                              In the

    United States Court of Appeals
                For the Seventh Circuit
                    ____________________
No. 12-1821
NAUTILUS INSURANCE COMPANY,
                                                  Plaintiff-Appellee,

                                v.

BOARD OF DIRECTORS OF REGAL LOFTS
CONDOMINIUM ASSOCIATION,
                                              Defendant-Appellant.
                    ____________________

        Appeal from the United States District Court for the
          Northern District of Illinois, Eastern Division.
           No. 10 C 425 — William J. Hibbler, Judge.
                    ____________________

   ARGUED NOVEMBER 4, 2013 — DECIDED AUGUST 21, 2014
                    ____________________

   Before EASTERBROOK, KANNE, and TINDER, Circuit Judges.
    TINDER, Circuit Judge. A condominium board, Regal Lofts
Condominium Association, appeals the grant of summary
judgment in a declaratory judgment action filed by Nautilus
Insurance Company. The condominium board argues that
water damage to individual units, the product of poor con-
struction by the developer, should be covered by policies is-
sued to the developer by the Nautilus. We review the policy
2                                                 No. 12-1821

language in question and find that the developer’s shoddy
workmanship, of which the condominium board complains,
was not covered by the developer’s Nautilus policies; that
the insurance company did not unduly delay in pursuing
this declaratory suit; and that the alleged damage to resi-
dents’ personal property occurred after the portions of the
building in question were excluded from the scope of cover-
age.
                               I
    In 1998, a group of individuals and corporations formed
a limited liability company, 1735 W. Diversey, LLC (“Devel-
oper”), to renovate a vacant building in Chicago. (Among
those who formed the Developer were individuals Ronald
Shipka, Sr., Ronald Shipka, Jr., and John Shipka, who were
also named as insureds in the Developer’s various insurance
policies. Because the fates of the individuals in this matter
run with that of the company, we’ll refer to all insureds col-
lectively as the Developer.)
    As was evident from the Developer’s name, it intended
to convert a vacant building located at 1735 West Diversey
Parkway into a condominium called the Regal Lofts. It did
so, gutting completely the five-story building and refitting it
with residential units. In connection with this renovation,
the Developer purchased two Commercial Lines Policies
from Nautilus Insurance Company. The first policy covered
the period from June 1998 through June 1999, and the sec-
ond, June 1999 to June 2000. These policies’ scope of cover-
age takes center stage in the present litigation.
No. 12-1821                                                3



                              A
   The two insurance policies in question, identical for all
purposes of this litigation, cover bodily injury and property
damage liability under the following provisions:
      1. Insuring Agreement.
            a. We will pay those sums that the in-
               sured becomes legally obligated to
               pay as damages because of “bodily
               injury” or “property damage” to
               which this insurance applies. We
               will have the right and duty to de-
               fend any “suit” seek those damages.
               We may at our discretion investigate
               any “occurrence” and settle any
               claim or “suit” that may result. …
            b. This insurance applies to “bodily in-
               jury” and “property damages” only
               if:
               (1) The “bodily injury” or “property
               damage” is caused by an “occur-
               rence” …; and
               (2) The “bodily injury” or “property
               damage” occurs during the policy
               period.
   “Property Damage” encompasses
              a. Physical injury to tangible property,
                 including all resulting loss of use of
                 that property. All such loss of use
                 shall be deemed to occur at the time
4                                                  No. 12-1821

                 of the physical injury that caused it;
                 or
              b. Loss of use of tangible property that
                 is not physically injured. All such
                 loss of use shall be deemed to occur
                 at the time of the “occurrence” that
                 caused it.

    An “occurrence” is defined in the policies as “an acci-
dent, including continuous or repeated exposure to substan-
tially the same general harmful conditions.” Neither policy
defines what constitutes an “accident.”
    The policies contain three exclusions that are relevant to
this matter. First, the policies exclude property damage to
“that particular part of real property on which you or any
contractors or subcontractors working directly or indirectly
on your behalf are performing operations, if the ‘property
damage’ arises out of those operations.” Another exclusion
takes out of the scope of coverage property damage to “that
particular part of any property that must be restored, re-
paired or replaced because ‘your work’ was incorrectly per-
formed on it.” Lastly, both policies contain an endorsement
entitled “Exclusion—Products-Completed Operations Haz-
ard.” As the name may suggest, this endorsement provides
that “[t]his insurance does not apply to ‘bodily injury’ or
‘property damage’ included within the ‘products-completed
operations hazard,’” a term that is structured slightly differ-
ently in the two policies, despite reflecting identical content.
Both policies define that the exclusion encompasses “all
‘bodily injury’ and ‘property damage’ occurring away from
premises you own or rent and arising out of ‘your product’
or ‘your work’ except: (1) Products that are still in your
No. 12-1821                                                 5

physical possession; or (2) Work that has not yet been com-
pleted or abandoned.” Relatedly, the policies provide that
    “Your work” will be deemed completed at the ear-
liest of the following times:
              (1) When all of the work called for in
              your contract has been completed,
              (2) When all of the work to be done at the
              site has been completed if your contract
              calls for work at more than one site, or
              (3) When that part of the work done at a
              job site has been put to its intended use
              by any person or organization other than
              another contractor or subcontractor
              working on the same project.
   In addition, the policies state that “[w]ork that may need
service, maintenance, correction, repair or replacement, but
which is otherwise complete, will be treated as completed.”
                              B
    The construction of Regal Lofts was completed in 2000.
The Regal Lofts Condominium Association (“the Board”)
was formed to govern the common areas of the building,
and on July 27, 2000, the Developer transferred control of the
condo association to an elected board of individual unit
owners, though it still owned eleven units. As early as May
2000, however, one homeowner was aware of water damage
issues in the building. In November 2000, another home-
owner complained that water had been leaking into his
unit—whenever it rained—for at least two months. In 2005,
the Board hired a building consulting firm to survey the
building and investigate the cause of the leakage. The firm
6                                                 No. 12-1821

noted that the exterior brick masonry walls were not fully
waterproofed, as evidenced by water leakage, buildup of ef-
florescence in the interior surfaces of the brick walls, and
spalling (breaks and cracks) in some of the walls. The con-
sulting firm concluded that the deteriorated conditions had
likely developed over many years, even prior to the condo-
minium conversion, but that the present water penetration
was the result of inadequate restoration of the walls to a wa-
ter-tight, serviceable condition.
    Thus began a cascading series of litigation. In January
2008, the Board sued the Developer in Illinois state court on
behalf of the individual homeowners. (We will call this the
“underlying action” or the “state court action.”) The six-
count complaint alleged, inter alia, that the Developer had
failed to properly construct the exterior walls and that the
structural defects required rebuilding or repair. Shortly after
this suit was first filed, the Developer tendered the matter to
Nautilus and requested that the insurance company indem-
nify the Developer and defend against the lawsuit. Nautilus
denied coverage under both policies. In June 2008, the Board
amended its initial complaint to add a count of negligence;
the Developer tendered this amended complaint, but Nauti-
lus again denied coverage. In August 2009, the Board again
amended the complaint to detail with more specificity the
Developer’s alleged negligence. This second amended com-
plaint was the first time that the Board alleged that the De-
veloper’s negligence had caused damages to personal prop-
erty within the building, in addition to the interior of the
building and the building itself. The Developer once again
tendered this complaint to Nautilus, requesting coverage.
No. 12-1821                                                  7

   Alas, the third time was not quite the charm. In lieu of
accepting the matter, Nautilus filed this declaratory judg-
ment action against the Developer and the Board in Illinois
federal court. In its answer to Nautilus’s complaint, the De-
veloper asserted several affirmative defenses, including es-
toppel, and brought a counterclaim against Nautilus, claim-
ing that it had breached its duty to defend the Developer in
the underlying action. The Developer then filed a motion for
summary judgment in October 2010.
    The district court denied this motion on several grounds.
First, it held that the initial complaint and first amended
complaint in the state court action did not give rise to a duty
to defend by Nautilus, because in order for a construction
defect to be classified as an “occurrence” under Illinois law,
it must damage something other than the project itself. The
first two iterations for the Board’s complaint alleged only
damage to the building itself, and so it was only with the
second amended complaint in the underlying action—
alleging, for the first time, damages to personal property—
that the matter could have been potentially within the scope
of the policies’ coverage. However, the district court held
that Nautilus correctly argued that the products-completed
operations hazard exclusion applied to the personal proper-
ty damage alleged in the second amended complaint.
    Meanwhile, in June 2011, the Board settled its claim with
the Developer in the underlying action, and the Developer
assigned to the Board all rights against Nautilus. The Board
thus stepped in to contest Nautilus’s motion for summary
judgment, and, eventually, to pursue this appeal.
  In March 2012, the district court granted summary judg-
ment in favor of Nautilus. The grant of summary judgment
8                                                 No. 12-1821

turned on the same questions of law as were implicated in
the district court’s denial of the Developer’s summary judg-
ment motion: in both decisions, the court held that the water
damage at question in the underlying action was not an “oc-
currence” under Nautilus’s policies, because Illinois law in-
terpreting insurance contracts provides that damage to a
construction project resulting from faulty workmanship is
not an “accident.” It also held that the products-completed
operation hazard exclusion clearly applied to the personal
property damage alleged in the second amended complaint,
and that there was no genuine issue of material fact regard-
ing this issue. Given these facts, the district court concluded
that Nautilus had no duty to defend or indemnify the De-
veloper in the state court matter. The Board timely appealed.
                              II
    “We review the district court’s interpretation of the in-
surance policies and the resulting grant of summary judg-
ment de novo.” Netherlands Ins. Co. v. Phusion Projects, Inc.,
737 F.3d 1174, 1177 (7th Cir. 2013). The Board appeals the
district court’s grant of summary judgment on three
grounds. First, it asserts that the property damage at issue in
the underlying action was caused by a covered “occur-
rence,” and that Nautilus had a duty to defend and indemni-
fy the Developer in the state law action. Second, it argues
that Nautilus should have been estopped from asserting a
coverage defense because it took no action for almost two
years after it first received notice of the state court action.
Lastly, it argues that the completed products exclusion does
not apply to the personal property damage alleged in the
Board’s second amended complaint, or that there exists a
genuine question of material fact as to whether the exclusion
No. 12-1821                                                      9

applies. It asserts that the initial discovery of the water dam-
age, as attested to in an affidavit by one homeowner, oc-
curred in May 2000. According to the Board, this date was
before the Developer ceded control of the building pursuant
to a written agreement in July 2000, and therefore before the
date that the Developer completed its work.
   We consider these arguments in turn.
                                A
    We first turn to the question of whether the property
damage at issue in the state court action gave rise to a duty
to defend by Nautilus. “To determine whether an insurer
has a duty to defend its insured from a lawsuit, a court must
compare the facts alleged in the underlying complaint to the
relevant provisions of the insurance policy.” Valley Forge Ins.
Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307, 314 (Ill. 2006). “If
the facts alleged fall within, or potentially within, the poli-
cy’s coverage, the insurer is obligated to defend its insured
… even if only one of several theories of recovery alleged in
the complaint falls within the potential coverage of the poli-
cy.” Id. at 314–15 (citations omitted). However, if “it is clear
from the face of the underlying complaint that the allega-
tions set forth in the complaint fail to state facts that bring
the case within, or potentially within, the coverage of the
policy,” the insurer may deny coverage. Id. at 315. Nautilus
correctly argues that the Board’s original and first amended
complaints did not allege facts that would bring the case
even potentially within the coverage of the policies. This is
because those complaints alleged damage only to the build-
ing itself, and Illinois law is clear that damage to the build-
ing itself was not an “occurrence” within the meaning of the
policies.
10                                                    No. 12-1821

    By their terms, the policies apply to “property damage”
only if such damage is caused by an “occurrence,” which is
defined as “an accident, including continuous or repeated
exposure to substantially the same general harmful condi-
tions.” While the policies do not define the term “accident,”
in interpreting insurance policies, “Illinois courts have de-
fined ‘accident’ as an unforeseen occurrence, usually of an
untoward or disastrous character or an undesigned, sudden,
or unexpected event of an inflictive or unfortunate charac-
ter.” Westfield Nat’l Ins. Co. v. Cont’l Cmty. Bank & Trust Co.,
804 N.E.2d 601, 605 (Ill. App. Ct. 2003) (citation omitted).
Moreover, “[t]he natural and ordinary consequences of an
act do not constitute an accident.” Id. Applying this principle
in the context of development and building construction,
several Illinois cases have held that “damages that are the
natural and ordinary consequences of faulty workmanship
do not constitute an ‘occurrence’ or ‘accident.’” Stoneridge
Dev. Co. v. Essex Ins. Co., 888 N.E.2d 633, 652 (Ill. App. Ct.
2008) (collecting cases). To hold otherwise and “[f]ind[] cov-
erage for the cost of replacing or repairing defective work,”
Stoneridge reasoned, “would transform the policy into some-
thing akin to a performance bond.” Id. at 653 (quoting Trav-
elers Ins. Co. v. Eljer Mfg., Inc., 757 N.E.2d 481, 503 (Ill. 2001)
(internal quotation marks and citations omitted)). Another
reason to disfavor such an interpretation is that “insurance
proceeds could be used for damages from defective work-
manship,” or “a contractor could be initially paid by the cus-
tomer for its work and then by the insurance company to re-
pair or replace the work.” Lagestee-Mulder, Inc. v. Consol. Ins.
Co., 682 F.3d 1054, 1057 (7th Cir. 2012) (quoting CMK Dev.
Corp. v. W. Bend Mut. Ins. Co., 917 N.E.2d 1155, 1168 (Ill.
App. Ct. 2009)) (internal quotation marks omitted). In order
No. 12-1821                                                             11

to avoid such undesirable outcomes, Illinois courts require
that for an incident to constitute an “occurrence” or “acci-
dent” in the building construction context, “there must be
damage to something other than the structure, i.e., the build-
ing, in order for coverage to exist.” Viking Constr. Mgmt., Inc.
v. Liberty Mut. Ins. Co., 831 N.E.2d 1, 16 (Ill. App. Ct. 2005)
(citations omitted). “[T]he natural and ordinary consequenc-
es of defective workmanship … d[o] not constitute an ‘oc-
currence.’” Id. 1
    Nautilus points out, and the Board does not seriously
dispute, that the allegations in the original and first amend-
ed complaint in the underlying action involved only damage
to the building itself, nothing more. Damage of this nature is
clearly not an “occurrence” under Illinois law. The Board
tries to circumvent this clear principle of law by inexactly
describing the disposition below, referring to the “Underly-
ing Complaints” collectively, and in so doing misrepresents
the district court’s holding. See Appellant’s Br. at 7 (“The
lower Court concluded that in conformity with the require-
ments of the Nautilus Policies, the Underlying Complaints
include allegations that constitute ‘property damage’ caused
by a covered ‘occurrence’ … .”). This brisk gloss obscures the
fact that the first two complaints did not allege a covered
“occurrence.” It was not until the second amended com-
plaint that personal property damage was alleged, and thus
there was an alleged “occurrence” that could potentially
come within the scope of Nautilus’s policy language. The

1There is one Illinois case that suggests a contrary rule. See Country Mut.
Ins. Co. v. Carr, 867 N.E.2d 1157, 1162 (Ill. Ct. App. 2007). However, Carr
appears to be an outlier, and it was roundly criticized in Stoneridge, 888
N.E.2d at 651.
12                                                   No. 12-1821

district court did not err in finding that the initial complaint
and the first amended complaint in the state court action did
not give rise to a duty to defend by Nautilus.
                                B
    Before we move to the question of whether the second
amended complaint gave rise to Nautilus’s duty to indemni-
fy, we quickly address the Board’s assertion that Nautilus
should be estopped from raising any policy defenses be-
cause it unreasonably dawdled in filing its declaratory
judgment action. The Illinois Supreme Court has stated that
       Generally, where a complaint against an in-
       sured alleges facts within or potentially within
       the coverage of the insurance policy, and when
       the insurer takes the position that the policy
       does not cover the complaint, the insurer must:
       (1) defend the suit under a reservation of
       rights; or (2) seek a declaratory judgment that
       there is no coverage. If the insurer fails to take
       either of these actions, it will be estopped from
       later raising policy defenses to coverage.
Standard Mut. Ins. Co. v. Lay, 989 N.E.2d 591, 596 (Ill. 2013).
To avoid estoppel, the insurer must take one of these actions
“within a reasonable time of a demand by the insured.”
Korte Constr. Co. v. Am. States Ins., 750 N.E.2d 764, 770 (Ill.
App. Ct. 2001).
    In evaluating Nautilus’s actions to determine if it did act
within a reasonable amount of time, the Board urges us to
calculate the time elapsed from the very first tender of the
Board’s original complaint in the underlying action to Nauti-
lus’s filing of the declaratory action. By this measure, twen-
No. 12-1821                                                    13

ty-three months passed before Nautilus filed the declaratory
action. The Board is correct that twenty-three months would
likely be an unreasonable delay. See, e.g., W. Am. Ins. Co. v.
J.R. Constr. Co., 777 N.E.2d 610, 620 (Ill. App. Ct. 2002) (find-
ing a 21.5 month delay unreasonable).
    However, the timeframe presented by the Board is not
the proper one with which to evaluate whether Nautilus is
estopped. “Application of the estoppel doctrine is not ap-
propriate if the insurer had no duty to defend, or if the in-
surer’s duty to defend was not properly triggered.” See
Emp’rs Ins. of Wausau v. Ehlco Liquidating Trust, 708 N.E.2d
1122, 1135 (Ill. 1999). As discussed, there was no covered
“occurrence” alleged until the Board filed its second amend-
ed complaint in the state court action. Because Nautilus had
no colorable duty to defend against the original complaint or
the first amended complaint, we must measure the time be-
tween when the Developer tendered the second amended
complaint—the first one alleging personal property damage,
as thus the first with facts that could give rise to a duty to
defend—and when Nautilus filed the declaratory action.
Measured that way, Nautilus acted within five months of
being informed about the Board’s second amended com-
plaint, and sixteen months before the Developer settled with
the Board. The Board does not argue that such a delay was
unreasonable; if made, that argument would be contrary to
what has been recognized in Illinois courts as a length of
time insufficient to trigger estoppel. See, e.g., Westchester Fire
Ins. Co. v. G. Heileman Brewing Co., 747 N.E.2d 955, 965 (Ill.
App. Ct. 2001) (estoppel did not apply where insurer filed
declaratory judgment action six months after receiving no-
tice of the lawsuit and fifteen months before it was settled).
14                                                No. 12-1821

We thus decline to estop Nautilus from asserting its policy
defenses.
                              C
    That brings us to the heart of the matter: whether the dis-
trict court correctly concluded that the personal property
damage alleged in the Board’s second amended complaint
fell within the policies’ products-completed operations haz-
ard exclusion, and thus failed to give rise to a duty to defend
or indemnify by Nautilus. The exclusion removes from the
scope of coverage any bodily injury or property damage that
occurs “away from premises [the Developer] own[s] or
rent[s] and arising out of” the Developer’s product or work,
but the policies continue to cover work that hasn’t yet been
completed or abandoned. Unsurprisingly, the Board argues
that the water damage occurred before work on the building
was completed, while Nautilus argues that once residents
moved into the building, it was completed under the terms
of the insurance policies. The key contractual provision on
which their arguments turn is the following, defining when
exactly work has been completed by the Developer for the
purposes of the completed products exclusion:
   “Your Work” will be deemed completed at the
earliest of the following times:
          (1) When all of the work called for in your
              contract has been completed.
          (2) When all of the work to be done at the
              site has been completed if your contract
              calls for work at more than one site.
          (3) When that part of the work done at a job
              site has been put to its intended use by
No. 12-1821                                                   15

              any person or organization other than
              another contractor or subcontractor
              working on the same project.

    Read as a whole, this provision implies that the insured’s
work can be completed in different phases, with subsets of
an insured’s work falling out of the scope of coverage as
they are completed. For example, under a reasonable read-
ing of subclause (2), if a contract calls for work at three dif-
ferent sites, it is clear that an insured’s completion of work at
Site 1, while Sites 2 and 3 remain in progress, does not take
all three sites out of the scope of coverage. That partial com-
pletion will serve to exclude only bodily injury or property
damage that takes place at Site 1. Applying a similar inter-
pretive gloss to subclause (3), it appears that completion can
likewise take place in a piecemeal manner. The policies no
longer cover each part of the work that has been put to its
intended use by a non-contractor.
    The second amended complaint in the state court action
alleges that the Developer sold individual condominium
units to homeowners represented by the Board, and that
damage occurred to the personal property of these individu-
al homeowners, who had moved the personal property into
their units. The district court correctly surmised that the
owners’ moving of their personal property into the units in-
dicates that the owners were putting the condominium
units—at least the ones that had been completed and sold—
to their intended use, thereby taking those units out of the
scope of coverage under subclause (3). The Board argues
that the units could not have been put to their intended use
while the residents lacked access to the common areas. But it
strains the English language to say that the intended use of
16                                                 No. 12-1821

one area of the building must subsume the intended use of
another area. Under any reasonable examination of the facts,
the individual condominium units were intended to provide
private living areas to their owners. There was no evidence
in this case that the inability to access certain common areas
interfered with the intended use of any of the individual
units. We cannot see how the completed work exclusion
does not apply to the damage incurred on those premises. At
best, the Board’s interpretation could provide a basis for the
more specific argument that residents’ personal property left
in the common areas before they were completed, and sub-
sequently damaged, would be within the scope of the poli-
cies’ coverage—but that is not the Board’s argument here.
    The Board presents two additional arguments with re-
gard to the completed products exclusion. First, it analogizes
the present case to U.S. Fid. & Guar. Co. v. Brennan, 410
N.E.2d 613 (Ill. App. Ct. 1980), which construed a complet-
ed-operations exclusion similar to the one at issue here. The
insured was a contractor hired to install HVAC units on the
roofs of two school buildings, and the school district brought
claims alleging that the contractor’s faulty installation led to
leaking and water damage inside the school buildings. The
insurer brought a declaratory judgment action, but the trial
court entered declaratory judgment in favor of the insured,
finding that the exclusion did not clearly apply and thus the
insurer had a duty to defend. The Illinois Court of Appeals
affirmed, finding that the evidence did “not establish with
certainty that the alleged water damage occurred after de-
fendant left the job or even that it occurred after the district
started using the installed equipment.” Id. at 616. However,
unlike in Brennan, the damage at issue in this matter certain-
ly occurred after the residents began to use the condominium
No. 12-1821                                                   17

units for their intended use. The Board concedes that the res-
idents had moved their personal property in the condomini-
um units. That unambiguously establishes that the intended
use had begun by the time any destruction of personal prop-
erty occurred because of the water leakage.
    Second, the Board argues that the Developer’s continued
work on the common areas of the building indicates that the
building was still a “premise[] [the Developer] own[ed] or
rent[ed]” at the time of the initial water damage. But this
reading—treating ownership or possession of one part of the
building as equivalent to ownership or possession of the
whole building—would essentially nullify subclause (3) by
merging it with subclause (1), requiring that all of the work
at the building be completed before the insured’s work is
considered complete. That interpretation would “offend[] a
well-settled principle of contract construction: a contract
must not be interpreted in a manner that nullifies provisions
of that contract.” Atwood v. St. Paul Fire & Marine Ins. Co., 845
N.E.2d 68, 71 (Ill. App. Ct. 2006). We decline to adopt such
an interpretation. Instead, we conclude that the residential
units in question had been completed, and that any personal
property damage sustained therein was excluded by the
completed products exclusion.
                               III
    For the foregoing reasons, we AFFIRM the judgment of the
district court.
