Ill. Emcasco Ins. Co. v. Waukegan Steel Sales Inc.

• Decision Date: 13 September 2013
• Docket Number: No. 1–12–0735.,1–12–0735.
• Parties: ILLINOIS EMCASCO INSURANCE COMPANY, Plaintiff–Appellant, v. WAUKEGAN STEEL SALES INC., a Corporation, and John Walls, Defendants–Appellees.
• Court: United States Appellate Court of Illinois

2013 IL App (1st) 120735

996 N.E.2d 247

374 Ill.Dec. 800

ILLINOIS EMCASCO INSURANCE COMPANY, Plaintiff–Appellant,

v.WAUKEGAN STEEL SALES INC., a Corporation, and John Walls, Defendants–Appellees.

No. 1–12–0735.

Appellate Court of Illinois, First District, Fifth Division.

Sept. 13, 2013.

Keith Carlson, Carlson Law Offices, Chicago, for appellant.

William Busse, Jr., Jason E. DeVore, Busse, Busse & Grasse, P.C., Chicago, for appellees.

OPINION

Justice TAYLOR delivered the judgment of the court, with opinion.

[374 Ill.Dec. 802]¶ 1 Plaintiff Illinois Emcasco Insurance Company (Emcasco) filed a declaratory judgment action in November 2009 asking the trial court to declare that it had no duty to defend defendant Waukegan Steel Sales, Inc. (Waukegan), in the underlying personal injury suit filed by an employee of Waukegan's subcontractor. Emcasco argued that the complaint alleged only direct negligence on the part of Waukegan, which was outside the scope of Waukegan's coverage as an additional insured on its subcontractor's policy with Emcasco.

¶ 2 Waukegan filed a counterclaim seeking declaratory judgment that Emcasco had a duty to defend. The trial court granted summary judgment in October 2011 for Waukegan, finding that Emcasco had a duty to defend Waukegan in the underlying personal injury lawsuit. Emcasco subsequently filed this appeal challenging the trial court's finding. For the reasons that follow, we affirm the judgment of the trial court.

¶ 3 BACKGROUND

¶ 4 On June 15, 2009, Waukegan sent Emcasco a letter tendering the defense and indemnity in relation to the underlying lawsuit filed by John Walls (Walls) against Waukegan for injuries he sustained in October 2007 while working for I–MAXX Metalworks, Inc. (I–MAXX), on the Minooka High School construction site. Walls was injured when a stair stringer and/or perimeter cable protection failed, which caused him to fall while he was working in his capacity as an I–MAXX employee. In March 2009, Walls filed an amended complaint asserting one count against Waukegan alleging that he was injured due to Waukegan's negligence in failing to properly manage, operate, and maintain the premises, not performing reasonable inspections, failing to provide a safe workplace, and failing to have or maintain proper fall protection among others.

¶ 5 Waukegan's letter referenced the subcontract agreement that Waukegan and I–MAXX entered into May 2007. That subcontract agreement provides:

“I–MAXX is solely responsible for the means, methods and safety of its employees while on the jobsite. Waukegan assumes no liability for the supervision of erectors men and equipment. I–MAXX is to provide a competent supervisor while performing their work. This project will require multiple mobilizations.”

The contract also required I–MAXX to obtain and maintain insurance under which Waukegan would be a covered as an additional insured for bodily injury, property damage or personal and advertising injuries caused by I–MAXX's acts or omissions. Emcasco was the provider of the insurance obtained by I–MAXX. The policy provides coverage for an additional insured “with respect to operations performed under or incident to this contract.” The policy also included a blanket additionalinsured endorsement, which states, in relevant part:

“[Waukegan] is an additional insured only with respect to liability for ‘bodily injury,’ ‘property damage’ or ‘personal and advertising injury’ caused, in whole, by:

1. Your acts or omissions; or

2. The acts or omissions of those acting on your behalf; in performance of your ongoing operations for the additional insured.”

The endorsement further states:

“This insurance does not apply to:

1. Bodily injury, property damage or personal and advertising injury resulting from any act or omission by, or willful misconduct of the additional insured, whether the sole or a contribution cause of the loss. The coverage afforded to the additional insured is limited solely to the additional insured's vicarious liability that is a specific and direct result of your conduct.

Vicarious liability as used in this endorsement means liability that is imposed on the additional insured solely by virtue of its relationship with you, and not due to any act or omission of the additional insured.” (Emphases added.)

Under this provision, Waukegan argued in the tendered defense letter that Emcasco had a duty to defend and indemnify Waukegan on a primary, noncontributory basis in the Walls complaint.

¶ 6 On August 21, 2009, Emcasco sent a letter response denying Waukegan's request to tender defense. Emcasco stated that although Waukegan otherwise met the requirements to be covered by the additional insured provision, the facts of the situation, particularly the allegations of direct negligence on Waukegan's part, were excluded from coverage by the vicarious liability provision in the policy. Specifically, Emcasco indicated that the Walls complaint's allegations that Waukegan itself failed to make reasonable inspection of the premises, improperly managed, operated or maintained the premises, failed to provide a safe place within which to work, failed to provide proper support for stringer and allowed work to proceed without a safe, suitable and proper perimeter cable system for fall protection were not attributable to I–MAXX and were therefore outside the scope of the policy. On November 20, 2009, Emcasco then filed the instant action seeking a declaratory judgment that the policy did not provide coverage due to the exclusion contained in the additional insured clause.

¶ 7 The Walls complaint also contained one count, essentially identical to the count against Waukegan, against both Turner Construction Company (Turner) and Frontier Construction, Inc. (Frontier). Individually, Turner and Frontier filed third-party complaints against I–MAXX alleging that I–MAXX's acts or omissions were either the direct and proximate cause of or contributed to Walls' injuries. Both third-party complaints allege that I–MAXX failed to:

“make a reasonable inspection of the premises and the work being done, properly operate, manage, maintain and control the premises, provide a safe workplace, warn of dangerous conditions then existing, provide adequate safeguards to prevent injury, supervise the work being done, provide safe, suitable and proper perimeter cable system for fall protection, provide proper support for stringers, design and/or fabricate shelve lugs for the stair stringer and additional stairways, properly disallow and/or stop work with improper design and/or fabrication of shelve lugs, properly disallow and/or stop work without a safe, suitable and proper perimeter cablesystem for fall protection, and properly erect, disallow or stop work with an improper perimeter cable.”

Waukegan was not a party to these third-party complaints. In August 2010, Turner previously filed jointly with Waukegan in the initial motion for summary judgment on Emcasco's declaratory judgment action with their respective counterclaims of vicarious liability for the actions of I–MAXX and asserting Emcasco's duty to defend, but it withdrew from the declaratory judgment action shortly thereafter. The trial court reviewed the cross-motions for declaratory judgment.

¶ 8 On October 7, 2011, the trial court entered an order granting summary judgment for Waukegan, concluding that where there is a possibility that at least one allegation is potentially covered by an insurance policy, their insurer has a duty to defend the insured, and since the injury took place at the worksite of the named insured, I–MAXX, it found that it arose out of I–MAXX's operations. The trial court further determined that a duty to defend could be derived from the third-party complaints filed by Turner and Frontier, since they alleged direct negligence on the part of I–MAXX. The trial court granted declaratory judgment in favor of Waukegan; plaintiff Emcasco filed this timely appeal.

¶ 9 ANALYSIS

¶ 10 Plaintiff contends on appeal that the trial court erred in finding that it had a duty to defend Waukegan because the underlying complaint failed to allege facts of vicarious liability as required for the insurance policy to be activated, and the court should not have reviewed the third-party complaints to determine the applicability of the policy.

¶ 11 “The construction of an insurance policy and a determination of the rights and obligations thereunder are questions of law for the court [to decide and] are appropriate subjects for disposition by way of summary judgment.” Crum & Forster Managers Corp. v. Resolution Trust Corp., 156 Ill.2d 384, 391, 189 Ill.Dec. 756, 620 N.E.2d 1073 (1993). We review cases involving summary judgment de novo. Ragan v. Columbia Mutual Insurance Co., 183 Ill.2d 342, 349, 233 Ill.Dec. 643, 701 N.E.2d 493 (1998). Summary judgment is appropriate where the pleadings, depositions, and admissions on file, together with any affidavits and exhibits, when viewed in the light most favorable to the nonmoving party, indicate that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. 735 ILCS 5/2–1005(c) (West 2006). Where the parties file “ ‘cross-motions for summary judgment, they invite the court to decide the issues presented as a matter of law.’ ” Liberty Mutual Fire Insurance Co. v. St. Paul Fire & Marine Insurance Co., 363 Ill.App.3d 335, 339, 299 Ill.Dec. 431, 842 N.E.2d 170 (2005).

¶ 12 In determining an insurer's duty to defend its insured, a court must look to the allegations of the underlying complaint. “ ‘If the underlying complaints allege facts within or potentially within policy coverage, the insurer is obliged to defend its insured even if the allegations are groundless, false, or fraudulent.’ ” Pekin Insurance Co. v. Pulte Home Corp., 404 Ill.App.3d 336, 340, 343 Ill.Dec. 830, 935 N.E.2d 1058 (2010) (quoting United States Fidelity & Guaranty Co. v. Wilkin Insulation Co., ...