ill. Sept. 30, 2015); Auto Owners Ins. Co. v. Hagler, No. 13-cv-884-JPG-PMF, 2015 U.S. Dist. LEXIS 80466, at *22 (S.D. Ill. Jun. 22, 2015) (damage to home that was outside the scope of installer’s work triggered duty to defend); Old Republic Ins. Co. v. Leopardo Cos., Inc., No. 1:14-cv-02421, slip op. at 7–9 (N.D. Ill. Mar. 11, 2015), ECF No. 55 (allegations of property damage outside the limited scope of subcontractor’s work constituted an “occurrence” that triggered insurer’s duty to defend general contractor as an additional insured on subcontractor’s CGL policy); Paradise Inground Pools, Inc. v. Black Diamond Plumbing & Mech., Inc., 2012 IL App (2d) 110819-U, ¶ 14 (finding no “occurrence” even though plumbing contractor’s faulty work damaged other parts of the building); Milwaukee Mut. Ins. Co. v. J.P. Larsen, Inc., 2011 IL App (1st) 101316, ¶ 28 (finding an “occurrence” where subcontractor’s negligent workmanship damaged parts of the building that were outside the scope of its work).
[5] The Illinois Supreme Court’s last foray into defective construction claims in the context of a CGL policy was in Western Casualty & Surety Co. v. Brochu, 105 Ill. 2d 486 (1985). In Brochu, a homeowner sued a home builder for property damage after allegedly faulty workmanship caused the house to sink into the ground, causing the foundation to crack, the support beams to sag, the doors and frames to be out of sync, and the interior fixtures to separate from the walls. The policy at issue was a pre-1986 comprehensive general liability policy, the predecessor to the modern CGL policy. Notably absent from the Brochu is any discussion of whether there had been an “occurrence.” The court held without any discussion that “the insuring provisions of the policy initially provide[d] coverage” for the homeowner’s claim, thereby implicitly accepting that the complaint’s allegations of faulty workmanship had met the policy’s definition of an “occurrence.” 105 Ill. 2dat 498. The court instead found that exclusions (n) and (o), which limited the completed operations coverage by excluding damage to the product or work of the insured, applied to preclude coverage because the homeowners sought compensation solely for property damage to the house built by the insured. 105 Ill. 2dat 498.
[6] Compare Owners Ins. Co. v. Jim Carr Homebuilder, LLC, 157 So. 3d 148 (Ala. 2014) (holding that faulty workmanship by homebuilder constituted an “occurrence”), Fejes v. Alaska Ins., 984 P.2d 519 (Alaska 1999) (holding there was an “occurrence” and coverage for damages caused by a subcontractor’s defective work on a septic system), Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 308 Conn. 760, 67 A.3d 961 (2013) (holding that, because negligent work is unintentional from the point of view of the insured, it may constitute an “occurrence”), U.S. Fire Ins. v. J.S.U.B., Inc., 979 So. 2d 871 (Fla. 2007) (holding that a subcontractor’s defective soil preparation, which was neither expected nor intended from the standpoint of the general contractor, was an “occurrence” under the CGL policy and the structural damage to the completed homes was property damage under the CGL policy), Taylor Morrison Servs., Inc. v. HDI-Gerling Am. Ins. Co., 293 Ga. 456, 746 N.E.2d 587 (2013) (holding homebuilder’s faulty workmanship was covered because the usual and common meaning of an “occurrence” does not require damage to the property or work of someone other than the insured), Sheehan Constr. v. Cont’l Cas. Co., 935 N.E.2d 160, modified 938 N.E.2d 685 (Ind. 2010) (on other grounds) (holding that faulty workmanship may constitute an “occurrence” if the resulting damage is an event that occurs without expectation or foresight), Lee Builders, Inc. v. Farm Bureau Mut. Ins., 281 Kan. 844, 137 P.3d 486 (2006) (holding unforeseen and unintended damage from leaking windows installed by an insured’s subcontractor was caused by an “occurrence”), Wanzek Constr., Inc. v. Emp’rs Ins., 679 N.W.2d 322 (Minn. 2004) (holding damage to a swimming pool caused by a subcontractor was covered under a CGL policy), Architex Ass’n, Inc. v. Scottsdale Ins., 27 So. 3d 1148 (Miss. 2010) (holding the term “occurrence” cannot be construed in such a manner as to preclude coverage for unexpected or unintended “property damage” resulting from negligent acts or conduct of a subcontractor unless otherwise excluded), Revelation Indus. v. St. Paul Fire & Marine Ins., 350 Mont. 184, 206 P.3d 919 (2009) (holding property damage to an insured’s products or completed work done for the insured by a subcontractor is an “accident” and the CGL policy provides coverage to the insured), McKellar Dev. v. N. Ins., 108 Nev. 729, 837 P.2d 858 (1992) (holding soil compaction performed by subcontractors, which caused damage to buildings built by an insured, was an “occurrence” and covered under the Broad Form Property Damage endorsement), High Country Assocs. v. N.H. Ins., 139 N.H. 39, 648 A.2d 474 (1994) (holding that actual damage to the structure of condominium units by continuous exposure to moisture from defective construction resulted in an “occurrence” covered by the CGL policy), Auto Owners Ins. v. Newman, 385 S.C. 187, 684 S.E.2d 541 (2009) (holding that a subcontractor’s negligent application of stucco to a home resulted in an “occurrence” under the CGL policy’s grant of coverage for the resulting progressive property damage to the home), overruled by Crossmann Communities of N.C., Inc. v. Harleysville Mut. Ins., No. 26909, 2011 WL 93716, at *1, 2011 S.C. LEXIS 2, at *1 (S.C. Jan. 7, 2011), withdrawn and substituted by 395 S.C. 40, 717 S.E.2d 589 (2011) (adhering to the result in Newman), Corner Constr. v. U.S. Fid. & Guar., 638 N.W.2d 887 (S.D. 2002) (holding that CGL policy provided coverage for a general contractor’s liability for property damage to the building as a result of the subcontractor’s faulty workmanship, which was an “accident” resulting in property damage), Travelers Indem. Co. of Am. v. Moore & Assocs., Inc., 216 S.W.3d 302 (Tenn. 2007) (holding that defective workmanship may constitute an “occurrence” under a CGL policy; damages caused by faulty workmanship are “property damage” and “damages resulting from the faulty workmanship of a subcontractor are not excluded from coverage”), Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (holding that a general contractor’s defective construction or faulty workmanship in building a house foundation is an “occurrence” within the meaning of the CGL policy), Cherrington v. Erie Ins. Prop. & Cas. Co., 231 W. Va. 470, 745 S.E.2d 508 (2013) (holding that defective workmanship causing bodily injury or property damage is an “occurrence”), Am. Family Mut. Ins. v. Am. Girl, Inc., 268 Wis. 2d 16, 673 N.W.2d 65 (2004) (holding that damage to a warehouse caused by soil settlement, which occurred because of a subcontractor’s faulty site-preparation advice was accidental, not intentional or anticipated, and was an “occurrence” within the meaning of the CGL policies), with Essex Ins. v. Holder, 370 Ark. 465, 261 S.W.3d 456 (2008) (holding defective or incomplete construction, standing alone, that results in damage only to the work product itself is not an “occurrence” under the CGL policy), Cincinnati Ins. v. Motorists Mut. Ins., 306 S.W.3d 69 (Ky. 2010) (holding a claim for poor workmanship in building a home does not involve the fortuity required to constitute an accident and is therefore not an “occurrence”), Oak Crest Constr. v. Austin Mut. Ins., 329 Or. 620, 998 P.2d 1254 (2000) (holding costs for the repair of a subcontractor’s deficient work did not arise from an accident under the CGL policy, but leaving open the question when there is damage to other property), Kvaerner Metals v. Commercial Union Ins., 589 Pa. 317, 908 A.2d 888 (2006) (holding poor workmanship in the construction of a coke battery, resulting in the product not meeting contract specifications and warranties, was not an “occurrence” under the CGL policy language).
[7] CGL Form CG 00 01 07 98, Insurance Services Office, Inc. (1997).
[8] W. Am. Ins. Co. v. Midwest Open MRI, Inc., 2013 IL App (1st) 121034, ¶ 22.
[9] U.S. Fid. & Guar. Co. v. Wilkin Insulation Co., 144 Ill. 2d 64, 77–78 (1991); see also Ins. Corp. of Hanover v. Shelborne Assocs., 389 Ill. App. 3d 795, 801 (1st Dist. 2009) (“[t]he focus of the inquiry in determining whether an occurrence is an accident is whether the injury is expected or intended by the insured, not whether the acts were performed intentionally”) (quoting Lyons v. State Farm Fire & Cas. Co., 349 Ill. App. 3d 404, 409 (5th Dist. 2004) (emphasis in original)).
[10] See, e.g., Design Concrete Founds. Inc. v. Erie Ins. Prop. & Cas. Co., 2014 IL App (1st) 130353-U; Stoneridge Dev. Co. v. Essex Ins. Co., 382 Ill. App. 3d 731, 756–57 (2d Dist. 2008); Viking Const. Mgmt., Inc. v. Liberty Mut. Ins. Co., 358 Ill. App. 3d 34, 53 (1st Dist. 2005); Monticello Ins. Co. v. Wil-Freds Const., Inc., 277 Ill. App. 3d 697, 705–6 (2d Dist. 1996); Bituminous Cas. Corp. v. Gust K. Newberg Const. Co., 218 Ill. App. 3d 956, 965–66 (1st Dist. 1991).
[11] 89 Ill. App. 3d 617 (1st Dist. 1980).
[12] The Illinois Supreme Court has never applied the “natural and ordinary consequences” test to an “occurrence” under a CGL policy.
[13] Although the Freyer court did not identify the specific type of insurance policy in force in 1974 when the insured allegedly assaulted the plaintiff, it was almost certainly a homeowner’s or renter’s policy, in light of the fact that Freyer was sued in his individual capacity.
[14] Freyer, 89 Ill. App. 3d at 619. The Freyer court cited Farmers Elevator Mut. Ins. Co. v. Burch, 38 Ill. App. 2d 249 (4th Dist. 1962), for the proposition that the natural and ordinary consequences of an act do not constitute an accident. The Burch opinion contains that language but does not cite any legal authority for the premise. Burch, 38 Ill. App. 2d at 253.
[15] B. Ostrager & T. Newman, Handbook on Insurance Coverage Disputes § 8.03[f], at 668–78 (15th ed. 2010).
[16] See, e.g., State Farm Fire & Cas. Co. v. Weber, 2014 IL App (1st) 130156-U, ¶ 23 (no “occurrence” where injuries were the natural and ordinary consequences of being repeatedly stabbed with a knife); State Farm Fire & Cas. Co. v. Young, 2012 IL App (1st) 103736, ¶ 29 (no “occurrence” where injuries and eventual death were the natural and ordinary consequences of providing heroin, severely beating victim during overdose, and failing to call 911); Pekin Ins. Co. v. Dial, 355 Ill. App. 3d 516, 521 (5th Dist. 2005) (injuries were the natural and probable result of sexual assault); Westfield Nat’l Ins. Co. v. Cont’l Cmty. Bank & Trust Co., 346 Ill. App. 3d 113, 119–20 (2d Dist. 2003) (injuries were the natural and probable result of the insured’s enabling of the sexual abuse of minors); State Farm Fire & Cas. Co. v. Leverton, 314 Ill. App. 3d 1080, 1087 (4th Dist. 2000) (injuries were the natural and ordinary consequence of swinging at someone with a beer bottle).
[17] Cont’l Cmty. Bank & Trust Co., 346 Ill. App. 3d at 119. There is a related concern often present in the inherently harmful or illegal act cases that the injured plaintiff is attempting to “manufacture” insurance coverage for the defendant’s intentional acts by pleading them in the form of a negligence count. When there has been a conviction in a criminal court, the parties to subsequent civil litigation may be estopped from arguing that the conduct was unintentional, and therefore potentially covered, by an insurance policy. Am. Family Mut. Ins. Co. v. Savickas, 193 Ill. 2d 378 (2000). Short of a conviction, however, courts often preclude coverage by inferring the insured’s intent to injure.
[18] Viking Const. Mgmt., Inc. v. Liberty Mut. Ins. Co., 358 Ill. App. 3d 34, 43 (1st Dist. 2005) (quoting J. Yang, No Accident: The Scope of Coverage for Construction Defect Claims, at 7, 36 (PLI Litig. & Admin. Practice, Course Handbook Ser. No. 690, April 2003)).
[19] Viking Construction Management, 358 Ill. App. 3d at 43 (quoting Yang, supra note 19, at 36–37).
[20] Cherrington v. Erie Ins. Prop. & Cas. Co., 231 W. Va. 470, 745 S.E.2d 508, 520 (2013).
[21] Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 9 (Tex. 2007).
[22] Monticello Ins. Co. v. Wil-Freds Const., Inc., 277 Ill. App. 3d 697, 710 (2d Dist. 1996) (internal citations and quotations omitted). Interpreting the word “accident” to include unexpected and unintended property damage caused by allegedly faulty workmanship does not convert a CGL policy into a performance bond. See U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 887–88 (Fla. 2007). The purpose of a performance bond is to guarantee the completion of the contract upon default by the contractor. Village of Fox Lake v. Aetna Cas. & Sur. Co., 178 Ill. App. 3d 887, 911 (2d Dist. 1989). Thus, unlike an insurance policy, a performance bond benefits the owner of a project rather than the contractor. Id. at 911–12. Further, a surety, unlike a liability insurer, is entitled to indemnification from the contractor. J.S.U.B., Inc., 979 So. 2d at 888; see also Marilyn Klinger, George J. Bachrach & Tracey L. Haley, The Surety’s Indemnity Agreement: Law and Practice 4 (2d ed. 2008). Moreover, a finding that faulty workmanship constitutes an accident and therefore an “occurrence” is merely the first step in a process that necessarily must include analyzing whether there has been “property damage” and whether any of the CGL policy’s exclusions apply to the loss.
[23] Christopher C. French, “Construction Defects: Are They ‘Occurrences’?,” 47 Gonz. L. Rev. 1, 43–44 (2011).
[24] Travelers Indem. Co. of Am. v. Moore & Assoc., Inc., 216 S.W.3d 302, 308 (Tenn. 2007).
[25] Moore & Associates, 216 S.W.3d at 308.
[26] Dunning v. Dynegy Midwest Generation, Inc., 2015 IL App (5th) 140168, ¶ 65 (quoting Niffenegger v. Lakeland Constr. Co., 95 Ill. App. 3d 420, 425 (2d Dist. 1981)).
[27] State Farm Fire & Cas. Co. v. CTC Dev. Corp., 720 So. 2d 1072, 1074 (Fla. 1998) (footnote omitted).
[28] Oakley Transp., Inc. v. Zurich Ins. Co., 271 Ill. App. 3d 716, 725 (1st Dist. 1995).
[29] Cincinnati Ins. Co. v. Am. Hardware Mfrs. Ass’n, 387 Ill. App. 3d 85, 108–9 (1st Dist. 2008).
[30] 358 Ill. App. 3d 34 (1st Dist. 2005).
[31] Am. States Ins. Co. v. Koloms, 177 Ill. 2d 473, 479, 687 N.E.2d 72, 75 (1997).
[32] Koloms, 177 Ill. 2d at 479, 687 N.E.2d at 75.
[33] Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90, 115 (1992) (emphasis in original).
[34] People ex rel. Daley v. Datacom Sys. Corp., 146 Ill. 2d 1 (1991).
[35] Black’s Law Dictionary 15(6th ed. 1990).
[36] Webster’s Third New Int’l Dictionary 11 (1969).
[37] American Heritage Dictionary 71 (2d coll. ed. 1991).
[38] 144 Ill. 2d 64 (1991).
[39] 389 Ill. App. 3d 795, 801 (1st Dist. 2009).
[40] 349 Ill. App. 3d 404, 409 (5th Dist. 2004).
[41] Taylor Morrison Servs., Inc. v. HDI-Gerling Am. Ins. Co., 293 Ga. 456, 460, 746 N.E.2d 587, 591 (2013).
[42] U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 883 (Fla. 2007).
[43] Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90, 123 (1992).
[44] Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 223 Ill. 2d 352, 362-63 (2006).
[45] CGL Form CG 00 01 07 98, Insurance Services Office, Inc. (1997).
[46] Jeffery W. Stempel, Stempel on Insurance Contracts § 14.13d at 14–224.8 (3d ed. Supp. 2007).
[47] U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 879 (Fla. 2007) (alteration in original) (quoting ISO Circular, Commercial General Liability Program Instructions Pamphlet, No. GL-86-204 (July 15, 1986)).
[48] In Country Mutual Insurance Co. v. Carr, 372 Ill. App. 3d 335, 340–41 (4th Dist. 2007), a construct defect case involving a CGL policy that generally is considered to be an outlier, the Fourth District Appellate Court noted that the term “accident” had been interpreted inconsistently by Illinois courts, held that the term was ambiguous, and interpreted it to require an inquiry into whether the person performing the act intended or expected the result.
[49] Am. States Ins. Co. v. Koloms, 177 Ill. 2d 473, 479 (1997).
[50] Stoneridge, 382 Ill. App. 3d at 756.
[51] Stoneridge, 382 Ill. App. 3d at 756.
[52] If anything, the Stoneridge court’s rather tortured explanation for why its interpretation “does not necessarily render the subcontractor exception mere surplusage” (382 Ill. App. 3d at 757 n.6) only further undermines its application of the “natural and ordinary consequences” test to the “occurrence” issue.
[53] Am. Family Mut. Ins. Co. v. Am. Girl, Inc., 268 Wis. 2d 16, 43, 673 N.W.2d 65, 78 (2004); accord Sheehan Constr. v. Cont’l Cas. Co., 935 N.E.2d 160, 171, modified on other grounds, 938 N.E.2d 685 (Ind. 2010) (“[i]f the insuring provisions do not confer an initial grant of coverage, then there would be no reasons for a ‘your work’ exclusion”).
[54] Gen. Agents Ins. Co. of Am. v. Midwest Sporting Goods Co., 215 Ill. 2d 146, 154–55 (2005).
[55] Midwest Sporting Goods Co., 215 Ill. 2d 146, at 155.
[56] See Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 9 (Tex. 2007).
[57] Tangible property is considered physically injured “when the property is altered in appearance, shape, color or in other material dimension.” Travelers Ins. Co. v. Eljer Mfg., Inc., 197 Ill. 2d 278, 301 (2001).
[58] Erie Ins. Exch. v. Compeve Corp., 2015 IL App (1st) 142508, ¶ 18 (2015) (quoting Addison Ins. Co. v. Fay, 232 Ill. 2d 446, 453 (2009)).
[59] Compeve Corp., 2015 IL App (1st) 142508, ¶ 18.
[60] Compeve Corp., 2015 IL App (1st) 142508, ¶ 17.
[61] Cherrington v. Erie Ins. Prop. & Cas. Co., 231 W.Va. 470, 482–83 (2013) (adopting the position that faulty workmanship constitutes an “occurrence” under a CGL policy and quoting Henslee v. Union Planters Nat’l Bank & Trust Co., 335 U.S. 595, 600 (1949)).

[62] For further reading, the author recommends Seth D. Lamden, Michael L. Young & Mollie E. Nolan Werwas, IDC Monograph: “Exclusion of the Occurrence? Examining Illinois Courts’ Interpretation of “Coverage” in Construction Defect Cases,” 23 IDC Quarterly (4th quarter 2013), as well as the Gonzaga Law Review article by Christopher C. French cited above, “Construction Defects: Are They ‘Occurrences’?,” 47 Gonz. L. Rev. 1, 12 (2011).

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