J. L. Simmons Co., Inc. v. Fidelity & Cas. Co.

• Decision Date: 25 February 1975
• Docket Number: 72--1164,Nos. 72--1163,s. 72--1163
• Citation: 511 F.2d 87
• Parties: J. L. SIMMONS CO., INC., Plaintiff-Appellee, Cross-Appellant, v. The FIDELITY AND CASUALTY CO., Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 87

511 F.2d 87

J. L. SIMMONS CO., INC., Plaintiff-Appellee, Cross-Appellant, v. The FIDELITY AND CASUALTY CO., Defendant-Appellant, Cross-Appellee.

Nos. 72--1163, 72--1164.

United States Court of Appeals Seventh Circuit.

Argued April 4, 1973.

Decided Jan. 3, 1975.

Rehearing Denied Feb. 25, 1975.

Walter W. Ross, Jr., Robert S. Milnikel, Chicago, Ill., for J. L. simmons.

James T. Ferrini, Chicago, Ill., for Fidelity and Casualty Co.

Before CLARK, Associate Justice ^*, FAIRCHILD, Chief Judge, and PELL, Circuit Judge.

FAIRCHILD, Chief Judge.

This is an appeal by the defendant, The Fidelity and Casualty Company of New York (Fidelity) from judgment in favor of the plaintiff, J. L. Simmons Company, Inc. (Simmons). Jurisdiction is founded on diversity of citizenship. The parties accept Illinois law as controlling substantive questions.

Simmons, a construction contractor, brought this action on a policy of insurance issued to it by Fidelity alleging that Fidelity's refusal to defend certain actions brought against Simmons was a breach of the policy and rendered Fidelity liable to Simmons for sums paid in settlement of those actions and for the costs of defense. The district court granted plaintiff Simmons' motion for summary judgment and, after further proceedings, awarded damages, but refused to include in the total any interest on the money Simmons had paid out from the date on which it was advanced, in April of 1969, to the date of judgment, in December of 1971. Fidelity appeals from the judgment in favor of Simmons, and Simmons cross-appeals from the denial of interest.

Fidelity issued a Comprehensive General Liability Policy to Simmons. While the policy was in force, Cossie Griffin, a bricklayer employed by Simmons, suffered fatal injuries while working on the construction of a hospital for An Association of Franciscan Sisters of the Sacred Heart (Owners). An action for damages was brought in state court by Griffin's heirs against the Owners and Architects predicated upon alleged violations of the Illinois Structural Work Act, Ill.Rev.Stats., Ch. 48, secs. 60--69.

As a result of the Griffin suit against the Owners and Architects, each in turn sued Simmons. The Architects filed a third-party action against Simmons seeking indemnity for all liability which the Architects might incur in the primary action. The complaint alleged that their liability, if any, to the plaintiffs would be a result of the active misconduct of Simmons in failing to carry out its contractual responsibilities and denied any active misconduct by the Architects. The Owners' counterclaim against Simmons set forth two counts. One count was similar to the complaint of the Architects. The other count set forth provisions of the construction contract in which Simmons promised to furnish barricades and scaffolding as required by the state code, to exercise precaution for the protection of persons and property, and to observe the safety provisions of applicable laws and codes. The count further alleged that Simmons had impliedly promised to perform the work in a good and workman-like manner; and alleged the Owners' liability in the Griffin action, if any, could only be the result of breach of one or more of the express or implied provisions of the construction contract.

Simmons tendered the defense of these actions to Fidelity, who refused to defend on the ground that the insurance policy did not cover these claims. The third-party actions were dismissed and the defense of the Owners and Architects was assumed by Simmons, due notice first having been given to Fidelity. During the trial of the Griffin action, a settlement of the claims was made, also after notice and a demand to pay the settlement, which Fidelity refused.

Count I of Simmons' complaint was predicated on the theory that the liability asserted by the Owners and Architects against Simmons was liability assumed under a written contract and therefore included under Coverage Y of an endorsement on the Fidelity policy.

The policy was entitled 'Comprehensive General Liability Policy.' Coverage A, providing insurance for liability because of bodily injuries and death, generally, was inapplicable to liability because of Griffin's injuries and death since he was injured in the course of his employment, and liability for such injury and death was excluded from Coverage A by Exclusion (g).

There had been added to the policy, however, a 'Contractual Liability Coverage Endorsement.' Coverage Y--'Contractual Bodily Injury Liability' was an agreement 'To pay on behalf of the insured all sums which the insured, by reason of the liability assumed by him under any written contract designated in the schedule below, shall become legally obligated to pay as damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person and caused by accident.'

There was no schedule designating a written contract. The requirement of such designation was obviated by a further agreement that the 'Contractual Liability Coverage Endorsement' shall apply to 'any other contract, other than those defined in the policy, whether or not said contract is described in the endorsement.' It was further agreed that, although not a condition precedent to coverage, 'The insured represents that it will notify the company of all written contracts which it may execute with any person--with full particulars thereof, and an exact transcript of each indemnity provision set forth therewith.' The phrasing we have italicized at least suggests that the assumption of liability to be covered was expected to be found in some portion of a written contract identifiable as an indemnity provision.

The parties agree that if the pleadings in an action against the insured disclose, potentially, a case within the coverage of the policy, the insurer must defend, and unjustified refusal renders the insurer liable for the amount of the settlement and expenses incurred in defense. See Sims v. Illinois National Casualty Co., 43 Ill.App.2d 184, 193 N.E.2d 123, 127 (1963). For present purposes, we must inquire whether the liability asserted in the counterclaim against Simmons could be said to be liability assumed by Simmons under a written contract.

The only written contract is the contract for construction of the hospital. It contained no provision whereby Simmons expressly assumed, or promised to pay, hold the Owners harmless from, or indemnify the Owners on account of any liability arising out of violation of the Structual Work Act. Hence, if the insurance policy contemplated only an express assumption of another's liability, or an express agreement to indemnify, neither is present. We do observe that it is at least a natural reading of the policy provision, if not the most natural reading, that an assumption of another's liability under a contract, in order to be covered, must be effected by some identifiable provision purporting to be an assumption of liability, or a promise to indemnify or hold harmless from liability. Nevertheless, the policy does not contain the word 'express' and insurance contracts are to be construed in favor of the insured.

Assuming, as we must in this case because of Fidelity's refusal to defend, that Griffin's injury and death resulted from a violation of the Structural Work Act for which the Owners and Architects were each liable, and for which Simmons would have been liable if the injury had occurred to someone other than a Simmons employee, and that, under applicable Illinois law, Simmons was liable to indemnify the Owners and Architects, did such liability constitute liability assumed by Simmons under the contract? ¹

The district court concluded that an implied assumption of liability was sufficient and that Simmons' obligation, by reason of its contract, to indemnify the Owners (if not the Architects) constituted such assumption of liability. The court reasoned, in part, 'that the Illinois courts do imply into contracts between a building contractor and a building owner an assumption of liability by the contractor that obligates him to indemnify the owner if the latter becomes liable to a third party because the former breached his duty to abide by the scaffolding act. We deem it immaterial that the Illinois courts may relieve the contractor of this contractual liability if the owners may have been actively involved with the contractor in the default.' In any event, the court thought that Simmons' express agreement to furnish barricades and scaffolding as required by the state code, and to observe the safety provisions of the laws implied an obligation to indemnify the Owners for liability arising from its failure to furnish such barricades and scaffolding.

As pointed out by the district court, most of the cases construing insurance policy language concerning liability assumed by the insured under a contract deal with an exclusion of such liability from what is often called general liability coverage rather than a description of contractual liability coverage, as is present here. They do appear to support several principles:

a. Where the Insured had a contract with Other Party to perform work, and, by reason of Insured's act or omission in the course of performing it, became liable for injury to the person or property of Injured Party, and the Insurance Policy covered liability imposed on the Insured by law, but excluded liability assumed by the Insured under contract, Insured's liability to Insured Party was not assumed by Insured under contract even though it arose out of an act or omission in the performance of or governed by a contract. Therefore such liability was not excluded and was covered. Larsen v. General Cas. of Wisconsin, 99 F.Supp. 300 (D.Minn.1951), aff'd General Cas. of Wisconsin v. Larson, 196 F.2d 170, 174 (8th Cir. 1952); American Casualty Company v. Timmons, 352 F.2d 563, 568 (6th Cir. 1965); Lumbermens Mutual Cas. Co....