Chris Pickett and David Osborne Secure a Significant Win for Insurers Defending Construction Defect Claims under a Reservation of Rights

Chris Pickett and David Osborne recently secured a significant win for insurers defending construction defect claims in Illinois under a reservations of rights.  Specifically, the Northern District of Illinois found in favor of the insurer-client, holding that it had the right to control the defense with its own panel counsel and that, in turn, the insured was not entitled to independent counsel at the client’s expense, even though the insurer was defending under a reservation of rights.

This decision is of particular importance because Illinois courts have recently expanded coverage for such construction claims, finding that where a subcontractor’s defective work resulted in damage to other parts of the construction project, that other damage was potentially covered and, therefore, insurers had a duty to defend such claims. This expansion of the duty to defend led to the dispute at issue, where the insurer agreed to defend a construction defect suit, but reserved its right to deny indemnity for damage to the insured’s own work.

The insurer appointed panel counsel, but the insured objected, claiming that such a reservation created a conflict that required independent counsel.  The insured filed suit and the parties filed cross-motions for summary judgment on the conflict question.  Judge Feinerman agreed with LPP’s arguments, finding that the reservation of rights did not give rise to any conflict that required independent counsel.  This ruling significantly impacts the defense of construction defect claims as it will allow for insurers to retain control of the defense of such claims with their own panel counsel, making this litigation less costly and more efficient.