Does General Coverage Provision of CGL Policy Covers Damages Resulting from Breach of Contract ?
In Indiana Insurance Co. v. Hydra Corp., 245 Ill. App. 3d 926, 615 N.E.2d 70, 185 Ill. Dec. 775 (1993) Hydra and B.K.
Production Specialists (B.K.) entered into a contract whereby Hydra was to construct a building for B.K. Hydra Corp., 245 Ill. App. 3d at 927.
B.K. filed a demand for arbitration against Hydra because the concrete floor developed cracks and the outside of the building was unsightly. Hydra Corp., 245 Ill. App. 3d at 928.
After Hydra refused to pay the amount awarded by the arbitrator, B.K. filed a breach of contract action against Hydra, who tendered defense of the suit to Indiana Insurance Company, its insurance carrier.
In response, Indiana filed a complaint for declaratory judgment, seeking a declaration that it had no duty to defend. Hydra Corp., 245 Ill. App. 3d at 928.
The trial court entered judgment on the pleadings in favor of Indiana, finding that B.K.'s breach of contract claim against Hydra was not an occurrence within the coverage of the policy. Hydra. Corp., 245 Ill. App. 3d at 927.
On appeal, the court found that the underlying complaint alleged only that Hydra breached its contractual obligations to furnish its work in a workmanlike manner and that "there was no evidence of any unpleaded facts which reveal B.K.'s damages to be other than from Hydra's alleged breach of contract." Hydra Corp., 245 Ill. App. 3d at 929.
The Hydra Corp. court concluded that the general coverage provision of the Commercial General Liability (CGL) policy did "not provide coverage for damages resulting from breach of contractual obligations, as was the basis for B.K.'s complaint against Hydra." Hydra Corp., 245 Ill. App. 3d at 929.
Accordingly, the court held that Indiana owed no duty to defend. Hydra Corp., 245 Ill. App. 3d at 932. See also Aetna Casualty & Surety Co. v. Spancrete of Illinois, 726 F. Supp. 204, 206 (N.D. Ill. 1989) (holding that the general coverage provision of a CGL policy did not provide coverage for damages resulting from a breach of contract claim alleged against a subcontractor by a general contractor in an underlying lawsuit).