St. Paul Guardian Ins. Co. v. Walsh Constr. Co.
| Decision Date | 06 March 2023 |
| Docket Number | 15 C 10324 |
| Parties | ST. PAUL GUARDIAN INSURANCE COMPANY, et al., Plaintiffs, v. WALSH CONSTRUCTION COMPANY, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Defendant Walsh Construction Company built a steel canopy for the City of Chicago at O'Hare International Airport, using defective steel parts from its sub-subcontractor LB Steel. After the City discovered the defects and became concerned about the canopy's stability, it sued Walsh and required the construction company to perform expensive testing and repairs. Walsh, in turn, won a multi-million-dollar judgment against LB Steel, which promptly went bankrupt. LB Steel's insurers, Plaintiffs St. Paul Guardian Insurance Company, Travelers Property Casualty Company of America, and the Charter Oak Fire Insurance Company, brought this action seeking a declaratory judgment that its policies do not cover Walsh's losses. The parties cross-move for summary judgment. (Dkts. 157, 172). For the following reasons, the Insurers' motion is granted, and Walsh's is denied.
In January 2003, Walsh Construction Company contracted with the City of Chicago as a general contractor for the Facade and Circulation Enhancement (FACE) Project at O'Hare International Airport. (Dkt. 182 ¶ 17). The FACE Project involved building a steel canopy and a “steel and glass curtain wall system” and updating the terminal vestibules and airport facade. (Id. at ¶ 18). Walsh subcontracted with Carlo Steel Corporation for the fabrication, delivery, and installation of the steel and curtain wall. (Id.at ¶ 20). The Walsh-Carlo subcontract included a warranty provision through which Carlo “warrant[ed] its work against all deficiencies and defects in materials and/or workmanship.” (Id. at ¶ 21; Dkt. 158-8 at 6).
Carlo then subcontracted with LB Steel for the manufacture and supply of steel elements. (Dkt. 182 ¶ 22). The Carlo-LB Steel subcontract contained an indemnity provision: “To the furthest extent permitted by law, Subcontractor shall defend, indemnify, and hold harmless Carlo . . . and Walsh . . . as required by this Agreement for bodily injury and property damage that may arise from performance of the Subcontract Work to the extent of the negligence attributed to such acts or omissions by Subcontractor, Subcontractor's subcontractors or anyone employed directly or indirectly by any of them or by anyone whose acts any of them may be liable.” (Id. at ¶ 23; Dkt. 158-9 at 3). The Carlo-LB Steel subcontract also included a performance bond requirement and a failure-of-performance provision, which allowed Carlo-and Walsh by extension-to correct deficient performance. (Dkt. 182 ¶ 24; Dkt. 148-9 at 1, 3). LB Steel supplied thirty-one steel columns, hammerheads, and box girders supporting the canopy for the FACE Project between December 2003 and March 2004. (Dkt. 182 ¶ 25; Dkt. 189 ¶ 1).
In December 2004, the City found cracks in the welding of the canopy. (Dkt. 182 ¶ 26; Dkt. 158-36 ¶ 5). LB Steel had performed some of the welds. (Dkt. 182 ¶ 26; Dkt. 158-36 ¶ 5). Due to the cracks, Walsh and Carlo stopped paying LB Steel by January 21, 2005. (Dkt. 182 ¶ 27). In February 2005, LB Steel filed a complaint against Walsh seeking $7 million in damages. (Id.) In November 2005, the City discovered additional defective welding in one of LB Steel's columns, raising concerns about the canopy's structural integrity and leading the City's engineer to determine that further investigation was necessary. (Id. at ¶ 29; Dkt. 170 ¶¶ 29, 31-32). The City required Walsh to install shoring around the defective column. (Dkt. 170 ¶ 33; Dkt. 189 ¶¶ 5-6). The City also considered, and decided against, dismantling and rebuilding the entire canopy system. (Dkt. 189 ¶¶ 9-11).
In October 2007, third-party testing of steel samples from the canopy resulted in findings that several of LB Steel's welds did not conform with welding code, contained cracks, or were inconsistently hard. (Dkt. 182 ¶¶ 32-33). Indeed, in five out of six LB Steel welds sampled, testing revealed “incorrect weld preparation, incorrect weld execution, and [im]proper quality control.” (Id. at ¶ 33). On October 26, 2007, the City directed Walsh to design and install further shoring immediately. (Id. at ¶ 35). In February 2008, Walsh and the City entered a settlement through which Walsh agreed to conduct necessary repairs of defective steel work at its own expense according to the City's instruction. (Id. at ¶ 36). Although the majority of welds were defective, the City required Walsh to correct defects affecting the canopy's stability, including by retrofitting the steel columns. (Dkt. 170 ¶ 44-46). Since the retrofits altered the appearance of the affected terminals, the City also required Walsh to make cosmetic modifications to an additional terminal so that it matched the others. (Id. at ¶ 47). The canopy never collapsed. (Dkt. 182 ¶ 38).
LB Steel had insurance policies from St. Paul Guardian Insurance Company, Travelers Property Casualty Company of America, and the Charter Oak Fire Insurance Company. (Dkt. 182 ¶¶ 1-4). The policies at issue only apply to “property damage” resulting from an “event” or “occurrence.” (Id. at ¶¶ 5-6). The St. Paul policies define “property damage” as “physical damage to tangible property of others.” (Id. at ¶ 5). Similarly, the Travelers and Charter Oak policies define “property damage” as “physical injury to tangible property.” (Id. at ¶ 7). An “event,” under the St. Paul policies, and an “occurrence,” according to the Travelers and Charter Oak policies, have the same definition: “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Id. at ¶¶ 5, 8). The St. Paul, Travelers, and Charter Oak policies each contain exclusions for (1) damage to the products or work of the insured, (2) contractual liability, and (3) impaired property. (Id. at ¶¶ 11-14). The policies also require that the insured provide notice “as soon possible” or “as soon as practicable” following a potentially covered “event” or “occurrence.” (Id. at ¶ 10).
In April 2007, the City brought a lawsuit in the Illinois circuit court arising out of the defective design and construction of the FACE Project, alleging claims of breach of contract, breach of fiduciary duty, and contractual indemnity. (Id. at ¶ 39); City of Chicago v. Murphy/Jahn, Inc. Architects, No. 2007 L 003886. The City filed a second amended complaint on November 3, 2008, which brought claims of breach of contract and contractual indemnity against Walsh. (Dkt. 182 ¶¶ 39-42). On January 21, 2010, Walsh tendered its defense against the claims in the second amended complaint to the Insurers as an additional insured. (Id. at ¶ 43). The Insurers acknowledged their receipt of Walsh's claim on January 26, 2010 and requested additional materials from Walsh. (Dkt. 170 ¶ 50). The City's third amended complaint, filed May 21, 2010, added allegations to the breach-of-contract claim and brought a false-claims count against Walsh, which did not involve LB Steel. (Dkt. 182 ¶¶ 39, 44-47; Dkt. 170-21). The second and third amended complaints alleged that Walsh “breached its contractual obligations,” including by “providing welds containing slag and other irregularities.” (Dkt. 182 ¶¶ 40-42, 44-47). The City alleged that its damages “include[d] costs associated with investigation, loss of competitive advantage, removal, repair and/or replacement, additional costs of construction, diminution of value, and costs for consultants and attorneys.” (Id.)
The Insurers had possession of the second amended complaint by March 9, 2010. (Dkt. 170 ¶ 53). Claim notes from that day stated:
The lawsuit does allege work defects in the work that LB Steel provided for the project. [T]hey fabricated the steel. [T]o the extent that they did not follow the plans/specs that could give rise to some negligence. [N]othing in the complaint alleges damage, other than a minor mention of cracked welds.
(Dkt. 189 ¶ 30; Dkt. 159 at 10). Although Walsh gave the Insurers a copy of the City's third amended complaint on August 4, 2010, the Insurers did not defend Walsh. (Dkt. 182 ¶ 48). In September 2010, Walsh filed an answer including affirmative defenses and a three-count Counterclaim against the City. (Id. at ¶ 49). Around January 2013, Walsh agreed to pay the City $10 million out of the contract balance that the City had been holding to settle the lawsuit. (Dkt. 182 ¶ 50). Walsh settled “because of the likelihood that the City would [have been] successful in recovering damages from Walsh” based on LB Steel's deficient steel work. (Id. at ¶ 51; Dkt. 17022 ¶ 92). On February 21, 2013, the circuit court granted the parties' joint motion to dismiss the case with prejudice pursuant to the settlement. (Dkt. 182 ¶ 52).
In the same underlying litigation, Walsh filed a third-party complaint against LB Steel on June 3, 2009 and amended its third-party complaint on September 20, 2010. (Id. at ¶ 53). Walsh filed a second amended third-party complaint on March 12, 2013, which alleged counts of breach of contract, professional negligence, and fraud against LB Steel. (Id. at ¶¶ 54-55). Walsh's breach-of-contract claim arose out of the Carlo-LB Steel subcontract, which Carlo assigned to Walsh. (Id. at ¶¶ 56, 79; Dkt. 170-22 ¶¶ 97-126). For the breach-of-contract claim, Walsh sought $10 million in damages based on its settlement with the City and “over $25,000,000.00 to investigate LB Steel's defective welds...
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