Illinois Supreme Court Ruling Reshapes CGL Coverage for Construction Defects

A recent Illinois Supreme Court decision has significantly altered the landscape of commercial general liability (CGL) insurance coverage in the context of construction defects. This ruling challenges the long-standing view of Illinois courts that damages caused by construction defects do not constitute a covered "occurrence" under CGL policies. The case in question involved Acuity, a mutual insurance company, and its denial of a claim related to water damage allegedly caused by defective construction by H&R Exteriors in Hanover Park, a Chicago suburb. The lower courts had previously ruled in favor of Acuity, supporting the notion that such damages were not occurrences warranting CGL coverage.

However, the Illinois Supreme Court’s unanimous decision called into question the rationale behind these prior rulings. The court emphasized the need to adhere strictly to the policy’s language rather than leaning on public policy considerations. This decision aligns Illinois with other states like Florida, Texas, and Colorado, which have interpreted CGL policies to cover construction defect damages. The court’s analysis pivoted on policy language, particularly focusing on the "subcontractor exception" in modern CGL policies, which has evolved significantly from standard forms written in the 1960s and 1970s.

The implications of this ruling are substantial for the construction and insurance industries, with policyholders gaining a significant advantage. This decision not only challenges previous court interpretations in Illinois but also potentially sets a precedent for how CGL insurance is applied to construction defects across the United States. The court’s prioritization of policy language over public policy in determining coverage could prompt a reevaluation of how construction-related insurance claims are handled nationwide.