A Building Falls Into the Excavation Next Door

On November 11, a three-story building in Brooklyn’s Flatbush neighborhood collapsed into the excavation next door, killing eight people and injuring 17. The cause is under investigation, and city records show the construction site next door had been cited earlier this year, including for working under a stop-work order. Preconstruction inspection records reportedly documented cracks, masonry misalignment, and a wall in poor condition on the side facing the excavation.

Was the building already failing? Did the excavation undermine it? Was the support system designed or installed badly? Those questions decide liability. New York law will govern the Brooklyn case, but if the same collapse happened in Chicago, they would also start a second fight among the defendants’ insurers, each with its own reason to prefer a particular answer.

Every Defendant Has a Theory, and So Does Every Insurer

In Illinois, injured plaintiffs could sue the developer, general contractor, excavation subcontractor, engineers, inspectors, building owner, and property manager, and each could seek contribution from the others under 740 ILCS 100/2. The developer blames the contractor, the contractor points to the engineer’s plans, and everyone points to the old building.

Contracts add a layer. Under 740 ILCS 35/1, a construction contract cannot require one party to indemnify another for its own negligence. A contract requiring a party to buy insurance is treated differently. So a developer that cannot shift its own negligence through an indemnity clause may still be covered as an additional insured on its contractor’s policy.

That is where insurers start fighting over causation before anyone has decided negligence. Suppose the contractor’s $1 million CGL policy names the developer as an additional insured. The developer’s own carrier will say the contractor’s carrier owes the defense, and the answer may turn on one phrase. If the endorsement covers injury “caused, in whole or in part,” by the contractor’s acts or omissions, the contractor’s carrier will argue that its insured followed the plans and caused nothing. If it covers liability “arising out of” the contractor’s work, fault matters far less. Whether the coverage is primary and noncontributory, and whether the construction contract actually required it, can matter as much.

The Developer’s Own Policy May Not Help

Illinois has seen this before. In Nautilus Insurance Co. v. 1452-4 N. Milwaukee Avenue, LLC, 562 F.3d 818 (7th Cir. 2009), excavation for a Chicago development damaged the neighboring Ann Sather restaurant building so badly that it had to be demolished. The developer faced claims for negligent hiring, negligent supervision, and violating Illinois’ adjoining-landowner excavation statute. Its CGL insurer denied coverage under a contractor/subcontractor exclusion. The developer argued that the claims rested on its own independent negligence. The Seventh Circuit held that the exclusion applied anyway, because the damage arose from the contractors’ work.

Combine that with an additional insured dispute. The developer’s own carrier says the loss came from excluded contractor work. The contractor’s carrier says its insured did not cause the loss. The developer defends the injury suit while litigating coverage against both.

The engineer’s professional liability carrier brings a third theory. Its policy covers negligent design; the contractor’s CGL policy covers negligent installation but often excludes professional services. Each carrier will say the loss belongs to the other, and experts hired to prove negligence end up deciding which policy pays.

The Insurers Cannot Wait for the Facts

Under Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127 (1999), an Illinois insurer facing a potentially covered claim must defend under a reservation of rights or seek a declaratory judgment. An insurer that refuses to defend without doing either, and turns out to be wrong, can be estopped from raising its policy defenses. Each carrier must commit to a position before the facts are developed.

The Excess Carrier Pays for Someone Else’s Decision

Suppose the developer has $1 million in primary coverage, a $5 million excess layer, and a $15 million layer above that. The plaintiffs offer to settle for $6 million, within the first two layers. The first excess carrier refuses, and the jury returns $15 million. The top carrier now pays $9 million that a settlement would have avoided.

Illinois courts have heard that complaint. In Schal Bovis, Inc. v. Casualty Insurance Co., 314 Ill. App. 3d 562, 732 N.E.2d 1082 (1st Dist. 1999), the court allowed an excess insurer to pursue a primary insurer through equitable subrogation for an unreasonable failure to settle. In Central Illinois Public Service Co. v. Agricultural Insurance Co., 378 Ill. App. 3d 728 (5th Dist. 2008), the court addressed what a lower excess insurer that controls the defense owes the layer above it. And in West Bend Mutual Insurance Co. v. Zurich American Insurance Co., 2016 IL App (1st) 150810-U, a nonprecedential order, a fatal trench collapse produced the same kind of dispute over a refused settlement.

The carrier deciding whether to settle is not always the one that pays for refusing. But a large verdict does not prove the refusal was unreasonable. Courts look at what the insurer knew when it said no.

Before the Carriers Frame the Story

The injury claims may settle long before the insurers stop fighting. A developer, contractor, or owner caught in the middle should not wait for the carriers to sort it out. Tender the claim to every policy that might respond, including any policy that names you as an additional insured. Pull the construction contract, certificates, and endorsements early. And do not treat the first denial as final. Ehlco puts the burden on the insurer to act, and 215 ILCS 5/155 can add fees and penalties when an insurer’s conduct is vexatious and unreasonable.

Investigators will reconstruct how the building fell. The insurance fight is over a different chain: the contracts, endorsements, exclusions, and settlement decisions that decide who pays.

We help developers, contractors, and property owners pursue additional insured coverage, challenge exclusion-based denials, and hold insurers to their defense and settlement obligations. If a construction loss has left your insurers pointing at each other, we can review the contracts and policies before positions harden. Contact us to discuss your matter.

This article provides general information and does not constitute legal advice. For guidance concerning a specific matter, see our insurance recovery services. Coverage depends on the policy wording, the facts, and applicable law. To discuss potential representation, request a consultation. Submitting an inquiry does not establish an attorney-client relationship.