Consolidated Rail Corp. v. Liberty Mut. Ins. Co.

• Decision Date: 03 February 1981
• Docket Number: No. 80-152,80-152
• Citation: 48 Ill.Dec. 485,416 N.E.2d 758,92 Ill.App.3d 1066
• Parties: , 48 Ill.Dec. 485 CONSOLIDATED RAIL CORPORATION, Plaintiff-Appellee, v. LIBERTY MUTUAL INSURANCE COMPANY et al, Defendant-Appellant.
• Court: United States Appellate Court of Illinois

Page 758

416 N.E.2d 758

92 Ill.App.3d 1066, 48 Ill.Dec. 485

CONSOLIDATED RAIL CORPORATION, Plaintiff-Appellee, v. LIBERTY MUTUAL INSURANCE COMPANY et al, Defendant-Appellant.

No. 80-152.

Appellate Court of Illinois, Fifth District.

Feb. 3, 1981.

Michael B. Constance, Edward J. Szewczyk, Belleville, for defendant-appellant.

Walker & Williams, P.C., Belleville, for plaintiff-appellee; David B. Stutsman, Gordon E. Maag, Belleville, of counsel.

HARRISON, Justice:

The defendant Liberty Mutual Insurance Company (Liberty) appeals from the order of the circuit court of St. Clair County declaring that plaintiff Consolidated Rail Corporation (Con Rail) was afforded coverage under a certain liability insurance policy issued by defendant. The declaratory judgment of March 7, 1980, ordered Liberty to assume the defense of Con Rail in certain personal injury suits pending against the railroad. It also ordered Liberty to satisfy any judgments against Con Rail within the policy limits. We affirm.

The issues presented on appeal are these: (1) Whether the trial court erred in ruling that Con Rail was an insured in each of the personal injury suits; (2) whether the trial court erred in ruling that Liberty had a duty to defend Con Rail; (3) whether Liberty was estopped from asserting noncoverage by virtue of its refusal to accept tender of defense of the suits; and (4) whether the trial court erred in ruling that Liberty had a duty to indemnify Con Rail.

The record discloses that Pennsylvania Truck Lines (PTL), a wholly owned subsidiary of Con Rail, provides various services to Con Rail in its piggyback operation at railroad yards located in Fairmont City, St. Clair County Illinois. Through a leasing agreement dated July 2, 1965, Con Rail leased to PTL a parcel of land covering approximately 8900 square feet situated within an area known as Roselake Yards at Fairmont City. According to the terms of the lease, PTL procured liability insurance from Liberty for personal injury and for property damage. Con Rail was named as an "additional insured" in appropriate provisions within the policy. The policy contains the usual clause obligating the insurer to defend its insured.

During the term of this policy, and while it was in full force and effect, eleven PTL employees filed personal injury suits against Con Rail alleging that they were injured while laboring at or in connection with the piggyback operation owned by Con Rail. As each suit was filed, Con Rail duly tendered its defense to Liberty Mutual. Liberty assumed the defense of the first two but thereafter refused the next four. Con Rail subsequently sued on July 12, 1979, seeking a declaration as to the coverage of those that Liberty had refused. While this action was pending, Liberty refused to defend an additional five claims. These five were then added by amendment to Con Rail's suit for declaratory judgment, bringing the total to nine.

At the March hearing, a representative for Liberty testified that Liberty did not immediately notify Con Rail of its intention to refuse tender of the suits. When Liberty did contact Con Rail, it gave no reason for its refusal. The Liberty spokesman admitted that he failed to respond to inquiries made by Con Rail's attorneys. He further stated that Liberty did not issue the customary reservation of rights, nor did it institute a declaratory judgment action of its own. These omissions led the trial court to conclude that Liberty had breached its duty under the policy, and it therefore rendered a judgment in favor of Con Rail.

On appeal, Liberty asserts first that Con Rail is not an insured in each of the personal injury lawsuits filed below. The determinative provisions of the policy are serial endorsement no. 4 and serial endorsement no. 9. Both designate Consolidated Rail Corporation as an additional insured. Serial endorsement no. 4 states:

"It is agreed that:

The 'Person Insured' provision is amended to include as an insured the person or organization designated below, but only with respect to his liability arising out of (a) his financial control of the named insured or (b) the premises owned, maintained or controlled by him while said premises are leased to or occupied by the named insured."

According to endorsement no. 4, Con Rail is an insured and entitled to coverage if its liability under the nine personal injury lawsuits arises out of (a) its financial control of PTL, or (b) the premises owned by Con Rail while those premises are leased to or occupied by PTL.

Appellant focuses on part (b) of endorsement no. 4, thoroughly examining the law surrounding the insurance term "occupied by" and the various derivatives therefrom. While accurate, this examination ignores the key phrase "arising out of". We believe that the decision whether Con Rail is an insured turns on the construction of that phrase.

The words "arising out of" have been construed frequently in workmen's compensation claims and in insurance litigation to mean that a mere causal connection suffices to bring facts within the ambit of an insurance clause which is prefaced with that phrase. The court held in Williams v. Country Mutual Ins. Co. (1st Dist. 1975), 28 Ill.App.3d 274, 277, 328 N.E.2d 117, that an injury can be said to arise out of one's employment if its origin is in some way connected with the employment so that there is a causal connection between the employment and the accidental injury. The Supreme Court agreed that this phrase contemplates only a causal connection between an injury and a defendant (Chmelik v. Vana (1964), 31 Ill.2d 272, 277, 201 N.E.2d 434). The court often employs such synonyms as "connected with" or "incidental to" when defining the phrase "arising out of". (Lynch Special Services v. The Industrial Commission (1979), 76 Ill.2d 81, 86, 27 Ill.Dec. 738, 389 N.E.2d 1146.) The third circuit construed the phrase in Aetna Casualty & Surety Co. v. Ocean Accident and Guaranty Corp. (3rd Cir. 1967) 386 F.2d 413, 414, 37 A.L.R.3d 1417:

"The policy language 'arising out of' is very broad and vague. It must, therefore be construed strictly against the insurer and liberally in favor of the insured. (Citation omitted.) Construed in this manner 'arising out of' means causally connected with, not proximately caused by. But for causation, i. e., a cause and result relationship, is enough to satisfy this provision of the policy."

With this definition in mind, we will compare the relevant policy provisions to the allegations of the complaints.

Each complaint alleges that the plaintiffs were employees of PTL and that, because PTL was controlled by Con Rail, the employees acted as subservants of Con Rail. The source of Con Rail's potential liability, therefore, "originates from" or is "incident to" its financial control over PTL. Con Rail is "connected with" PTL because of its financial control over its subsidiary. Since Con Rail's potential liability "arises out of" this financial control, we read serial endorsement no. 4(a) to include Con Rail as an insured under the policy.

Provision (b) of serial endorsement no. 4 also covers Con Rail with respect to the personal injury claims. Liberty argues that to trigger endorsement no. 4(b) the injury complained of must have occurred on the property leased by Con Rail to PTL. While this interpretation is compelling, it is much too narrow a construction to be afforded 4(b). As stated earlier, the endorsement covers any accident "arising out of" the property leased by Con Rail to PTL. All of the accidents occurred during the course of the piggyback operation, and the complaints so alleged. Each injury was "incident to" work related duties "connected with" the Roselake premises owned by Con Rail. The policy does not restrict coverage to incidents or accidents occurring on the leased premises, but to incidents or accidents arising out of the leased premises. We believe this causal connection alone is sufficient to invoke coverage under the policy in the instant case.

Appellants caution us not to interpret endorsement no. 4 in a factual vacuum, but to "ascertain the intent of the parties by looking to the language used, the situation of the parties and the purpose for which the policy was obtained. (Citation omitted.)" (Appellant's brief page 7.) It is true that insurance contracts are governed by the same legal principles as any other business contract. (Bituminous Casualty Corp. v. North River Insurance Co. (1st Dist. 1977), 46 Ill.App.3d 654, 656-57, 5 Ill.Dec. 60, 361 N.E.2d 60.) Still, the courts are bound by the following rule of construction:

"Where equivocal expression is included narrowing the range of liability, the language used will be liberally construed to effectuate indemnification." J.M. Corbett Co. v. Insurance Company of North America (1st Dist. 1976), 43 Ill.App.3d 624, 626-27, 2 Ill.Dec. 148, 357 N.E.2d 125.

Taking a liberal view of the policy language in serial endorsements no. 4(a) and no. 4(b) we conclude that Con Rail was an insured in each of the personal injury suits filed below. Having found that coverage existed under serial endorsement no. 4, we need not address the arguments raised by the parties relating to serial endorsement no. 9.

The second point the parties ask us to consider is whether the trial court erred in ruling that Liberty had a duty to defend Con Rail in the nine personal injury suits. At the hearing from which this appeal is taken, Con Rail argued that Liberty had a duty to assume the defense of each personal injury action as it was tendered if it appeared from the face of their complaints that the alleged facts brought the case potentially within the coverage of the policy. Liberty Mutual took the position that coverage existed only for injuries occurring on the leased premises. Believing that the location of some of the accidents might preclude coverage, and doubting the propriety of certain plaintiffs filing FELA and common law negligence...