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The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

Wet Basement Dispute Lands Illinois Union in Court

June 18th, 2012 - A New Hampshire insurer has sued Illinois Union Insurance Co. in an effort to recover nearly half a million dollars spent settling a claim from homebuyers whose basement was improperly built.

North American Capacity Insurance Co. had issued a general liability policy effective Feb. 1, 2003, to homebuilder Reynen & Bardis Development LLC. ACE Group unit Illinois Union had similarly sold general liability coverage to Sommerkal Construction Inc., effective for a one-year period beginning July 1, 2001.

On Dec. 18, 2006, homeowners Bradley and Ximena Pearson sued Reynen & Bardis, claiming defects in the construction of concrete post-tension and slab foundation of their home in Rancho Murrieta, California. Damage was allegedly caused in part by intrusion of moisture through the negligently constructed slab.

Reynen & Bardis then cross-complained against Sommerkal, which it had sub-contracted to install the post-tension slab. Sommerkal then tendered its defense and indemnification to Illinois Union. But the insurer allegedly denied the tender, claiming that escrow on the home closed after its policy had expired.

Attorneys for Sommerkal pointed out that the home was built prior to the expiration of the Illinois Union policy, and that their experts opined that the damages occurred prior to the February, 2002, execution of the sales contract for the home.

Reynen & Bardis settled with the Pearsons, paying them $600,000. Then Sommerkal stipulated entry of judgment against it, totaling $471,313 in favor of North American.

Under California Insurance Code, North American is now a third-party beneficiary of the Illinois Union policy, and it said it is entitled to immediate payment from the defendant. It charged Illinois Union in U.S. District Court in Sacramento with breach of contract and breach of good faith and fair dealing and asked the court to award it the Sommerkal judgment amount, plus legal fees.

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