Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

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TRINITY HOMES LLC v. OHIO CASUALTY INSURANCE CO. (December 22, 2010)

Literally thousands of hopeful Indiana homeowners entered into contracts with Trinity Homes, an Indiana general contractor, to construct residential housing. Trinity, in turn, delegated the actual construction of the homes to a number of subcontractors. A significant number of the homes had structural damage. Many of the homeowners sued Trinity. Trinity turned to its insurance carriers. It had multiple CGL policies as well as an umbrella policy with Cincinnati Insurance Co. When none of the insurers recognized an obligation to defend, Trinity brought suit for a declaration of coverage. Most of the CGL carriers then settled. Under the terms of the settlements, each carrier paid at least 75% of its policy limit and Trinity agreed to cover the balances. Two carriers held out. Ohio Casualty Insurance Co., a CGL carrier, argued that the damage to the homes was not "property damage" caused by an "occurrence." Cincinnati Insurance Co., the umbrella insurer, argued that the umbrella coverage was not triggered because a number of the underlying policies were not exhausted. Judge Barker (S.D. Ind.) granted both insurers' motions for summary judgment. Trinity appeals.

In their opinion, Seventh Circuit Judges Cudahy and Kanne and District Judge Darrah reversed and remanded. The Court first addressed the ruling in Ohio Casualty’s favor. In that ruling, the district court distinguished between damage to a home being built and damage to property other than the home. Relying on the Indiana Appellate Court opinion in Sheehan, it stated that the former was not covered by a standard CGL policy, while the latter was. The district court also ruled that the faulty workmanship did not constitute an "occurrence." Subsequent to the district court's ruling, the Indiana Supreme Court issued its opinion in Sheehan and reversed, holding that a standard CGL policy does cover damage to a home caused by faulty workmanship. The Court therefore reversed for reconsideration in light of Sheehan. The Court then turned its attention to the Cincinnati Insurance umbrella policy. The district court had granted summary judgment on two grounds -- first, that the settlements under the policy limits did not exhaust the underlying policies and therefore did not trigger the umbrella coverage and second, that Trinity failed to show that certain other underlying policies were unavailable. The Court disagreed on both points. With respect to the settlements, the Court concluded that the Cincinnati policy was ambiguous. As such, it must be construed in Trinity's favor. Cincinnati could have used language that made it clear that an underlying policy was not exhausted until the full policy limit was paid by the insurer. The Court found that the actual language used was susceptible to an interpretation that the policy was exhausted when the carrier paid a significant percentage of the policy limit and the insured took responsibility for the rest. Although the Court found no Indiana precedent on point, it relied on cases from the Second and Third Circuits as well as Indiana public policy encouraging settlements. With respect to the unavailability of two other CGL policies, the Court noted that Trinity offered a declaration that referred to those policies and explained the circumstances giving rise to their unavailability. The declaration was based on the declarant's personal knowledge and provided significant detail. The Court concluded that the declaration was sufficient to establish a genuine issue of fact, notwithstanding its self-serving nature.