What Does your Insurance Policy Actually Cover?

New York Ends the Year with Onerous New Insurance Coverage Disclosure Rules for Defendants in Product Liability Litigation | Product Liability Advocate

Insurance is a key part of managing risk and protecting against unexpected financial losses. Individuals and businesses alike can benefit from the right coverage, whether it be your personal auto policy, commercial general liability policy, or property damage coverage. But don’t assume that just because you have a policy you are fully covered. Insurance policies are often full of exclusions and fine print. Even with the most reputable insurers, policies are rarely “one size fits all.”

A recent Illinois appellate court decision is a prime example. In Farmers Insurance Exchange v. Cheekati, et al., 2022 IL App (4th) 210023, the insureds were homeowners who, while unable to sell their property, rented it to a tenant. That tenant was injured when a defective staircase at the home collapsed. The insureds made a claim under their homeowner’s policy with Farmers, undoubtedly expecting they would be covered for the injury occurring in their home. They were not—Farmers denied coverage based on two policy exclusions: the first preluded coverage for bodily injury to any insured or any “resident of the residence premises;” the second precluded coverage for bodily injury “in connection with the rental or holding for rental” of the premises. Based on those exclusions, the appellate court affirmed the trial court’s judgment in favor of Farmers, declaring that it had no duty to defend or provide coverage to its insureds.

The lesson here: review your policy documents carefully and make sure you are getting the coverage you think you are paying for. For more information regarding these or similar issues, please contact Mark L. Evans at mevans@lgattorneys.com or (312) 368-0100.

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Buyers of New Construction Beware: The Breach of Implied Warranty of Habitability in Illinois Further Erodes

New Construction Home Title Search | Title Stream

Historically, the purchaser of a newly constructed home took the property at his or her own risk if they failed to discover a hidden or latent defect in the home’s design or construction prior to the closing of the sale. It used to be that after the sale closed an aggrieved buyer of new construction would not be able to pursue claims against the developer who performed the shoddy work. In 1979, the Illinois Supreme Court recognized the harshness of the doctrine of caveat emptor and out of the ashes of disappointed expectations rose the doctrine of breach of the implied warranty of habitability – a legal theory that protects a purchaser’s legitimate expectation that the home will be reasonably suited for its intended use. Quite recently, an Illinois Appellate Court took steps to further erode the already fading implied warranty of habitability when the buyer, who usually purchases the new construction from a developer, tries to sue the company that performed the shoddy work – the contractor – directly.

In 1400 Museum Park Condominium Association v. Kenny Construction Company, et al, an Illinois Appellate Court held that a buyer of new construction may not pursue a claim for breach of the implied warranty of habitability against the general contractor responsible for the shoddy construction. The court’s reasoning was based in part on the Illinois Supreme Court’s recent decision in Sienna Court Condominium Association v. Champion Aluminum Corporation, 2018 IL 122022 holding that a purchaser of a newly constructed condominium cannot pursue a claim for breach of the implied warranty of habitability against a subcontractor where the subcontractor had no contractual relationship with the purchaser. Because the implied warranty of habitability is a creature of contract law, the Supreme Court reasoned that in order for an implied warranty to exist, the buyer must have a contractual relationship with the subject of his or her ire – the subcontractor. Because there was no contractual privity between the buyer and the subcontractor, the Illinois Supreme Court held that regardless of the nature of the defect, no cause of action existed between the purchaser and the subcontractor.  While the unit owners and condo association in 1400 Museum Park Condominium Association could have pursued a direct action against the developer with whom they had a contract, as is often the case, once the developer sold all of the units, the developer had no assets and was insolvent and suing the developer would have been pointless. The purchasers, therefore, were left to sue the general contractor directly. Although the general contractor obviously had a contract with the now-defunct developer, that relationship was insufficient to permit the condo purchasers, with whom no contractual relationship existed, to directly sue the contractor that actually performed the work for breach of the implied warranty of habitability.

Construction law in Illinois is constantly evolving.  While general contractors and sub-contractors welcome these recent court decisions, for owners, the pendulum may be slowly swinging back to the days of caveat emptor. For more information regarding regarding these, or similar issues, please contact Howard L. Teplinsky at hteplinsky@lgattorneys.com or (312) 368-0100.

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