Seventh Circuit Finds Coverage for Insured Contractors That Built Defective Homes

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In Trinity Homes LLC v. Ohio Cas. Ins. Co., ___ F.3d___, 2010 WL 5174967 (7th Cir. (Ind.) December 22, 2010), the U.S. Court of Appeals for the Seventh Circuit considered whether faulty subcontractor work was “property damage” caused by an “occurrence” under commercial general liability (CGL) policies issued to plaintiffs by Ohio Casualty, and whether underlying settlements for partial limits constituted “exhaustion” under umbrella policies issued by Cincinnati Insurance Company (CIC). The district court granted summary judgment in favor of Ohio Casualty and CIC on these issues, but the Seventh Circuit Court of Appeals reversed.

In reviewing the first issue, the court considered Sheehan Construction Co. v. Cont’l Cas. Co., 935 N.E.2d 160 (Ind. 2010), an Indiana Supreme Court case that had not yet been decided at the time the district court granted summary judgment. That case made it clear that a standard CGL policy covers a subcontractor’s unintentional shoddy workmanship. Thus, the court reversed the summary judgment for Ohio Casualty in light of the new precedent.

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