Opinion ID: 1253175
Heading Depth: 2
Heading Rank: 1

Heading: Contractor-subcontractor Exclusion

Text: Nautilus argues that it has no duty to defend because the property damage alleged in the underlying complaints is excluded by the contractor-subcontractor exclusion. In reaching the opposite conclusion, the district court emphasized that 1452 LLC might be liable based on its own conduct, not that of contractors or subcontractors, because the underlying complaints alleged that 1452 LLC failed to give the statutorily required advance notice of the excavation. Nautilus takes issue with this reasoning, noting that the contractor-subcontractor clause excludes not only property damage arising out of operations performed ... by contractors or subcontractors, but also damage arising out of 1452 LLC's own acts or omissions in connection with [its] general supervision of such operations. This language plainly knocks out coverage for claims based on negligent hiring or negligent supervision of contractors and subcontractors. It may also exclude coverage for the statutory claim if the failure to give the required notice is considered an act[ ] or omission[ ] in connection with [1452 LLC's] general supervision of [the contractors' and subcontractor's] operations. We need not decide this precise question. Under the statute, 1452 LLC was required to give adjacent property owners advance notice of the excavation; a failure to comply results in liability to adjacent property owners, their occupants, and tenants for any damage to the adjacent land or buildings arising from such excavation. 765 ILL. COMP. STAT. 140/1(2). While it is true that the statutory duty of the property owner is independent of the duties of contractors and subcontractors, there is no separate or independent compensable injury; a failure to comply gives rise to liability for any property damage arising from the excavation. Thus, the statutory claims in the underlying complaints seek recovery for the same loss as all the other claims  the property damage arising out of the faulty excavation performed by 1452 LLC's contractors and subcontractor  and coverage for that property damage is excluded by the contractor-subcontractor exclusion. In this situation, Illinois caselaw holds that there is no coverage for either of the intertwined claims. See Northbrook Prop. & Cas. Co. v. Transp. Joint Agreement, 194 Ill.2d 96, 251 Ill.Dec. 659, 741 N.E.2d 253, 254-55 (2000); Mass. Bay Ins. Co. v. Uniquet Presort Servs., Inc., 287 Ill.App.3d 741, 223 Ill.Dec. 291, 679 N.E.2d 476, 479 (1997); Oakley Transp., Inc. v. Zurich Ins. Co., 271 Ill.App.3d 716, 208 Ill.Dec. 177, 648 N.E.2d 1099, 1107 (1995). The Northbrook Property, Massachusetts Bay, and Oakley decisions all involved applications of a standard automobile exclusion in a CGL policy. The underlying lawsuits sought damages arising out of automobile accidents caused by (in Oakley and Massachusetts Bay ) the insureds' truck drivers or (in Northbrook Property ) the insured's bus driver. In Oakley, the underlying complaint stated claims against a trucking company for negligent entrustment and negligent supervision of its truck driver and sought damages for an accident caused by the driver. 208 Ill.Dec. 177, 648 N.E.2d at 1101. The automobile exclusion in the trucking company's CGL policy excluded damages arising out of the use of automobiles owned or operated by the insured. The Illinois Appellate Court held that coverage was excluded under the policy's automobile exclusion because the injury alleged in the negligent entrustment and supervision claims was not independent of, but inextricably intertwined with, the employee's use of the truck. Id. at 1107. In Massachusetts Bay, the underlying complaint alleged that the insured trucking company failed to comply with federal regulations requiring it to test its drivers for drug use and sought damages for an accident caused by one of its truck drivers while under the influence of drugs. 223 Ill.Dec. 291, 679 N.E.2d at 477. As in Oakley, the trucking company's CGL policy contained a standard automobile exclusion. The Illinois Appellate Court held that the exclusion applied because the drug-testing claim against the trucking company is specifically dependent upon the fact that [the plaintiffs'] injuries occurred in a vehicle accident. Id. at 479. In Northbrook Property, the underlying complaint alleged that the insured school districts failed to properly inspect bus routes and train bus drivers and sought damages for an accident caused by one of the districts' school-bus drivers. The Illinois Supreme Court held that the automobile exclusion in the school district's CGL policy applied: The policy excludes injuries arising from the school districts' use or operation of a motor vehicle. Allegations that the school districts inadequately planned and inspected bus routes or failed to warn bus drivers of potential hazards along the routes are nothing more than rephrasings of the fact that the students' injuries arose from the school districts' use or operation of a motor vehicle. Contrary to the appellate court's holding, the students' complaints failed to allege that the injuries arose from events wholly independent of any negligent operation of the bus. Northbrook therefore has no duty to defend the school districts in the underlying lawsuits. Northbrook Property, 251 Ill.Dec. 659, 741 N.E.2d at 254-55 (citation and internal quotation marks omitted). The same result is required here. The claims against 1452 LLC in the underlying complaints do not allege any property damage or other injury independent of the property damage caused by the botched excavation performed by 1452 LLC's contractors and subcontractor. The underlying complaints allege that 1452 LLC is liable for that property damage by virtue of having failed to give the statutorily required notice, but because the property damage alleged in the complaints falls within the terms of the contractor-subcontractor exclusion, the presence of an alternative theory of relief against 1452 LLC is insufficient to trigger coverage. The negligence and res ipsa loquitur claims against 1452 LLC also seek recovery for the same injury  property damage arising out of operations performed by 1452 LLC's contractors and subcontractor  and are therefore excluded by the contractor-subcontractor exclusion as well.