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Seventh Circuit Holds ‘Contractors and Subcontractors’ Exclusion Applies to Statutory Claims Against Insured
Insurance Law Update
Seventh Circuit U.S. Court of Appeals
In Nautilus Ins. Co. v. 1452-4 N. Milwaukee Ave., LLC, ___ F.3d ___, 2009 WL 922818, (7th Cir. (Ill.) April 7, 2009), the Seventh U.S. Circuit Court of Appeals held that a comprehensive general liability (CGL) policy’s “contractors and subcontractors” exclusion barred coverage for statutory claims against an insured, where the statutory claims did not allege any injury or damage independent of the claims that implicated the conduct of the insured’s contractors and subcontractors.
The insured, 1452-4 North Milwaukee Avenue LLC (the “developer”), was sued by its neighboring property owner for severe property damage as a result of an allegedly “botched” excavation at the developer’s property. Specifically, suits were brought against the contractor, project manager and subcontractor, and the developer, alleging a direct violation of an Illinois statute that required a property owner planning to excavate to give due notice to owners of adjoining lands. Under the statute, a failure to give notice results in liability to adjacent property owners for any property damage.
The developer tendered the defense of the lawsuit to its CGL carrier, Nautilus Insurance Company. Nautilus denied coverage and sought a declaratory judgment, arguing that it had no duty to defend because the property damage alleged was excluded under the CGL policy’s “contractors and subcontractors” exclusion. The district court disagreed, entering a declaration that Nautilus had a duty to defend the developer. The court explained that the statutory claim against the developer fell outside the contractor-subcontractor exclusion, because if the developer were found to have violated the statute it would be liable for its own conduct, and not for the conduct of contractors or subcontractors. The Seventh Circuit reversed. Citing previous Illinois decisions, the court held that the contractors-subcontractors exclusion applied to the statutory claims because the claims against the developer in the underlying complaints did not allege any property damage independent of the property damage caused by the botched excavation performed by the developer’s contractors and subcontractors.
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