United Fire & Cas. Co. v. Prate Roofing & Installations, LLC

• Decision Date: 30 July 2021
• Docket Number: No. 19-3043,19-3043
• Citation: 7 F.4th 573
• Parties: UNITED FIRE & CASUALTY COMPANY, Plaintiff-Appellant, v. PRATE ROOFING & INSTALLATIONS, LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

7 F.4th 573

UNITED FIRE & CASUALTY COMPANY, Plaintiff-Appellant,

v.PRATE ROOFING & INSTALLATIONS, LLC, Defendant-Appellee.

No. 19-3043

United States Court of Appeals, Seventh Circuit.

Argued November 5, 2020

Decided July 30, 2021

Rehearing and Rehearing En Banc Denied August 31, 2021

David B. Mueller, Attorney, Cassidy & Mueller, Peoria, IL, for Plaintiff-Appellant.

Catherine Basque Weiler, Attorney, Swanson, Martin & Bell, LLP, Chicago, IL, for Defendant-Appellee.

Before Sykes, Chief Judge, and Hamilton and Scudder, Circuit Judges.

Hamilton, Circuit Judge.

The questions in this appeal arose from a fatal on-the-job accident on a commercial roofing project. The central question is whether a liability insurer for a roofing contractor owed a duty to defend another roofing contractor that was an "additional insured" under its policy. The policy covered the "additional insured" only for any vicarious liability it might incur as a result of actions or omissions by the named insured.

The insurer argues that because its named insured was an independent contractor, Illinois law would not—could not —impose any liability on the additional insured, so that there was no risk of covered liability and thus no duty to defend. The district court rejected this reasoning. The court explained that the duty to defend depends on the claims the plaintiff asserts, not on their prospects for success. We agree. A liability insurer's duty to defend applies to impose a duty to defend allegations potentially within the policy's liability coverage, regardless of predictions about prospects for success. The duty to defend applies even to hopeless suits—whether they are unfounded, false, or fraudulent. E.g., General Agents Ins. Co. v. Midwest Sporting Goods Co. , 215 Ill. 2d 146, 155, 293 Ill.Dec. 594, 828 N.E.2d 1092, 1098 (Ill. 2005) ; Pekin Insurance Co. v. Centex Homes , 411 Ill.Dec. 143, 72 N.E.3d 831, 839 (Ill. App. 2017). By that logic, the duty to defend extends even to allegations seeking to impose liability that would require a dramatic change in the law.

In this case, the plaintiff's allegations in the underlying complaint were broad enough to include claims against the additional insured that potentially fall within the scope of coverage for vicarious liability. Regardless of their potential merits, they sought to hold the additional insured liable, at least in part, for the actions or omissions of the named insured. The Illinois Appellate Court found a duty to defend on nearly identical facts in Pekin Insurance Co. v. Centex Homes and Pekin Insurance Co. v. Lexington Station, LLC , 416 Ill.Dec. 572, 84 N.E.3d 554 (Ill. App. 2017). Both decisions are consistent with Illinois law more broadly, and we believe the Illinois Supreme Court would agree. We follow those opinions and agree with the district court's grant of summary judgment to the additional insured finding a duty to defend it in this case.

We also find, however, that the settlement of the underlying claims against the named insured had the effect of removing any possibility that the additional insured might be held vicariously liable for actions of the named insured. As a result, the duty to defend ended when that settlement was consummated. We therefore modify the district court's declaratory judgment to clarify that the duty to defend came to an end with that settlement, and as modified, we affirm the district court's judgment.

I. Undisputed Facts

The facts relevant to this insurance dispute are undisputed, so this case is suitable for summary judgment even if the facts of the underlying accident are disputed. We set out the facts in four steps: (a) the roofing project and the relationships among several businesses; (b) the relevant terms of the United Fire & Casualty insurance policy; (c) the fatal accident that killed Carlos Noe Perdomo Ayala; and (d) the lawsuit brought by Mr. Perdomo Ayala's estate against several defendants.

A. The Roofing Project

SparrowHawk, LLC owns two warehouses in Illinois. In 2016, SparrowHawk contracted with All Seasons Roofing, Inc., a Tennessee roofing company, to inspect the warehouse roofs. All Seasons discovered hail damage. Because All Seasons did not hold an Illinois roofing license to perform the repairs, it arranged for Prate Roofing & Installations, LLC, an Illinois-licensed roofing contractor, to serve as general contractor with All Seasons as subcontractor. The contract between All Seasons and Prate Roofing said that All Seasons would actually provide all materials and labor for the project, maintain safety, and supervise the project. As required under the agreement, All Seasons purchased a commercial general liability policy and general liability extension endorsement from United Fire & Casualty Company. The policy listed Prate Roofing as an "additional insured." This appeal is about whether United Fire owed Prate Roofing a defense in the litigation of the fatal accident.

Even though the arrangement between Prate Roofing and All Seasons was intended to allow All Seasons to take advantage of Prate Roofing's Illinois roofing license, and even though it was understood that All Seasons would in turn subcontract with another Illinois-licensed company to complete the job, All Seasons subcontracted with a North Carolina roofing company, 21st Century Roofing, LLC.

B. The United Fire & Casualty Insurance Policy

For the SparrowHawk roofing repair project, All Seasons bought a liability insurance policy from plaintiff-appellant United Fire & Casualty Company. In return for the premium, United Fire promised to provide All Seasons and "additional insureds" with general liability coverage for negligence in its operations. United Fire also promised to defend All Seasons and additional insureds against covered claims.

The United Fire policy listed Prate Roofing as an "additional insured," but it imposed an important limit on that coverage. The policy did not cover Prate Roofing for its own negligence or other wrongdoing. The key language in the policy was in a "vicarious liability endorsement." As an additional insured under the policy, Prate Roofing was promised liability coverage and a duty to defend, but only "with respect to [its] liability for ‘bodily injury’ ... which may be imputed to that person or organization directly arising out of: 1. Your [i.e., All Seasons’] acts or omissions; or 2. The acts or omissions of those acting on your [All Seasons’] behalf; in the performance of your [All Seasons’] ongoing operations for the additional insured."

C. The Fatal Accident

On November 12, 2016, Carlos Noe Perdomo Ayala was working to repair a roof on one of the SparrowHawk warehouses. He was an employee of 21st Century Roofing, not of All Seasons or Prate Roofing. He fell backwards through an unprotected skylight and was killed by the fall.¹

D. The Lawsuit by Mr. Perdomo Ayala's Estate

The Illinois workers’ compensation system provided limited death benefits for the estate of Mr. Perdomo Ayala, to the exclusion of tort remedies against his direct employer, 21st Century Roofing. See 820 Ill. Comp. Stat. § 305/5(a). The workers’ compensation system does not bar claims against tortfeasors who were not his direct employer, so his estate brought a wrongful death suit in the Northern District of Illinois against several defendants: Prate Roofing, All Seasons, SparrowHawk, and Jones Lang LaSalle, the company responsible for managing the SparrowHawk warehouses. Complaint, Devon Bank v. Prate Roofing & Installations, LLC et al. , No. 17-cv-03940 (N.D. Ill. May 24, 2017), ECF No. 1.

Six counts in the Perdomo Ayala estate's complaint were directed at Prate Roofing, alleging construction negligence, premises liability, and general negligence. The complaint alleged that "Prate ... by and through its agents, servants and employees, was then and there guilty of one or more of the following careless and negligent acts and/or omissions...." Second Amended Complaint at 4–5, Devon Bank , No. 17-cv-03940 (N.D. Ill. Aug. 22, 2017), ECF No. 82.

Prate Roofing tendered the defense of the case to United Fire, which declined to defend and filed this action for a declaratory judgment. In the meantime, Prate Roofing has been defended in the estate's wrongful death case by its own liability insurer, Nationwide Insurance. One way to understand this lawsuit is as a dispute between United Fire and Nationwide about who should bear how much of the costs of that defense.

All Seasons and United Fire reached a settlement with the Perdomo Ayala estate, paying one million dollars, the policy limits of the United Fire policy. The terms of the settlement released All Seasons from liability in the case. The settlement did not release Prate Roofing, an additional insured under the same United Fire policy. On May 8, 2018, the court in the Perdomo Ayala estate case granted the estate's motion to dismiss its claims against All Seasons pursuant to the settlement. The case remains pending against Prate Roofing.

II. Procedural History of this Case

In the midst of the Perdomo Ayala estate's wrongful death case, and in response to Prate Roofing's tender of the defense, United Fire filed this separate action against Prate Roofing, All Seasons, and Devon Bank (administrator of the Perdomo Ayala estate) seeking a declaratory judgment that United Fire had no duty to defend Prate Roofing in the Perdomo litigation. The district court granted Prate Roofing's motion for summary judgment, reasoning that United Fire's arguments were premised on "what it can perceive as the expected outcome when the case finally concludes" regarding Prate's relationship with All Seasons, but concluding that the duty to defend is not so narrow. The court found that the allegations in the underlying complaint may result in vicarious liability for Prate Roofing as additional insured, so that United Fire had a duty to defend Prate Roofing. United Fire & Casualty Co. v. Prate Roofing & Installations, LLC , 2019 WL 3410218, at *4 (N.D. Ill. ...