Zurich unit can seek flood damages from subcontractor

The Illinois Supreme Court ruled Thursday that a Zurich Insurance Group Ltd. unit can stand in for City Colleges of Chicago to seek to recover the nearly $3 million in damages the insurer paid for flood damage to a building caused by a subcontractor’s design of a stormwater collection system.

The state high court ruled in Zurich American Insurance Co. v. Infrastructure Engineering Inc. that the subrogation provisions in a builder’s risk policy issued to general contractor CMO allowed the insurer to recover the damages from Infrastructure Engineering Inc.

The justices agreed with an October 2023 ruling by the First District Appellate Court that rejected IEI’s arguments that Zurich could not bring a subrogation lawsuit because City Colleges, the owner and operator of Chicago-based Malcom X College, did not sustain a loss or receive payment from the insurer.

City Colleges contracted with CMO in April 2013 to construct an academic building and parking garage on Malcom X College’s campus. City Colleges also entered into an agreement with Moody Nolan Inc. as the architect for the project. Moody Nolan hired IEI as a subcontractor to design a stormwater management system.

CMO obtained the builders risk policy from Zurich, and City Colleges was listed as an owner and additional insured, court records show.

In August 2015, the stormwater detention system designed by IEI failed, allowing stormwater to flood the basement of the academic building. Zurich paid CMO nearly $3 million to have the damage repaired and filed a lawsuit against IEI in 2016.

The state court judge sided with IEI, ruling that the insurer could not bring a subrogation claim.

Representatives for the parties did not respond to requests for comment.