Illinois Supreme Court Allows LPP’s Petition for Leave to Appeal

In what promises to be the most important construction defect coverage case in 38 years, the Illinois Supreme Court on January 25^th allowed LPP’s petition for leave to appeal from an Appellate Court ruling in which that court found that LPP’s insurer-client had a duty to defend a construction defect suit in which the homeowner’s association alleged economic loss in the form of the costs to repair and replace defective construction (which is not covered under settled law).  But in a transparent attempt to trigger coverage, the complaint also alleged “damage to other property,” with no allegation about the nature of the property, or who owned it.

The Circuit Court agreed with LPP that its client owed no duty to defend the suit.  The Appellate Court reversed, however.  In addition to finding that the “damage to other property” allegation might refer to the association’s own personal property (which was neither alleged in the complaint nor argued by the general contractor whose coverage was in dispute), and therefore be covered, the Appellate Court took a sweeping view of the state of construction defect coverage law in Illinois, and while stating that it need not decide whether this body of law is correct or not, nonetheless proceeded to explain why it is not correct.  The court questioned the settled principle that mere economic loss for the costs to repair or replace defective work—as opposed to the property of others—is not covered under a CGL policy.

LPP filed a petition for leave to appeal to the Illinois Supreme Court, arguing, among other things, that a 2001 Supreme Court decision involving coverage for a product defect suit, which found no coverage because it involved mere economic loss, has been followed and applied in a series of Appellate Court cases involving construction defects, and that the Appellate Court decision in this case is contrary to that 2001 Supreme Court decision and that series of Appellate Court cases.

We expect the case to be orally argued in September and decided late in 2023.

Please contact Joe Postel, if you would like to further discuss this important decision.