Lenny Szarek, Inc. v. Maryland Cas. Co.

• Decision Date: 16 May 2005
• Docket Number: No. 1-03-3703.,1-03-3703.
• Citation: 829 N.E.2d 871
• Parties: LENNY SZAREK, INC., Plaintiff-Appellant, v. MARYLAND CASUALTY COMPANY, Defendant-Appellee.
• Court: Illinois Supreme Court

829 N.E.2d 871

LENNY SZAREK, INC., Plaintiff-Appellant, v. MARYLAND CASUALTY COMPANY, Defendant-Appellee.

No. 1-03-3703.

Appellate Court of Illinois, First District, First Division.

May 16, 2005.

Justice GORDON delivered the opinion of the court:

Plaintiff, Lenny Szarek, Inc. (Szarek) appeals the grant of summary judgment to defendant Maryland Casualty Company (Maryland) on its counterclaim for declaratory judgment. Szarek contends the circuit court erred in concluding that the territoriality provisions of Maryland's insurance policy precluded coverage for a worker's compensation claim filed in Illinois and that the lack of coverage was clear to the point that Maryland was not even required to provide a defense against such a claim. We agree with Szarek and reverse.

FACTUAL BACKGROUND

Szarek's and Maryland's pleadings reveal the following undisputed facts.

Szarek is a carpentry contractor and an Illinois corporation, headquartered in McHenry County. We take notice that McHenry is one of Illinois' northernmost counties, sharing a border with the State of Wisconsin. Szarek does business in both Illinois and Wisconsin.

On June 23, 1994, Maryland issued a policy of worker's compensation insurance to Szarek, with coverage retroactive to May 23, 1994, and continuing through June 23, 1995. Maryland's policy provided: "We will pay promptly when due the benefits required of you by the workers compensation law." The policy defined "workers compensation law" as follows "Workers Compensation Law means the workers or workmen's compensation law and occupational disease law of each state or territory named in item 3.A. of the Information Page." Only one state was listed in item 3.A. of the information page: Wisconsin.

Szarek also entered into a separate employer's liability pooling agreement, a form of self-insurance, covering the same period of time as the Maryland policy. The agreement also provided that workers' compensation benefits would be paid "when due the benefits required of you by the workers' compensation law." However, the agreement defined "the workers' compensation law" as "the workers' or workmen's compensation law and occupational disease law of Illinois." The agreement appointed Management Services, Inc. (also known as Risk Management Association, and hereinafter referred to as RMA) as its administrator.

On November 7, 1994, Thomas Cholewinski, a Szarek employee, was hurt while working in Kenosha, Wisconsin. Cholewinski was an Illinois resident and filed his worker's compensation claim in Illinois. Szarek tendered this claim to RMA. RMA, unaware of the existence of the Maryland policy at the time, began to pay benefits and incur expenses on the claim in the amount of $33,412.80.

When RMA became aware of the Maryland policy, it tendered the claim to Maryland on January 19, 1996, for ongoing administration, and sought compensation for the benefits it had paid and the costs of administration it had incurred. Maryland, however, denied any liability for Cholewinski's claim on March 8, 1996, explaining it would "not be able to provide benefits on * * * [the] claim under * * * [its] workers' compensation policy issued for the State of Wisconsin." Cholewinski subsequently filed for an adjustment of his claim before the Illinois Industrial Commission, naming Szarek and Maryland as defendants. Maryland did not participate in the proceeding, however, and the final settlement of $22,980.75, reached on April 15, 1997, was paid out of the self-insurance pool. All told, Szarek, through its contributions to the self-insurance pool, paid $69,316.01 for benefits to Cholewinski and for defense against his claim.

Litigation over Maryland's denial of coverage commenced in the law division of the circuit court of Cook County sometime in 1999,¹ originally between RMA and Maryland, but later between Szarek and Maryland in the chancery division.² Szarek's complaint alleged that Cholewinski's claim was covered under the Maryland policy, that Maryland had wrongfully failed to defend and indemnify Szarek for the claim, and that, as a result, Szarek paid for the costs of defense and workers' compensation benefits itself. In its answer to the complaint, Maryland denied that Cholewinski's claim fell within the terms of the policy and therefore denied that it owed a defense and indemnification of his claim. Maryland also filed a counterclaim the same day it filed its answer, seeking a declaration from the circuit court that it had no duty to defend or indemnify Szarek against Cholewinski's claim. Maryland conceded that Cholewinski had a valid claim under either Wisconsin or Illinois law, but nevertheless contended that its policy only covered claims brought in Wisconsin.

On June 30, 2003, Szarek moved the chancery court for summary judgment on its complaint. In response, Maryland cross-motioned for summary judgment on its counterclaim. In its motion, Szarek contended that benefits were due under Wisconsin worker's compensation law once Cholewinski was injured in Wisconsin, and therefore Maryland owed coverage. Maryland, on the other hand, argued that the plain language of its policy limited coverage to claims filed in Wisconsin. The chancery court denied Szarek's motion and granted Maryland's motion, stating "the Maryland worker's compensation coverage * * * [does] not apply to the Illinois worker's compensation claim * * * As a result, Maryland had no obligation to defend Szarek; no obligation to indemnify Szarek and no obligation to make payments to Szarek * * *." Szarek appeals.

II. ANALYSIS

The law is clear that summary judgment should be granted when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact" and the moving "party is entitled to judgment as a matter of law." 735 ILCS 5/2-1005(c) (West 2002). In this case, the parties present no factual disputes and instead argue over the legal question of the construction of an insurance policy. We review de novo both the construction of insurance contracts (State Farm Mutual Automobile Insurance Co. v. Villicana, 181 Ill.2d 436, 441, 230 Ill.Dec. 30, 692 N.E.2d 1196, 1199 (1998)), as well as grants of summary judgment (Espinoza v. Elgin, Joliet & Eastern Ry. Co., 165 Ill.2d 107, 113, 208 Ill.Dec. 662, 649 N.E.2d 1323, 1326 (1995)).

"To ascertain the meaning of * * * [an insurance] policy's words * * * [a] court must construe the policy as a whole * * *." Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 108, 180 Ill.Dec. 691, 607 N.E.2d 1204, 1212 (1992). Unambiguous terms of a policy will be applied as written, unless those terms violate public policy. Villicana, 181 Ill.2d at 442, 230 Ill.Dec. 30, 692 N.E.2d at 1199. Ambiguities in terms limiting or excluding coverage, however, will be construed against the insurer and in favor of the insured. Progressive Universal Insurance Co. of Illinois v. Liberty Mutual Fire Insurance Co., 347 Ill.App.3d 411, 414, 282 Ill.Dec. 636, 806 N.E.2d 1224, 1227 (2004). A term is ambiguous when it is subject to more than one reasonable interpretation. Outboard Marine Corp., 154 Ill.2d at 108, 180 Ill.Dec. 691, 607 N.E.2d at 1212.

On appeal, Maryland contends that under the language of the policy it is only liable for defense and indemnification of worker's compensation claims as "required" by Wisconsin's worker's compensation act, which it contends means that the claim must be filed in Wisconsin. Szarek, on the other hand, argues that "as required" under Wisconsin's worker's compensation law means that a claim should be evaluated and paid under Wisconsin law regardless of where the claim is filed. Szarek therefore sees the provision not as limiting coverage to claims brought in a particular forum, but rather as a choice of law provision limiting benefits to what would have been granted under the state law specified in the policy. Szarek further contends that the law required Maryland to include an express exclusion in the policy for claims filed outside of Wisconsin, if that was Maryland's desired limitation of coverage, and that public policy demands the negation of provisions limiting the territorial reach of worker's compensation coverage.³

These issues, considered under virtually identical policy provisions as that at issue in this case, have produced two divergent lines of decisions. One line of cases agrees with Szarek that alleged territorial limitation provisions are in fact choice of law provisions, not limiting coverage based on where the employee chooses to file his claim, but only to restrict benefit eligibility and to set indemnification limits based on the state law specified in the policy. This line of cases includes Smith & Chambers Salvage v. Insurance Management Corp., 808 F.Supp. 1492 (E.D.Wash.1992); Sieman v. Postorino Sandblasting & Painting Co., 111 Mich.App. 710, 314 N.W.2d 736 (1981); American Mutual Insurance Co. v. Duvall, 117 N.H. 221, 372 A.2d 263 (1977); Toebe v. Employers Mutual of Wausau, 114 N.J.Super. 39, 274 A.2d 820 (App.Div.1971); Kacur v. Employers Mutual Casualty Co., 253 Md. 500, 254 A.2d 156 (1969); and Weinberg v. State Workmen's Insurance Fund, 368 Pa. 76, 81 A.2d 906 (1951). The other line of cases agrees with Maryland that, for there to be coverage, the claim must actually be filed in the state whose law is made to apply in defining the term "worker's compensation law." This line of cases includes Travelers Insurance Co. v. Industrial Accident Comm'n, 240 Cal.App.2d 804, 809-10, 50 Cal.Rptr. 114, 118-19 (1966); Lumber Transport, Inc. v. International Indemnity Co., 203 Ga.App. 588, 590, 417 S.E.2d 365, 366-67 (1992); Foster Wheeler Corp. v. Bennett, 354 P.2d 764, 768 (Okla.1960); Consolidated Underwriters v. King, 160 Tex. 18, 20, 325 S.W.2d 127, 129 (1959); Rood v. Nelson, 14 Misc.2d 859, 860-61, 178 N.Y.S.2d 969, 971 (1958); Jones v. Hennessy, 232 La. 786, 793, 95 So.2d...